View Full Version : Risk Based Capital : whabout?

08-15-2005, 11:37 AM
Can anyone please tell me what this is? I got caught at an interview for not knowing this.

DW Simpson
08-15-2005, 11:38 AM

08-15-2005, 12:55 PM
Interestingly, there are some changes afoot with regards to RBC -- the current formula-based RBC generally multiplies various amount by particular factors, and you add it all up. Very deterministic and simple.

However, it's been considered inadequate to capture certain risks, and, in particular, variable annuities with guarantees (guaranteed income benefits, guaranteed withdrawal benefits, guaranteed death benefits). The RBC formulas couldn't begin to capture the different dimensions of risk (and I'm not sure that it gave any credit to hedging programs). Over the last few years, the NAIC and the AAA have been working on the project called C-3 Phase II (here -- http://www.naic.org/frs/rbc/life_rbc_wg/c-3_phase_II_posting.htm and it's misnamed. It applies to all variable annuities, with and without guarantees.) It's a shift from "rules-based" to "principles-based" (aka model-based) ways to measure risk.

I've been working on implementing C3 Phase II for our business, and I've been posting stuff about it in the Life section here because I'm trying to get info from others about what they're doing to satisfy the requirements...

Anyway, this is probably far more info than you wanted to know right now. However, it certainly seems that stochastic modeling is becoming the wave of the future, even with regards to regulation.