Discussion thread for Exam 2005: Question 12

[Avi]

Anyone have any idea where in the RBC tome to find the answers to parts (a) and (b)?

[Loki]

I don't think these are specifically mentioned in any readings. I believe they are just asking you to compare based on your understanding of all of the readings in general and draw your own conclusions.

[Avi]

If that is true, it is an excellent question, but how do they plan on marking it?

[bg23516]

IMO:

This question refers to the list of uses for the RBC standard.

The first part refers to the fact that the RBC charge provides a minimum capital level, while the second refers to the fact that it provides legal authority for regulatory intervention.

[Loki]

With respect to a), yes, rbc does give a minumum level of capitalization. But each state already had laws regarding minimal capitalization. The question is asking why are the rbc's minimums better than the state's. The reasons (as I see them) are that states set minimums based on structure of the insurer (stock, mutual, reciprocal) and the lines of business that the insurer writes so prior to rbc there was no minimal capital requirement that truly addressed the operational risk of the company.

I agree with what was said above about b) but also that before rbc there was never mandatory intervention.