RBC Operational Risk

For this sitting + future sittings, should we always assumed RBC is included whether or not it's explicitly mentioned in an exam problem?

Should we always just multiply our "final" RBC capital required by 1.03?

Comments

  • Yes, that should now always be included even if it isn't mentioned. Note that it might not always be 3% but if it's something else, you would be need to be given that information.

    Side note:

    • For the R0 risk charge, a subsidiary’s RBC charge specifically refers to its RBC after covariance but before operational** risk.

    In other words, the operational risk factor (3% by default) is only applied once at the end, not to every subsidiary considered for the R0.

  • Thanks Graham!

    Just to clarify, the formula given in the RBC section is:

    R0 + sqrt(R1^2 + R2^2 + R3^2 + R4^2 + R5^2 + Rcat^2) + (operational risk)

    If we're not given any specific information, we should assume the charge for operational risk is 3% and the formula now becomes:

    [R0 + sqrt(R1^2 + R2^2 + R3^2 + R4^2 + R5^2 + Rcat^2)] * 1.03

    Is that correct?

  • Yup, correct!

  • Hello, thanks for posting this question! Just an FYI, in the original practice exam #15 calculates the RBC capital required without applying the operational risk factor.

  • Yes, that's correct. Thank you for letting me know. I've corrected it. I'm sending you a message. Click the envelope under your name in the top left of this screen.

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