Risk-based capital, Insurance companies, Capital requirements
Under the law, insurance companies are subject to capital requirements, which are enforced by the state insurance commissioner. The reason that insurance companies are subject to capital requirements is to ensure their solvency in the case of adverse financial conditions, such as an unexpected increase in liability payments or credit events in their investments that decrease their interest revenues.
In order to establish capital requirements, the National Association of Insurance Companies (NAIC) created the Risk-Based Capital model. This model accounts for four main risk factors that face insurance companies. They are listed as follows: C-1 Asset Risk, C-2 Insurance Risk, C-3 Interest Rate Risk, and C-4 Business Risk. These factors are used in an equation to determine the amount of capital that a company must have on hand to cover claims.
Finance and Marketing
Durbin, Brett, "Maximization of Return on Capital Under the Life Insurance Risk-Based Capital Model" (2001). WWU Honors Program Senior Projects. 167.
Subjects - Topical (LCSH)
Insurance companies--Investments; Capital investments; Life insurance; Risk management
student projects; term papers
Copying of this document in whole or in part is allowable only for scholarly purposes. It is understood, however, that any copying or publication of this document for commercial purposes, or for financial gain, shall not be allowed without the author’s written permission.