6. RBC

Question 1

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Question 2

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Question 3

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Question 4

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Question 5

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Question 6

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Question 7

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Question 8

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Question 9

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Question 10

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Question 11

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Question 12

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Question 13

IRIS vs RBC

similar 1

difference 1

difference 2

Answer 13

similar- Both are quantitative, use financial statement data

different - RBC is min capital required, IRIS looks at rsv adequacy

different - RBC gives regulators authority to intervene, IRIS does not

Question 14

RBC adv

Answer 14

1. Formula based & easy to calculate from financial statements→hard to manipulate→ easy to compare across companies.

Question 15

RBC disadv (2)

Answer 15

Ignores cat risk, interest rate risk, operational risk

Isn’t customized to company via talking to management

Question 16

RBC risk categories (6)

Answer 16

R0:asset risk – affiliates(default risk for investment in affiliates/subsidiaries)

R1:asset risk – fixed income(default risk of bonds + risk of change in interest rates) - smallest

R2:asset risk – equity(change in market value of stocks, real estate) – 2^nd largest

R3:asset risk – credit(default risk of receivables & reinsurance recoverables)

R4:UW risk – reserves (risk of adverse development of rsvs)

R5:UW risk – NWP (risk that prem form future business won’t cover future losses)

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Question 19

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Question 21

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Question 22

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Question 23

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Question 24

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Question 25

_5 yr historical exhibit_ Why useful in RBC?

Answer 25

1. Has Total adjusted capital & ACL capital which can be used to calc RBC ratio

Question 26

R1 components (not in other R) [4]

Answer 26

Unaffiliated bonds Bond size adjustment factor Mortgage loans Misc assets (cash, cash equivalents, short term investments, non-admiited collateral loans)

Question 27

_R1 Bond size charge_ what bonds? reflects what?

Answer 27

*Class 2-6 unaffiliated bonds + non US govt class 1* _Reflects_ diversification of bond portfolio (larger portfolios has lower BSC)

Question 28

_R1 Bond Asset concentration charge_ consists of? doubles what?

Answer 28

*Class 2-5 unaffiliated bonds + collateral loans + mortgage loans* _Doubles_ risk charge for $ amts in top 10 issuers

Question 29

_R2 components (not in other R) (5)_

Answer 29

1. Unaffiliated stocks 2. Real estate 3. Schedule BA assets 4. Misc assets 5. Stock Asset concentration factor

Question 30

_R2 Stock Asset concentration charge_ consists of?

Answer 30

* Class 2-5 unaffiliated preferred stock +* * all unaffiliated common stock +* * real estate +* * derivatives +* * receivables for securities*

Question 31

_RSAT (replication/synthetic asset transaction)_ what is it? whcih RBC risk categories does it go to?

Answer 31

Derivative split ½ R1 & ½ R2

Question 32

_Reinsurance recoverable_ how is it split? what is it equal to?

Answer 32

Usually split ½ R3 & ½ R4 (split IF R4 for rsvs \> R3 non invested assets +1/2 R3 reinsurance recoverables) 10% of reinsurance recoverables in schedule F part 3

Question 33

_can be R1 or R2 components depending on if related to fixed income or equity_

Answer 33

1. Holding or parent company 2. Investment affiliate 3. Other non-insurance subsidiary 4. insurance subsidiaries NOT subject to RBC 5. OBC collateral & schedule DL Part 1 Assets

Question 34

_R0 components (7)_ _which are off balance sheet items (3)_

Answer 34

Non controlled asset (*off balance sheet item*) Contingent liab (*off balance sheet item*) Guarantee for benefits (*off balance sheet item*) Investments in alien insurance company affiliates Common Stock investment (in the subsidiary IF subject to RBC) Preferred Stock investment (in the subsidiary IF subject to RBC) Bond investment (in the subsidiary IF subject to RBC)

Question 35

_Non-invested assets_ – less liquid part of which risk category? list 9

Answer 35

Part of R3 1. Interest due and accrued 2. Fed income tax *recoverable* 3. Agg write for other than invested assets 4. Amt *receivable* for uninsured plan 5. Guaranty funds *receivable* or on deposit 6. Uncollected/deferred prem & agent balance 7. Amt recoverable from reinsurer 8. Net deferred tax asset 9. Receivables from parent, subsid, affiliate

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Question 50

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Question 51

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Question 53

_Describe average growth rate factor used if_ 1. just 1 year of growth experience 2. start up 3 no CWP in current year

Answer 53

1. J_ust 1 yr of growth experience_→ 1 yr growth - 0.10 2. _Start up_ → 0.40 - 0.10 3. _No GWP in current yr_→0.0

Question 54

R4 - what kind of premium is used to calculate the average growth rate factor used in the excessive prem growth charge for R4?

Answer 54

**GWP** = DWP + assumed prem from **non-affilates** **on a group basis**

Question 55

_Purpose of A (investment income adjustment) in R4 & R5 calculation_

Answer 55

1. Remove risk margin that exists b/c (rsvs recorded on undiscounted basis under SAP)

Question 56

_Purpose of company RBC % in R4 calculation_

Answer 56

Surplus cushion vs adverse development

Question 57

_R4 calculation –_ _describe L&LAE rsvs in terms of reinsurance & discounts_

Answer 57

1. *Gross of non-tabular discounts* 2. Net of tabular discounts 3. Net of reinsurance

Question 58

_Purpose of loss sensitive discount for R4 & R5 calculation_ (2)

Answer 58

Retrospective rated policies: Loss*↑* → Prem *↑*→ less surplus needed Lower discount for assumed b/c if Loss *↑*→ ceding commission down→ more surplus needed

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Question 77

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