Minimum Reserve RBC Charge
In the source, it very briefly mentions that there is a floor of a 5% charge after adjusting for investment income, but this isn't really elaborated on. I just want to confirm that this is the case. I feel like there could be a trick question thrown in there where an indication of less than 5% is produced but we're supposed to know to round up.
Comments
The section you referenced refers to how the NAIC comes up with the various inputs for the R4 calculation rather than the actual R4 calculation itself.
Specifically, the floor of 5% refers to the industry RBC%. That value is normally given to you in the problem. You then have to calculate the company RBC% but the 5% floor doesn't seem to apply to the company value. In other words, applying this floor isn't something you should have to do.
(They also talk about a maximum change in the industry RBC% when the factors are updated. They first mention a 35% cap but then it's changed to 15%, and then changed again to 5%. So that part means any changes to that factor are capped at 5% up or down. The text example applies a cap of 15% below what was then the current factor.)
Anyway, that section is something I did not discuss in the wiki because it seemed extremely unlikely come up on the exam. The R4 calculation is difficult enough. For them to then ask details about how the NAIC made changes to their factors something like 10 years ago seems well beyond what would be reasonable to ask. It's good however that you're reading the source text in detail for this topic since it's heavily tested. I wouldn't every say not to study this, but definitely learn the more likely topics first.
The full RBC calculation is already very long and complicated and if you can consistently solve the randomly generated practice templates for the RBC calcs, you will be very well prepared for any RBC calculation problems on the exam.
Thanks Graham, good to know. I'm pretty comfortable with the other stuff. Just don't want to see a potential 5-pointer come up & not be prepared for it.
It's true - they do come up weird-ass problems sometimes!