Boundary values for RBC action level ranges

[GiCAS]

To which range these values belong? For example, if the RBC ratio is 150%, does it indicate company action level or regulatory action level? The only boundary condition clearly stated in the paper seems to be "< 70% implies mandatory action level". Thanks.

[Cards Fan]

To which range these values belong? For example, if the RBC ratio is 150%, does it indicate company action level or regulatory action level? The only boundary condition clearly stated in the paper seems to be "< 70% implies mandatory action level". Thanks.

If you look on pages 383 to 384, Feldblum goes through the different action ranges used. Be aware that there can be two ranges for each action level. There can be a range using the risk based capital standard and the Authorized Control Level (ACL). The ACL is just the risk-based capital standard times 200%. So, using either range is fine. 383 and 384 explain this all pretty well. Hope this helps.

[Tim_Boles]

If you look on pages 383 to 384, Feldblum goes through the different action ranges used. Be aware that there can be two ranges for each action level. There can be a range using the risk based capital standard and the Authorized Control Level (ACL). The ACL is just the risk-based capital standard times 200%. So, using either range is fine. 383 and 384 explain this all pretty well. Hope this helps.

Be careful. The statement that I bolded above assumes an ACL benchmark of 50%. I think there have been problems in the past where they've asked candidates to work a problem assuming something other than a 50% ACL benchmark.

Edit: Oops. Upon further thought, the bolded statement is correct because it is not assuming a specific benchmark. Sorry about that.

Tim

[GiCAS]

Thanks, Cards Fan & Tim. I again looked at the pages you mentioned. I do not see any example where the RBC ratio is equal to a boundary value. My question is what happens if the ratio is exactly equal to a boundary value rather than properly contained in a range. I am asking this because there was a past exam question on slow paying authorized reinsurer where the test ratio was exactly equal to a boundary value.

[thetruthabout]

I'm not sure which question you're referring to, but the slow-paying reinsurer bit could be a red herring on that question, since it's not relevant to the reporting insurer's RBC level. (I guess you could be figuring out the Schedule F penalty which would be removed prior to application of the 10% charge on receivables in R3, but that would be a pretty convoluted question.)

The way I interpret the ranges in Feldblum's example (which isn't on the syllabus) is that they are "less than or equal to." So assuming an ACL level of 50% and a Total RBC of $1,000;

If:


Adjusted Surplus is $1,000.01 or greater => No Action
Adjusted Surplus is $750.01 to $1,000.00 => CAL
Adjusted Surplus is $500.01 to $750.00 => RAL
Adjusted Surplus is $350.01 to $500.00 => ACL
Adjusted Surplus is $350.00 or less => MCL


As Tim mentioned, the ACL level could be different but the relationship between levels (200%, 150%, 100%, 70%) remains the same. (In his example Feldblum uses 45% for some reason.)

I hope that helps.