RISK BASED CAPITAL (RBC)

RBC represents an amount of capital based on an assessment of risks that a company should hold to protect customers against adverse developments.

Although, many users of RBC make use of different methods,procedures and formulars for estimating RBC, nevertheless,its result is aimed at ensuring the Capital adequacies of players concerned.

One of the applicable calculations of RBC is to apply factors to accounting aggeregates that represents various risks towhich a company is exposed.

Another method is based in part on modelling the risk to the company from interest rate changes over many alternative interest rate cenarios. This method is mostly used for Life Assurance Businesses.

Whichever method is used in the calculation of RBC, it is usually expressed as RISK BASED CAPITAL RATIO, i.e TOTAL CAPITAL OF THE COMPANY (as det. by the RBC formular)
                                       COMPANY'S RISK BASED FORMULA (as det. by the formular)

                      : For an example, a company with 700% RBC ratio has capital equal to Seven Times its
                        risk based capital.

Therefore, the categorization of Assets and Capital should be highly standardized so that it could be risk weighted.