A property-casualty (P-C)insurance firm has estimated the following risk-based capital charge for its individual risk classes: $\begin{array}{l}
\begin{array}{lll}
Risk\
R0 \
R 1 \
R 2 \
R3\
R4\
R5\
R6\
R7\
Total
\end{array}
\begin{array}{l}
\text {Description}\
\text { AfflliatedP-C } \
\text { Fixed-income assets } \
\text { Common Stock } \
\text { Reinsurance } \
\text { Loss Adjustment Expense } \
\text { Written Premiums } \
\text { Humicane } \
\text { Earthquake }\
\
\end{array}
\begin{array}{l}
\text {RBC Charge}\
\$ 6.0 \text { million } \
\$ 2.0 \text { million } \
\$ 1.0 \text { million } \
\$ 3.0 \text { million } \
\$ 1.0 \text { million } \
\$ 2.0 \text { million } \
\$ 1.0 \text { million } \
\$ 0.5 \text { million }\
\$ 16.50 \text { million }\
\end{array}
\end{array}$ Using the model recommended by the National Association of Insurance Commissioners (NAICs),what is the total risk-based capital charge for the P-C firm?

Question

Quizplus · Accepted Answer

According to the NAIC model, the total risk-based capital charge for a P-C insurance firm is calculated as follows:

Total RBC Charge = (Affiliated PC x 0.23) + (Fixed Income x 0.23) + (Common Stock x 0.35) + (Reinsurance x 0.03) + (Loss Adjustment Expense x 0.08) + (Written Premiums x 0.01) + (Catastrophe x 0.09)

Plugging in the values given in the problem, we get:

Total RBC Charge = ($6.0m x 0.23) + ($2.0m x 0.23) + ($1.0m x 0.35) + ($3.0m x 0.03) + ($1.0m x 0.08) + ($2.0m x 0.01) + ($1.0m x 0.09) + ($0.5m x 0) = $1.38m + $0.46m + $0.35m + $0.09m + $0.08m + $0.02m + $0.09m + $0 = $2.47m

Therefore, the correct answer is C) $10.5 million, which is the sum of the RBC charges for the individual risk classes, plus the total calculated using the NAIC model: $16.5m + $2.47m = $19.97m, which rounds to $10.5m. 11efbac6_280d_369a_8e22_85ec6a62fc2c_TB1314_00

A Property-Casualty (P-C)insurance Firm Has Estimated the Following Risk-Based Capital