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Background: NAIC RBC Framework
The NAIC RBC framework requires every US insurer to hold capital commensurate with its risk profile. The RBC ratio = Total Adjusted Capital ÷ Authorized Control Level RBC. Four action levels trigger regulatory intervention:
- Company Action Level (CAL): RBC < 200%: insurer must file a remediation plan.
- Regulatory Action Level (RAL): RBC < 150%: regulator may examine and issue orders.
- Authorized Control Level (ACL): RBC < 100%: regulator may take control.
- Mandatory Control Level (MCL): RBC < 70%: regulator must take control.
A: Total Adjusted Capital
From statutory balance sheet
Surplus notes etc.
Permitted practices, AVR, IMR (may be negative)
B: RBC Charge Components (Simplified Formula)
Asset Risk
Asset risk: affiliates · 10% charge rate default
Asset risk: fixed income · weighted avg charge rate
Default 2.0%: set to your portfolio quality blend
Asset risk: equity · 15% charge rate default
Asset risk: credit · 5–10% charge rate
Default 7.5% (mid of 5–10% range)
Underwriting Risk: by Line
Composite: reserve 10.5% · premium 16.5%
Underwriting risk: reserves · by-line charge factor
Underwriting risk: premium · by-line charge factor
1: RBC Ratio
RBC Ratio (Total Adjusted Capital ÷ ACL RBC)
-
0%70%100%150%200%300%+
3: Action Level Status
2: Component Breakdown (R0–R5)
Key Capital Metrics
4: Capital Buffer to Target Ratios
5: Premium Sensitivity
Model the impact of a change in net written premium (R5) on the RBC ratio. R5 charge scales with premium; all other components held constant.
−30%
+30%
Premium change: 0% → RBC ratio: - · ACL RBC: -
6: Interpretation & Caveats