Calculating the RBC ratio (easy version)
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Calculate the RBC ratio and indicate the appropriate action/control level. (Don't enter as a decimal.)
C (or c): Company Action Level |
R (or r): Regulatory Action Level |
A (or a): Authorized Control Level |
M (or m): Mandatory Control Level |
Total Adjusted Capital (TAC) |
1000 |
R0 charge |
10 |
R1 charge |
100 |
R2 charge |
200 |
R3 charge |
300 |
R4 charge |
400 |
R5 charge |
500 |
Rcat charge |
999 |
company net loss & LAE ratio |
80% |
company expense ratio |
30% |
policyholder dividend ratio |
10% |
1
RBC ratio
= TAC / ACL (tackle this problem!)
2a
RBC Capital Required
= R0 + [ R12 + R22 + R32 + R42 + R52 + Rcat2 ](1/2) + (operational risk)
2b
operational risk
= 3% x ( R0 + [ R12 + R22 + R32 + R42 + R52 + Rcat2 ](1/2) )
3
ACL Capital
= 50% x (RBC Capital Required)
RBC Ratio (R) |
trend test |
COR |
action/control |
R > 300% |
not required |
not required |
no action |
200% ≤ R < 300% |
required |
COR ≤ 120% |
no action |
200% ≤ R < 300% |
required |
COR > 120% |
CAL |
150% ≤ R < 200% |
not required |
not required |
CAL |
100% ≤ R < 150% |
not required |
not required |
RAL |
70% ≤ R < 100% |
not required |
not required |
ACL |
R < 70% |
not required |
not required |
MCL |
Solution:
RBC Ratio |
559% |
COR |
- |
action/level |
C |
RBC Capital Required |
250,000 |
ACL Capital |
125,000 |