Difference between revisions of "RBC for Holding Companies"
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'''Solution''': | '''Solution''': | ||
| + | |||
| + | We just need a couple of simple formulas. Let CV(subs) = carrying value of subsidiaries | ||
| + | |||
| + | :{| class='wikitable' | ||
| + | |- | ||
| + | | R<sub>1</sub> charge for holding company = market(HC) – CV(subs) | ||
| + | |} | ||
| + | |||
| + | where | ||
| + | |||
| + | :{| class='wikitable' | ||
| + | |- | ||
| + | | CV(subs) = &Sigma<sub>i</sub> [ (market(HC) x (ownership %) x (distribution)<sub>i</sub> ] | ||
| + | |} | ||
| + | |} | ||
Revision as of 13:56, 8 September 2019
This is an example of how to calculate the R1 and R2 charges when the insurer owns shares in a holding company. Note: The calculation is essentially the same for R1 and R2. The only difference is that you use only fixed income assets for R1 and only equity assets for R2.
Given:
Here we calculate the R1 charge for holding companies because the table below only provides information about fixed income assets.
- market(HC) = 600 (market value of holding company HC)
- ownership % = 80% (insurer has 80% ownership in the holding company)
type of asset book value of asset
(fixed income)distribution subsidiary 1 100 20% subsidiary 2 300 60% cash 50 10% other assets 50 10%
Solution:
We just need a couple of simple formulas. Let CV(subs) = carrying value of subsidiaries
R1 charge for holding company = market(HC) – CV(subs)
where
CV(subs) = &Sigmai [ (market(HC) x (ownership %) x (distribution)i ]
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