RBC charge for a directly owned alien insurance affiliate is equal to which expression?

• A. Carrying value x 0.5
• B. Book x 0.5
• C. 0.5 x affiliate RBC
• D. Book/ adjusted carrying value x 0.5

Answer: (D)

The calculation uses a 50% factor applied to a ratio that adjusts the affiliate’s value to reflect intercompany offsets. Specifically, for a directly owned alien insurance affiliate, the RBC charge is 0.5 times the ratio of the affiliate’s book value to its adjusted carrying value. This structure means you’re not just taking a fixed portion of the book or carrying value; you’re scaling the charge by how much of the affiliate’s value remains after adjustments that affect risk to the parent group.

Why this form fits the concept: the adjusted carrying value accounts for intercompany arrangements and other adjustments that change how much of the affiliate’s value truly contributes to the group’s risk. If the affiliate’s book value is the same as its adjusted carrying value, the charge is 0.5. If the book value is smaller than the adjusted carrying value, the charge is less than 0.5; if larger, the charge can exceed 0.5 (depending on the numbers). This captures the idea that the parent’s RBC impact should reflect the portion of the affiliate’s value that remains exposed to the group after adjustments.

Other forms would misstate the dependence on the adjustments or apply the 0.5 factor to the wrong base (e.g., simply to book value or carrying value alone), which wouldn’t properly reflect the adjusted exposure of the alien affiliate to the parent group.