RBC for Holding Companies
Jump to navigation
Jump to search
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%
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