materials - property and casualty risk-based capital (e ... · pr004 and pr005 calculations based...

© 2019 National Association of Insurance Commissioners

Date: 6/21/19

2019 Summer National Meeting New York, New York

PROPERTY AND CASUALTY RISK-BASED CAPITAL (E) WORKING GROUP Sunday, August 4, 2019

1:00 – 2:00 p.m. America’s Hall I – 3rd Level

ROLL CALL

Tom Botsko, Chair Ohio Richard Ford Alabama Susan Bernard/Giovanni Muzzarelli California Mitchell Bronson Colorado Wanchin Chou/Susan Gozzo Andrews Connecticut Robert Ridenour Florida Judy Mottar Illinois Anna Krylova New Mexico Gloria Huberman/Sak-man Luk New York Will Davis South Carolina Nicole Elliott/Miriam Fisk Texas Randy Milquet Wisconsin

NAIC Support Staff: Eva Yeung/Jane Barr

AGENDA

1. Consider Adoption of its May 17 Minutes—Tom Botsko (OH) Attachment A

2. Consider Adoption of the Report of the Catastrophe Risk (E) Subgroup—Tom Botsko (OH) Attachment B

3. Consider Adoption of 2019 Property/Casualty (P/C) Risk-Based Capital (RBC) Newsletter Attachment C —Tom Botsko (OH)

4. Consider Exposure of Proposal 2019-11-P (Clarification to Instructions Regarding Attachment D Lloyd’s of London)— Tom Botsko (OH)

5. Consider Exposure of Proposal 2019-12-P (Remove PR035 Adjustment for Reinsurance Penalty) Attachment E —Tom Botsko (OH)

6. Discuss 2018 P/C RBC Statistics—Tom Botsko (OH) Attachment F

7. Discuss 2019 P/C RBC Working Agenda—Tom Botsko (OH) Attachment G

8. Discuss R3 Impact Analysis—Sak-man Luk (NY) Attachment H

9. Discuss Overall P/C RBC Analysis—Sak-man Luk (NY) Attachment I

10. Discuss Proposed Changes of Bond Pages in the P/C RBC Formula—Tom Botsko (OH) Attachment J

11. Discuss Proposed Changes of Percentage Ownership Calculation in the Affiliated Investments Page Attachment K —Tom Botsko (OH)

12. Discuss the Scope Letter from the American Academy of Actuaries (Academy) Property and Casualty Attachment L

1


Committee Regarding the Plan on Reviewing the Underwriting Risk Component —Lauren Cavanaugh (Academy)

13. Discuss Possible Treatments of the R3 Related to the “Bilateral Agreement Between the United States Attachment M of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance”(Covered Agreement)—Tom Botsko (OH)a. Runoff Companiesb. Captive Companiesc. Uncollateralized, Unrated Reinsurers

14. Discuss Any Other Matters Brought Before the Working Group—Tom Botsko (OH)

15. Adjournment

w:\National Meeting\2019\Summer\Agenda\080419 pc rbc agenda.docx

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Attachment Six Capital Adequacy (E) Task Force

8/5/19

© 2019 National Association of Insurance Commissioners 1

Draft: 6/21/19

Property and Casualty Risk-Based Capital (E) Working Group Conference Call May 17, 2019

The Property and Casualty Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force met via conference call May 17, 2019. The following Working Group members participated: Tom Botsko, Chair, and Dale Bruggeman (OH); Richard Ford (AL); Laura Clements, Kim Hudson and Giovanni Muzzarelli (CA); Mitchell Bronson and Rolf Kaumann (CO); Wanchin Chou (CT); Robert Ridenour (FL); Judy Mottar (IL); Anna Krylova (NM); Sak-man Luk (NY); Darien Porter (SC); Miriam Fisk (TX); and Randy Milquet (WI). Also participating were: Julie Lederer (MO); Herb Bibbero (NJ); and Steve Drutz (WA).

1. Adopted the Catastrophe Risk (E) Subgroup Spring National Meeting Minutes

The Catastrophe Risk (E) Subgroup met April 5 and took the following action: 1) adopted its Feb. 20 minutes (Attachment Seven-A); and 2) heard presentations from AIR Worldwide and A.M. Best regarding wildfire risk.

Ms. Mottar made a motion, seconded by Mr. Muzzarelli, to adopt the Catastrophe Risk (E) Subgroup’s April 5 minutes (Attachment Seven). The motion passed unanimously.

2. Adopted its Spring National Meeting Minutes

The Working Group met April 7 and took the following action: 1) adopted its Feb. 20 minutes; 2) adopted the report of the Catastrophe Risk (E) Subgroup; 3) adopted proposal 218-16-P (2019 Underwriting Risk Line 4 Factors); 4) adopted proposal 2018-20-P (Asset Concentration Preferred Stock and Hybrid Labels); 5) adopted proposal 2019-02-P (Modify RBC Average Growth Risk calculation Instructions); 6) exposed proposal 2019-05-P (Underwriting Risk Line 1 Factors); 7) heard updates on current property/casualty (P/C) risk-based capital (RBC) projects from the American Academy of Actuaries (Academy); and 8) discussed the possible changes of the R3 related to the “Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance” (Covered Agreement).

Mr. Bronson made a motion, seconded by Mr. Chou, to adopt the Working Group’s April 7 minutes (Attachment Seven-A). The motion passed unanimously.

3. Adopted Proposal 2019-05-P (Underwriting Risk Line 1 Factors)

Mr. Botsko said this proposal provided a routine annual update to the Line 1 premium and reserve industry underwriting factors in the P/C RBC formula. He also said the Working Group received no comments during the exposure period.

Mr. Chou made a motion, seconded by Ms. Mottar, to adopt proposal 2019-05-P (Attachment __). The motion passed unanimously.

4. Adopted Proposal 2019-08-P (Affiliated Investments Instructions)

Mr. Botsko said this proposal provided some minor edits to the instructions in order to be consistent with the RBC blanks. He said the Working Group exposed this proposal on April 12 via email for a 30-day public comment period ending May 12, and no comments were received during this period.

Mr. Muzzarelli made a motion, seconded by Mr. Milquet, to adopt proposal 2019-08-P (Attachment __). The motion passed unanimously.

5. Exposed Changes of Bond Pages in the P/C RBC Formula

Mr. Botsko said the expansion of the bond structure has been discussed by the Investment Risk-Based Capital (E) Working Group for quite some time. This expansion will provide more robust and accurate results, primarily as it increases the granularity of the formula and reduces the cliffs between the different categories. The current NAIC designations 1–6 may include bonds with a relatively wide range of risk of default; an insurer may have an incentive to invest in lower-quality bonds

Attachment A

3

Attachment Six Capital Adequacy (E) Task Force

8/5/19


within the same NAIC designation while getting the same RBC charge as a higher-quality bond within the same NAIC designation. Mr. Botsko also said as requested by Investment Risk-Based Capital (E) Working Group, the Academy Joint Bond Factor Work Group of the Property and Casualty Committee and the Health Solvency Committee has developed indicated bond risk factors for the P/C RBC formula. Then, NAIC staff applied those risk factors to the proposed structure. Mr. Botsko encouraged all the interested parties to review the proposed structure and risk factors and share their comments at the Summer National Meeting.

The Working Group agreed to expose the bond pages for a 45-day public comment period ending July 1.

6. Exposed Proposed Changes of Percentage Ownership Calculation in the Affiliated Investments Page

Mr. Botsko said the members of the Affiliated Investments Ad Hoc Group recommended that the P/C percentage ownership calculation be modified to be consistent with the life and health calculations. Mr. Luk made some modifications to PR003, PR004 and PR005 calculations based on the Ad Hoc Group’s recommendation. He said under the combined percentage ownership, the RBC charge for the preferred stock will no longer be on the excess basis, and it should subject to the same charge as the common stock. Mr. Botsko encouraged the industry to review the proposed changes, and discussion will be continued at the Summer National Meeting.

The Working Group agreed to expose the proposed changes of affiliated investments percentage ownership calculation for a 45-day public comment period ending July 1.

7. Discussed the Scope Letter from the Academy Property and Casualty Committee Regarding the Plan on Reviewing theUnderwriting Risk Component

Lauren Cavanaugh (Academy) said in support of the NAIC’s efforts to update the calibration of factors used to calculate underwriting risk, the Academy plans to analyze: 1) investment income adjustment (IIA); 2) loss concentration factor (LCF); and 3) lines of business underwriting risk factors. She said the Academy is considering the nominal value approach (NVA) versus the present value approach (PVA) for IIA. The Academy plans to prepare indications for IIAs based on both approaches. Ms. Cavanaugh also said the Academy will evaluate the CoMaxLine%-Risk approach versus the Herfindahl-Hirschman index approach for LCF. Lastly, she said the review of the underwriting risk factors will include the effect of catastrophe events, net of reinsurance. She also indicated that the Academy will provide a timeline and milestones during future meetings and conference calls. Scott Williamson (Reinsurance Association of America—RAA) asked the Academy to consider allowing inputs from interested parties during the development process.

8. Discussed the Possible Changes of the R3 Related to the Covered Agreement

Mr. Botsko said the Reinsurance (E) Task Force adopted the proposed revisions to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) on May 15. He also said the Reinsurance (E) Task Force will begin reaching out to the Working Group to help with the implementation in the next few weeks. The Working Group will start discussing the implementation, including adding additional categories for runoff or captive reinsurers suggested by the RAA, at the Spring National Meeting.

Having no further business, the Property and Casualty Risk-Based Capital (E) Working Group adjourned.

W:\National Meetings\2019\Summer\TF\CapAdequacy\PCRBC\Att01 5-17propertyrbcwg .doc

Attachment A

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2019 Summer National Meeting New York, New York

CATASTROPHE RISK (E) SUBGROUP Friday, August 2, 2019

5:00 – 6:30 p.m.

Meeting Summary Report

The Catastrophe Risk (E) Subgroup met Aug. 2, 2019. During this meeting, the Subgroup:

1. Heard a presentation from AIR Worldwide (AIR) on how the aggregate exceedance probability (AEP) and occurrenceexceedance probability (OEP) curves are created based on the AIR modeling results. The presentation included thefollowing topics:a. AIR model frameworkb. AEPc. OEPd. Comparability of AEP and OEP

2. Heard a presentation from Risk Management Solutions (RMS) on how the AEP and OEPs are calculated and a comparisonof the results. The presentation included the following topics:a. Catastrophe models calculate useful financial metrics.b. How to calculate exceedance probability curves.c. Factors to adjust OEP to AEP in severe convective storm, earthquake and hurricane perils.

W:\National Meetings\2019\Summer\Summaries\Final Summaries\Cat Risk SG.docx

Attachment B

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This page intentionally left blank.

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NAIC Property and Casualty Risk‐Based Capital Newsle er August 2019

Volume 23.1

What RBC Pages Should Be Submitted? For year-end 2019 property/casualty (P/C) risk-based capital (RBC), hardcopies of pages PR001 through PR035, as well as PR038 and PR039, should be submit-ted to any state that requests a hardcopy. Beginning with the year-end 2011 RBC, a hardcopy was not required to be submitted to the NAIC, but a portable document for-mat (PDF) file representing the hardcopy filing is part of the electronic filing with the NAIC.

Internal Catastrophe Models As a result of the adoption of proposal 2016-12-CR by the Capital Adequacy (E) Task Force at the 2018 Sum-mer National Meeting, the RBC Instructions and Foot-notes in PR027A and PR027B were modified to allow accepted internal catastrophe models as the basis for the catastrophe risk charge.

Label for R0 Asset Risk As a result of the adoption of proposal 2018-05-CA by the Capital Adequacy (E) Task Force during its June 28, 2018 conference call, the label for the R0 component was modified to be more accurate and to prevent confu-sion and misunderstanding

Stop Loss Interrogatories As a result of the adoption of proposal 2018-14-CA by the Capital Adequacy (E) Task Force at the 2019 Spring National Meeting, the electronic only stop loss tables were split out between specific stop loss and aggregate stop loss.

In This Issue:

What RBC Pages Should be Submitted ........................ 1 Internal Catastrophe Models ........................................ 1 Label for R0 Asset Risk ............................................... 1 Stop Loss Interrogatories ............................................. 1 Asset Concentration Preferred and Hybrid Labels ....... 1 Average Growth Calculation ........................................ 1 Affiliated Stocks Instructions ....................................... 1 Editorial ........................................................................ 1 New Underwriting Risk Factors—Line 4 ..................... 2 New Industry Average Risk Factors ............................ 3

Asset Concentration Preferred Stock and Hy-brid Labels As a result of the adoption of proposal 2018-20-P by the Capital Adequacy (E) Task Force at the 2019 Spring Na-tional Meeting, the labels of preferred stock and hybrid of Asset Concentration (PR011) were updated in the blanks and instructions.

Average Growth Calculation As a result of the adoption of proposal 2019-02-P by the Capital Adequacy (E) Task Force at the 2019 Spring Na-tional Meeting, the PR016 instructions were modified to address the inconsistencies between the instructions and the formula for the computation of the selected average growth rate.

Affiliated Stocks Instructions As a result of the adoption of proposal 2019-08-P by the Capital Adequacy (E) Task Force at during its June 28 conference call, the PR003 through PR005 instructions was modified to address the inconsistencies between the instructions and the formula for the computation of the affiliated stocks.

Editorial Change Schedule BA Annual Statement line references were up-dated in PR008 and PR009 as a result of the adoption of the Annual Statement Blanks proposal 2019-04-BWG.

Attachment C

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P/C Risk-Based Capital Newsletter Page 2 New Underwriting Risk Factors – Line 4 As a result of the adoption of proposal 2018-16-P by the Capital Adequacy (E) Task Force at the 2019 Spring National Meeting, the Line 4 factors were updated based on the 2017 American Academy of Actuaries (Academy) Report for Property and Casualty Risk-Based Captial Underwriting Line 4 Factors. At the 2018 Fall National Meeting, the Proper-ty and Casualty Risk-Based Capital (E) Working Group decided to use the 35% capped factors for commercial insur-ance, medical professional liability, and all other lines. The Working Group also decided to use the uncapped factors for personal and reinsurance lines.

* Cat Lines

PR017 Underwriting Risk – Reserves

Line (4), Industry Loss & Expense Factors

Col. Line of Business 2019

Factor 2018

Factor

(1) H/F 0.213 0.213 (2) PPA 0.179 0.181

(3) CA 0.276 0.243

(4) WC 0.344 0.336

(5) CMP 0.494 0.494

(6) MPL Occurrence 0.383 0.417

(7) MPL Claims Made 0.276 0.297

(8) SL 0.304 0.270

(9) OL 0.531 0.531

(10) Fidelity/Surety 0.371 0.338

(11) Special Property 0.246 0.207

(12) Auto Physical Dam-age

0.155 0.121

(13) Other (Credit A&H) 0.220 0.186

(14) Financial/Mortgage Guaranty 0.179 0.194

(15) INTL 0.359 0.336 (16) REIN. P&F Lines 0.415 0.304 (17) REIN. Liability 0.656 0.711

(18) PL 0.802 0.688

(19) Warranty 0.371 0.338

PR018 Underwriting Risk – Premiums

Line (4), Industry Loss & Expense Factors


Factor 2018

Factor

(1)* H/F 0.936 0.927 (2) PPA 0.969 0.969

(3) CA 1.010 1.005

(4) WC 1.044 1.044

(5)* CMP 0.883 0.892



(8)* SL 0.922 0.898

(9) OL 1.013 1.027


(11)* Special Property 0.863 0.907


0.836 0.836

(13) Other (Credit A&H) 0.935 0.906

(14) Financial/Mortgage Guaranty 1.598 1.515

(15)* INTL 1.234 1.187 (16)* REIN. P&F Lines 1.170 1.223 (17)* REIN. Liability 1.322 1.449

(18) PL 1.263 1.228

(19) Warranty 0.854 0.875

Attachment C

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P/C Risk-Based Capital Newsletter Page 3

New Industry Average Risk Factors – Annual Update On its June 28 conference call, the Capital Adequacy (E) Task Force adopted the annual update of industry average development factors:

* Cat Lines

PR017 Underwriting Risk – Reserves

Line (1), Industry Average Development Factors


Factor 2018

Factor

(1) H/F 0.989 0.989

(2) PPA 1.026 1.022

(3) CA 1.087 1.060 (4) WC 0.955 0.952

(5) CMP 0.992 0.967



(8) SL 0.938 0.933 (9) OL 0.971 0.966


(11) Special Property 0.972 0.971


0.996 1.000

(13) Other (Credit A&H) 0.973 0.976

(14) Financial/Mortgage Guaranty

0.788 0.870

(15) INTL 1.037 0.851 (16) REIN. P&F Lines 0.872 0.834

(17) REIN. Liability 0.955 0.945

(18) PL 0.913 0.921

(19) Warranty 1.017 1.015

PR018 Underwriting Risk – Net Written Premiums

Line (1), Industry Average Loss and Expense Ratios


Factor 2018

Factor

(1) * H/F 0.681 0.687 (2) PPA 0.810 0.806

(3) CA 0.737 0.724

(4) WC 0.726 0.744

(5) * CMP 0.666 0.664



(8) * SL 0.593 0.569

(9) OL 0.638 0.633


(11) * Special Property 0.554 0.563


0.730 0.732

(13) Other (Credit A&H) 0.682 0.709

(14) Financial/Mortgage Guaranty

0.811 1.099

(15) * INTL 0.795 0.584 (16) * REIN. P&F Lines 0.522 0.486

(17) * REIN. Liability 0.679 0.666

(18) PL 0.656 0.671

(19) Warranty 0.695 0.732

Attachment C

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RBC Forecasting and Instructions

The P/C RBC forecasting spreadsheet calculates RBC using the same formula presented in the 2019 NAIC Property & Casualty Risk-Based Capital Report Including Overview & Instructions for Companies. The entire RBC publication, including the Forecasting spreadsheet, is available to download from NAIC Account Manager or is available in hard-copy through the NAIC Publications Department. The User Guide is no longer included in the RBC publications.

WARNING: The RBC forecasting spreadsheet CANNOT be used to meet the year-end RBC electronic filing require-ment. RBC filing software from an annual financial statement software vendor should be used to create the electronic filing. If the forecasting worksheet is sent instead of an electronic filing, it will not be accepted, and the RBC will not have been filed.

P/C Risk-Based Capital Newsletter Page 4


Property and Casualty Risk-Based Capital Newsletter Volume 22.1. Published annually or whenever needed by the NAIC for insurance regulators, professionals and consumers.

Direct correspondence to: Eva Yeung, RBC Newsletters, NAIC, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: 816-783-8407. Email: [email protected].

Address corrections requested. Please mail the old address label with the correction to: NAIC Publications Department, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: 816-783-8300. Email: [email protected].

Attachment C

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2019 National Association of Insurance Commissioners

Capital Adequacy (E) Task Force RBC Proposal Form

[ ] Capital Adequacy (E) Task Force [ ] Health RBC (E) Working Group [ ] Life RBC (E) Working Group [ ] Catastrophe Risk (E) Subgroup [ ] Investment RBC (E) Working Group [ ] Operational Risk (E) Subgroup [ ] C3 Phase II/ AG43 (E/A) Subgroup [x ] P/C RBC (E) Working Group [ ] Longevity Risk (A/E) Subgroup

DATE: 8/5/2019

CONTACT PERSON: Eva Yeung

TELEPHONE: 816-783-8407

EMAIL ADDRESS: [email protected]

ON BEHALF OF: P/C RBC (E) Working Group

NAME: Tom Botsko

TITLE: Chair

AFFILIATION: Ohio Department of Insurance

ADDRESS: 50 W. Town Street, Third Floor – Suite 300

Columbus, OH 43215

FOR NAIC USE ONLY

Agenda Item # 2019-11-P

Year 2020

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO

[ ] REFERRED TO OTHER NAIC GROUP

[ ] EXPOSED

[ ] OTHER (SPECIFY)

IDENTIFICATION OF SOURCE AND FORM(S)/INSTRUCTIONS TO BE CHANGED

[ ] Health RBC Blanks [ ] Property/Casualty RBC Blanks [ ] Life and Fraternal RBC Instructions

[ ] Health RBC Instructions [ x ] Property/Casualty RBC Instructions [ ] Life and Fraternal RBC Blanks

[ ] OTHER ____________________________

DESCRIPTION OF CHANGE(S) The proposed changes clarify the reinsurance recoverable from individual syndicates of Lloyds’ of London that are covered under the Lloyd’s Central Fund may utilize the lowest financial strength group rating received from an approved rating agency.

REASON OR JUSTIFICATION FOR CHANGE **

Upon review of 2018 Schedule F Part 3 filings, it has been observed that many filers reported reinsurance recoverable amounts due from Lloyd’s of London Syndicates as being NAIC 6-Unrated; and therefore, subject to the highest credit risk charge.

Additional Staff Comments:

___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 2-2019

Attachment D

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12

© 1994-2019 National Association of Insurance Commissioners 1 7/19/2019

PR012 - Credit Risk for Receivables

Reinsurance Recoverables

The calculation of the credit risk charge for reinsurance recoverables is detailed in Schedule F Part 3 Columns 28 through 36 of the Property/Casualty Annual Statement. This calculation is performed at the transaction level and those results are then summed to determine the charge. Reinsurance balances receivable on reinsurance ceded to non-affiliated companies (excluding certain pools) and to alien affiliates are subject to the credit risk-based capital charge. The following types of cessions are exempt from this charge: • Cessions to State Mandated Involuntary Pools and Associations or to Federal Insurance Programs.• This category includes all federal insurance programs [e.g., National Flood Insurance Program (NFIP), Federal Crop Insurance Corporation (FCIC), etc., all state mandated residual

market mechanisms and the National Council on Compensation Insurance (NCCI].• Cessions to U.S. Parents, Subsidiaries and Affiliates.

The categories above are automatically excluded from the data that is calculated in Schedule F Part 3 of the Annual Statement.

Since the Annual Statement requires the collectability of reinsurance balances be considered via the reinsurance penalty, the appropriate balances must be offset by any liability that has been established for this purpose. The amount from Page 3, Line 16 should be allocated to the appropriate (re)insurers listed on Schedule F. The total amount recoverable from reinsurers less any applicable reinsurance penalty is multiplied by 120% to stress the recoverable balance. The total of reinsurance payable and/or funds held amounts (not in excess of the stressed recoverable) are applied as offsets to arrive at the stressed net recoverable.

Since there are different reinsurance credit risk factors for collateralized and uncollateralized reinsurance recoverables, the stressed net recoverable should be offset by any available collateral, such as letters of credit, multiple beneficiary trusts, and single beneficiary trusts and other allowable offsets (not in excess of the stressed net recoverable). The collateralized amounts are derived from Schedule F Part 3 Column 32 and the uncollateralized amounts are derived from Column 33.

The risk-based capital for the various credits (including collateral offsets where applicable) taken for reinsurance may not be less than zero even if the amount reported or the amount net of offsets is negative.

The factor for reinsurance recoverables (paid and unpaid less any applicable reinsurance penalty) due from a particular reinsurer is determined based on that reinsurer’s financial strength rating assigned on a legal entity basis.

For the purpose of the credit risk-based capital charge, the equivalent rating category assigned will correspond to current financial strength rating received from an approved rating agency as outlined in the table below. Ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. If the reinsurer is unauthorized and does not have at least one financial strength rating, it should be assigned the “Vulnerable 6 or Unrated Unauthorized” equivalent rating. If the reinsurer is authorized and does not have at least one financial strength rating, it should be assigned the “Unrated Authorized Reinsurers” equivalent rating. Amounts recoverable from unrated voluntary pools should be assigned the “Secure 3” equivalent rating. An authorized association including incorporated and individual unincorporated underwriters or a member thereof (e.g. individual authorized syndicates of Lloyds’ of London that are backed by the Central Fund) may utilize the lowest financial strength group rating received from an approved rating agency. It is applicable to reinsurance recoverable from individual syndicates of Lloyds’ of London that are covered under the Lloyd’s Central Fund; and are therefore eligible to be treated as rated for the purposes of PR012 and the R3 Credit Risk component of RBC. This treatment is consistent with the NAIC Credit for Reinsurance Model Law and Regulation concerning applicable NAIC ratings designations for the purpose of determining reduced collateral requirements. The table below shows the R3 reinsurer equivalent rating categories and corresponding factors for A.M. Best, Standard and Poor’s, Moody’s and Fitch ratings.

Detail Eliminated To Conserve Space

Attachment D

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Attachment D

14

Proposed Guidance Statement:

Upon review of 2018 Schedule F Part 3 filings, it has been observed that many filers reported reinsurance recoverable amounts due from Lloyd’s of London Syndicates as being NAIC 6-Unrated; and therefore subject to the highest credit risk charge.

However, the RBC Instructions for PR012 - Credit Risk for Receivables provides that: “An authorized association including incorporated and individual unincorporated underwriters or a member thereof (e.g. individual authorized syndicates of Lloyds’ of London that are backed by the Central Fund) may utilize the lowest financial strength group rating received from an approved rating agency.”

This instruction is applicable to reinsurance recoverable from individual syndicates of Lloyds’ of London that are covered under the Lloyd’s Central Fund; and are therefore eligible to be treated as rated for the purposes of PR012 and the R3 Credit Risk component of RBC. This treatment is consistent with the NAIC Credit for Reinsurance Model Law and Regulation concerning applicable NAIC ratings designations for the purpose of determining reduced collateral requirements.

Attachment D

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16

2019 National Association of Insurance Commissioners


[ ] Capital Adequacy (E) Task Force [ ] Health RBC (E) Working Group [ ] Life RBC (E) Working Group [ ] Catastrophe Risk (E) Subgroup [ ] Investment RBC (E) Working Group [ ] Operational Risk (E) Subgroup [ ] C3 Phase II/ AG43 (E/A) Subgroup [ ] P/C RBC (E) Working Group [ ] Longevity Risk (A/E) Subgroup

DATE: 4/11/19


TELEPHONE: 816-783-8407


ON BEHALF OF: P/C RBC (E) Working Group

NAME: Tom Botsko

TITLE: Chair


ADDRESS: 50 West Town Street, Suite 300

Columbus, OH 43215

FOR NAIC USE ONLY


Year 2020

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO


[ ] EXPOSED

[ ] OTHER (SPECIFY)


[ ] Health RBC Blanks [ x ] Property/Casualty RBC Blanks [ ] Life and Fraternal RBC Instructions

[ ] Health RBC Instructions [ ] Property/Casualty RBC Instructions [ ] Life and Fraternal RBC Blanks

[ ] OTHER ____________________________

DESCRIPTION OF CHANGE(S)

Eliminate PR035 Adjustment for Reinsurance Penalty for Affiliates Applicable to Schedule F.

REASON OR JUSTIFICATION FOR CHANGE **

As the computation of RBC charge for reinsurance recoverable has been moved to the Annual Statement Schedule F, Part 3 in 2018 reporting, the adjustment for Reinsurance Penalty for Affiliates Applicable to Schedule F in PR038 is no longer needed.

Additional Staff Comments:

___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 2-2019

Attachment E

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18

SCH F PT 3 REINSURANCE CREDIT AND MED TABULAR RESERVE MEDICAL TABULAR RESERVE DISCOUNT - RESERVES PR035

Credit Risk for Receivables PR012(1)

Annual Statement Source Line Column ValueAdjustment For Reinsurance Penalty For Affiliates Applicable To Schedule F

1 Schedule F Part 3, L0199999, L0499999, L1599999, L1899999, L2999999 and L3299999 0

2 Schedule F Part 3, L1099999, Amounts Attributable To Exempt Pools 13 2 0

3 Schedule F Part 3, L2499999, Amounts Attributable To Exempt Pools 13 2 0

4 Schedule F Part 3, Line 3899999, Amounts Attributable to Exempt Pools 13 2 0

Underwriting Risk - Reserves PR017Annual Statement Source: Medical Tabular Reserve Discount Line Column Value (000 Omitted)

5 Homeowner/Farmowner 7 1 06 Private Pass Auto Liab 7 2 07 Comm Auto Liab 7 3 08 Workers' Comp 7 4 09 Comm Multi Peril 7 5 0

10 Medical Professional Liability - Occurrence 7 6 011 Medical Professional Liability - Claims-Made 7 7 012 Special Liab 7 8 013 Other Liab - Occurrence 7 9 014 Other Liab - Claims Made 7 9 015 Fidelity & Surety 7 10 016 Special Property 7 11 017 Auto Physical Damage 7 12 018 Other (Credit, A&H) 7 13 019 Fin Guaranty/Mrtg Guaranty 7 14 020 International 7 15 021 Medical Tabular Reserve Discount - Reinsurance :Property 7 16 022 Medical Tabular Reserve Discount - Reinsurance :Liability 7 17 023 Medical Tabular Reserve Discount - Reinsurance :Financial Lines 7 16 024 Product Liab - Occurence 7 18 025 Product Liab - Claims Made 7 18 026 Warranty 7 19 027 Total 7 20 0

Underwriting Risk - PremiumsAnnual Statement Source : STMTINCOME (page 4, col.1 ln 4) Line Column Value

28 Other Underwriting Expenses Incurred 6 1 0

Denotes items that must be manually entered on the filing software.

PR018

Attachment E

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20

Summary: Aggregate P/C RBC Results By Year

AGGREGATED P&C RBC DATA2018 Data as of May 31, 2019

YR2018 YR2017YR2016 (Including Catastrophe Risk)

YR2016 (Excluding Catastrophe Risk)

YR2015 (Including Catastrophe Risk)






# OF COMPANIES FILED RBC 2465 2486 2492 2492 2494 2494 2520 2520 2567 2567# OF COMPANIES FILED AST 2607 2620 2628 2628 2644 2644 2673 2673 2707 2707% OF RBC COMPANIES 95% 95% 95% 95% 94% 94% 94% 94% 95% 95%

GRAND TOTAL OF CO'S AT AN ACTION LEVEL LEVEL TREND TEST 1 17 16 30 28 21 22 16 15 27 27

COMPANY ACTION LEVEL 1 14 28 22 21 13 13 22 12 28 18REGULATORY ACTION LEVEL 2 11 6 12 12 12 11 11 8 10 10AUTHORIZED CONTROL LEVEL 3 1 5 9 8 7 7 13 12 13 10MANDATORY CONTROL LEVEL 4 22 19 17 17 24 24 28 25 15 14TOTAL 48 58 60 58 56 55 74 57 66 52% OF ACTION LEVEL COMPANIES 1.95% 2.33% 2.41% 2.33% 2.25% 2.21% 2.94% 2.26% 2.57% 2.03%

RRG'S AT AN ACTION LEVEL LEVEL RRG'S TREND TEST 1 4 4 11 11 8 8 7 7 9 8

RRG'S AT COMPANY ACTION LEVEL 1 6 12 8 8 5 5 5 5 9 9RRG'S AT REGULATORY ACTION LEVEL 2 6 1 5 5 9 9 3 3 5 5RRG'S AT AUTHORIZED CONTROL LEVEL 3 1 3 4 4 3 3 4 4 5 5RRG'S AT MANDATORY CONTROL LEVEL 4 5 7 3 3 4 4 7 7 3 3TOTAL RRG'S AT AN ACTION LEVEL 18 23 20 20 21 21 19 19 22 22TOTAL RRG'S 224 224 229 229 235 235 235 235 241 241% OF RRG'S AT AN ACTION LEVEL 8.04% 10.27% 8.73% 8.73% 8.94% 8.94% 8.09% 8.09% 9.13% 9.13%

TOTAL CO'S AT A LEVEL EXCLUDING RRG'S LEVEL TREND TEST 1 13 12 19 17 13 14 9 8 18 19

COMPANY ACTION LEVEL 1 8 16 14 13 8 8 17 7 19 9REGULATORY ACTION LEVEL 2 5 5 7 7 3 2 8 5 5 5AUTHORIZED CONTROL LEVEL 3 0 2 5 4 4 4 9 8 8 5MANDATORY CONTROL LEVEL 4 17 12 14 14 20 20 21 18 12 11TOTAL CO'S AT AN ACTION LEVEL EXLC. RRG's 30 35 40 38 35 34 55 38 44 30TOTAL CO'S EXLCLUDING RRG's 2241 2262 2263 2263 2259 2259 2285 2285 2326 2326% OF ACTION LEVEL COMPANIES 1.34% 1.55% 1.77% 1.68% 1.55% 1.51% 2.41% 1.66% 1.89% 1.29%

# OF COMPANIES WITH RBC RATIO > 10000% 525 485 448 453 444 449 439 443 417 426# OF COMPANIES WITH RBC RATIO < 10000% > 1000% 836 850 893 926 873 903 834 888 873 916# OF COMPANIES WITH RBC RATIO < 1000% > 500% 682 682 684 681 707 707 731 718 722 721# OF COMPANIES WITH RBC RATIO < 500% >250% 409 367 350 325 375 342 355 362 392 398# OF COMPANIES WITH RBC RATIO < 250% >200% 35 44 57 49 39 38 45 55 34 51

TOTAL ADJUSTED CAPITAL 931,224,541,048 935,853,540,871 876,880,715,466 876,880,715,466 833,471,054,728 833,471,054,728 830,075,697,234 830,075,697,234 802,846,214,956 802,846,214,956 AUTHORIZED CONTROL LEVEL RBC 151,112,834,048 149,906,691,631 138,674,310,776 129,689,495,515 133,774,578,223 123,913,249,094 133,899,222,712 123,675,484,440 129,392,024,942 120,006,078,091

Total R0 (R0 - asset risk-subsidiary insurance companies) 58,785,678,885 59,734,593,232 N/A 51,108,811,684 N/A 49,900,393,442 N/A 49,176,072,264 N/A 48,287,366,588 Total R0A (R0A - asset risk-subsidiary insurance companies) N/A N/A 53,372,325,366 N/A 52,971,730,939 N/A 51,557,210,875 N/A 48,287,366,588 N/ATotal R1 (R1 - asset risk-fixed income) 8,046,031,430 8,576,187,292 N/A 8,765,165,437 N/A 8,742,706,647 N/A 8,256,026,919 N/A 8,073,537,182 Total R1A (R1A - asset risk-fixed income) N/A N/A 8,245,138,135 N/A 8,606,694,725 N/A 8,083,584,394 N/A 8,073,537,182 N/ATotal R2 (R2 - asset risk-equity) 119,069,344,182 123,865,731,113 N/A 105,029,779,766 N/A 96,330,956,505 N/A 100,045,213,943 N/A 95,237,418,680 Total R2A (R2A - asset risk-equity) N/A N/A 104,755,558,433 N/A 96,162,709,544 N/A 99,596,445,434 N/A 95,237,418,680 N/ATotal R3 (R3- asset risk-credit) 9,301,202,060 18,434,231,938 15,209,538,138 15,209,538,138 13,816,109,339 13,816,109,339 13,174,662,626 13,174,662,626 13,175,047,151 13,175,047,151 Total R3A (R3A - asset risk-credit) N/A 9,848,015,193 9,488,603,942 9,488,603,942 6,647,507,689 6,647,507,689 N/A N/A N/A N/ATotal R4 (R4 - underwriting risk - reserves) 114,979,409,018 115,358,602,270 108,983,784,131 108,983,784,131 107,554,282,338 107,554,282,338 106,736,363,643 106,736,363,643 102,887,821,123 102,887,821,123 Total R4A (R4A - underwriting risk - reserves) N/A 111,147,867,287 104,563,384,511 104,563,384,511 103,210,396,738 103,210,396,738 N/A N/A N/A N/ATotal R5 (R5 - underwriting risk - net written premium) 75,532,307,468 68,756,100,751 N/A 73,468,980,677 N/A 68,279,553,819 N/A 67,650,432,627 N/A 63,741,313,990 Total R5A (R5A - Unerwriting Risk - net written premium) N/A N/A 69,209,100,248 N/A 62,755,777,944 N/A 59,601,481,811 N/A 55,380,551,560 N/ATotal R6 (R6 - Catastrophe Risk for Earthquake) N/A N/A N/A N/A 28,719,453,448 N/A 26,071,879,510 N/A 24,172,075,606 N/ATotal R7 (R7 - Catastrophe Risk for Hurricane) N/A N/A N/A N/A 52,717,782,097 N/A 52,565,472,147 N/A 51,851,291,264 N/ATotal Rcat 52,510,292,783 50,710,820,614 59,104,956,618 N/A N/A N/A N/A N/A N/A N/A

Source: NAIC Financial Database attF_SUM18.xlsx 1

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16 22

Capital Adequacy (E) Task ForcePriority 1 – High priority CAPITAL ADEQUACY (E) TASK FORCEPriority 2 – Medium priority WORKING AGENDA ITEMS FOR CALENDAR YEAR 2019Priority 3 – Low priority

Expected2019 2019 Completion

# Owner Priority Date Working Agenda Item Source Comments

Carry-Over Items Currently being Addressed – P&C RBCContinue development of RBC formula revisions to include a risk charge based on catastrophe model output:

Year-end 2019

a) Evaluate other catastrophe risks for possible inclusion in the charge- determine whether to recommend developing charges for any additional perils,

and which perils or perils those should be.Year-end b) Evaluate the AEP vs OEP factors.

Carry-Over Items not Currently being addressed - P&C RBC14 P&C RBC

WG3 Jun-20 Continue working with the Academy to review the methodology and revise the

underwriting (premium and reserve) charges in the PRBC formula as appropriate. 2016-14-P2018-16-P

1) Consider exposing the Academy Proposal at 2016 Fall Meeting.Adopted 10% capped factors 6/28/17 on Task Force conference call. The PCRBCWG agreed to review the factors in 2 or 3 years.2) The Task Force adopted the proposal to 1) use the 35 percent capped factors for Commercial Insurance, Medical Professional Liability, and All Other Lines; and use uncapped factors for Personal Lines and Reinsurance Lines

New Items – P&C RBC14 P&C RBC

WG1 Year-end

2019 Evaluate a) the current growth risk methodology whether it is adequately reflects both operational risk and underwriting risk; b) the premium and reserve based growth risk factors either as a stand-alone task or in conjunction with the ongoing underwriting risk factor review with consideration of the operational risk component of excessive growth; c) whether the application of the growth factors to NET proxies adequately accounts for growth risk that is ceded to reinusers that do not trigger growth risk in their own right.

Refer from Operational Risk Subgroup

1) Sent a referral to the Academy on 6/14/18conference call.

1/25/2018

15 P&C RBC WG

1 Year-end 2019

Evaluate the impact to RBC on a) Pre-Tax vs. After Tax; b) Tax reform on Total Adjusted Capital

1/25/2018

16 P&C RBC WG

1 2020 Summer Meeting

Continue development of RBC formula revisions based on the Covered Agreement:'a) consider eliminating the different treatment of uncollateralized reinsurance recoverable from authorized versus unauthorized, unrated reinsurers; 'b) consider whether the factor for uncollateralized, unrated reinsurers, runoff and captive companies should be adjusted

8/4/2018

17 P&C RBC WG

1 Year-end 2021 or later

Evaluate the proposed changes from the Affiliated Investment Ad Hoc Group related to P/C RBC Affiliated Investments

6/10/2019

13 Cat Risk SG 1

Date Added to Agenda

1 © 2019 National Association of Insurance Commissioners

Attachment G

23

Capital Adequacy (E) Task ForcePriority 1 – High priority CAPITAL ADEQUACY (E) TASK FORCEPriority 2 – Medium priority WORKING AGENDA ITEMS FOR CALENDAR YEAR 2019Priority 3 – Low priority

Expected2019 2019 Completion

# Owner Priority Date Working Agenda Item Source Comments

Date Added to Agenda

18 P&C RBC WG

2 Year-end 2020 or later

Evaluate the proposed changes from the Investment Risk-Based Capital WG related to Bond changes in the P/C formula

6/10/2019

19 P&C RBC WG

1 2020 Summer Meeting or

later

Continue working with the Academy to review the methodology and revise the underwriting (Investment Income Adjustment, Loss Concentration, LOB UW risk) charges in the PRBC formula as appropriate.

6/10/2019

2 © 2019 National Association of Insurance Commissioners

Attachment G

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MCL ACL RAL CAL Trend Test No Action Total

MCL 12 12

ACL 1 1 2

RAL 10 10

CAL 14 14

Trend Test 15 15

No Action 1 2 2398 2,401

Total 13 1 11 14 17 2,398 2,454

Risk Retention Groups Only


MCL 3 3

ACL 1 1 2

RAL 5 5

CAL 6 6

Trend Test 2 2

No Action 1 2 204 207

Total 4 1 6 6 4 204 225

P&C Companies other Than Risk Retention Groups


MCL 9 9

ACL 0 0

RAL 5 5

CAL 8 8

Trend Test 13 13

No Action 2,194 2,194

Total 9 0 5 8 13 2,194 2,229

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2018 P&C RBC - Distribution of Action Levels with 10% Credit Risk Charges on Uncollateralized Reinsurance Coverable from Reinsurers with Equivalent Rating 6 & 7)

(All P&C Companies Excluding Companies with Negative TAC)


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MCL 13 13

ACL 1 1 2

RAL 10 10

CAL 14 1 1 16

Trend Test 16 16

No Action 2,397 2,397

Total 13 1 11 14 17 2,398 2,454



MCL 4 4

ACL 1 1

RAL 6 6

CAL 6 1 1 8

Trend Test 3 3

No Action 203 203

Total 4 1 6 6 4 204 225



MCL 9 9

ACL 0 1 1

RAL 4 4

CAL 8 8

Trend Test 13 13

No Action 2,194 2,194

Total 9 0 5 8 13 2,194 2,229


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MCL 13 13

ACL 1 2 3

RAL 9 1 10

CAL 14 2 16

Trend Test 16 16

No Action 2,396 2,396

Total 13 1 11 14 17 2,398 2,454



MCL 4 4

ACL 1 1 2

RAL 5 1 6

CAL 6 2 8

Trend Test 3 3

No Action 202 202

Total 4 1 6 6 4 204 225



MCL 9 9

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RAL 4 4

CAL 8 8

Trend Test 13 13

No Action 2,194 2,194

Total 9 0 5 8 13 2,194 2,229

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MCL 13 2 15

ACL 1 1

RAL 9 1 1 11

CAL 14 1 15

Trend Test 16 16

No Action 2,396 2,396

Total 13 1 11 14 17 2,398 2,454



MCL 4 1 5

ACL 1 1

RAL 5 1 1 7

CAL 6 1 7

Trend Test 3 3

No Action 202 202

Total 4 1 6 6 4 204 225



MCL 9 1 10

ACL 0 0

RAL 4 4

CAL 8 8

Trend Test 13 13

No Action 2,194 2,194

Total 9 0 5 8 13 2,194 2,229


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MCL 13 2 15

ACL 1 1 2

RAL 9 1 10

CAL 14 1 1 16

Trend Test 15 1 16

No Action 2,395 2,395

Total 13 1 11 14 17 2,398 2,454



MCL 4 1 5

ACL 1 1 2

RAL 5 1 6

CAL 6 1 1 8

Trend Test 2 2

No Action 202 202

Total 4 1 6 6 4 204 225



MCL 9 1 10

ACL 0 0

RAL 4 4

CAL 8 8

Trend Test 13 1 14

No Action 2,193 2,193

Total 9 0 5 8 13 2,194 2,229

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All P&C Companies with Positive TAC (2,454 companies)

% Change in RBC \ Risk Charge 10% 15% 20% 25% 30%-0.50 to -0.25 4-0.25 to -0.15-0.15 to -0.05 12-0.05 to 0 2,4380 to 0.05 2,433 2,402 2,393 2,3820.05 to 0.15 14 30 29 280.15 to 0.25 4 9 10 140.25 to -0.50 3 5 12 140.50 to 1.00 8 3 81.00 to 1.50 7 5Greater Than 1.50 3

Risk Retention Group (225 companies)

% Change in RBC \ Risk Charge 10% 15% 20% 25% 30%-0.50 to -0.25 4-0.25 to -0.15-0.15 to -0.05 4-0.05 to 0 2170 to 0.05 221 216 214 2140.05 to 0.15 4 3 3 30.15 to 0.25 2 2 00.25 to -0.50 0 2 20.50 to 1.00 4 0 21.00 to 1.50 4 2Greater Than 1.50 2

Companies other than Risk Retention Groups (2,229 companies)

% Change in RBC \ Risk Charge 10% 15% 20% 25% 30%-0.50 to -0.25-0.25 to -0.15-0.15 to -0.05 8-0.05 to 0 2,2210 to 0.05 2,212 2,186 2,179 2,1680.05 to 0.15 10 27 26 250.15 to 0.25 4 7 8 140.25 to -0.50 3 5 10 120.50 to 1.00 4 3 61.00 to 1.50 3 3Greater Than 1.50 1

Percentage Changes of 2018 RBC after Covariance as a result of Change in Risk Charges on Uncollateralized Reinsurance Recoverable from Reinsurers with Equivalent Rating 6 & 7

Attachment H

30

(1) (2) (3) = (1)/(2) (4) (5) (6) = (4)/(5)

RRG R3 Charge RRG R4 Charge RRG Ratio: R3 to R4 Non-RRG R3 Charge Non-RRG R3 ChargeNon-RRG Ratio: R3 to

R4

Current RBC 200,471,528 1,255,691,076 16.0% 9,051,385,839 112,968,850,802 8.0%

10% Charge 161,949,528 1,255,612,076 12.9% 8,934,242,339 112,887,971,302 7.9%

15% Charge 210,311,528 1,255,734,076 16.7% 9,171,145,208 113,045,597,433 8.1%

20% Charge 258,672,528 1,255,855,076 20.6% 9,456,748,808 113,154,539,833 8.4%

25% Charge 307,033,028 1,255,977,576 24.4% 9,697,785,967 113,308,044,674 8.6%

30% Charge 355,394,528 1,256,098,076 28.3% 9,975,553,617 113,424,796,024 8.8%

Ratio: 2018 R3 to R4 Ratio Under Differencent Risk Charges for Uncollateralized Reinsurance from Reinsurers with Equivalent Rating 6 & 7

Attachment H

31


32

TAC Size 0 - $5M $5M - $25M $25M - $75M $75M - $250M $250M - $1B Over $1B Total

Total Adjusted Capital 782,532,824 10,335,809,056 27,318,536,730 60,333,720,565 121,967,062,392 710,928,755,584 931,666,417,151

R0 - Current 2,610,170 37,991,936 292,145,522 909,702,368 4,806,022,694 52,673,122,920 58,721,595,610

R1 - Current 9,642,283 104,164,825 286,890,303 699,276,453 1,330,414,787 5,597,534,073 8,027,922,724

R1 - Restated 9,667,631 104,416,217 288,234,968 703,039,792 1,333,977,458 5,634,189,680 8,073,525,746

R1 % Change 0.26% 0.24% 0.47% 0.54% 0.27% 0.65% 0.57%

R2 - Current 33,470,901 336,242,988 792,617,904 2,647,632,843 8,781,969,563 106,439,115,760 119,031,049,959

R2 - Restated 33,445,553 335,991,596 791,273,239 2,643,869,504 8,778,406,892 106,402,460,153 118,985,446,937

R2 % Change -0.08% -0.07% -0.17% -0.14% -0.04% -0.03% -0.04%

R3 - Current 42,214,067 251,542,085 582,436,213 1,430,198,604 2,155,452,661 4,790,013,737 9,251,857,367

R3 - Restated 42,001,869 251,542,085 582,224,015 1,430,198,604 2,155,452,661 4,790,013,737 9,251,432,971

R3 % Change -0.50% 0.00% -0.04% 0.00% 0.00% 0.00% 0.00%

R4 - Current 104,505,684 906,393,142 2,433,309,041 7,496,668,851 18,848,136,967 84,435,528,193 114,224,541,878

R4 - Restated 105,865,177 921,938,968 2,500,303,829 7,787,226,235 19,455,006,750 86,999,855,444 117,770,196,403

R4 % Change 1.30% 1.72% 2.75% 3.88% 3.22% 3.04% 3.10%

R5 - Current 171,485,241 1,074,217,336 2,556,217,332 6,651,964,206 13,399,276,444 51,489,138,375 75,342,298,934

R5 - Restated 170,742,887 1,067,721,020 2,495,747,919 6,512,325,006 12,981,821,800 49,785,116,723 73,013,475,355

R5 % Change -0.43% -0.60% -2.37% -2.10% -3.12% -3.31% -3.09%

Rcat 46,913,243 333,123,411 1,069,644,673 2,359,029,197 5,989,128,395 42,652,927,026 52,450,765,945

RBC after Cov - Current 315,892,588 2,118,627,858 5,366,675,622 14,678,482,466 35,840,470,621 242,962,469,510 301,282,618,665

RBC after Cov - Restated 315,699,580 2,123,430,449 5,369,929,669 14,832,436,967 36,110,576,738 244,555,758,572 303,307,831,974

% Change in RBC after Cov - Mean 3.92% -0.03% 0.13% 0.77% 0.52% 1.01% 0.73%

% Change in RBC after Cov - Standard Deviation 64.04% 3.96% 3.30% 3.47% 3.27% 2.17% 22.49%

# of Companies 296 789 579 419 243 128 2,454

2018 RBC Charges by Company Size - Current verse 2019 Underwriting Risk Charges and Reclassification of Hybrid Securities(Excluding Companies with Negative TAC)

Attachment I

33

ACL RBC % Change\TAC 0 - $5M $5M - $25M $25M - $75M $75M - $250M $250M - $1B Over $1B Total

Less than -50% 0

-50% to -25% 1 1 2

-25% to -15% 2 7 2 11

-15% to -5% 29 39 30 22 15 1 136

-5% to 5% 225 699 516 362 217 125 2,144

5% to 15% 33 37 30 32 11 1 144

15% to 25% 4 5 1 3 1 14

25% to 50% 1 1 2

Greater than 50% 1 1

Subtotal 296 789 579 419 243 128 2,454

(Excluding Companies with Negative TAC)

Distributions of 2018 ACL RBC Percentage Changes by Company Size under 2019 Underwriting Risk Charges and Reclassification Hybrid Securities

Attachment I

34


MCL 13 13

ACL 0 0

RAL 1 11 3 15

CAL 9 1 3 13

Trend Test 15 1 16

No Action 2 1 2,394 2,397

Total 13 1 11 14 17 2,398 2,454

Companies with TAC between $0 and $5 Million


MCL 9 9

ACL 0 0

RAL 1 9 1 11

CAL 5 2 7

Trend Test 3 3

No Action 266 266

Total 9 1 9 6 3 268 296

Companies with TAC between $5 Million and $25 Million


MCL 3 3

ACL 0 0

RAL 1 1

CAL 3 3

Trend Test 10 10

No Action 2 770 772

Total 3 0 1 5 10 770 789



MCL 1 1

ACL 0 0

RAL 1 2 3

CAL 0 0

Trend Test 1 1

No Action 1 573 574

Total 1 0 1 2 2 573 579


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2018 P&C RBC - Comparison of Action Levels by Company Size

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MCL 0

ACL 0

RAL 0

CAL 1 1 2

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Total 0 0 0 0 1 418 419

Companies with TAC between $250 Million and $1 Billion


MCL 0

ACL 0

RAL 0

CAL 1 1

Trend Test 1 1

No Action 241 241

Total 0 0 0 1 1 241 243

Companies with TAC Greater Than $1 Billion


MCL 0

ACL 0

RAL 0

CAL 0

Trend Test 1 1

No Action 127 127

Total 0 0 0 0 0 128 128

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TAC Size Commercial Personal Med Mal Prof Reinsurer Other Lines Non-writers Total

Total Adjusted Capital 369,920,362,076 463,312,945,723 18,320,081,010 36,470,073,636 11,463,195,513 32,179,759,193 931,666,417,151

R0 - Current 22,879,543,370 30,688,229,916 153,629,003 4,754,414,635 71,790,823 173,987,863 58,721,595,610

R1 - Current 5,548,058,636 1,937,631,733 167,979,814 73,882,702 83,054,333 217,315,506 8,027,922,724

R1 - Restated 5,576,864,732 1,953,090,763 168,521,820 73,939,832 83,733,521 217,375,079 8,073,525,746

R1 % Change 0.52% 0.80% 0.32% 0.08% 0.82% 0.03% 0.57%

R2 - Current 33,188,407,072 75,619,260,827 2,132,764,357 7,099,326,028 765,114,777 226,176,898 119,031,049,959

R2 - Restated 33,159,600,976 75,603,801,797 2,132,222,351 7,099,268,898 764,435,589 226,117,325 118,985,446,937

R2 % Change -0.09% -0.02% -0.03% 0.00% -0.09% -0.03% -0.04%

R3 - Current 6,627,750,655 1,411,118,732 187,258,481 73,709,128 194,160,665 757,859,706 9,251,857,367

R3 - Restated 6,627,750,655 1,411,118,732 187,258,481 73,709,128 194,160,665 757,435,310 9,251,432,971

R3 % Change 0.00% 0.00% 0.00% 0.00% 0.00% -0.06% 0.00%

R4 - Current 83,883,878,222 24,838,902,782 2,299,059,671 2,571,498,921 562,815,890 68,386,392 114,224,541,878

R4 - Restated 87,278,780,301 25,219,323,316 2,030,647,992 2,556,150,286 613,900,526 71,393,982 117,770,196,403

R4 % Change 4.05% 1.53% -11.67% -0.60% 9.08% 4.40% 3.10%

R5 - Current 41,548,892,447 30,686,411,559 1,384,022,527 1,018,704,510 702,682,524 1,585,367 75,342,298,934

R5 - Restated 39,494,676,981 30,506,403,078 1,409,669,964 900,141,017 701,013,206 1,571,109 73,013,475,355

R5 % Change -4.94% -0.59% 1.85% -11.64% -0.24% -0.90% -3.09%

Rcat - Current 25,428,833,940 25,709,941,924 4,404,620 1,154,589,585 118,898,808 34,097,068 52,450,765,945

RBC after Cov - Current 140,932,312,864 139,168,605,092 4,111,065,976 13,870,017,416 1,841,768,183 1,358,849,135 301,282,618,665

RBC after Cov - Restated 142,903,443,595 139,432,138,398 3,936,188,816 13,795,075,733 1,879,067,140 1,361,918,293 303,307,831,974

% Change in RBC after Cov - Mean 1.44% 0.26% -4.83% -3.23% 2.09% 1.75% 0.73%

% Change in RBC after Cov - Standard Deviation 4.60% 1.29% 5.11% 3.72% 6.50% 43.90% 22.49%

# of Companies 950 571 190 27 91 625 2,454

Non-writers include those companies with the sum of net written premium and L&LAE reserves equal to or less than Zero for each of the 5 classes of business

2018 RBC Charges by Company Size - Current verse 2019 Underwriting Risk Charges and Reclassification of Hybrid Securities(Excluding Companies with Negative TAC)

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Excluding companies with $0 or negative TAC

ACL RBC % Change\TAC Commercial Personal Med Mal Prof Reinsurer Other Lines Non-writers Total

Less than -50% 0

-50% to -25% 2 2

-25% to -15% 9 2 11

-15% to -5% 25 4 94 9 3 1 136

-5% to 5% 788 562 89 18 65 622 2,144

5% to 15% 116 5 4 18 1 144

15% to 25% 9 1 4 14

25% to 50% 1 1 2

Greater than 50% 1 1

Subtotal 950 571 190 27 91 625 2,454


Distributions of 2018 ACL RBC Percentage Changes by Company Type under 2019 Underwriting Risk Charges and Reclassification Hybrid Securities

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Commercial Line Writers


MCL 2 2

ACL 0 0

RAL 5 3 8

CAL 3 1 3 7

Trend Test 8 1 9

No Action 924 924

Total 2 0 5 6 9 928 950

Commercial Lines include the following lines of business: CAL, WC, CMP, OL (Occ & CM), SP and PL (Occ & CM)

Personal Line Writers


MCL 3 3

ACL 0 0

RAL 1 1

CAL 2 2

Trend Test 5 5

No Action 560 560

Total 3 0 1 2 5 560 571

Personal Lines include the following lines of business: H/F, PPAL and APD

Med Mal Writers


MCL 4 4

ACL 0 0

RAL 1 2 3

CAL 2 2

Trend Test 1 1

No Action 1 1 178 180

Total 4 1 2 3 2 178 190

Med Mal Lines include the following lines of business: Med Mal Occ and Med Mal CM

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Professional Reinsurers


MCL 0

ACL 0

RAL 0

CAL 0

Trend Test 0

No Action 1 26 27

Total 0 0 0 1 0 26 27

Professional Reinsurance lines include the following lines of business: Rein A, Rein B and Rein C

Other Lines Writers


MCL 1 1

ACL 0 0

RAL 1 1

CAL 2 2

Trend Test 1 1

No Action 86 86

Total 1 0 1 2 1 86 91

Other Lines include the following lines of business: SL, Fidelity/Surety, Other, Financial/Mortgage, Int'l and Warranty

Non-writers


MCL 3 3

ACL 0 0

RAL 2 2

CAL 0 0

Trend Test 0 0

No Action 620 620

Total 3 0 2 0 0 620 625



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UNAFFILIATED ASSETS PR006 – PR014

PR006 - Unaffiliated Bonds and Bond Size Factor Adjustment

Basis of General Bond Factors

These The bond risk factors for investment grade bonds (NAIC Classes 1.A – 2.C) are based on cash flow modeling. using historically adjusted default rates for each bond category. For each of 210,000 trials, annual economic conditions were generated for the 10-year modeling period. Each bond of a 400-bond portfolio was annually tested for default (based on a “roll of the dice”) where the default probability varies by NAIC Designation category and that year’s economic environment. The default probabilities were based on historical data intended to reflect a complete cycle of favorable and unfavorable credit environments. The risk of default was measured over a 5-year time horizon, selected considering the duration of property/casualty assets and liabilities.

The factors for NAIC Classes 3.A to 603 through 06 recognize that these non-investment grade bonds are marked to market. These bond risk factors are based on the market value fluctuation for each of the NAIC classes compared to the market value fluctuation of stocks during the 2008-2009 financial crisis.

The bond risk factors are selected with consideration of the effect of the bond size factors.

Bond Size Factor

The bond factors assume a portfolio of 802 issuers. The size factor reflects additional modeling for different size portfolios that shows the risk increases as the number of bond issuers decreases. Because most insurers’ bond portfolios are considerably smaller than the portfolio used to develop the model bond risk, the basic bond factors understate the true default risk of these assets. The bond size factor adjusts the computed RBC for those bonds that are subject to the size factor to more accurately reflect the risk.

The bond size factor is to be multiplied by the risk-based capital of the bonds subject to the size factor. This calculation produces the additional RBC required for a portfolio that has 801 or less than 1,300801 bonds in it. Portfolios with 803 or more than 1,300803 issuers will receive a discount. The bond size factor was developed as a step factor (as in a tax table) so that the overall factor decreases as the portfolio size increases. The bond size factors are the same for property/casualty and life insurance RBC Formulas.

Bonds should be aggregated by issuer (the first six digits of the CUSIP number should be used for aggregation). In determining the total number of issuers, do not count:

• U.S. government bonds that are direct and guaranteed and backed by the full faith and credit of the U.S. government and SVO Identified Funds that are determined by the SVO tobe the equivalent of U.S. government guaranteed bonds or NAIC 01 bonds funds which receive a zero factor (see Annual Statement Instructions).

• Bonds in NAIC 01 (highest quality) which are issued by a U.S. government agency but that are not backed by the full faith and credit of the U.S. government. Examples of thesebonds are: FNMA and FHLMC collateralized mortgage obligations.

• Bonds of parents, subsidiaries and affiliates.

The calculation shown below will not appear in the software but will be calculated automatically. However, you must enter the total number of issuers in the appropriate field on the CD-ROMRBC filing software. If you leave this field blank, the program will assume that there are less than 50 10 issuers and will default to the maximum bond size factor adjustment.The calculation to derive the bond size factor is:

Source (a)

No of Issuers (b)

Wgtd Issuers First 5010 Co Records ______ X 2.57.8= ______ Next 5090 Co Records ______ X 1.375= ______

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Next 300100 Co Records ______ X 1.0 = ______ OverNext 400300 Over 500

Co Records

Co Records

______

______

X 0.98 =

X 0.75 =

______

________ Total Co Records ______ ______

Size Factor = Total Weighted Issuers/Total No of Issuers less 1

PR007 - Unaffiliated Preferred and , Common Stock and Hybrid Securities

Unaffiliated Preferred Stock

Detailed information on unaffiliated preferred stocks and Hybrid Securities areis found in Schedule D Part 2 Section 1 and Schedule D Part 1A Section 1 of the annual statement respectively. The preferred stocks and hybrid securities must be broken out by NAIC Designation (NAIC 01 through NAIC 06) and these individual groups are to be entered in the appropriate lines of the RBC software. The total amount of unaffiliated preferred stock reported should equal annual statement P2 L2.1 C3 less any affiliated preferred stock in Schedule D-Summary by Country C1 L18. The total amount of hybrid securities reported should equal annual statement Schedule D Part 1A Section 1 C6 L7.7.

Unaffiliated Common Stock

Unaffiliated common stocks are subdivided into non-government money market funds and all other unaffiliated common stocks. Non-government money market funds are more like cash than common stocks so it is appropriate to use the same factor as for cash. Amounts reported as non-government money market funds should reflect only those money market funds not qualifying for Schedule DA treatment. (Refer to the NAIC Annual Statement Instructions.) The factor for other unaffiliated common stock is based on studies that indicate a 10 percent to 12 percent factor is needed to provide capital to cover approximately 95 percent of the greatest losses in common stock value over a one-year future period. The higher factor of 15 percent contained in the formula reflects the increased risk when testing a period in excess of one year. This factor assumes capital losses are unrealized and not subject to favorable tax treatment at the time loss in fair value occurs.

The total of all unaffiliated common stock reported should be equal to the total value of common stock in Schedule D-Summary by Country C1 L25 less the sum of Schedule D-Summary by Country C1 L24 and PR007, Column 1, Line 18.

PR011 - Asset Concentration

The purpose of the concentration factor is to reflect the additional risk of high concentrations in single exposures (represented by an issuer of a security or a mortgage borrower, etc.). The concentration factor basically doubles the risk-based capital factor (up to a maximum of 30 percent) of the 10 largest asset exposures excluding various low-risk categories or categories which already have a 30 percent factor. Since the risk-based capital of the assets included in the concentration factor has already been counted once in the basic formula, this factor itself only serves to add an additional risk-based capital requirement on these assets.

Concentrated investments in certain types of assets are not expected to represent an additional risk over and above the general risk of the asset itself. Therefore, prior to determining the 10 largest issuers, you should exclude those assets that are exempt from the asset concentration factor. Asset types that are excluded from the calculation include: NAIC 06 bonds, hybrids and preferred stock, affiliated common stock, affiliated preferred stock, affiliated bonds, property and equipment, U.S. government guaranteed bonds, SVO Identified Funds that are determined by the SVO to be the equivalent of U.S. government guaranteed bonds or NAIC 01 bonds, NAIC 01 bonds, hybrids or preferred stock, any other asset categories with risk-based capital factors less that 1 percent, and investment companies (mutual funds) and common trust funds that are diversified within the meaning of the Investment Company Act of 1940 [Section 5(b) (1)]. The pro rata share of individual securities within an investment company (mutual fund) or common trust fund are to be included in the determination of concentrated investments, subject to the exclusions identified.

With respect to investment companies (mutual funds) and common trust funds, the reporting company is responsible for maintaining the appropriate documentation as evidence that such is diversified within the meaning of the Investment Company Act and provide this information upon request of the commissioner, director or superintendent of the department of

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insurance. The reporting company is also responsible for maintaining a listing of the individual securities and corresponding book/adjusted carrying values making up its investment companies (mutual funds) and common trust funds portfolio, in order to determine whether a concentration charge is necessary. This information should be provided to the commissioner, director or superintendent upon request.

The assets that ARE INCLUDED in the calculation are divided into two categories – Fixed Income Assets and Equity Assets. The following asset types should be aggregated to determine the 10 largest issuers:

FIXED INCOME ASSETS EQUITY ASSETS Unaffiliated Bonds – NAIC 02Designation Category 2.A Unaffiliated Preferred Stock –NAIC 02 Bonds – NAIC Designation Category 2.B Unaffiliated Preferred Stock –NAIC 03 Bonds – NAIC Designation Category 2.C Unaffiliated Preferred Stock –NAIC 04 Unaffiliated Bonds – NAIC 03Designation Category 3.A Unaffiliated Preferred Stock –NAIC 05 Bonds – NAIC Designation Category 3.B Unaffiliated Hybrid Securities –NAIC 03- Bonds – NAIC Designation Category 3.C Unaffiliated Hybrid Securities –NAIC 04- Unaffiliated Bonds –NAIC 04Designation Category 4.A Unaffiliated Hybrid Securities–NAIC 05- Bonds – NAIC Designation Category 4.B Unaffiliated Common Stock Bonds – NAIC Designation Category 4.C Investment Real Estate Unaffiliated Bonds –NAIC 05Designation Category 5.A Encumbrances on Inv. Real Estate Bonds – NAIC Designation Category 5.B Schedule BA Assets (excluding Collateral Loans) Bonds – NAIC Designation Category 5.C Receivable for Securities Collateral Loans Aggregate Write-ins for Invested Assets Mortgage Loans Derivatives Working Capital Finance Investments – NAIC 02 Federal Guaranteed Low Income Housing Tax Credits Federal Non-Guaranteed Low Income Housing Tax Credits State Guaranteed Low Income Housing Tax Credits State Non-Guaranteed Low Income Housing Tax Credits All Other Low Income Housing Tax Credits

The name of each of the largest 10 issuers is entered at the top of the table and the appropriate statement amounts are entered in C(2) Ls (01) through (0620) for fixed income assets and C(2), Ls (0822) through (2832) for equity assets. Aggregate all similar asset types before entering the amount in C(2). For instance, if you own five separate $1,000,000 NAIC 03-A bonds from Issuer #1, enter $5,000,000 in C(2)L(02) – NAIC 03-A Unaffiliated Bonds.

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OFF-BALANCE SHEET COLLATERAL AND SCHEDULE DL, PART 1 ASSETS PR015

Security lending programs are required to maintain collateral. Some entities post the collateral supporting security lending programs on their financial statements, and incur the related risk charges on those assets. Other entities have collateral that is not recorded on their financial statements. While not recorded on the financial statements of the company, such collateral has risks that are not otherwise captured in the RBC formula.

The collateral in these accounts is maintained by a third party (typically a bank or other agent). The collateral agent maintains on behalf of the company detail asset listings of the collateral assets, and this data is the source for preparation of this schedule. The company should maintain such asset listings, at a minimum CUSIP, market value, book/carrying value, and maturity date.

The asset risk charges are derived from existing RBC factors for bonds, preferred and common stocks, other invested assets, and invested assets not otherwise classified (aggregate write-ins).

Specific Instructions for Application of the Formula

Column (2) – Schedule DL, Part 1 Book/Adjusted Carrying Value comes from Annual Statement Schedule DL, Part 1, Column (6) Securities Lending Collateral Assets reported On-Balance Sheet (Assets Page, Line 10).

Off-balance sheet collateral included in General Interrogatories Part 1, Lines 24.05 and 24.06 of the Annual Statement should agree with Line (2241), Column (1).

Lines (1) through (927) – Bonds Bond factors described on PR006 – Unaffiliated Bonds and Bond Size Factor Adjustment

Line (1029) through (1634) – Preferred Stocks Preferred stock factors described on PR007 – Unaffiliated Preferred and Common Stock

Lines (1736) – Common Stock Common stock factors described on PR007 – Unaffiliated Preferred and Common Stock

Line (1837) – Real Estate and Schedule BA - Other Invested Assets Real Estate and other invested asset factors described on PR008 – Other Long-Term Assets

Line (1938) – Other Invested Assets

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Other invested assets factors described on PR009 – Miscellaneous Assets

Line (2039) – Mortgage Loans on Real Estate Mortgage Loans on Real Estate factor described on PR009 – Miscellaneous Assets

Line (2140) – Cash, Cash Equivalents, Non-Government Money Market Fund and Short-Term Investments Cash, Cash Equivalents, Non-Government Money Market Fund and Short-Term Investments factors described on PR007 – Unaffiliated Preferred, Common Stock and Hybrid Securities and PR009 – Miscellaneous Assets

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BONDS PR006

(1) (2)Electronic only Tables Source Book/Adjusted Carrying Value Factor RBC Requirement

(1) NAIC 01 - U.S. Government - Direct and Guaranteed and SVO Identified Funds Tbl A C(2)+C(5)+ C(8)L21 0 0.000 0

(2) NAIC Designation Category 1.A Tbl A C(10)L(1) 0 0.002 0(3) NAIC Designation Category 1.B Tbl A C(10)L(2) 0 0.004 0(4) NAIC Designation Category 1.C Tbl A C(10)L(3) 0 0.006 0(5) NAIC Designation Category 1.D Tbl A C(10)L(4) 0 0.008 0(6) NAIC Designation Category 1.E Tbl A C(10)L(5) 0 0.010 0(7) NAIC Designation Category 1.F Tbl A C(10)L(6) 0 0.013 0(8) NAIC Designation Category 1.G Tbl A C(10)L(7) 0 0.015 0(9) Total NAIC 01 Bonds Sum of Ls (2) through (8) 0 0

(10) NAIC Designation Category 2.A Tbl A C(10)L(8) 0 0.018 0(11) NAIC Designation Category 2.B Tbl A C(10)L(9) 0 0.021 0(12) NAIC Designation Category 2.C Tbl A C(10)L(10) 0 0.025 0(13) Total NAIC 02 Bonds Sum of Ls (10) through (12) 0 0(14) NAIC Designation Category 3.A Tbl A C(10)L(11) 0 0.055 0(15) NAIC Designation Category 3.B Tbl A C(10)L(12) 0 0.060 0(16) NAIC Designation Category 3.C Tbl A C(10)L(13) 0 0.066 0(17) Total NAIC 03 Bonds Sum of Ls (14) through (16) 0 0(18) NAIC Designation Category 4.A Tbl A C(10)L(14) 0 0.071 0(19) NAIC Designation Category 4.B Tbl A C(10)L(15) 0 0.077 0(20) NAIC Designation Category 4.C Tbl A C(10)L(16) 0 0.087 0(21) Total NAIC 04 Bonds Sum of Ls (18) through (20) 0 0(22) NAIC Designation Category 5.A Tbl A C(10)L(17) 0 0.098 0(23) NAIC Designation Category 5.B Tbl A C(10)L(18) 0 0.109 0(24) NAIC Designation Category 5.C Tbl A C(10)L(19) 0 0.120 0(25) Total NAIC 05 Bonds Sum of Ls (22) through (24) 0 0(26) Total NAIC 06 Bonds Tbl A C(10)L(20) 0 0.300 0(27) Subtotal - Bonds Subject to Bond Size Factor L(9)+L(13)+L(17)+L(21)+L(25)+

L(26) 0 0(28) Number of Issuers 0(29) Bond Size Factor 6.800(30) Bond Size Factor RBC=C(2)L(27) x C(2)L(29) 0(31) Total Bonds RBC=L(1)+L(27)+(30) 0 0

PR006

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Tbl A - Schedule D Part 1: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

RBC Bond CategoriesTotal Bonds

(Sch D Pt1 C11)

NAIC 01 - U.S. Government Direct

and Guaranteed(Sch D Pt1 C11

L0599999)

SVO Identified Bond Mutual

Funds(Sch D Pt1 C11

L5999999)

Total Bonds

(Sch DA Pt1 C7)


and Guaranteed(Sch DA Pt1 C7

L0599999)

SVO Identified Funds

(Sch DA Pt1 C7 L5999999)

Total Bonds

(Sch E Pt2 C7)


and Guaranteed(Sch E Pt2 C7

L0599999)

SVO Identified

Funds(Sch E Pt2 C7

L5999999)

BondsC(1)+C(4)+C(7)-C(2)-C(3)-

C(5)-C(6)-C(8)-C(9)

(1) NAIC Designation Category 1.A 0 0 0 0 0 0 0 0 0 0(2) NAIC Designation Category 1.B 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(3) NAIC Designation Category 1.C 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(4) NAIC Designation Category 1.D 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(5) NAIC Designation Category 1.E 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(6) NAIC Designation Category 1.F 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(7) NAIC Designation Category 1.G 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(8) NAIC Designation Category 2.A 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(9) NAIC Designation Category 2.B 0 xxx xxx 0 xxx xxx 0 xxx xxx 0

(10) NAIC Designation Category 2.C 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(11) NAIC Designation Category 3.A 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(12) NAIC Designation Category 3.B 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(13) NAIC Designation Category 3.C 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(14) NAIC Designation Category 4.A 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(15) NAIC Designation Category 4.B 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(16) NAIC Designation Category 4.C 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(17) NAIC Designation Category 5.A 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(18) NAIC Designation Category 5.B 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(19) NAIC Designation Category 5.C 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(20) NAIC 06 0 xxx xxx 0 xxx xxx 0 xxx xxx 0(21) Total 0 0 0 0 0 0 0 0 0 0

Tbl B - Crosscheck: (2) (3)Annual Statement

Schedule D Part 1A Section 1 Column 7

RBC PR006 Column 1 RBC Report Difference

(1) NAIC 01 Line 11.1 L1+10 0 0(2) NAIC 02 Line 11.2 L14 0 0(3) NAIC 03 Line 11.3 L18 0 0(4) NAIC 04 Line 11.4 L22 0 0(5) NAIC 05 Line 11.5 L26 0 0(6) NAIC 06 Line 11.6 L27 0 0

Denotes items that must be vendor linked. Denotes items that must be manually entered on the filing software.

0

(1)

00

Annual Statement00

Schedule D, Part 1 - Long Term Bonds Schedule DA, Part 1 - Short Term Bonds Schedule E, Part 2 - Cash Eqivalents

0

PR006 Electronic Tables

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UNAFFILIATED PREFERRED AND COMMON STOCK PR007

(1) (2)

Unaffiliated Preferred Stock Annual Statement SourceBook/Adjusted Carrying Value Factor RBC Requirement

(1) NAIC 01 Preferred Stock Sch D Pt 2 Sn 1 0 0.003 0(2) NAIC 02 Preferred Stock Sch D Pt 2 Sn 1 0 0.010 0(3) NAIC 03 Preferred Stock Sch D Pt 2 Sn 1 0 0.020 0(4) NAIC 04 Preferred Stock Sch D Pt 2 Sn 1 0 0.045 0(5) NAIC 05 Preferred Stock Sch D Pt 2 Sn 1 0 0.100 0(6) NAIC 06 Preferred Stock Sch D Pt 2 Sn 1 0 0.300 0(7) SUBTOTAL - UNAFFILIATED PREFERRED STOCK Sum of Ls (1) through (6) 0 0

(should equal P2 L2.1 C3 less Sch D-Sum C1 L18)

Hybrid Securities(8) NAIC 01 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.1) 0 0.003 0(9) NAIC 02 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.2) 0 0.010 0(10) NAIC 03 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.3) 0 0.020 0(11) NAIC 04 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.4) 0 0.045 0(12) NAIC 05 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.5) 0 0.100 0(13) NAIC 06 Hybrid Securities Sch D Pt 1A Sn 1 C(7) L (7.6) 0 0.300 0(14) SUBTOTAL - HYBRID SECURITIES Sum of Ls (8) through (13) 0 0

(15) Total Unaffiliated Preferred Stock and Hybrid Securities Line (7) + Line (14) 0 0

Unaffiliated Common Stock(8) Total Common Stock Sch D - Summary C1 L25 0(9) Affiliated Common Stock Sch D - Summary C1 L24 0(10) Non-Admitted Unaffilated Common Stock P2 C2 L2.2 - Sch D Pt6 Sn1 C10 L1899999 0(11) Admitted Unaffiliated Common Stock L(16) - L(17) - L(18) 0 0.150 0(12) Fair Value Excess Affiliated Common Stock PR003 C(14) L(9999999) 0(13) Total Unaffiliated Common Stock L(11) + L(12) 0 0


PR007

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ASSET CONCENTRATION PR011

(1) (2) (3)

ISSUER #1j y g Value Factor Additional RBC

(1) NAIC Designation Category 2.A Bonds 0 0.0180 0(2) NAIC Designation Category 2.B Bonds 0 0.0210 0(3) NAIC Designation Category 2.C Bonds 0 0.0250 0(4) NAIC Designation Category 3.A Bonds 0 0.0550 0(5) NAIC Designation Category 3.B Bonds 0 0.0600 0(6) NAIC Designation Category 3.C Bonds 0 0.0660 0(7) NAIC Designation Category 4.A Bonds 0 0.0710 0(8) NAIC Designation Category 4.B Bonds 0 0.0770 0(9) NAIC Designation Category 4.C Bonds 0 0.0870 0(10) NAIC Designation Category 5.A Bonds 0 0.0980 0(11) NAIC Designation Category 5.B Bonds 0 0.1090 0(12) NAIC Designation Category 5.C Bonds 0 0.1200 0(13) Collateral Loans 0 0.0500 0(14) Mortgage Loans 0 0.0500 0(15) NAIC 02 Working Capital Finance Investments 0 0.0125 0(16) Federal Guaranteed Low Income Housing Tax Credits 0 0.0014 0(17) Federal Non-Guaranteed Low Income Housing Tax Credits 0 0.0260 0(18) State Guaranteed Low Income Housing Tax Credits 0 0.0014 0(19) State Non-Guaranteed Low Income Housing Tax Credits 0 0.0260 0(20) All Other Low Income Housing Tax Credits 0 0.1500 0(21) SUBTOTAL - FIXED INCOME 0 0

(22) NAIC 02 Unaffiliated Preferred Stock 0 0.0100 0(23) NAIC 03 Unaffiliated Preferred Stock 0 0.0200 0(24) NAIC 04 Unaffiliated Preferred Stock 0 0.0450 0(25) NAIC 05 Unaffiliated Preferred Stock 0 0.1000 0

NAIC 02 Hybrid Securities 0 0.0100 0NAIC 03 Hybrid Securities 0 0.0200 0NAIC 04 Hybrid Securities 0 0.0450 0NAIC 05 Hybrid Securities 0 0.1000 0

(26) Property Held For Production of Income or For Sale Excluding Home Office 0 0.1000 0(27) Property Held For Production of Income or For Sale Encumbrances Excluding Home Office 0 0.1000 0(28) Schedule BA Assets 0 0.1000 0(29) Receivable for Securities 0 0.0230 0(30) Aggregate Write-Ins for Invested Assets 0 0.0500 0(31) Derivatives 0 0.0500 0(32) Unaffiliated Common Stock 0 0.1500 0(33) SUBTOTAL - EQUITY 0 0

(34) TOTAL - ISSUER #1 (L21+L33) 0 0

NOTE: Ten issuer sections and a grand total page will be available on the filing software. The grand total page is calcuated as the sum of issuers 1-10 by asset type.


PR011

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(1) (2) (3) (4)

Asset Category Annual Statement Source

Off-Balance Sheet Collateral

Book/Adjusted Carrying Value

Schedule DL, Part 1 Book/Adjusted Carrying Value Subtotal Factor RBC Requirement

Fixed Income AssetsBonds

(1) NAIC 01 - U.S. Government - Direct and Guaranteed and SVO Identified Funds Company Records 0 0 0 0.000 0(2) NAIC Designation Category 1.A Company Records 0 0 0 0.002 0(3) NAIC Designation Category 1.B Company Records 0 0 0 0.004 0(4) NAIC Designation Category 1.C Company Records 0 0 0 0.006 0(5) NAIC Designation Category 1.D Company Records 0 0 0 0.008 0(6) NAIC Designation Category 1.E Company Records 0 0 0 0.010 0(7) NAIC Designation Category 1.F Company Records 0 0 0 0.013 0(8) NAIC Designation Category 1.G Company Records 0 0 0 0.015 0(9) Total NAIC 01 Bonds Sum of Ls (1) through (8) 0 0 0 0

(10) NAIC Designation Category 2.A Company Records 0 0 0 0.018 0(11) NAIC Designation Category 2.B Company Records 0 0 0 0.021 0(12) NAIC Designation Category 2.C Company Records 0 0 0 0.025 0(13) Total NAIC 02 Bonds Sum of Ls (10) through (12) 0 0 0 0(14) NAIC Designation Category 3.A Company Records 0 0 0 0.055 0(15) NAIC Designation Category 3.B Company Records 0 0 0 0.060 0(16) NAIC Designation Category 3.C Company Records 0 0 0 0.066 0(17) Total NAIC 03 Bonds Sum of Ls (14) through (16) 0 0 0 0(18) NAIC Designation Category 4.A Company Records 0 0 0 0.071 0(19) NAIC Designation Category 4.B Company Records 0 0 0 0.077 0(20) NAIC Designation Category 4.C Company Records 0 0 0 0.087 0(21) Total NAIC 04 Bonds Sum of Ls (18) through (20) 0 0 0 0(22) NAIC Designation Category 5.A Company Records 0 0 0 0.098 0(23) NAIC Designation Category 5.B Company Records 0 0 0 0.109 0(24) NAIC Designation Category 5.C Company Records 0 0 0 0.120 0(25) Total NAIC 05 Bonds Sum of Ls (22) through (24) 0 0 0 0(26) Total NAIC 06 Bonds Company Records 0 0 0 0.300 0(27) Total Bonds L(9)+L(13)+L(17)+L(21)+L(25)+L(26) 0 0 0 0

Equity AssetsPreferred Stock - Unaffiliated

(28) NAIC 01 Unaffiliated Preferred Stock Company Records 0 0.003 0(29) NAIC 02 Unaffiliated Preferred Stock Company Records 0 0.010 0(30) NAIC 03 Unaffiliated Preferred Stock Company Records 0 0.020 0(31) NAIC 04 Unaffiliated Preferred Stock Company Records 0 0.045 0(32) NAIC 05 Unaffiliated Preferred Stock Company Records 0 0.100 0(33) NAIC 06 Unaffiliated Preferred Stock Company Records 0 0.300 0(34) Total Unaffiliated Preferred Stock Sum of Ls (28) through (33) 0 0 0 0

(35) Unaffiliated Common Stock Company Records 0 0.150 0

(36) Real Estate and Schedule BA - Other Invested Assets Company Records 0 0.200 0

(37) Other Invested Assets Company Records 0 0.200 0

(38) Mortgage Loans on Real Estate Company Records 0 0.050 0

(39) Cash, Cash Equivalents, non-government money market fund and Short-Term Investments Company Records 0 0.003 0(Not reported as Bonds above)

(40) Total L(27)+L(34)+L(35)+L(36)+L(37)+L(38)+L(39) 0 0 0 0


OFF-BALANCE SHEET COLLATERAL AND SCHEDULE DL, PART 1 ASSETS PR015

PR015

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Calculation of Total Risk-Based Capital After Covariance PR030 R0-R1(1)

R0 - Asset Risk - Subsidiary Insurance Companies PRBC O&I Reference RBC Amount(1) Affiliated US P&C Insurers - Directly Owned PR004 L(1)C(4) 0(2) Affiliated US P&C Insurers - Indirectly Owned PR004L(4)C(4) 0(3) Affiliated US Life Insurers - Directly Owned PR004 L(2)C(4) 0(4) Affiliated US Life Insurers - Indirectly Owned PR004 L(5)C(4) 0(5) Affiliated US Health Insurer - Directly Owned PR004 L(3)C(4) 0(6) Affiliated US Health Insurer - Indirectly Owned PR004 L(6)C(4) 0(7) Affiliated Alien Insurers - Directly Owned PR004 L(8)C(4) 0(8) Affiliated Alien Insurers - Indirectly Owned PR004 L(9)C(4) 0(9) Misc Off-Balance Sheet - Non-Controlled Assets PR014 L(15) C(3) 0

(10) Misc Off-Balance Sheet - Guarantees for Affiliates PR014 L(16) C(3) 0(11) Misc Off-Balance Sheet - Contingent Liabilities PR014 L(17) C(3) 0(12) Misc Off-Balance Sheet - SSAP No.101 Par. 11A DTA PR014 L(19) C(3) 0(13) Misc Off-Balance Sheet - SSAP No.101 Par. 11B DTA PR014 L(20) C(3) 0

(14) Total R0 L(1)+L(2)+L(3)+L(4)+L(5)+L(6)+L(7)+L(8)+L(9)+L(10)+L(11)+L(12)+L(13) 0

R1 - Asset Risk - Fixed Income(15) NAIC 01 U.S. Government Agency Bonds PR006 L(2)C(2) 0(15) Bonds Subject to Size Factor PR006 L(27)C(2)+PR015 L(27)C(4) 0(16) Bond Size Factor RBC PR006 L(30)C(2) 0(17) Off-balance Sheet Collateral & Sch DL., PT1 - Total Bonds PR015 L(27)C(4) 0(18) Off-balance Sheet Collateral & Sch DL., PT1 - Cash, Cash Equi, non-govt MMF & S.T. Invest and Mort Loans on Real Est. PR015 L(38) + L(39) C(2) 0(19) Misc Assets - Collateral Loans PR008 L(10)+L(13)+L(14)+L(15)+L(16)+L(17)+L(20)+L(21)C(2) 0(20) Misc Assets - Cash PR009 L(13)C(2) 0(21) Misc Assets - Cash Equivalents PR009 L(3)C(2) 0(22) Misc Assets - Other Short-Term Investments PR009 L(7)C(2) 0(23) Replication -Synthetic Asset: One Half PR009 L(10)C(2)(24) Asset Concentration RBC - Fixed Income PR010 L(9999999)C(7) (25) Asset Concentration RBC - Fixed Income PR011 L(21)C(3) Grand Total Page 0

L(15)+L(16)+L(17)+L(18)+L(19)+L(20)+L(21)+L(22)+L(23)+L(24)(26) Total R1 L(25)+L(26) 0

PR031

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Calculation of Total Risk-Based Capital After Covariance PR032 R2-R3(1)

R2 - Asset Risk - Equity PRBC O&I Reference RBC Amount(27) Common - Affiliate Investment Subsidiary PR004 L(7)C(2) 0(28) Common - Affiliate Hold. Company. in excess of Ins. Subs. PR004 L(10)C(2) 0(29) Common - Investment in Parent PR004 L(11)C(2) 0(30) Common - Aff'd US P&C Not Subj to RBC PR004 L(12)C(2) 0(31) Common - Affil US Life Not Subj to RBC PR004 L(13)C(2) 0(32) Common - Affil US Health Insurer Not Subj to RBC PR004L(14)C(2) 0(33) Common - Aff'd Non-insurer PR004 L(15)C(2) 0(34) Preferred - Aff'd Invest Sub PR004 L(7)C(3) 0(35) Preferred - Aff'd Hold. Co. in excess of Ins. Subs. PR004 L(10)C(3) 0(36) Preferred - Investment in Parent PR004 L(11)C(3) 0(37) Preferred - Affil US P&C Not Subj to RBC PR004 L(12)C(3) 0(38) Preferred - Affil US Life Not Subj to RBC PR004 L(13)C(3) 0(39) Preferred - Affil US Health Insurer Not Subj to RBC PR004 L(14)C(3) 0(40) Preferred - Affil Non-insurer PR004 L(15)C(3) 0(41) Unaffiliated Preferred Stock and Hybrid Securities PR007 L(7)C(2)+PR015 L(34)C(4) 0(42) Unaffiliated Common Stock PR007 L(14)C(2)+PR015 L(35)C(4) 0(43) Other Long -Term Assets - Real Estate PR008 L(7)C(2) 0(44) Other Long -Term Assets - Schedule BA Assets PR008 L(19)C(2)+PR015 L(36)+L(37)C(4) 0(45) Misc Assets - Receivable for Securities PR009 L(1)C(2) 0(46) Misc Assets - Aggregate Write-ins for Invested Assets PR009 L(2)C(2) 0(47) Misc Assets - Derivatives PR009 L(15)C(2) 0(48) Replication - Synthetic Asset: One Half PR010 L(9999999)C(7) 0(49) Asset Concentration RBC - Equity PR011 L(33)C(3) Grand Total Page 0

L(33)+L(34)+L(35)+L(36)+L(37)+L(38)+L(39)

+L(40)+L(41)+L(42)+L(43)+L(44)+L(45)+L(46)+L(47)(50) Total R2 +L(48)+L(49)+L(50)+L(51)+L(52)+L(53)+L(54)+L(55) 0

R3 - Asset Risk - Credit(51) Other Credit RBC PR012 L(8))-L(1)-L(2)C(2) 0(52) One half of Rein Recoverables 0.5 x (PR012 L(1)+L(2)C(2)) 0(53) Other half of Rein Recoverables If R4 L(58)>(R3 L(52) + R3 L(53)), 0, otherwise, R3 L(53) 0(54) Health Credit Risk PR013 L(12)C(2) 0

(55) Total R3 L(52) + L(53) + L(54) + L(55) 0

PR032

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Notes from Johnson Regarding the Proposed Changes to P/C Percentage Ownership Calculation

Purpose:

to modify the formula in PR003, PR004 and PR005 in such a way that the percentage ownership of an insurance affiliate is based on the ownership of common stock and preferred stock combined basis.

(Under the combined percentage ownership, the RBC charge for the preferred stock will no longer be on the excess basis, and should subject to the same charge as the common stock)

PR003:

There will be only 13 columns instead of 14 columns as there will be only one percentage ownership apply to both common stock and preferred stock.

The formula in column 11, 12 and 13 will be modified with the current formula for common stock charge by applying to the combination of common stock and preferred stock BACV.

We also add identifications of affiliate type in Rows 119 to 218 which will be used for PR004 and PR005. Under this modification, we can eliminate the tab "AFFILCALC" which is considered to be redundant under the new changes.

We can consider moving lines 116 and subsequent to PR004 so that the formulae can be protected.

PR004:

Reduce the number of columns, column 1 shows the number of affiliates in each affiliate type and column 2 shows the RBC charge for both common stock and preferred stock holding of each affiliate type.

Formula 1 and 2 are modified so that they directly link to PR003 instead of to tab "AFFILCALC".

PR005:

Formula of column 3 are modified so that they directly link to PR003 instead of to tab "AFFILCALC".

PR007:

Line 20 of PR007 should also be changed in according to the change in PR003.

PR030 to PR032:

The line numbers and RBC O&I reference should be changed in according to the changes made in PR004. We made changes to PR031 Line 42.

AFFILICALC:

We believe this tab can be deleted under the above changes.

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54


AFFILIATED STOCKS PR003 – PR005

There are fifteen categories of subsidiary and affiliated investments that are subject to RBC requirement for common stock and preferred stock holdings. Those fifteen categories are:

1. Directly Owned P&C Insurance Affiliates Subject to RBC2. Directly Owned Life Insurance Affiliates Subject to RBC3. Directly Owned Health Insurance Affiliates Subject to RBC4. Indirectly Owned P&C Insurance Affiliates Subject to RBC5. Indirectly Owned Life Insurance Affiliates Subject to RBC6. Indirectly Owned Health Insurance Affiliates Subject to RBC7. Investment Affiliates8. Directly Owned Alien Insurance Affiliates9. Indirectly Owned Alien Insurance Affiliates

10. Holding Company Value in Excess of Indirectly Owned Insurance Affiliates11 Investments in Upstream Affiliate (Parent)12. P&C Insurance Affiliates Not Subject to RBC13. Life Insurance Affiliates Not Subject to RBC14. Health Insurance Affiliates Not Subject to RBC15. Other Affiliates

Enter applicable items for each affiliate in the Details for Affiliated Stocks worksheet. The program will automatically calculate the RBC charge for each affiliate. When the data is uploaded to the NAIC database, it will be cross-checked and the company will be required to correct any discrepancies and refile a corrected version with the NAIC and/or any state that requires the company to file RBC with its department. The diskette will display the number of subsidiaries and affiliates. These numbers should be reviewed to ensure that all subsidiaries and affiliates are appropriately reported.

Affiliated investments fall into two broad categories: (a) Insurance Affiliates that are Subject to RBC; and (b) Affiliates that are Not Subject to RBC. The RBC for these two broad groups differs, therefore, the general treatment is explained below.

Insurance Affiliates that are Subject to RBC For purposes of Affiliate Risk all references to Total Risk-Based Capital After Covariance of the subsidiary or affiliate means: • For a Health subsidiary RBC filing, Total Risk-Based Capital After Covariance before Basic Operational Risk (XR025, Line (37));• For a P/C subsidiary RBC filing, Total Risk-Based Capital After Covariance before Basic Operational Risk (PR032, Line (68)); and• For a Life subsidiary RBC filing, the sum of(a) Total Risk-Based Capital After Covariance before Basic Operational Risk (LR031, Line (67); and(b) Primary Security shortfalls for all cessions covered by Actuarial Guideline XLVIII (AG 48) multiplied by two (LR031, Line (71)).

For those insurance affiliates of the reporting company that are reported under the equity method, and for which unamortized admitted goodwill is zero or non-existent for the reported book/adjusted carrying value, the RBC charge of the ownership of common stock in these affiliates is limited to the lesser of (a) the Total RBC After Covariance of the affiliate times the percentage of ownership of total common stockthe affiliate; or (b) the common stock sum of the book/adjusted carrying value of the common stock and preferred stockgreater than zero at which the affiliates areis carried. To establish the percentage of ownership of common stockan affiliate, the book/adjusted carrying value of the insurance affiliate’s common stock must be entered in Column (5) of the appropriate worksheet and the total outstanding common stock of that affiliate must be entered in Column (7), and the book/adjusted carrying value of the insurance affiliate’s preferred stock (if any) must be entered in Column (9) of the appropriate worksheet and the total outstanding preferred stock of that affiliate must be

Attachment K

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entered in Column (10). The percentage of ownership of the affiliate is equal to the sum of the booked / adjusted carrying value of the common stock and preferred stock divided by the sum of the total outstanding common stock and total outstanding preferred stock.

For all other insurance affiliates of the reporting company, the RBC charge of the ownership of common stock in these affiliates consists of two components: (1) The R0 component, which is limited to the lesser of (a) the Total RBC After Covariance of the affiliate times the percentage of ownership of the affiliatetotal common

stock; or(b) the statutory surplus of the affiliate times the percentage of ownership of total common stockthe affiliate.

(2) The R2 component, which is computed in the following manner:If the Total RBC After Covariance of the affiliate times the percentage of ownership of total common stocthe affiliatek is greater than the sum of the book / adjustedcarrying value of the common stock and preferred stock, the R2 component is set equal to the amount of the book / adjusted carrying value of the common stock sumof the common stock and preferred stock of the affiliate that exceeds the value obtained from the R0 component (step (1)(b) above).

Otherwise, the R2 component is set equal to the larger of (a) 22.5 percent times the excess of the sum of book / adjusted carrying value of the common stock andpreferred stock over the pro rata statutory surplus value for the affiliate; and (b) the amount that Total RBC After Covariance of the affiliate times the percentage ofownership of total common stockthe affiliate exceeds the value obtained from the R0 component.In any case, the R2 component is limited to a floor of zero.

The RBC charge for ownership of preferred stock on these affiliates is somewhat more complex and depends on whether there is excess RBC over and above the total value of the outstanding common stock. Excess RBC is defined as the amount that the Total RBC After Covariance of the affiliate exceeds the common stock book/adjusted carrying value for the investment in that affiliate. If the Total RBC After Covariance of the affiliate is less than the common stock book/adjusted carrying value for the investment in that affiliate, then there is no excess RBC and there is no RBC charge for the ownership of the preferred stock. If there is excess RBC, then the charge for ownership of the preferred stock is the lesser of (a) the pro rata share of the excess RBC; or (b) the reporting company’s book/adjusted carrying value of the preferred stock greater than zero. The pro rata ownership of preferred stock is the ratio of the affiliate’s preferred stock in Column (10) of the affiliated worksheet to the value of all outstanding preferred stock in Column (11). The pro rata share is multiplied by the excess RBC and compared to the carrying value of preferred stock in Column (10).

To determine the value of total outstanding common stock and/or total outstanding preferred stock, divide the book/adjusted carrying value of the investment (found in Schedule D - Part 6 Section 1, Column 7) by the percentage of ownership (found in Schedule D – Part 6 – Section 1, Column 9). For example:

Affiliated Insurance Owner’s Common/Preferred Stock Percentage Total Common/Preferred Company Book / Adjusted Carrying Value Ownership Stock Outstanding

Affiliate #1 $1,000,000 100% $1,000,000 Affiliate #2 $1,000,000 75% $1,333,333 Affiliate #3 $1,000,000 50% $2,000,000 Affiliate #4 $1,000,000 25% $4,000,000 Affiliate #5 $1,000,000 10% $10,000,000

In some instances, a company may own preferred stock in an affiliate subject to RBC yet hold no common stock. In this instance, the company must compute the notional value of the outstanding value of the affiliate’s common and/or preferred stock to determine if there is any excess. Valuation of the total outstanding common and preferred stock must be based on one of the accepted methods outlined in the Purposes and Procedures Manual of the NAIC Investment Analysis Office.

*In the rare case where Total RBC After Covariance exceeds the carrying value (market), which in turn exceeds statutory surplus, the formula will apply 100 percent of the differencebetween the market and surplus values as an additional RBC charge to the R2 component. The amount of statutory surplus (adjusted for percentage ownership) continues to be added tothe formula’s R0 component.

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Also, note that the formula compares the amount generated by 22.5 percent of market carrying value less statutory surplus to the amount of RBC After Covariance less statutory surplus and increases the R2 component by the larger amount. This is done in order to satisfy the initial requirement that the RBC charge for ownership of such common stockthe affiliate is limited to the lesser of RBC After Covariance or the financial statement carrying value of the insurer (both adjusted for percentage ownership). The situation can occur where the market carrying value is greater than RBC After Covariance, which in turn is greater than statutory surplus, which leads to the need to make this comparison.

Directly Owned U.S. Property & Casualty Insurance Affiliates

Enter information regarding any top-layer directly owned U.S. property & casualty insurance affiliates in the Directly Owned U.S. Property & Casualty Insurance Affiliates worksheet. For each affiliate enter its name, affiliate code, NAIC company code, affiliate’s Total RBC After Covariance, book/adjusted carrying value of the common stock from Schedule D Part 6 Section 1, and total outstanding common stock of that affiliate in Columns (1) through (8). The required RBC will be automatically calculated by the program. If no value is entered in the Total Value of Affiliate’s Common Stock column, Column (7) but value entered in Column (5), then the program will assume 100 percent ownership of common stock. If the reporting company does not own any of the affiliate’s common stock but does own preferred stocks, the Total Value of Affiliate’s Common Stock must be entered in Column (7) so that the program can calculate whether any excess RBC existsthe percentage of ownership. The RBC charge for the ownership of the affiliate’s common stock will be automatically calculated; however, the required RBC cannot exceed the book/adjusted carrying value of the common stock in Column (5).

The book / adjusted carrying value of any preferred stock must be entered in Column (910) and the total outstanding value of the affiliate’s preferred stock must be entered in Column (101). If no value is entered in the Total Value of Affiliate’s Preferred Stock column, Column (10) but value entered in column (9), the program will assume 100 percent ownership of preferred stock.Again, the percentage of ownership and the RBC required for the ownership of preferred stock will be automatically calculated. Even if the reporting company does not own any of the affiliate’s preferred stock, the total outstanding value of that affiliate’s preferred stock must be entered so that the program will correctly calculate any excess RBC.

The risk-based capital to be entered for each affiliate property and casualty insurer should be obtained by using a separate copy of the RBC program for each affiliate. Monoline financial guaranty insurers, monoline mortgage guaranty insurers and title insurers are not subject to risk-based capital. These affiliates and other similar affiliates should be reported as P&C Insurance Affiliates Not Subject to RBC.

Directly Owned U.S. Life Insurance Affiliates

Enter information regarding any top-layer directly owned U.S. life insurance affiliates in the schedule for directly owned companies in the Affiliated Stocks worksheet. For each affiliate enter the same information as that required for directly owned P&C insurance affiliates that are subject to RBC. If a U.S. life insurance affiliate is not subject to RBC, then it should be treated as Life Insurance Affiliates Not Subject to RBC.

The risk-based capital of each Life affiliate should be obtained by using a separate copy of the Life RBC program for each affiliate.

Directly Owned Health Insurance Affiliates

Enter information regarding any top-layer directly owned Health Insurance affiliates in the schedule for directly owned companies in the Affiliated Bonds and Stock worksheet. For each affiliate enter the same information as that required for directly owned P&C insurance affiliates that are subject to RBC. If a HEALTH INSURANCE affiliate is not subject to RBC, then it should be treated as Health Insurance Affiliates Not Subject to RBC.

The risk-based capital of each Health Insurance affiliate should be obtained by using a separate copy of the Health RBC program for each affiliate.

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Indirectly Owned U.S. P&C Insurance Affiliates

The first step in entering information on indirectly owned U.S. insurance affiliates that are subject to RBC is to allocate the reporting entity’s book/adjusted carrying value of the holding company between any top-layer, indirectly owned insurance affiliates and the Holding Company Value in Excess of Indirectly Owned Insurance Affiliates. To do that, the carrying value of the holding company is first allocated based on the values shown on the holding company’s balance sheet. The following example shows a hypothetical holding company, Holder Inc., that is 100 percent owned by Bigun Insurance Company and shows the allocation of Holder’s carrying value among these categories:

Balance Sheet Holder, Inc.

12/31/XXXX ABC Life $4,000,000 Long-Term Debt $14,000,000 XYZ Casualty $2,000,000 Other Liabilities $5,000,000 Non-U.S. Casualty $6,000,000 GX Todd Real Estate $4,000,000 Cash $5,000,000 Equity $5,000,000 Other Assets $3,000,000

Total Assets $24,000,000 Total Liab & Equity $24,000,000

Since ABC Life Insurance Company makes up 1/6 ($4,000,000/$24,000,000) of the total assets for Holder, Inc., then this indirectly owned U.S. affiliate represents 1/6 of the carrying value of Holder, Inc. on the statement of Bigun Insurance Company. Similarly, the indirectly owned U.S. affiliate XYZ Casualty represents 1/12 of the carrying value ($2,000,000/$24,000,000) of Holder on Bigun’s annual statement. Non-U.S. Casualty, which is an alien insurance affiliate, represents 1/4 of the carrying value ($6,000,000/$24,000,000) of Holder on Bigun’s annual statement. One-half of the carrying value of Holder, Inc. ($12,000,000/$24,000,000) represents the Holding Company Value in Excess of Indirectly Owned Insurance Affiliates. If Bigun Insurance Company carries Holder, Inc. on its annual statement at $30,000,000 (assume that this is the current fair value of shares in Holder, which was a publicly traded corporation of which Bigun has just acquired 100 percent ownership), then Bigun will allocate 1/6 of that $30,000,000 to ABC Life, 1/12 of that $30,000,000 to XYZ Casualty, 1/4 of that $30,000,000 to Non-U.S. Casualty, and 1/2 to Holder under the category Holding Company Value in Excess of Indirectly Owned Insurance Affiliates. The RBC charge for the indirect ownership of common stock in ABC Life will be computed as the lesser of ABC Life’s Total RBC After Covariance or $5,000,000 (1/6 of $30,000,000). The RBC charge for the indirect ownership of XYZ Casualty will be the lesser of XYZ’s Total RBC After Covariance or $2,500,000 (1/12 of $30,000,000).

If Bigun only acquired 50 percent of the shares of Holder, then these values must be adjusted to reflect Bigun’s partial ownership and a determination made as to the nature of the carrying value of Holder. If Holder’s carrying value is based on other than fair value, then the allocations follow as described in (a). If the carrying value of Holder is based on its fair value, then the allocations and any additional RBC due to the use of fair value are described in (b).

(a) Now the carrying value (not based on fair value) on Bigun’s annual statement is $15,000,000 which is allocated as $2,500,000 to ABC Life (1/6 of $15,000,000), $1,250,000 toXYZ Casualty (1/12 of $15,000,000) as Indirectly Owned U.S. Insurance Affiliates, $3,750,000 to Non-U.S. Casualty (1/4 of $15,000,000) as Indirectly Owned Alien InsuranceAffiliate, and $7,500,000 to Holder as the Holding Company Value in Excess of Indirectly Owned Insurance Affiliates. The RBC After Covariance for the indirectly owned U.S.insurance affiliates is also adjusted by 50% to reflect Bigun’s percentage of ownership. Therefore, Bigun will enter $2,500,000 as the carrying value for ABC Life in Column (5)and $5,000,000 ($2,500,000 / 0.50) as the total outstanding common stock in Column (7).

(b) In this example, the carrying value (based on fair value) on Bigun’s annual statement is $18,000,000, which will be allocated in the same manner described in (a) above. However,one additional step is added regarding the indirectly* owned U.S. Insurance Affiliates that are subject to RBC. For example, assume that the carrying value (based on fair value) ofABC on Bigun’s annual statement is larger than ABC’s RBC After Covariance (prorated 50 percent for its partial ownership), the amount of Holder applicable to ABC Life($3,000,000: 1/6 of $18,000,000) will be reduced by its statutory surplus** (prorated 50 percent for its partial ownership), and if a positive amount results, then the larger of that

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amount times 22.5 percent or the excess of ABC’s RBC After Covariance (prorated 50 percent for its ownership) over the value obtained from step (a) will be reported as a R2 component of such stock in the formula. The same will apply to XYZ Casualty.

The information for all top-layer, indirectly owned U.S. property and casualty insurance affiliates and indirectly owned U.S. life insurance affiliates is entered in the appropriate columns in the Affiliated Stocks worksheet. For each affiliate enter its name, affiliate code, NAIC company code and the pro-rata share of risk-based capital along with all other information required in Columns (1) through (101). If the amount in Column (5) is based on fair value, then place an “AF” in Column (6) and the affiliate’s statutory capital and surplus (adjusted for ownership) in Column (8). The RBC charge (if any) will be calculated by the formula with the result appearing in Columns (123) and (134).

Indirectly Owned U.S. Life Insurance Affiliates Indirectly owned U.S. life insurance affiliates are treated in a manner similar to indirectly owned P&C insurance affiliates. Note that the insurance affiliate must be subject to RBC and file an RBC report to be included in this section. Otherwise, the affiliate’s value will be included in the Holding Company Value in Excess of Insurance Affiliates section.

Indirectly Owned Managed Care Organizations Indirectly owned Managed Care affiliates are treated in a manner similar to indirectly owned P&C insurance affiliates. Note that the insurance affiliate must be subject to RBC and file an RBC report to be included in this section. Otherwise, the affiliate’s value will be included in the Holding Company Value in Excess of Insurance Affiliates section.

Affiliates that are Not Subject to RBC

This category includes these categories of affiliated investments:

7. Investment Affiliates8. Directly Owned Alien Insurance Affiliates9. Indirectly Owned Alien Insurance Affiliates

10. Holding Company Value in Excess of Indirectly Owned Insurance Affiliates11. Investment in Upstream Affiliate (Parent)12. P&C Insurance Affiliates Not Subject to RBC13. Life Insurance Affiliates Not Subject to RBC14. Health Insurance Affiliates Not Subject to RBC15. Other Affiliates

The RBC charge for these investments is calculated by multiplying a factor times the book/adjusted carrying value of the common stocks and preferred stocks of those affiliates.

Investment Affiliates

An investment affiliate is an affiliate that exists only to invest the funds of the parent company. The term investment affiliate is strictly defined in the annual statement instructions as any affiliate, other than a holding company, engaged or organized primarily to engage in the ownership and management of investments for the insurer. An investment affiliate shall not include any broker-dealer or a money management fund managing funds other than those of the parent company. The risk-based capital for an investment in an Investment Affiliate is 0.225 times the carrying value of the common and preferred stock.

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Directly Owned Alien Insurance Affiliates

For purposes of this formula, the risk-based capital of each directly owned alien insurance affiliate is the annual statement carrying value of the reporting company’s interest in the affiliate multiplied by 0.500. Enter information for any non-U.S. insurance affiliates; life, property and casualty and health insurers. For each affiliate, enter the name of the affiliate, Alien Insurer Identification Number, the book/adjusted carrying value of common stock and preferred stock.

Indirectly Owned Alien Insurance Affiliates

The risk-based capital of each indirectly owned alien insurance affiliate is the carrying value of the holding company’s interest in the affiliate multiplied by 0.500, and adjusted to reflect the reporting company’s ownership on the holding company. In the prior example, in the case that Bigun acquired 100 percent of the shares of Holder, Bigun will enter $7,500,000 (1/4 of $30,000,000) as the carrying value for Non-U.S. Casualty and the RBC charge for the indirect ownership of this alien insurance affiliate will be $3,750,000 (0.500 times $7,500,000). In the case that Bigun only acquired 50 percent of Holder, Bigun will enter $3,750,000 (50 percent of 1/4 of $30,000,000) for Non-U.S. Casualty and the RBC charge for this indirectly owned alien insurance affiliate will be $1,875,000 (0.500 times $3,750,000).

Holding Company Value in Excess of Indirectly Owned Insurance Affiliates

The risk-based capital charge for the parent insurer preparing the calculation is a 22.5 percent charge against the holding company value in excess of the indirectly owned insurance affiliates as calculated in the prior example. Enter information in the appropriate columns of the worksheet, omitting those columns that do not apply (Column (3) – NAIC Company Code or Alien ID Number and Column (4) Affiliate’s RBC After Covariance).

Investment in Upstream Affiliate (Parent)

The risk-based capital for an investment in an upstream parent is 0.225 times the carrying value of the common and preferred stock, regardless of whether that upstream parent is subject to RBC. Enter the appropriate information in Columns (1) through (11).

Property & Casualty Insurance Affiliates Not Subject to RBC

Insurance affiliates that are not subject to RBC, such as title insurers, monoline financial guaranty insurers, and monoline mortgage guaranty insurers are classified as P&C Insurance Affiliates Not Subject to RBC. The risk-based capital for P&C Insurance Affiliates Not Subject to RBC is 0.225 times the book/adjusted carrying value of the common stock and preferred stock of those affiliates.

Life Insurance Affiliates Not Subject to RBC

The risk-based capital for Life Insurance Affiliates Not Subject to RBC is 0.225 times the book/adjusted carrying value of the common stock and preferred stock of those affiliates.

Health Insurance Affiliates Not Subject to RBC

The risk-based capital for Health Insurance Affiliates Not Subject to RBC is 0.225 times the book/adjusted carrying value of the common stock and preferred stock of those affiliates.

Other Affiliates

Non-insurance affiliates and insurance affiliates that are not included elsewhere, are classified as Other Affiliates. The risk-based capital for an investment in an Other Affiliate is 0.225 times the carrying value of the common and preferred stock.

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60

DETAILS FOR AFFILIATED STOCKS PR003

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)

Name of Affiliate Affil Type

NAIC Company Code or Alien ID Number

Affiliate's RBC After Covariance before Basic Operational Risk*

LR031 L67 + L71PR032 L68 XR025 L37

Book/Adjusted Carrying Value (statement value) of Affiliate's Common

Stock**

Valuation Basis of Column (5) E - Equity Method with zero/no

unamortized goodwill A - All Other

Total Value of Affiliate's Outstanding Common Stock

Statutory Surplus of Affiliate Subject to RBC

Book/Adjusted Carrying Value (statement value) of Affiliate's Preferred

StockTotal Value of Affiliate's Outstanding

Preferred Stock Percent Owned RBC Required

Fair Value Excess Component Affiliate Common Stock RBC

Required (R2 Component)0000001 100.000% 0 00000002 100.000% 0 00000003 100.000% 0 00000004 100.000% 0 00000005 100.000% 0 00000006 100.000% 0 00000007 100.000% 0 00000008 100.000% 0 00000009 100.000% 0 00000010 100.000% 0 00000011 100.000% 0 00000012 100.000% 0 00000013 100.000% 0 00000014 100.000% 0 00000015 100.000% 0 00000016 100.000% 0 00000017 100.000% 0 00000018 100.000% 0 00000019 100.000% 0 00000020 100.000% 0 00000021 100.000% 0 00000022 100.000% 0 00000023 100.000% 0 00000024 100.000% 0 00000025 100.000% 0 00000026 100.000% 0 00000027 100.000% 0 00000028 100.000% 0 00000029 100.000% 0 00000030 100.000% 0 00000031 100.000% 0 00000032 100.000% 0 00000033 100.000% 0 00000034 100.000% 0 00000035 100.000% 0 00000036 100.000% 0 00000037 100.000% 0 00000038 100.000% 0 00000039 100.000% 0 00000040 100.000% 0 00000041 100.000% 0 00000042 100.000% 0 00000043 100.000% 0 00000044 100.000% 0 00000045 100.000% 0 00000046 100.000% 0 00000047 100.000% 0 00000048 100.000% 0 00000049 100.000% 0 00000050 100.000% 0 00000051 100.000% 0 00000052 100.000% 0 00000053 100.000% 0 00000054 100.000% 0 00000055 100.000% 0 00000056 100.000% 0 00000057 100.000% 0 00000058 100.000% 0 00000059 100.000% 0 00000060 100.000% 0 00000061 100.000% 0 00000062 100.000% 0 00000063 100.000% 0 00000064 100.000% 0 00000065 100.000% 0 00000066 100.000% 0 00000067 100.000% 0 00000068 100.000% 0 00000069 100.000% 0 00000070 100.000% 0 00000071 100.000% 0 00000072 100.000% 0 00000073 100.000% 0 00000074 100.000% 0 00000075 100.000% 0 00000076 100.000% 0 00000077 100.000% 0 00000078 100.000% 0 00000079 100.000% 0 00000080 100.000% 0 00000081 100.000% 0 00000082 100.000% 0 00000083 100.000% 0 00000084 100.000% 0 00000085 100.000% 0 00000086 100.000% 0 00000087 100.000% 0 00000088 100.000% 0 00000089 100.000% 0 00000090 100.000% 0 00000091 100.000% 0 00000092 100.000% 0 00000093 100.000% 0 00000094 100.000% 0 00000095 100.000% 0 00000096 100.000% 0 00000097 100.000% 0 00000098 100.000% 0 00000099 100.000% 0 00000100 100.000% 0 0

(9999999) Total XXX XXX 0 0 XXX XXX XXX 0 XXX XXX 0 0* Enter carrying value of underlying insurers for Holding Company (Affiliate Code 10) in Column (4).** Enter Book/Adjusted Carrying Value in excess of the carrying value for Holding Company (Affiliate Code 10 in Column (5).

PR003

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61

SUBSIDIARY, CONTROLLED AND AFFILIATED INVESTMENTS PR004

(1) (2)

Affiliate TypesAffil Code RBC Basis

Number of Companies

RBC Required forCommon and Preferred

Stock

(1) Directly Owned P&C Insurance Affiliates 1 Sub's RBC After Covariance 0 0

(2) Directly Owned Life Insurance Affiliates 2 Sub's RBC After Covariance 0 0

(3) Directly Owned Health Insurance Affiliates 3 Sub's RBC After Covariance 0 0

(4) Indirectly Owned P&C Insurance Affiliates 4 Sub's RBC After Covariance 0 0

(5) Indirectly Owned Life Insurance Affiliates 5 Sub's RBC After Covariance 0 0

(6) Indirectly Owned Health Insurance Affiliates 6 Sub's RBC After Covariance 0 0

(7) Investment Subsidiary 7 0.225 0 0

(8) Directly Owned Alien Insurance Affiliates 8 0.5 0 0

(9) Indirectly Owned Alien Insurance Affiliates 9 0.5 0 0

(10) Holding Company in Excess of Indirect Subs 10 0.225 0 0

(11) Investment in Parent 11 0.225 0 0

(12) Other Affiliate - P&C Ins Not Subj to RBC 12 0.225 0 0

(13) Other Affiliate - Life Ins Not Subj to RBC 13 0.225 0 0

(14) Other Affiliate - Health Insurer Not Subj to RBC 14 0.225 0 0

(15) Other Affiliate - Non-insurer 15 0.225 0 0

(16) Total 0 0

PR004

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62

SUMMARY FOR SUBSIDIARY, CONTROLLED AND AFFILIATED INVESTMENTS FOR CROSS-CHECKING STATEMENT VALUES PR005

Affiliated Preferred Stock (1) (2) (3)

Schedule D Part 6 Section 1 C9 Annual Statement Line NumberAnnual Statement Total

Preferred Stock Total From RBC Report Difference

(1) Parent 0199999 0 0 0(2) U.S. P&C Insurer 0299999 0 0 0(3) U.S. Life Insurer 0399999 0 0 0(4) U.S. Health Insurer 0499999 0 0 0(5) Alien Insurer 0599999 0 0 0(6) Non-Insurer Which Controls Insurer 0699999 0 0 0(7) Investment Subsidiary 0799999 0 0 0(8) Other Affiliates 0899999 0 0 0(9) Subtotal 0999999 0 0 0

Affiliated Common Stock (1) (2) (3)

Schedule D Part 6 Section 1 C9 Annual Statement Line NumberAnnual Statement Total

Common Stock Total From RBC Report Difference

(10) Parent 1099999 0 0 0(11) U.S. P&C Insurer 1199999 0 0 0(12) U.S. Life Insurer 1299999 0 0 0(13) U.S.Health Insurer 1399999 0 0 0(14) Alien Insurer 1499999 0 0 0(15) Non-Insurer Which Controls Insurer 1599999 0 0 0(16) Investment Subsidiary 1699999 0 0 0(17) Other Affiliates 1799999 0 0 0(18) Subtotal 1899999 0 0 0

PR005

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63

CALCULATION OF TOTAL RISK-BASED CAPITAL AFTER COVARIANCE PR030 R0-R1(1)

R0 - Subsidiary Insurance Companies and Misc. Other Amounts PRBC O&I Reference RBC Amount

(1) Affiliated US P&C Insurers - Directly Owned PR004 L(1)C(2) 0(2) Affiliated US P&C Insurers - Indirectly Owned PR004 L(4)C(2) 0(3) Affiliated US Life Insurers - Directly Owned PR004 L(2)C(2) 0(4) Affiliated US Life Insurers - Indirectly Owned PR004 L(5)C(2) 0(5) Affiliated US Health Insurer - Directly Owned PR004 L(3)C(2) 0(6) Affiliated US Health Insurer - Indirectly Owned PR004 L(6)C(2) 0(7) Affiliated Alien Insurers - Directly Owned PR004 L(8)C(2) 0(8) Affiliated Alien Insurers - Indirectly Owned PR004 L(9)C(2) 0(9) Misc Off-Balance Sheet - Non-Controlled Assets PR014 L(15) C(3) 0

(10) Misc Off-Balance Sheet - Guarantees for Affiliates PR014 L(16) C(3) 0(11) Misc Off-Balance Sheet - Contingent Liabilities PR014 L(17) C(3) 0(12) Misc Off-Balance Sheet - SSAP No.101 Par. 11A DTA PR014 L(19) C(3) 0(13) Misc Off-Balance Sheet - SSAP No.101 Par. 11B DTA PR014 L(20) C(3) 0

(14) Total R0 L(1)+L(2)+L(3)+L(4)+L(5)+L(6)+L(7)+L(8)+L(9)+L(10)+L(11)+L(12)+L(13) 0

R1 - Asset Risk - Fixed Income

(15) NAIC 01 U.S. Government Agency Bonds PR006 L(2)C(2) 0(16) Bonds Subject to Size Factor PR006 L(10)C(2) 0(17) Bond Size Factor RBC PR006 L(13)C(2) 0(18) Off-balance Sheet Collateral & Sch DL, PT1 - Total Bonds PR015 L(9)C(4) 0(19) Off-balance Sheet Collateral & Sch DL, PT1 - Cash, Cash Equi, non-govt MMF & S.T. Invest and Mort Loans on Real Est. PR015 L(20)+(21)C(4) 0(20) Other Long- Term Assets - Mortgage Loans, LIHTC & WCFI PR008 L(10)+L(13)+L(14)+L(15)+L(16)+L(17)+L(20)+L(21)C(2) 0(21) Misc Assets - Collateral Loans PR009 L(13)C(2) 0(22) Misc Assets - Cash PR009 L(3)C(2) 0(23) Misc Assets - Cash Equivalents PR009 L(7)C(2) 0(24) Misc Assets - Other Short-Term Investments PR009 L(10)C(2) 0(25) Replication -Synthetic Asset: One Half PR010 L(9999999)C(7) 0(26) Asset Concentration RBC - Fixed Income PR011 L(13)C(3) Grand Total Page 0

(27) Total R1 L(15)+L(16)+L(17)+L(18)+L(19)+L(20)+L(21)+L(22)+L(23)+L(24)+L(25)+L(26) 0

PR030

Attachment K

64

CALCULATION OF TOTAL RISK-BASED CAPITAL AFTER COVARIANCE PR031 R2-R3

R2 - Asset Risk - Equity PRBC O&I Reference RBC Amount

(28) Common & Preferred - Affiliate Investment Subsidiary PR004 L(7)C(2) 0(29) Common & Preferred - Affiliate Hold. Company. in excess of Ins. Subs. PR004 L(10)C(2) 0(30) Common & Preferred - Investment in Parent PR004 L(11)C(2) 0(31) Common & Preferred - Aff'd US P&C Not Subj to RBC PR004 L(12)C(2) 0(32) Common & Preferred - Affil US Life Not Subj to RBC PR004 L(13)C(2) 0(33) Common & Preferred - Affil US Health Insurer Not Subj to RBC PR004 L(14)C(2) 0(34) Common & Preferred - Aff'd Non-insurer PR004 L(15)C(2) 0(35) Preferred - Aff'd Invest Sub PR004 L(7)C(3) 0(36) Preferred - Aff'd Hold. Co. in excess of Ins. Subs. PR004 L(10)C(3) 0(37) Preferred - Investment in Parent PR004 L(11)C(3) 0(38) Preferred - Affil US P&C Not Subj to RBC PR004 L(12)C(3) 0(39) Preferred - Affil US Life Not Subj to RBC PR004 L(13)C(3) 0(40) Preferred - Affil US Health Insurer Not Subj to RBC PR004 L(14)C(3) 0(41) Preferred - Affil Non-insurer PR004 L(15)C(3) 0(42) Unaffiliated Preferred Stock and Hybrid Securities PR007 L(15)C(2)+PR015 L(16)C(4) 0(43) Unaffiliated Common Stock PR007 L(21)C(2)+PR015 L(17)C(4) 0(44) Other Long -Term Assets - Real Estate PR008 L(7)C(2) 0(45) Other Long-Term Assets - Schedule BA Assets PR008 L(19)C(2)+PR015 L(18)+L(19)C(4) 0(46) Misc Assets - Receivable for Securities PR009 L(1)C(2) 0(47) Misc Assets - Aggregate Write-ins for Invested Assets PR009 L(2)C(2) 0(48) Misc Assets - Derivatives PR009 L(14)C(2) 0(49) Replication - Synthetic Asset: One Half PR010 L(9999999)(7) 0(50) Asset Concentration RBC - Equity PR011 L(29)C(3) Grand Total Page 0

L(28)+L(29)+L(30)+L(31)+L(32)+L(33)+L(34)+L(35)+L(36)+L(37)+L(38)+L(39)+L(40)+L(41)+L(42)

(51) Total R2 +L(43)+L(44)+L(45)+L(46)+L(47)+L(48)+L(49)+L(50) 0

R3 - Asset Risk - Credit(52) Other Credit RBC PR012 L(8))-L(1)-L(2)C(2) 0(53) One half of Rein Recoverables 0.5 x (PR012 L(1)+L(2)C(2)) 0(54) Other half of Rein Recoverables If R4 L(58)>(R3 L(52) + R3 L(53)), 0, otherwise, R3 L(53) 0(55) Health Credit Risk PR013 L(12)C(2) 0

(56) Total R3 L(52) + L(53) + L(54) + L(55) 0

PR031

Attachment K

65

CALCULATION OF TOTAL RISK-BASED CAPITAL AFTER COVARIANCE PR032 R4-Rcat(1)

R4 - Underwriting Risk - Reserves PRBC O&I Reference RBC Amount(57) One half of Reinsurance RBC If R4 L(58)>(R3 L(52) + R3 L(53)), R3 L(53), otherwise, 0 0(58) Total Adjusted Unpaid Loss/Expense Reserve RBC PR0017 L(15)C(20) 0(59) Excessive Premium Growth - Loss/Expense Reserve PR016 L(13) C(8) 0(60) A&H Claims Reserves Adjusted for LCF PR024 L(5) C(2) + PR023 L(6) C(4) 0

(61) Total R4 L(57)+L(58)+L(59)+L(60) 0

R5 - Underwriting Risk - Net Written Premium(62) Total Adjusted NWP RBC PR018 L(15)C(20) 0(63) Excessive Premium Growth - Written Premiums Charge PR016 L(14)C(8) 0(64) Total Net Health Premium RBC PR022 L(21)C(2) 0(65) Health Stabilization Reserves PR025 L(8)C(2) + PR023 L(3) C(2) 0

(66) Total R5 L(62)+L(63)+L(64)+L(65) 0

Rcat- Catastrophe Risk (67) Total Rcat PR027 L(3) C(1) 0

(68) Total RBC After Covariance Before Basic Operational Risk = R0+SQRT(R1^2+R2^2+R3^2+R4^2+R5^2+Rcat^2) 0

(69) BasicOperational Risk = 0.030 x L(68) 0(70) C-4a of U.S. Life Insurance Subsidiaries (from Company records) 0(71) Net Basic Operational Risk = Line (69) - Line (70) (Not less than zero) 0(72) Total RBC After Covariance including Basic Operational Risk = L(68)+ L(71) 0

(73) Authorized Control Level RBC including Basic Operational Risk = .5 x L(72) 0

PR032

Attachment K

66

type cs stmt value ps stmt value cs rbc req ps rbc req total rbc req count1 0 0 0 0 0 02 0 0 0 0 0 03 0 0 0 0 0 04 0 0 0 0 0 05 0 0 0 0 0 06 0 0 0 0 0 07 0 0 0 0 0 08 0 0 0 0 0 09 0 0 0 0 0 0

10 0 0 0 0 0 011 0 0 0 0 0 012 0 0 0 0 0 013 0 0 0 0 0 014 0 0 0 0 0 015 0 0 0 0 0 00 0 0 0 0 0 0

Total 0 0 0 0 0 0

AFFILCALC

Attachment K

67


68

1850 M Street NW Suite 300 Washington, DC 20036 Telephone 202 223 8196 Facsimile 202 872 1948 www.actuary.org

May 8, 2019

Tom Botsko, Chair Property and Casualty Risk-Based Capital Working Group National Association of Insurance Commissioners (via email to Eva Yeung)

Dear Tom:

The American Academy of Actuaries1 Property and Casualty Risk-Based Capital (RBC) Committee plans to support the National Association of Insurance Commissioners’ efforts to update the calibration of factors used to calculate underwriting (UW) risk. This letter describes our plans. We appreciate this opportunity to describe those plans and solicit input from the NAIC Property and Casualty RBC Working Group.

1. Overview

We plan to analyze the following:

• Investment Income Adjustment (IIA)—RBC Line 8 on page PR017 (R4 Reserverisk) and Line 7 on page PR018 (R5 Premium risk), by Line of Business (LOB);

• Loss Concentration Factor (LCF) and Premium Concentration Factor (PCF)—RBC Line 14 on PR017 and PR018 respectively, which are used to calculatediversification credit in the RBC Formula; and

• LOB UW risk factors—RBC Line 4 on PR017 and PR018. We will use the resultsof this review as a starting point for the IIA and LCF/PCF analysis. This reviewwill include the use of data not available to this Academy committee at the timethe 2016 Academy Report2 was provided.

1 The American Academy of Actuaries is a 19,500-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policy makers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States. 2 Report to National Association of Insurance Commissioners Property/Casualty Risk-Based Capital (E) Working Group: 2016 Update to Property and Casualty Risk-Based Capital Underwriting Factors, American Academy of Actuaries Property and Casualty Risk-Based Capital Committee, October 2016.

Attachment L

69


The remainder of this letter provides more details regarding our proposed analyses.

2. IIA Analysis (Line 8/7)

The IIA reduces the amount of UW risk charge to recognize that future investment income will be available to offset the cost of adverse UW (premium risk) or reserve development (reserve risk).

Evaluation approach The IIAs are based on a 5% per annum interest rate assumption, which is not consistent with recent experience.

We will consider two ways to update the IIAs. First, the Line 4 risk factor and the IIA on Lines 8/7 are currently calibrated as independent parameters. We use the term Nominal Value Approach (NVA) to describe an approach that does not consider possible interactions between interest rates underlying the IIA and loss experience underlying the Line 4 risk factors.

Implementing NVA requires changing the IIAs to reflect changing interest rates over time. We will consider how that might be done in a manner that provides reasonable stability but remains responsive to current conditions.

Second, we note that there are reasons to expect that loss ratios (LRs) and reserve runoff ratios (RRRs) are higher when interest rates are higher.3 An alternative to NVA, which considers a possible interaction between UW risk and interest rates, is to calibrate UW risk factors (Line 4) using data discounted to present value based on historical interest rates. Risk factors and IIAs can be developed from that analysis. We refer to that alternative as the Present Value Approach (PVA).

With PVA, we would establish the combined effect of the underwriting risk factors (Line 4) and the IIA (Line 8/7). We would produce a single indicated risk factor that reflectsboth UW risk, Line 4, and IIA, Lines 8/7. If desired, for consistency with the currentformat of the RBC Formula, that combined risk factor can be split into its twocomponents. However, future changes in interest rates will not necessarily requirechanges in the IIA values.

We plan to prepare indications for IIAs based on both NVA and PVA.

Interaction with UW risk safety level Consistent with prior calibrations, UW risk factor Line 4 calibrations prepared for the NAIC in the 2016 Report are based on an 87.5th percentile safety level. We understand

3 An observation in the 1993 Report on Reserve and Underwriting Risk Factors by the American Academy of Actuaries Property/Casualty Risk-Based Capital Task Force, and more recently, Casualty Actuarial Society Dependency and Calibration Working Party Report 15. Publication in CAS EForum is pending.

Attachment L

70


the 87.5th percentile is used because it appeared to be consistent with the UW risk safety level selected when the RBC Formula was first calibrated in the early 1990s.

The 5% interest rate was also selected in the initial RBC calibration in the early 1990s. At that time actual interest rates were higher than 5%. Therefore, the initial IIA calibration can be viewed as including an implicit interest rate safety margin—that being the difference between actual interest rates at the time and the 5% interest rate selected.

In the IIA analysis, we will use interest rates with and without the kind of implicit safety margin that was part of the RBC calibration in the early 1990s. In using interest rates with no implicit safety margin we will consider the extent to which the UW risk safety level should be increased to a value above 87.5%, to reflect the combination of the current 87.5th percentile on UW risk and any implicit interest rate safety margin. We will provide the NAIC with alternative treatments on this issue.

3. LCF/PCF Analysis (Line 14)

The LCF/PCF uses the ratio of the reserve/premium amount for the company’s largest RBC LOB to the company’s all-lines total reserve/premium amount. This ratio is used to measure the spread of business by LOB, commonly called diversification. We refer to that ratio as the Company Line of Business Maximum% (CoMaxLine%).

The LCF/PCF equals CoMaxLine% times 0.3 plus 0.7. This produces a discount for diversification, up to a maximum somewhat less than 30%.4

Evaluation of 30% Maximum Diversification Credit The proposed work will review the extent to which the 30% maximum should be revised based on experience.

4 The maximum credit would be 30% if the number of LOBs were infinite. If premium/reserves were divided equally among the 19 LOBs, CoMaxLine% is 1/19, 5.26%, and the maximum credit is 28.4%.

Attachment L

71


Evaluation of other approaches There are alternatives to the CoMaxLine% Approach in the RBC formula. One alternative approach is to use the largest LOB risk amount, rather than the largest reserve/premium amount. We refer to this as the CoMaxLine%-Risk approach.5,6

Another alternative approach to evaluating diversification could be based on the Herfendahl-Hirschman Index (HHI). HHI is widely used by economists to measure concentration. The HHI index considers the relative proportions of all LOBs (largest, second-largest, third-largest, etc.) 7, whereas the CoMaxLine% approach only considers the relative proportion of the largest LOB.

We will evaluate these alternatives.

4. Update to UW factors

The UW factors presented in the 2016 Report are based on data for Annual Statement years 1997–2014. For this work, the NAIC has provided data for Annual Statement years 19848–2017. We plan to update UW factors to include the additional new years (2015–2017), and we will potentially use data from Annual Statement years prior to 1997 for specific LOBs.

Our indicated risk factors will include the effect of catastrophe events, net of reinsurance. We expect that the NAIC will continue to apply its current catastrophe adjustment

5 As an example of the difference between the risk maximum and the premium/reserve (volume) maximum, consider a hypothetical company that had $1 million of private passenger liability premium and $1 million of occurrence medical malpractice premium.

The private passenger automobile risk premium charge is about 15% and malpractice occurrence premium risk charge is about 60%, producing $150,000 of automobile premium risk, $600,000 of medical malpractice premium risk, and $750,000 in total premium risk (before diversification).

Using the CoMaxLine% approach in the RBC Formula, the CoMaxLine% is 0.50, and the credit for spread of business is 15%, half of the 30% maximum credit.

Based on risk, the maximum risk is the $600,000 for occurrence medical malpractice and the CoMaxLine%-Risk is 0.80 (600,000/750,000). The CoMaxLine%-Risk is much higher than CoMaxLine% because from the risk perspective the company is much less diversified. Measured this way, the credit for spread of business is reduced to 6%. 6 Using risk by LOB suggests the use of expenses by LOB. Expenses by LOB for the current year are in the Insurance Expense Exhibit, which is not filed until a month after the Annual Statement is filed. We will test options that use data that is available when the Annual Statement is filed, e.g., current year total expenses allocated by LOB based on prior year expenses by LOB, prior year expense by LOB with no adjustment to the current year, and current year company-wide expenses that does not vary by LOB. 7 HHI equals the sum of the squares of the relative proportions of each LOB compared to the total.

For example, if there is only one LOB, HHI is 1.0, as is the case for the CoMaxLine%. With two lines split 50% and 50% HHI and the CoMaxLine% are still the same, both 0.5.

With two lines split 25% and 75% HHI is 0.25^2 plus 0.75^2 or 0.625 compared to the CoMaxLine% of 0.750, i.e., HHI shows more diversification. With three lines split 50%, 25% and 25% HHI is 0.50^2 plus 0.25^2 plus 0.25^2 or 0.375, more diversification than the CoMaxLine% of 0.5.

The HHI is sometimes applied to only the n-th largest segments, e.g., the degree of diversification among the top five or 10 LOBs. 8 Annual Statements 1989 and subsequent for reserve risk data.

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process to any updated UW risk factors it may choose to implement based on the results of our analysis.9

5. Timeline

NAIC staff have provided us with much of the necessary data. We greatly appreciate that assistance, without which this project would not be possible.

We are currently reviewing the data and organizing it for our analyses.

We will provide a timeline and milestones at future meetings and calls.

6. Directional Impacts of These Analyses on RBC Formula Values

While we currently have no results, based on the nature of the changes, we expect that:

• The IIA revision will indicate an increase in amount of UW risk charges for allcompanies; and

• The LCF/PCF analysis will generally indicate a decrease in amount of UW riskcharges for diversified companies.

We expect to provide possible transition rules for implementation, consistent with past practice and/or if such rules appear warranted by features in the data.

Also, as we have in the past, we will ask NAIC to do an impact review of indicated changes.

* * * *

We appreciate this opportunity to assist the NAIC.

Regards,

Lauren Cavanaugh Chairperson Academy Property &Casualty Risk-Based Capital Committee

9 The Academy P&C RBC Committee would be happy to discuss how we might assist the NAIC in calibration of the risk factors on a net-of-catastrophe basis, but we believe that should be a separate project, after we complete the projects we describe in this letter.

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74

2018 National Association of Insurance Commissioners 1


[ ] Capital Adequacy (E) Task Force [ ] Health RBC (E) Working Group [ ] Life RBC (E) Working Group [ ] Catastrophe Risk (E) Subgroup [ ] Investment RBC (E) Working Group [ ] Operational Risk (E) Subgroup [ ] C3 Phase II/ AG43 (E/A) Subgroup [ x ] P/C RBC (E) Working Group [ ] Stress Testing (E) Subgroup

DATE: 12/3/2018


TELEPHONE: 816-783-8407


ON BEHALF OF: P/C RBC WG

NAME: Tom Botsko

TITLE: Chair



Columbus, OH 43215

FOR NAIC USE ONLY


Year 2020

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO


[ ] EXPOSED

[ ] OTHER (SPECIFY)


[ ] Health RBC Blanks [ ] Property/Casualty RBC Blanks [ ] Life RBC Instructions

[ ] Fraternal RBC Blanks [ ] Health RBC Instructions [ x ] Property/Casualty RBC Instructions [ ] Life RBC Blanks [ ] Fraternal RBC Instructions [ ] OTHER ______________

DESCRIPTION OF CHANGE(S) Modify the instruction to reflect the factors for all uncollateralized reinsurance recoverable from unrated reinsurers be the same for authorized, unauthorized, certified, and reciprocal reinsurance.

REASON OR JUSTIFICATION FOR CHANGE ** With respect to the broader implementation of the Covered Agreement, the PCRBC WG identified the following changes to the PR012:

1) Eliminating the different treatment of uncollateralized reinsurance recoverable from authorized versus unauthorized,unrated reinsurers; and

2) Adjust the factor for uncollateralized, unrated reinsurers.

Additional Staff Comments: ___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 11-2013

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PR012 - Credit Risk for Receivables

Reinsurance Recoverables


For the purpose of the credit risk-based capital charge, the equivalent rating category assigned will correspond to current financial strength rating received from an approved rating agency as outlined in the table below. Ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. If the reinsurer is unauthorized and does not have at least one financial strength rating, it should be assigned the “Vulnerable 6 or Unrated Unauthorized” equivalent rating. If the reinsurer is authorized and does not have at least one financial strength rating, it should be assigned the “Unrated Authorized Reinsurers” equivalent rating. Amounts recoverable from unrated voluntary pools should be assigned the “Secure 3” equivalent rating. An authorized association including incorporated and individual unincorporated underwriters or a member thereof may utilize the lowest financial strength group rating received from an approved rating agency. The table below shows the R3 reinsurer equivalent rating categories and corresponding factors for A.M. Best, Standard and Poor’s, Moody’s and Fitch ratings.

Reinsurer Designation Equivalent Rating Category and Corresponding Factors—For RBC R3 Credit Risk Charge

Description Secure 1 Secure 2 Secure 3 Secure 4 Secure 5 Vulnerable 6 or

Unauthorized Unrated Unrated Authorized

Reinsurers Best A++ A+ A A- B++, B+ B, B-, C++, C+, C, C-,

D, E, F --------------------------

S&P AAA AA+, AA, AA-

A+, A A- BBB+, BBB, BBB-

BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R

--------------------------

Moody's Aaa Aa1, Aa2, Aa3 A1, A2 A3 Baa1, Baa2, Baa3

Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C

------------------------

Fitch AAA AA+, AA, AA-


BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R

-------------------------

Collateralized Amounts Factors

3.6% 4.1% 4.8% 5.0% 5.0% 5.0% 5.0%

Uncollateralized Amounts Factors

3.6% 4.1% 4.8% 5.3% 7.1% 14.0%TBD 10.0%


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78

© 2018 National Association of Insurance Commissioners attM_03Schedule_F_Part_3_RBC_Related_Proposal_AS.doc 1

NAIC BLANKS (E) WORKING GROUP

Blanks Agenda Item Submission Form

DATE: 12/3/18


TELEPHONE: 816-783-8407


ON BEHALF OF: P/C RBC WG

NAME: Tom Botsko

TITLE: Chair



Columnbus, OH 43215

FOR NAIC USE ONLY Agenda Item # Year 2019 Changes to Existing Reporting [ X ] New Reporting Requirement [ ]

REVIEWED FOR ACCOUNTING PRACTICES AND PROCEDURES IMPACT

No Impact [ X ] Modifies Required Disclosure [ ]

DISPOSITION

[ ] Rejected For Public Comment [ ] Referred To Another NAIC Group [ ] Received For Public Comment [ ] Adopted Date [ ] Rejected Date [ ] Deferred Date [ ] Other (Specify)

BLANK(S) TO WHICH PROPOSAL APPLIES

[ X ] ANNUAL STATEMENT [ X ] INSTRUCTIONS [ ] CROSSCHECKS [ ] QUARTERLY STATEMENT [ ] BLANK

[ ] Life, Accident & Health/Fraternal [ ] Separate Accounts [ ] Title [ X ] Property/Casualty [ ] Protected Cell [ ] Other ______________________ [ ] Health [ ] Health (Life Supplement)

Anticipated Effective Date: Annual 2019

IDENTIFICATION OF ITEM(S) TO CHANGE

For Schedule F, Part 3 remove the reference to the Reinsurer Designation Equivalent Code “7” from the instructions for Columns 34, 35 and 36, the reference to unauthorized in chart for Column 34 and edit the narrative instruction of Column 34.

REASON, JUSTIFICATION FOR AND/OR BENEFIT OF CHANGE**

With respect to the broader implementation of the Covered Agreement, the PCRBC WG identified the following changes to the Annual Statement Instructions: 1) Eliminating the different treatment of uncollateralized reinsurance recoverable from authorized versus unauthorized,

unrated reinsurers; and2) Adjust the factor for uncollateralized, unrated reinsurers.

NAIC STAFF COMMENTS

Comment on Effective Reporting Date:

Other Comments:

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___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 7/18/2018

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ANNUAL STATEMENT INSTRUCTIONS – PROPERTY

SCHEDULE F – PART 3

CEDED REINSURANCE AS OF DECEMBER 31, CURRENT YEAR

Detail Eliminated to Conserve Space

Column 34 – Reinsurer Designation Equivalent

Following is a listing of the valid codes.

1 2 3 4 5 6 7

Utilize the table below and report a reinsurer designation equivalent code of 1 through 6 (where 6 represented vulnerable 6 or unrated) or 7 (for unrated authorized reinsurers). The equivalent designation category assigned will correspond to a current financial strength rating received from an approved rating agency as outlined in the table below. Ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. If the reinsurer is unauthorized and does not have at least one financial strength rating, it should be assigned the “Vulnerable 6 or Unrated Unauthorized Reinsurers” equivalent rating. If the reinsurer is authorized and does not have at least one financial strength rating, it should be assigned the “Unrated Authorized Reinsurers” equivalent rating. Amounts recoverable from unrated voluntary pools should be assigned the “reinsurer equivalent code of 3.” An authorized association including incorporated and individual unincorporated underwriters or a member thereof may utilize the lowest financial strength group rating received from an approved rating agency.

Reinsurer Designation Equivalent Category

Code 1 2 3 4 5 6 7

Description Secure 1 Secure 2 Secure 3 Secure 4 Secure 5

Vulnerable 6 or Unrated

Unauthorized Reinsurers

Unrated Authorized Reinsurers

Best A++ A+ A A- B++, B+ B, B-, C++, C+, C, C-, D, E, F .................

S&P AAA AA+, AA, AA-


BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R .................

Moody's Aaa Aa1, Aa2, Aa3

A1, A2 A3 Baa1, Baa2, Baa3

Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C .................

Fitch AAA AA+, AA, AA-


BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R .................

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Column 35 – Credit Risk on Collateralized Recoverables

Following is a table of factors applicable to the respective reinsurer designation equivalent categories in Column 34

Code 1 2 3 4 5 6 7

Factor 3.6% 4.1% 4.8% 5.0% 5.0% 5.0% 5.0%

Column 36 – Credit Risk on Uncollateralized Recoverables

Following is a table of factors applicable to the respective reinsurer designation equivalent categories in Column 34

Code 1 2 3 4 5 6 7

Factor 3.6% 4.1% 4.8% 5.3% 7.1% 14.0%TBD 10.0%

Detail Eliminated to Conserve Space

W:\QA\BlanksProposals\Proposals In Progress\Schedule F Part 3 RBC Change\Schedule_F_Part_3_RBC_Related_Proposal.doc

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materials - property and casualty risk-based capital (e ... · pr004 and pr005 calculations based...

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