RBC

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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 charge	rapid premium growth: - impact on RBC
E (2017.Fall #17)	calculate: - RBC ratio	calculate: - RBC action level
E (2017.Fall #18)	financial health: - use of RBC ratios	R0 RBC charge: - difference vs R1,2,3,4,5	RBC vs IRIS: - similarity & difference
E (2017.Spring #19)	calculate: - total RBC	calculate: - RBC RAL1	RAL actions: - insurer & regulator
E (2016.Fall #16)	RBC risk categories: - identify 2	RBC purpose: - for regulator
E (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.

Trend Test: IF a company in the 200-300% range also has a COR > 120% THEN they are subject to the CAL action from the action table.

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BattleCodes

Memorize:

Conceptual:

Calculational: