Risk Based Capital Reporting Requirement

MIA BULLETIN NO. 00-2

TO:

President, Managed Care Organizations

FROM:

Steven B. Larsen, Insurance Commissioner

SUBJECT:

Risk-Based Capital Reporting Requirement

Risk-based capital (RBC) is a method of measuring the minimum amount of capital

appropriate for a managed care organization (MCO) to support its overall business

operations in consideration of its size and risk profile. Its provides an elastic means of

setting the capital requirement in which the degree of risk taken by the MCO is the

primary determinant.

A company’s risk-based capital is calculated by applying factors to various asset,

premium and reserve items. The factor is higher for those items with greater underlying

risk and lower for less risky items. The adequacy of a company’s actual capital can then

be measured by a comparison to its risk-based capital as determined by the formula.

Senate Bill 60, filed in the 2000 session of the Maryland General Assembly, if enacted,

will permit the use of risk-based capital standards by regulators to set in motion

appropriate regulatory actions relating to MCOs that show indications of weak or

deteriorating conditions. It will also provide an additional standard for minimum capital

requirements that companies should meet to avoid being placed in rehabilitation or

liquidation.

Therefore, effective for the annual reporting period ending December 31, 1999, MCOs

are required to complete and file with the Administration, the National Association of

Insurance Commissioners (NAIC) Managed Care Organizations Risk-Based Capital

Report. Software containing the formula, instructions and a filing diskette are available

from the NAIC for a nominal cost. The RBC software program will run in conjunction

with commercial Annual Statement preparation packages, and thus requires minimal

manual data entry. Contact the NAIC publications department at 1-816-374-7529 or its

website address at www.naic.org

zations Risk-Based Capital

Report. Software containing the formula, instructions and a filing diskette are available

from the NAIC for a nominal cost. The RBC software program will run in conjunction

with commercial Annual Statement preparation packages, and thus requires minimal

manual data entry. Contact the NAIC publications department at 1-816-374-7529 or its

website address at www.naic.org. The Risk-Based Capital Report is to be filed with the

Administration, in hardcopy and electronic format by March 1, 2000. Do not file the

Report with the NAIC. A newsletter, which specifies minimum system requirements

for the RBC program is attached.

If you have any questions regarding the filing requirements, please contact Lester C.

Schott at 410-468-2167.