RBC Charges (R4 - Reserve Risk)
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Calculate the R4 RBC charge for reserve risk for all lines.
| excessive growth charge |
| 163 |
| RBC for reinsurance recoverables * |
| 40 |
* Assume 50/50 split between R3 & R4.
| PREMIUM & LOSS INFORMATION |
LOB 1 |
LOB 2 |
LOB 3 |
| industry average L+LAE LDF (current/initial reserve, 9 prior AYs) |
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1.071 |
| company average L+LAE LDF (current/initial reserve, 9 prior AYs) |
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| industry L+LAE RBC% |
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| adjustment for investment income |
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| company L+LAE reserves (gross of non-tabular discount) |
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| ---- |
-- |
-- |
-- |
| portion of reserves on retro-rated plan: next 2 lines |
– |
– |
– |
| proportion that's direct loss-sensitive |
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| proportion that's assumed loss-sensitive |
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| R4 RBC charge after loss-sensitive discounts |
21.5 |
8.0 |
? |
Equation 1
R4 base RBC (LOB 3)
= (reserves) x [[ (C+1) x A] - 1 ]
A
= adjustment for investment expense
C is a 50/50 weighting between:
industry RBC% adjusted for company experience
industry RBC% adjusted for company experience
= industry RBC% x (company average LDF) / (industry average LDF)
Equation 2
R4 after discount (L3)
= R4 base RBC (LOB 3) – LSD
LSD
= R4 base RBC (LOB 3) x (D% + A%)
D%
= 30% x (proportion that's direct loss-sensitive)
A%
= 15% x (proportion that's assumed loss-sensitive)
Equation 3
Final RBC after applying LCF (all lines)
= (all lines RBC total before LCF) x LCF + (growth charge) + 1/2 x (reins. recov. RBC)
LCF
= 0.7 + 0.3 x (max reserve by line) / (total reserve)
Solution:
| R4 total RBC charge for all lines |
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| basic R4 charge (LOB 3) |
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| LSD (LOB 3) |
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| LCF (all lines) |
0 |
| C |
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| industry RBC% |
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| industry RBC% adjusted for company experience |
|
| A |
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