Difference between revisions of "RBC for Holding Companies"
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| style='text-align: left;' | other assets || 50 || 10% | | style='text-align: left;' | other assets || 50 || 10% | ||
|- style='background-color: lightgrey; border-top: 2px solid;' | |- style='background-color: lightgrey; border-top: 2px solid;' | ||
| − | | style='text-align: left;' | TOTAL | + | | style='text-align: left;' | '''TOTAL''' || '''500''' || '''100%''' |
|} | |} | ||
| + | |||
| + | :: ''Note that the TOTAL book value of 500 '''doesn't''' have to equal the total market value of 600. | ||
'''Solution''': | '''Solution''': | ||
Revision as of 14:15, 8 September 2019
This is an example of how to calculate the R1 and R2 holding company 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% TOTAL 500 100%
- Note that the TOTAL book value of 500 doesn't have to equal the total market value of 600.
Solution:
We just need a couple of simple formulas. Let CV(subs) = carrying value of subsidiaries
R1 charge for holding company = 0.225 x [ market(HC) – CV(subs) ]
- where 0.225 is the RBC factor and
CV(subs) = Σi [ (market(HC) x (ownership %) x (distribution)i ]
First calculate CV(subs) by summing across the 2 given subsidiaries:
- CV(subs) = [ 600 x 80% x 20% ] + [ 600 x 80% x 60% ] = 384
Then the final answer is:
- R1 charge for holding company = 0.225 x [ 600 – 384 ] = 48.6
