circumstances. The NAIC might decide that the MCO RBC formula should be “recalibrated” in conjunction with the covariance change, so as to minimize the likelihood that a company’s postchange RBC action level status differs from what it would have been without the change. If the NAIC were to support a change in the covariance formula but simultaneously express a desire for such recalibration, then studies would need to be performed to determine the appropriate complementary change to the unaffiliated common stock factor. •
Stock market volatility in recent years may be noticeably different from what it had been in the years (pre-1992) considered in the studies referenced above. If this is so, then the level of conservatism found in the unaffiliated common stock factors in all three RBC formulas may differ from what had been originally intended. This avenue of thought might warrant a consideration of whether the three formulas’ risk factors for stocks may collectively need to be adjusted in order to return to the original level of conservatism. This work group felt that such an issue was outside of the scope of its charge and did not explore it further.
•
The Academy is about to undertake a project to achieve uniform treatment of federal income taxes throughout all risk factors in the three RBC formulas. This work group has not made any effort in its work to reflect any modification in the tax treatment. Thus, the unaffiliated common stock factor may need to be changed, in a neutral way, in the implementation of the tax treatment project.
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