Materiality Standard (2016.Spring #24) - part (a)
How do we get the 3rd materiality standard and what does company action level mean ?
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How do we get the 3rd materiality standard and what does company action level mean ?
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Sorry it took me a few days to answer. For some reason, I didn't see your question.
Company Action Level is an RBC concept so if you're doing the readings in order, you may not have studied that material yet. The wiki reference to action levels is here:
In any case, here is a full answer to your question:
The 3rd materiality standard relates to the amount of deviation that would cause the Risk-Based Capital (RBC) to fall to the next action level. It is specifically calculated as follows:
The next level is determined by subtracting the Company Action Level from the Total Adjusted Capital, i.e., 250 - 100 = 150.
The term "Company Action Level" refers to a specific threshold in the context of Risk-Based Capital (RBC) requirements. When a company's RBC falls to this level, it triggers regulatory attention and requires the company to take certain actions. In this case, the action level is calculated as twice the Authorized Control Level (ACL), and if the company's Total Adjusted Capital gets close to this level, it indicates a need for the company to take action and possibly submit a plan to regulators.