What is the stated purpose of the Company RBC%?

• A. To provide a cushion against adverse development
• B. To provide a surplus cushion against adverse development
• C. To improve reinsurance pricing
• D. To align with solvency regulation

Answer: (B)

RBC% is about how much capital an insurer has above the amount required by the risk-based capital framework. The best way to express its purpose is that it provides a surplus cushion against adverse development—the extra capital the company holds to absorb losses that turn out worse than expected. If actual claims and other liabilities grow unfavorably, this cushion helps keep the company solvent and demonstrates resilience to regulators. In practice, adverse development means losses that are larger or occur earlier than projected, so the extra capital acts as a buffer.

This isn’t primarily a tool to improve pricing, and while it relates to solvency regulation, the core idea is the buffer above the minimum capital requirement to absorb unexpected adverse outcomes.