Difference between revisions of "RBC for Holding Companies"
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:{| class='wikitable' | :{| class='wikitable' | ||
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| − | | '''CV(subs)''' = Σ<sub>i</sub> [ (market(HC | + | | '''CV(subs)''' = Σ<sub>i</sub> [ (market(HC) x (distribution)<sub>i</sub> ] |
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Revision as of 12:28, 14 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) = 750 (market value of holding company HC)
- ownership % = 80% (insurer has 80% ownership in the holding company)
- table showing the fixed income assets for the holding company HC:
type of asset book value of asset
(fixed income)distribution subsidiary 1 100 20% subsidiary 2 275 55% cash 75 15% 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 750.
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) ] x ( ownership % )
- where 0.225 is the RBC factor and
CV(subs) = Σi [ (market(HC) x (distribution)i ]
First calculate CV(subs) by summing across the 2 given subsidiaries:
- CV(subs) = [ 750 x 20% ] + [ 750 x 55% ] = 562.5
Then the final answer is:
- R1 charge for holding company = 0.225 x [ 750 – 562.5 ] x 80% = 33.75
(if the calculated value is negative then the RBC charge is 0)
