Risk-based capital

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Category: Capital management · Reviewed by Jake Leat, Associate Director · Last reviewed

Risk-based capital (RBC) is any regulatory or rating-agency framework that scales an insurer’s required capital to the specific risks it has assumed, rather than to a flat percentage of premium or reserves. It replaced earlier “Solvency I”-style rule-of-thumb regimes from the mid-1990s onwards.

Major frameworks

• Solvency II — EU and UK risk-based regime since 2016. Articulated as own funds vs SCR vs MCR.
• US NAIC RBC — separate calculations for life, P&C, and health, factor-based.
• Bermuda BSCR — Bermuda Solvency Capital Requirement, calibrated to a 99% one-year TVaR.
• Swiss Solvency Test (SST) — risk-based regime in Switzerland, principles similar to Solvency II.
• ICS (Insurance Capital Standard) — IAIS-developed global standard for IAIGs.

Core idea

Capital required = function of:

• Underwriting risk (premium + reserve + catastrophe).
• Market risk (interest, equity, property, FX, spread, concentration).
• Counterparty default risk.
• Operational risk.
• Diversification credit between risks.

References

• Solvency II Directive 2009/138/EC.
• NAIC RBC Forecasting and Instructions.
• IAIS Insurance Capital Standard (ICS) Version 2.0.

Cross-references

• Insurance capital
• Solvency capital requirement
• Standard formula Solvency II

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