Difference between revisions of "RBC for Holding Companies"
Jump to navigation
Jump to search
| Line 5: | Line 5: | ||
Here we calculate the R<sub>1</sub> charge for holding companies because the table below only provides information about fixed income assets. | Here we calculate the R<sub>1</sub> charge for holding companies because the table below only provides information about fixed income assets. | ||
| − | * market(HC) = | + | * market(HC) = 750 ''(market value of holding company HC)'' |
* ownership % = 80% ''(insurer has 80% ownership in the holding company) | * ownership % = 80% ''(insurer has 80% ownership in the holding company) | ||
| Line 17: | Line 17: | ||
| style='text-align: left;' | subsidiary 1 || 100 || 20% | | style='text-align: left;' | subsidiary 1 || 100 || 20% | ||
|- | |- | ||
| − | | style='text-align: left;' | subsidiary 2 || | + | | style='text-align: left;' | subsidiary 2 || 275 || 55% |
|- | |- | ||
| − | | style='text-align: left;' | cash || | + | | style='text-align: left;' | cash || 75 || 15% |
|- | |- | ||
| style='text-align: left;' | other assets || 50 || 10% | | style='text-align: left;' | other assets || 50 || 10% | ||
| Line 34: | Line 34: | ||
:{| class='wikitable' | :{| class='wikitable' | ||
|- | |- | ||
| − | | '''R<sub>1</sub> charge for holding company''' = 0.225 x [ market(HC) – CV(subs) ] | + | | '''R<sub>1</sub> charge for holding company''' = 0.225 x [ market(HC) – CV(subs) ] x ( ownership % ) |
|} | |} | ||
| Line 46: | Line 46: | ||
First calculate CV(subs) by summing across the 2 given subsidiaries: | First calculate CV(subs) by summing across the 2 given subsidiaries: | ||
| − | : '''CV(subs)''' = [ | + | : '''CV(subs)''' = [ 750 x 20% ] + [ 750 x 55% ] = <u>562.5</u> |
Then the final answer is: | Then the final answer is: | ||
| − | : '''R<sub>1</sub> charge for holding company''' = 0.225 x [ | + | : '''R<sub>1</sub> charge for holding company''' = 0.225 x [ 750 – 562.5 ] x 80% = <u>33.75</u> |
''(if the calculated value is negative then the RBC charge is 0) | ''(if the calculated value is negative then the RBC charge is 0) | ||
Revision as of 12:27, 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 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) ] x ( ownership % )
- 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) = [ 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)
