Comparative Analysis between Risk Based Capital (RBC) and Solvency-II Framework-An Impact on Life Insurer

Abstract

Risk-based capital is the theoretical amount of capital needed to absorb the risks involved in the operation of a business. Different companies face different risks and, therefore, should have different levels of capital based on those different risks, rather than on some arbitrary basis. The major areas of risk facing a life insurance company & property-casualty insurance company include asset risk, reserve risk, interest risk, business risk and credit risk. Risk based capital information also helps to customers, creditors and investors. The present paper compares the global and Indian scenario with regard to the capital adequacy frameworks for life insurance companies. It provides a comparative analysis of the Risk Based Capital framework used in the US with Solvency II being adopted by the European nations in terms of their implications for the life insurers.