A formula method for estimating the capital requirements of an insurer by measuring its risk characteristics in areas such as asset risk, credit risk and underwriting risk and then comparing the results to the company's stated capital. See Chapter 12.

Rules for establishing minimum required levels of book capital for financial institutions. Capital is allocated to types of bank assets based upon weightings assigned to those assets. For example, U.S. Treasury obligations and some U.S. Agency obligations require no capital. Most other U.S. Agency obligations are given a 20 percent weighting for the purpose of calculating risk-based capital. Corporate obligations have a 100 percent weighting.

Method developed by the National Association of Insurance Commissioners to measure the minimum amount of capital that an insurance company needs to support its overall business operations. RBC sets capital requirements that consider the size and degree of risk taken by the insurer and presumes that stakeholders will still receive limited payment should insolvency occur. RBC has four components: asset risk, a measure of an asset's default of principal or interest, or fluctuation in market value, as a result of market changes; credit risk, a measure of the default risk on amounts due from policyholders, reinsurers, or creditors; underwriting risk, a measure of the risk from underestimating liabilities from business already written, or inadequately pricing current or prospective business; and off-balance-sheet risk, a measure of the risk from excessive growth rates, contingent liabilities, or other items not reflected on the balance sheet.

One of three capital standards adopted for savings institutions in 1989. The standard is designed to require savings institutions to hold more capital for higher-risk assets. The value of each asset is weighted according to its risk and then capital is calculated at a fixed percent of each risk-weighted asset. The standard adopted in 1989 was 8 percent of risk-weighted assets. See tangible capital and core capital.... read full article

The amount of capital necessary to absorb losses throughout a hypothetical ten-year period marked by severely adverse circumstances. Secondary mortgage market: The market in which residential mortgages or mortgage securities are bought and sold.

Beginning in the early 1990s, members of the NAIC examined the diversity of underwriting and investment practices due a large number of failed insurance companies and adopted a formula for establishing the minimum capital requirement for a company based upon type of risks to which it was exposed. This model was developed as an additional tool to help regulators with solvency issues. The six main categories of risk measures are: Asset Risk of Subsidiaries, Asset Risk of Fixed Income Investments, Asset Risks of Equity Instruments, Asset Risks of Credit, Underwriting Risk of Reserves, and Underwriting Risks of Net Written Premium. The model then compared the surplus requirement to actual and assesses increasing levels of regulatory control at four levels should actual capital fall below those minimum levels.

(RBC) Is the ratio between solvency margin and required minimum solvency margin.

The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.