Difference between revisions of "RBC"
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Anyway, Alice's new company is well above the 300% threshold so she was ready to report back to her boss that the company is in great shape, but Lakshmi stopped her. | Anyway, Alice's new company is well above the 300% threshold so she was ready to report back to her boss that the company is in great shape, but Lakshmi stopped her. | ||
| − | : "Not so fast," Lakshmi said. "The RBC ratio is only 1 metric. For example, what about the IRIS ratios? It's like if you had 98% in calculus on your report card but were failing physics, English, and history? It isn't ''likely'', but when you report back to the boss, you should qualify your conclusion." | + | : "Not so fast," Lakshmi said. "The RBC ratio is only 1 metric. For example, what about the IRIS ratios? It's like if you had 98% in calculus on your report card but were failing physics, English, and history? It isn't ''likely'', but when you report back to the boss, you should qualify your conclusion on the health of the company based only on the RBC ratio." |
Revision as of 21:10, 21 November 2018
Contents
Pop Quiz
BattleTable
Based on past exams, the main things you need to know (in rough order of importance) are:
reference part (a) part (b) part (c) part (d) E (2018.Spring #18) calculate:
- change in RBC chargerapid premium growth:
- impact on RBCE (2017.Fall #17) calculate:
- RBC ratiocalculate:
- RBC action levelE (2017.Fall #18) financial health:
- use of RBC ratiosR0 RBC charge:
- difference vs R1,2,3,4,5RBC vs IRIS:
- similarity & differenceE (2017.Spring #19) calculate:
- total RBCcalculate:
- RBC RAL1RAL actions:
- insurer & regulatorE (2016.Fall #16) RBC risk categories:
- identify 2RBC purpose:
- for regulatorE (2016.Fall #17) rbc require E (2015.Fall #17) r1r2 E (2015.Spring #19) written E (2015.Spring #25) multiple areas E (2014.Fall #18) multiple areas error in exam question see pg 607 in pdf E (2014.Spring #20) multiple areas E (2013.Fall #21) rbc require E (2012.Fall #14) see Odo 8-9 asset risk of RBC E (2012.Fall #20) calc RBC see IRIS RBC vs IRIS growth charge E (2012.Fall #24) multiple papers (Bloom's Taxonomy)
- 1 RAL stands for Regulatory Action Level
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In Plain English!
Alice's 1st Day
On Alice's first day of work as an actuarial intern, her mean boss dumped a stack of financial statements on her desk and told her to find out whether the company was healthy. But before she could ask him anything, he was already down the hall issuing orders to someone else. "Jackass," she thought. Poor Alice had no idea what to do. Fortunately the intern in the next cubicle overheard and peeked over the cubicle wall.
- "Just calculate the RBC ratio," her new friend said. "It's all in Odomirok. The boss likes to haze the newbies on their first day, but I can help you. We'll tackle it together."
So Alice and Lakshmi spent an hour pulling the relevant information from the financial statements and here is what Alice learned:
Formula: RBC ratio = TAC / ACL (sounds like tackle)
- TAC = Total Adjusted Capital = 31,024,000
- ACL = Authorized Control Level = 5,552,182
- ==> RBC ratio = 31,024,000 / 5,552,182 = 559%
Ok, so far, so good, but WTF does 559% mean? Is that good or bad? (The following table appears near the end of chapter 19 of Odomirok)
action level threshold insurance dept action company action CAL (Company Action Level) 200% none (initially) must submit action plan to meet RBC standards RAL (Regulatory Action Level) 150% commissioner may take corrective action must submit action plan to meet RBC standards ACL (Authorized Control Level) 100% commissioner may take control of company none (initially) MCL (Mandatory Control Level) 70% commissioner must take control of company none (initially)
The RBC ratio of 559% for Alice's company is way above the CAL threshold, so it looks like the company is doing really well. What a great first day of work for Alice! Go home and relax!
Alice's 2nd Day
Over morning coffee, Lakshmi pointed out an ommission from the above "action table" that Alice learned about yesterday. If the RBC ratio is above 200% but below 300%, the company is still not in the clear. They would still have to perform the trend test. Let COR denote Combined Operating Ratio:
Trend Test: If a company's RBC ratio is in the 200-300% range and also has a COR > 120% THEN they are subject to the CAL action from the action table.
- Reminder: The COR (Combined Operating Ratio) is the sum of:
- loss & LAE ratio (CY net incurred loss & LAE divided by NEP)
- dividend ratio (policyholder dividends divided by NEP)
- expense ratio (other U/W expenses + small miscellaneous items divided by NWP)
- Recall that COR does not include investment income.
Anyway, Alice's new company is well above the 300% threshold so she was ready to report back to her boss that the company is in great shape, but Lakshmi stopped her.
- "Not so fast," Lakshmi said. "The RBC ratio is only 1 metric. For example, what about the IRIS ratios? It's like if you had 98% in calculus on your report card but were failing physics, English, and history? It isn't likely, but when you report back to the boss, you should qualify your conclusion on the health of the company based only on the RBC ratio."
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BattleCodes
Memorize:
Conceptual:
Calculational:
