Challenge
Best’s Capital Adequacy Ratio (BCAR), developed by AM Best, and Risk-Based Capital (RBC), developed by the National Association of Insurance Commissioners (NAIC) are two of the most critical frameworks for measuring insurer capital strength, and they’re also two of the most complex.
These calculations require detailed, accurate, and properly organized investment data sourced from multiple systems. Significant coordination and expertise is needed to filter in or out certain assets, apply the correct risk charges, and ensure alignment with rating agency expectations. It can take weeks for an organization to develop these risk models, and the maintenance of each model’s inputs and calculations can be very burdensome to risk and quant groups.
This client turned to Rivvit, investment data management and reporting platform, to streamline and automate critical processes after facing several challenges across BCAR and RBC reporting:
- Manual calculation processes that were time-intensive (taking hours and days for each iteration), difficult to audit, and not easily scalable
- Disconnected spreadsheets and data sources
- No centralized logic to align holdings to required reporting buckets (risk group, credit quality, issuer, etc.)
- Data originated from ABOR (accounting book of record) and IBOR (investment book of record) systems, each with distinct classifications and flags
- Limited ability to stress test portfolios against historical market scenarios
Solution
BCAR implementation: Simplifying asset risk and concentration logic
To automate the BCAR calculation process, Rivvit was used primarily to automate the asset risk component of BCAR, which includes capital charge calculations related to asset class exposure, credit quality, and issuer concentration.
- Standardized risk factor tables and issuer concentration
Using Rivvit, we integrated the BCAR asset risk factor tables developed by AM Best, which apply value-at-risk (VaR) stress factors to different asset classes. For fixed income assets, charges are primarily determined based on bond rating and years to maturity, whereas other asset classes might require custom bucketing based on upstream classifications like public/private status, loan status, affiliated flags, OTC vs. exchange-traded, etc.
We worked closely with the client to define how they viewed issuer groupings across bonds, preferred stock, common stock, mortgage loans, and real estate. We then deployed logic to evaluate these groupings against prescribed concentration thresholds (e.g., exceeding 10% of capital), triggering the application of appropriate risk multipliers per BCAR guidelines.
- Supplemental financial data integration
The client consolidated summary financial data outside of Rivvit, which was then piped into Rivvit to supplement position-level investment data and allow for complete capital calculations.
- Stored procedures in the daily pipeline
Stored procedures were developed to execute daily based on underlying holdings by applying additional logic, filtering, rank ordering, and grouping against denormalized data views to construct point-in-time values for use in reports and dashboards. The procedure can be adjusted and re-executed across historical dates if the client’s needs or risk parameters change over time.
- Automated BCAR reporting
We developed a custom BCAR dashboard within Rivvit, allowing users to view:
- BCAR charges by sector across all prescribed VaR levels
- Drill-through capabilities to slice and dice the underlying asset-level risk charges within any sector or grouping
- As-of-date toggling to view historical calculations
These calculations are now generated and available daily so the client can plan ahead, monitor changes from day to day, and proactively manage their portfolio to the risk measures, rather than cobbling it all together at testing time.
RBC Implementation: Extending the framework for complex risk calculations
The RBC implementation followed a similar pattern with additional complexity related to the variety of mappings, risk buckets, and stress testing logic required.
- Data standardization and cleansing
We worked with the client to cleanse and standardize upstream data, aligning asset classification fields across IBOR and ABOR, filtering out non-reportable entities and accounting entries.
We established mapping tables to align tax factors and RBC charge amounts with asset classes and agency ratings, and then constructed denormalized views to extend and blend investment holdings data with RBC-specific fields and calculations.
- Customized calculations for schedule LR031 for asset risk
We partnered with the client to define rules for inclusion of specific assets into more than two dozen individual line items within the LR031 reporting section for asset risk including C-1cs (common stock) and C-1o (all other) sections.
This included detailed calculations for concentration factors, size factoring for bonds, Schedule D and Schedule BA asset details, and reinsurance asset calculations, among others. Prescribed tax factors were applied and available in the details for all holdings to derive the tax effects applicable to each LR031 line item.
- Stress testing with migration scenarios
The client’s in-house quant team provided custom “stress scenario” probabilities based on historical market crises (e.g., the tech bubble, the global financial crisis, and COVID-19) for each asset type, rating, and potential “migration” rating. Rivvit integrated these scenarios as an additional lookup table (which can be updated as often as the client loads the data) into the RBC reporting logic, allowing users to toggle between base case and stressed portfolios across different dates.
This enabled rapid, scenario-based analysis of RBC risk charges over time, which is a powerful tool for understanding capital resiliency under pressure.
Results
Calculating BCAR and RBC isn’t just about getting numbers into a template. It’s about ensuring that investment data is properly structured, responsive to changing assumptions, and enriched with the classifications and risk factors prescribed by AM Best and the NAIC.
With Rivvit, this client can now monitor daily capital adequacy, perform real-time stress testing, and automate their BCAR and RBC reporting. They now have a transparent, auditable framework that reduces operational risk and increases leadership confidence.
With the BCAR and RBC frameworks now embedded directly into Rivvit, the client gained:
- Automated capital risk calculations aligned with regulatory and rating agency expectations – refreshing the model takes minutes instead of days
- Real-time and historical visibility into capital adequacy calculations
- Consistent treatment of assets across asset types, ratings, and issuer groups
- Scenario stress testing integrated into standard daily calculations and workflows
- Repeatable and audit-ready reports and dashboards available on demand