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.