Which of the following investment types is listed as generating an R0 charge when invested in an insurance subsidiary?

• A. Real estate
• B. Derivatives
• C. Common stock
• D. Cash and equivalents

Answer: (C)

R0 represents a zero-charge category in the risk-based capital framework for investments within an insurance group. When an insurer holds an investment in a subsidiary, that risk is largely absorbed within the group and is typically eliminated on consolidation, so it does not add to the parent’s external capital requirement. An investment in the subsidiary’s common stock is treated as an intra-group equity, which is why it is listed as generating an R0 charge.

In contrast, real estate involves a tangible asset with market risk, derivatives carry significant market and counterparty risk, and cash and equivalents, while highly liquid, are still subject to risk accounting under the framework. Those asset types generally incur nonzero charges, unlike the intra-group equity treated as R0.