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  • December 19, 2016

NAIC Fall 2016 National Meeting Update – Investment Risk-Based Capital Working Group

Written by:
Robert Lindsay, CPA

At the NAIC Fall 2016 National Meeting, the Investment Risk-Based Capital Working Group (IRBCWG) met to discuss portfolio adjustments to RBC, the number of issuers adjustment, the “Top 10” concentration adjustment, and more.

Portfolio Adjustments to RBC

The American Academy of Actuaries (AAA) recommended that the top 10 concentration adjustments remain as they are now, but suggested modification to the issuer adjustment.

AAA proposed two options:

The first suggestion included adjusting the number of issuers and the factor associated with each level (shown in the table below).

Fig. 1, Current LRBC Formula

Current LRBC Formula

Fig. 2, Proposed Change

Proposed Change

The second option suggested adding an adjustment for the covariance in size of the different issuers to capture situations where a few issuers have a significantly larger invested amount than the rest of the portfolio and recognize the additional risk this sort of allocation carries.

The IRBCWG favored the second option, as they expect it would not require a large amount of work to add a covariance adjustment. The AAA’s proposal has been exposed for comment.

ACLI Model Adjustments

In the past, the ACLI has expressed concerns with several of the assumptions in their model. The ACLI developed their own model in response and presented the results to the IRBCWG in a comment letter. While the IRBCWG did not consider replacing the working model entirely, they will review the reasons for differences between the two models and discuss incorporating pieces of the ACLI’s model to the current model. The ACLI’s proposed model, as well as a comparison of their proposed factors, can be found in the meeting materials on the IRBCWG’s website.

P&C and Health RBC Formulas

The IRBCWG also discussed whether P&C and Health RBC formulas should expand to 20 designations along with life companies. The IRBCWG is currently in favor of expanding the calculation to maintain consistency across the industry. Additionally, multi-line insurers wouldn’t have to maintain two separate systems or processes to account for the difference. They stated that if the P&C and Health calculations ultimately diverge from the Life proposal currently in place, the Schedule D would remain the same, and only the RBC forms would change.

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