Our Positions | Capital Adequacy

Risk-based capital is intended to provide a legally established level of capital and surplus for a particular insurer at which point specific regulatory actions should occur, based upon identified risks. One of the major inputs for this determination is the insurer’s actual capital and surplus as reported using U.S.

Statutory Accounting. RBC is a method to measure a minimum amount of capital that is appropriate for an insurer to support its overall business operations based on its size and risk profile. RBC is a regulatory tool to help regulators determine the financial health of an insurer, but a separate RBC formula has been developed for property/casualty carriers that is different than life and health. This is to reflect the differences between these business models. The formulas are periodically updated to reflect changes in the regulatory environment.

The Property and Casualty RBC formula was developed comprehensively. With the exception of catastrophe risk and operational risk, the factors were all determined in relationship to the primary underwriting factors for premium and reserves and the factors related to asset risk. In 2017 catastrophe risk and operational risk were added to the formula.

NAMIC Position

A solvency assessment system used by the states should be focused on the evaluation of the adequacy of an insurer’s financial resources to meet its obligations to policyholders at all times with a reasonable level of assurance. Solvency measures should be based on regulatory minimum solvency levels, rather than market-based solvency levels held for business objectives.

A solvency assessment system should account for the interaction and correlation among risks as well as the use of reinsurance, diversity of risk, and other risk-mitigation strategies of the insurer.

Capital adequacy standards should be clear, objective, and to the extent possible harmonized, where appropriate, across jurisdictions to minimize regulatory arbitrage. Standards should be set by supervisors in an open and transparent process that includes consultation with sectors of the industry that will be affected by the standards. Solvency standards for groups may recognize risk diversification and capital mobility to the benefit of members of the group; however, regulatory assessments of capital adequacy must be centered on the legal entity.

House Committee to Vote on Bill to Protect SLHCs

July 23, 2018 The House Financial Services Committee will vote July 24 to advance NAMIC-backed legislation designed to tailor the Federal Reserve supervision of insurance savings and loan holding companies. H.R. 5059, the “State Insurance Regulation Preservation... Read more

Fed Vice Chair Pressed on International Insurance Regulation During Testimony Before House, Senate

April 23, 2018 Randal Quarles, vice chair for supervision at the Federal Reserve, was asked how international regulatory standards could affect domestic insurers during testimony before both the House and Senate. Appearing before the House Financial Services... Read more

NAMIC Writes to Regulators Addressing CFA / CEJ Demand

February 1, 2018 NAMIC responded to irresponsible claims by the Consumer Federation of America and the Center for Economic Justice regarding tax reform with a Feb. 1 letter urging state insurance regulators... Read more

NAMIC Urges Caution on Linking Tax Reform, Rate Filings

February 1, 2018 The National Association of Mutual Insurance Companies urged state insurance regulators to reject calls for mandatory rate decreases based on federal tax reform legislation as overly simplistic and... Read more

Capital Adequacy Task Force Delays - Investment and Operational Risk Factors

December 12, 2017 The Capital Adequacy Task Force met Nov. 14 to adopt their working groups’ reports, which included the Investment Risk-Based Capital Working Group and the... Read more


Jonathan Rodgers
Director of Financial and Tax Policy