Company: FRFXF
Filing Date: 2025-10-09
Form Type: F-10/A
Source: 0001104659-25-098335
Chunk: 77

Company: FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Filing Date: 2025-10-09
Form: F-10/A
Chunk 77
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 of protection that statutory surplus provides for policyholder obligations. The NAIC RBC model law provides that, for property and casualty insurers, the RBC formula will take into account: (i) underwriting risk; (ii) asset risk; (iii) credit risk; and (iv) all other business risks and such other relevant risks as are set forth in the NAIC’s Property/Casualty RBC Instructions. The RBC formula provides a mechanism for the calculation of an

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insurance company’s Authorized Control Level (“

#### ACL
”) RBC amount by the application of RBC risk factors to individual items reported on an insurer’s statutory financial statements. The NAIC continuously evaluates these factors to identify and address emerging risks. Changes to risk factors or to statutory accounting can affect insurers by changing their ACL RBC.

The NAIC RBC model law stipulates four levels of regulatory action depending on how an insurer’s statutory surplus compares to its RBC. The initial level, the “Company Action Level,” requires the insurance company to submit a plan of corrective action to the relevant insurance commissioner if its surplus falls below 200% of the ACL amount (or below 300% of the ACL amount, when a “trend test” is triggered under the NAIC’s Property/Casualty RBC Instructions). The next level, the “Regulatory Action Level,” requires the company to submit a plan of corrective action and also allows the regulator to perform an examination of the company’s business and operations and issue a corrective order if the surplus falls below 150% of the ACL amount (or other triggering events specified in the RBC model law occur). The third level, the ACL, permits the regulator to place the company under regulatory control, including rehabilitation or liquidation, if its surplus falls below 100% of that amount (or other triggering events specified in the RBC model law occur). The final action level, the “Mandatory Control Level,” requires the insurance commissioner to place the company under regulatory control if its surplus falls below 70% of the ACL amount.

In addition, the NAIC has developed a group capital calculation tool using an RBC aggregation methodology. The group capital calculation is designed to assist state insurance regulators in understanding the financial condition of non-insurance entities that are part of an insurance holding company system and the degree to which insurance companies are supporting those non-insurance entities. In 2020, the NAIC adopted amendments to the Model Insurance