What Is Risk-Based Capital?

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]

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]

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]