Ranking Question (based on RBC-R1, Mixed Text Examples)

In the mixed text example, I notice that two companies have $1 million of assets (ranks 2 & 3) and also two companies have $200,000 of assets (ranks 11 & 12).

If there is a tie for rank 10, then you may get different ACC charges depending on the company you use in that row (assuming their assets are not identically distributed). Is there a rule for this case, such as "include the company with the higher RBC charge", or can you select either company to be used?

Comments

  • I don't know the answer to that. I can poke around to see if I can find out and will post another comment if I come up with anything. I'm sure it's probably happened at some point even though it seems pretty unlikely to have an exact tie in a real-life situation.

    If I were creating a rule for this situation, I would say to do the calculation both ways and then use whichever one results in a higher RBC charge. That seems reasonable because regulation is supposed to err on the conservative side to prevent insolvencies and protect policyholders.

    Also, since this would only be an issue for the 10th ranked issuer(s), there probably wouldn't be a material difference most of the time.

    Hopefully this case won't come up on the exam.

  • Thanks, Graham!

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