# What is a good risk-based capital ratio for life insurance companies?

## What is a good risk-based capital ratio for life insurance companies?

Risk-based capital requirements are minimum capital requirements for banks set by regulators. There is a permanent floor for these requirements—8% for total risk-based capital (tier 2) and 4% for tier 1 risk-based capital. Tier 1 capital includes common stock, reserves, retained earnings, and certain preferred stock.

## What is RBC risk-Based capital?

Risk-Based Capital (RBC) Requirements — a method developed by the National Association of Insurance Commissioners (NAIC) to determine the minimum amount of capital required of an insurer to support its operations and write coverage.

What is a good RBC ratio?

If the ratio is between 200% and 150%, the company also triggers Company Action Level, and is required to submit a RBC plan to improve its RBC ratio into compliance. If the ratio is between 150% and 100%, the company triggers Regulatory Action Level, and is required to submit a corrective action plan.

### What are prudential ratios?

Ratios that are used by banks and bank regulatory authorities that are used to monitor and to determine the stability of the banks finances. The ratios are free capital, capital adequacy and liquidation ratios.

### How do you calculate risk capital?

The risk-adjusted capital ratio is used to gauge a financial institution’s ability to continue functioning in the event of an economic downturn. It is calculated by dividing a financial institution’s total adjusted capital by its risk-weighted assets (RWA).

How do you calculate total risk based capital?

Total risk-based capital ratio is calculated as the sum of Tier 1 capital (as defined above) and Tier 2 capital divided by risk-weighted assets.

#### What is C1 risk?

C1 is asset risk; essentially, asset default risk. C3 is interest rate risk. C2 is pricing risk, and C4 is general business risk.

#### What are risk-based capital standards?

The RBC requirement is a statutory minimum level of capital that is based on two factors: 1) an insurance company’s size; and 2) the inherent riskiness of its financial assets and operations. That is, the company must hold capital in proportion to its risk.

What is the difference between Tier 1 and Tier 2 capital?

Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.

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