Question & AnswerQ&A (IC INSURANCE MEMORANDUM CIRCULAR NO. 6-2006)
The main objective is to establish the required amounts of capital to be maintained by life insurance companies in relation to their investment and insurance risks through adopting the Risk-Based Capital (RBC) Framework.
The four major categories of risks are: A. Asset Default Risk (C-1), B. Insurance Pricing Risk (C-2), C. Interest Rate Risk (C-3), and D. General Business Risk (C-4).
The RBC requirement is calculated using the formula: RBC Requirement = (C1 + C3)² + C2² + C4.
Networth includes the company’s paid-up capital, contributed and contingency surplus, and unassigned surplus. Revaluation and fluctuation reserves are included only to the extent authorized by the Insurance Commissioner.
A life insurance company must maintain a minimum RBC ratio of 100% annually and must not fail the Trend Test.
A Company Action Event occurs when the RBC ratio is less than 100% but not below 75%, or if the Trend Test fails, which happens if the RBC ratio is less than 125% but not below 100%, has decreased over the past year, and the difference between the RBC ratio and its decrease is less than 100%.
The company must file a RBC plan within 45 days that identifies contributing conditions, proposes corrective actions, provides projections for at least two years, identifies key assumptions and sensitivity, and outlines business quality and problems.
This is a Regulatory Action Event; the Insurance Commissioner can examine the company, require a RBC plan submission, and issue Corrective Orders requiring corrective actions.
The Commissioner can place the company under regulatory control if the RBC ratio is less than 50% but not below 35% (Authorized Control Event), or is required to do so if the RBC ratio falls below 35% (Mandatory Control Event).
A maximum of twenty-four (24) months from the date of effectivity is granted to improve the RBC ratio.
No, with the exception of RBC Exhibits that form part of the Annual Statements, all other disclosures and RBC plans filed are kept confidential similarly to other confidential reports.
Companies must also comply with the Minimum Statutory Networth, Minimum Paid-up Capital under Department Order No. 27-06, and Margin of Solvency requirements under Section 194 of the Insurance Code.
The RBC Framework shall be reviewed at least once every three (3) years.