U.S NAIC RBC System

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)

Factors Contributing to the Breakthrough of Variable Annuity

1. Dipped-low-interest environment in 1970s subsequented by the strong growth in stock market in 1980s.
2. A variety of investment fund options at modest fund management charges.
3. A varierty of saving and income guarantees. This is especially precious during economic downturn. Besides, the population in US is entering into retirement age, they are actively looking for investment-cum-insurance products for their retirement.
4. Favorable tax changes towards variable annuity. Refer details at SEC.