What Is Risk-Based Capital?
Risk-based capital checks whether an insurer holds a regulatory minimum for its size and risks. It can flag a capital concern, but it is not a ranking or a prediction that your claim will be paid; compare the same measure for the insurer you’re considering.
What Does Risk-Based Capital (RBC) Measure?
RBC asks whether an insurer holds a statutory minimum of capital in proportion to its size and the risk in its assets and operations. That minimum is a regulatory tool, not necessarily all the capital the company needs for its own objectives.1
Sufficiency is the ratio of total adjusted capital to Authorized Control Level RBC, including basic operational risk. The NAIC RBC framework does not require intervention at or above 300%. Between 200% and 300%, a trend test can trigger action. Below 200%, responses range from action plans to taking over management. Below 70%, a regulator is obligated to take over management. Life, property/casualty, and health companies use different formulas.1,2
What Does Risk-Based Capital Not Prove?
RBC is not a stand-alone solvency test and is not intended as a way to rank insurers. It is not an AM Best financial-strength rating, not policyholders' surplus, and not a prediction that claims will be paid. A life figure is not interchangeable with a property/casualty figure.1
What Should You Confirm About Risk-Based Capital?
If a ratio is lawfully public, record the legal entity, formula type, definition used, as-of date, and source. Do not manufacture a ratio, and do not treat silence as a finding that capital is inadequate.1
