Risk-Based Capital Models

Risk-Based Capital (RBC) models are used by financial institutions, like insurance companies and banks, to determine how much financial cushion they need to stay safe during tough times. These models assess different types of risks—such as underwriting, investments, or economic downturns—and calculate the minimum capital they should hold to cover potential losses. This ensures the institution remains solvent and can meet its obligations to customers and stakeholders, even if unexpected events happen. Essentially, RBC models help balance risk and resources to maintain financial stability.