Objective: To define a minimun regulatory capital that reflects all the material risks facing an insurer.
RBC Ratio : TAC/ACL
TAC = Total Adjusted Capital
ACL = Authorized Control Level
TAC = Statutory Surplus + Asset Valuation Reserve + 0.5*Policy Dividend
ACL = C0 + C4a + (C1cs^2 + C2^2 + C4b^2 + (C1O + C3a)^2)^0.5
C0 = Asset Risk-Affliates
C1cs = Unaffliated common stock and affliated noninsurance common stock components
C1O = Asset Risk-Other
C2 = Insurance Risk
C3a = Interest Rate Risk and Market Risk
C4a = Business Risk
C4b = Business Risk (health administrative expense risk)
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