Levels of Regulatory Intervention Based on RBC Ratio
- Regulation is tiered depending on the RBC ratio as follows:
- Greater than 100% but less than 125%: Trend Test applies; possible linear extrapolation to assess future performance.
- 75% to less than 100%: Company Action Event; submission and implementation of an RBC corrective plan.
- 50% to less than 75%: Regulatory Action Event; Insurance Commission (IC) may examine and issue Corrective Orders.
- 35% to less than 50%: Authorized Control Event; IC may take control of the company.
- Less than 35%: Mandatory Control Event; IC must take control of the company.
Company Action Event Procedures
- Triggered when RBC ratio < 100% but ≥ 75%, or if Trend Test fails under specified conditions.
- Within 45 days, company must submit a detailed RBC plan including:
- Identification of causes for the event.
- Corrective actions proposed.
- Two-year projections with and without corrective measures.
- Key assumptions and sensitivity analyses.
- Assessment of business quality, risks, and reinsurance use.
- Commissioner has 60 days to approve or request revisions; company must resubmit within 30 days if revisions are required.
Regulatory Action Event Procedures
- Occurs when RBC ratio < 75% but ≥ 50%, failure to submit satisfactory RBC plan, or failure to adhere to RBC plan affecting corrective outcomes.
- Commissioner can:
- Require RBC plan submission within 45 days.
- Conduct examination/analysis.
- Issue Corrective Orders specifying mandatory corrective actions.
- Use of actuaries and consultants permitted, with costs charged to the company.
Authorized Control Event Procedures
- Occurs when RBC ratio < 50% but ≥ 35%, or failure to respond satisfactorily to Corrective Orders.
- Commissioner may place company under regulatory control pursuant to Section 247 of the Insurance Code.
- This event justifies regulatory intervention in the interest of policyholders, creditors, and public.
Mandatory Control Event Procedures
- Triggered if RBC ratio falls below 35%.
- Commissioner is mandated to take control of the company under Section 247 of the Insurance Code.
- Immediate intervention is required to protect stakeholders.
Transition Period for Compliance
- Companies have up to 24 months from the Circular's effective date to meet RBC ratio requirements.
Annual Submission of RBC Exhibits
- Life insurance companies must file RBC Exhibits annually as part of the Annual Statements following specified instructions.
Confidentiality of RBC Plans and Disclosures
- All RBC-related filings, except those incorporated into the Annual Statements, are confidential, treated like regular confidential reports submitted to the Insurance Commission.
Compliance with Other Financial Requirements
- Companies must also comply with Minimum Statutory Networth, Minimum Paid-up Capital (per Department Order No. 27-06), and Margin of Solvency requirements under Section 194 of the Insurance Code.
Periodic Review of the RBC Framework
- The Risk-Based Capital Framework is subject to review at least once every three years to ensure its ongoing effectiveness and relevance.
Immediate Effectivity
- The Insurance Memorandum Circular takes effect immediately as of October 5, 2006, obligating compliance from that date forward.