In Figure 1, RBC Ratio is defined as the ratio of aggregate Total Adjusted Capital to Authorized Control Level RBC for each of 111 combined insurance groups. Plotted against BCAR, there is clearly a strong correlation between the measures, though the relationship is not perfect.
One explanation of the mismatching is that intentions are different between the measures. RBC provides legal authority to regulators to take control of companies clearly in distress. BCAR, in contrast, is intended to assess the financial capacity of a company to pay claims.
The NAIC has stated that, “Group risk capital should not be perceived as the minimum amount of capital before regulatory action will result . . . rather, it should be recognized that this is the capital needed within a holding company system to achieve the group’s business objectives.”(1)
1. See NAIC Own Risk and Solvency Assessment (ORSA) Guidance Manual, p. 8,
From: Actuarial Review, Vol. 40, No. 1, ©2013 Casualty Actuarial Society. Used by permission.