Certified Solvency ii Training for the countries of the EEA
Certified Solvency ii Training for countries outside the EEA
Own Risk and Solvency Assessment (ORSA)
Solvency and Financial Condition Report
 
 
Member Benefits                                                                         Certified Solvency ii Training
How to Become a Member                                               Order Your Certificate Of Membership  
Reading Room                                                                             Contact Us
 
The Minimum Capital requirement (MCR)
from the Solvency ii Association, the largest Association of Solvency ii Professionals in the world
 
What is the Minimum Capital Requirement (MCR)?

The
Minimum Capital Requirement is the
minimum level of security below which the amount of financial resources should not fall.

When the amount of eligible basic own funds falls below the Minimum Capital Requirement, the authorisation of insurance and reinsurance undertakings should be withdrawn, if those undertakings are unable to re-establish the amount of eligible basic own funds at the level of the Minimum Capital Requirement within a short period of time.

It is necessary that the Minimum Capital Requirement is calculated in accordance with a simple formula, on the basis of data which can be audited.


European Parliament legislative resolution of 22 April 2009 on the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (recast)

(19) All insurance and reinsurance undertakings should have, as an integrated part of their business strategy, a regular practice of assessing their over-all solvency needs with a view to their specific risk profile (own risk and solvency assessment).

 This assessment does not require the development of an internal model nor does it serve to calculate a capital requirement different from the Solvency Capital Requirement and the Minimum Capital Requirement.

The results of each assessment should be reported to the supervisory authority as part of the information to be provided for supervisory purposes.

(35) The supervisory regime should provide for a risk-sensitive requirement, which is based on a prospective calculation to ensure accurate and timely intervention by supervisory authorities (the Solvency Capital Requirement), and a minimum level of security below which the amount of financial resources should not fall (the Minimum Capital Requirement).

Both capital requirements should be harmonised throughout the Community in order to achieve a uniform level of protection for policyholders.

For the good functioning of the Solvency II regime, there should be an adequate ladder of intervention between the Minimum Capital Requirement and the Solvency Capital Requirement.

(42) When the amount of eligible basic own funds falls below the Minimum Capital Requirement, the authorisation of insurance and reinsurance undertakings should be withdrawn, if those undertakings are unable to re-establish the amount of eligible basic own funds at the level of the Minimum Capital Requirement within a short period of time.

(43) The Minimum Capital Requirement should ensure a minimum level below which the amount of financial resources should not fall.

It is necessary that it is calculated in accordance with a simple formula, which is subject to a defined floor and cap based on the risk-based Solvency Capital Requirement in order to allow for an escalating ladder of supervisory intervention, and that it is based on the data which can be audited.

(53) An insurance undertaking offering assistance contracts should possess the means necessary to provide the benefits in kind which it offers within an appropriate period of time.

Special provisions should be laid down for calculating the Solvency Capital Requirement and the absolute floor of the Minimum Capital Requirements which such undertaking should possess.

Article 18
Conditions for authorisation

1. The home Member State shall require every undertaking for which authorisation is sought to:

(a) as far as insurance undertakings are concerned, limit their objects to the business of insurance and operations arising directly there from, to the exclusion of all other commercial business;

(b) as far as reinsurance undertakings are concerned, limit their objects to the business of reinsurance and related operations; this requirement may include a holding company function and activities with respect to financial sector activities within the meaning of Article 2(8) of Directive 2002/87/EC;

(c) submit a scheme of operations in accordance with Article 23;

(d) hold the eligible basic own funds to cover the absolute floor of the Minimum Capital Requirement provided for in point (d) of Article 127(1);

(e) show evidence that it will be in a position to hold eligible own funds to cover the Solvency Capital Requirement, as provided for in Article 100, going forward;

(f) show evidence that it will be in a position to hold eligible basic own funds to cover the Minimum Capital Requirement, as provided for in Article 125, going forward;

(g) show evidence that it will be in a position to comply with the system of governance referred to in Chapter IV, Section 2;

(h) as far as non-life insurance is concerned communicate the name and address of all claims representatives appointed pursuant to Article 4 of Directive 2000/26/EC in each Member State other than the Member State in which the authorisation is sought if the risks to be covered are classified in class 10 of point A of Annex I, other than carrier's liability.

2. An insurance undertaking seeking authorisation to extend its business to other classes or to extend an authorisation covering only some of the risks pertaining to one class shall be required to submit a scheme of operations in accordance with Article 23.

It shall, in addition, be required to show proof that it possesses the eligible own funds to cover the Solvency Capital Requirement and Minimum Capital Requirement provided for in Articles 100(1) and 126.

3. Without prejudice to paragraph 2, an insurance undertaking carrying on life activities, and seeking authorisation to extend its business to the risks listed in classes 1 or 2 in point A of Annex I as referred to in Article 72, shall demonstrate the following:

(a) that it possesses the eligible basic own funds to cover the absolute floor of the Minimum Capital Requirement for life insurance undertakings and the absolute floor of the Minimum Capital Requirement for non-life insurance undertakings, as referred to in point (d) of Article 127(1);

(b) that it undertakes to cover the minimum financial obligations referred to in Article 73, going forward.

4. Without prejudice to paragraph 2, an insurance undertaking carrying on non-life activities for the risks listed in classes 1 or 2 in point A of Annex I, and seeking authorisation to extend its business to life insurance risks as referred to in Article 72, shall demonstrate that the following:

(a) that it possesses the eligible basic own funds to cover the absolute floor of the Minimum Capital Requirement for life insurance undertakings and the absolute floor of the Minimum Capital Requirement for non-life insurance undertakings, as referred to in point (d) of Article 127(1);

(b) that it undertakes to cover the minimum financial obligations referred to in Article 73(3) going forward.

SECTION 3 – PUBLIC DISCLOSURE

Article 50
Report on solvency and financial condition: contents


1. Member States shall, taking into account the principles set out in paragraphs 3 and 4 of Article 35, require insurance and reinsurance undertakings to publicly disclose, on an annual basis, a report on their solvency and financial condition.

That report shall contain the following information, either in full or by way of references to equivalent information, both in nature and scope, disclosed publicly under other legal or regulatory requirements:

(a) a description of the business and the performance of the undertaking;

(b) a description of the system of governance and an assessment of its adequacy for the risk profile of the undertaking;

(c) a description, separately for each category of risk, of the risk exposure, concentration, mitigation and sensitivity;

(d) a description, separately for assets, technical provisions, and other liabilities, of the bases and methods used for their valuation, together with an explanation of any major differences in the bases and methods used for their valuation in financial statements;

(e) a description of the capital management, including at least the following:

(i) the structure and amount of own funds, and their quality;

(ii) the amounts of the Minimum Capital Requirement and of the Solvency Capital Requirement;

(iia) the option set out in Article 305b used for the calculation of the Solvency Capital Requirement;

(iii) information allowing a proper understanding of the main differences between the underlying assumptions of the standard formula and those of any internal model used by the undertaking for the calculation of its Solvency Capital Requirement;

(iv) the amount of any non-compliance with the Minimum Capital Requirement or any significant non-compliance with the Solvency Capital Requirement during the reporting period, even if subsequently resolved, with an explanation of its origin and consequences as well as any remedial measures taken.

2. The description referred to in point (e)(i) of paragraph 1 shall include an analysis of any significant changes as compared to the previous reporting period and an explanation of any major differences in relation to the value of such elements in financial statements, and a brief description of the capital transferability.

The disclosure of the Solvency Capital Requirement referred to in point (e)(ii) of paragraph 1 shall show separately the amount calculated in accordance with Chapter VI, Section 4, Subsections 2 and 3 and any capital add-on imposed in accordance with Article 37 or the impact of the specific parameters the insurance or reinsurance undertaking is required to use in accordance with Article 108a, together with concise information on its justification by the supervisory authority concerned.

However, and without prejudice to any disclosure mandatory under any other legal or regulatory requirements, Member States may provide that, although the total Solvency Capital Requirement referred to in point (e)(ii) of paragraph 1 is disclosed, the capital add-on or the impact of the specific parameters the insurance or reinsurance undertaking is required to use in accordance with Article 108a need not be separately disclosed during a transitional period not exceeding five years after the date referred to in Article 310.

The disclosure of the Solvency Capital Requirement shall be accompanied, where applicable, by an indication that its final amount is still subject to supervisory assessment.

Article 53
Report on solvency and financial condition: updates and additional voluntary information


1. In the event of any major development affecting significantly the relevance of the information disclosed in accordance with Articles 50 and 52, insurance and reinsurance undertakings shall disclose appropriate information on its nature and effects.

For the purposes of the first subparagraph, at least the following shall be regarded as major developments:

(a) where non-compliance with the Minimum Capital Requirement is observed and the supervisory authorities either consider that the undertaking will not be able to submit a realistic short-term finance scheme or do not obtain such a scheme within one month;

(b) where a significant non-compliance with the Solvency Capital Requirement is observed and the supervisory authorities do not obtain a realistic recovery plan within two months.

In the cases referred to in point (a) of the second subparagraph, the supervisory authorities shall require the undertaking concerned to disclose immediately the amount of the non-compliance, together with an explanation of its origin and consequences, including any remedial measure taken.

Where, in spite of a short-term finance scheme initially considered to be realistic, a non-compliance with the Minimum Capital Requirement has not been resolved three months after its observation, it shall be disclosed at the end of that period, together with an explanation of its origin and consequences, including any remedial measures taken as well as any further remedial measures planned.

In the case referred to in point (b) of the second subparagraph, the supervisory authorities shall require the undertaking concerned to disclose immediately the amount of the non-compliance, together with an explanation of its origin and consequences, including any remedial measure taken.

Where, in spite of the recovery plan initially considered to be realistic, a significant non-compliance with the Solvency Capital Requirement has not been resolved six months after its observation, it shall be disclosed at the end of that period, together with an explanation of its origin and consequences, including any remedial measures taken as well as any further remedial measures planned.

2. Insurance and reinsurance undertakings may disclose, on a voluntary basis, any information or explanation related to their solvency and financial condition which is not already required to be disclosed in accordance with Articles 50 and 52 and paragraph 1 of this Article.

Article 66
Use of confidential information


Supervisory authorities which receive confidential information under Articles 63 or 64 may use it only in the course of their duties and for the following purposes:

(1) to check that the conditions governing the taking up of the business of insurance or reinsurance are met and to facilitate the monitoring of the conduct of such business, especially with regard to the monitoring of the technical provisions, the Minimum Capital Requirement, the Solvency Capital Requirement and the governance system;

(2) to impose sanctions;

(3) in administrative appeals against decisions of the supervisory authorities;

(4) in court proceedings under this Directive.

SECTION 6- DUTIES OF AUDITORS

Article 71
Duties of auditors

1. Member States shall provide at least that persons authorised within the meaning of Eighth Council Directive 84/253/EEC of 10 April 1984 based on Article 54 (3) (g) of the Treaty on the approval of persons responsible for carrying out the statutory audits of accounting documents , who perform in an insurance or reinsurance undertaking the statutory audit referred to in Article 51 of Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies , Article 37 of║ Directive 83/349/EEC or Article 31 of Directive 85/611/EEC or any other statutory task, shall have a duty to report promptly to the supervisory authorities any fact or decision concerning that undertaking of which they have become aware while carrying out that task and which is liable to bring about any of the following:

(a) a material breach of the laws, regulations or administrative provisions which lay down the conditions governing authorisation or which specifically govern pursuit of the activities of insurance and reinsurance undertakings;

(b) the impairment of the continuous functioning of the insurance or reinsurance undertaking;

(c) the refusal to certify the accounts or to the expression of reservations;

(d) the non-compliance with the Solvency Capital Requirement;

(e) the non-compliance with the Minimum Capital Requirement.

The persons referred to in the first subparagraph shall likewise have a duty to report any facts and decisions of which they have become aware in the course of carrying out a task as described in the first subparagraph in an undertaking which has close links resulting from a control relationship with the insurance or reinsurance undertaking within which they are carrying out that task.

2. The disclosure in good faith to the supervisory authorities, by persons authorised within the meaning of Directive 84/253/EEC, of any fact or decision referred to in paragraph 1 shall not constitute a breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision and shall not involve such persons in liability of any kind.

Article 98
Eligibility and limits applicable to Tier 1, Tier 2 and Tier 3


1. As far as the compliance with the Solvency Capital Requirement is concerned, the eligible amounts of Tier 2 and Tier 3 items shall be subject to quantitative limits. Those limits shall be such as to ensure that at least the following conditions are met:

(a) the proportion of Tier 1 items in the eligible own funds is higher than one third of the total amount of eligible own funds;

(b) the eligible amount of Tier 3 items is less than one third of the total amount of eligible own funds.

2. As far as the compliance with the Minimum Capital Requirement is concerned, the amount of basic own fund items eligible to cover the Minimum Capital Requirement which are classified in Tier 2 shall be subject to quantitative limits. Those limits shall be such as to ensure, as a minimum, that the proportion of Tier 1 items in the eligible basic own funds is higher than one half of the total amount of eligible basic own funds.

4. The eligible amount of own funds to cover the Solvency Capital Requirement set out in Article 100 shall be equal to the sum of the amount of Tier 1, the eligible amount of Tier 2 and the eligible amount of Tier 3.

5. The eligible amount of basic own funds to cover the Minimum Capital Requirement set out in Article 126 shall be equal to sum of the amount of Tier 1 and the eligible amount of basic own fund items classified in Tier 2.

SECTION 5 - MINIMUM CAPITAL REQUIREMENT

Article 126
General provisions


Member States shall require that insurance and reinsurance undertakings hold eligible basic own funds, to cover the Minimum Capital Requirement.

Article 127
Calculation of the Minimum Capital Requirement


1. The Minimum Capital Requirement shall be calculated in accordance with the following principles:

(a) it shall be calculated in a clear and simple manner, and in such a way as to ensure that the calculation can be audited;

(b) it shall correspond to an amount of eligible basic own funds below which policyholders and beneficiaries are exposed to an unacceptable level of risk if insurance and reinsurance undertakings were allowed to continue their operations;

(c) the linear function referred to in paragraph 2 used to calculate the Minimum Capital Requirement shall be calibrated to the Value-at-Risk of the basic own funds of an insurance or reinsurance undertaking
subject to a confidence level of 85 % over a one-year period;

(d) it shall have an absolute floor of

(i) 2 200 000 EUR for non-life insurance undertakings, including captive insurance undertakings, except in the case where all or some of the risks included in one of the classes 10 to 15 listed in point A of Annex 1 are covered, in which case it shall not be less than 3 200 000 EUR,

(ii) 3 200 000 EUR for life insurance undertakings, including captive insurance undertakings,

(iii) 3 200 000 EUR for reinsurance undertakings, except in the case of captive reinsurance undertakings, in which case the Minimum Capital Requirement shall not be less than a minimum of 1 000 000 EUR,

(iv) the sum of the amounts set out in points (i) and (ii) for insurance undertakings as referred to in Article 72(5).


1a. Subject to paragraph 1b the Minimum Capital Requirement shall be calculated as a linear function of a set or sub-set of the following variables: the undertaking’s technical provisions, written premiums, capital-at-risk, deferred tax and administrative expenses. The variables used shall be measured net of reinsurance.

1b. Without prejudice to point (d) of paragraph 1,
the Minimum Capital Requirement shall not fall below 25% nor exceed 45%, of the undertaking’s Solvency Capital Requirement, calculated in accordance with Chapter VI, Section 4, Sub-sections 2 or 3, and including any capital add-on imposed in accordance with Article 37.

Member States shall allow their supervisory authorities, for a period not exceeding two years after the date referred to in Article 310(1), to require an insurance or reinsurance undertaking to apply the percentages referred to in the previous subparagraph exclusively to the undertaking's Solvency Capital Requirement calculated in accordance with Chapter VI, Section 4, Sub-section 2.

2. Insurance and reinsurance undertakings shall calculate the Minimum Capital Requirement at least quarterly and report the results of that calculation to supervisory authorities.

If either of the limits referred to in paragraph 1b determines an undertaking’s Minimum Capital Requirement, the undertaking shall provide to the supervisory authority information allowing a proper understanding of the reasons for this.

2a. The Commission shall submit to the European Parliament and the European Insurance and Occupational Pensions Committee, at the latest five years after the date referred to in Article 310(1), a report on Member States' rules and supervisory authorities' practices adopted pursuant to paragraphs 1, 1a, 1b or 2.

That report shall address, in particular, the use and level of the cap and the floor set out in paragraph 1b as well as any problems faced by supervisory authorities and by undertakings in the application of this Article.

Article 128
Implementing measures


The Commission shall adopt implementing measures specifying the calculation of the Minimum Capital Requirement, referred to in Articles 126 and 127.

Those measures designed to amend non-essential elements of this Directive, by supplementing it shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 304 (3).

Article 129
Transitional arrangements regarding compliance with the Minimum Capital Requirement


By way of derogation from Articles 137 and 142, where insurance and reinsurance undertakings comply with the Required Solvency Margin referred to in Article 28 of Directive 2002/83/EC,

Article 16 a of Directive 73/239/EC or Articles 37, 38 or 39 of Directive 2005/68/EC respectively on the date set out in Article 310(1) but do not hold sufficient eligible basic own funds to cover the Minimum Capital Requirement, the undertakings concerned shall comply with Article 126 within one year from the date as set out in Article 310(1).

If the undertaking concerned fails to comply with Article 126 within the period set out in the first paragraph, the authorisation of the undertaking shall be withdrawn, subject to the applicable processes provided for in the national legislation.

Article 137
Non-Compliance with the Minimum Capital Requirement


1. Insurance and reinsurance undertakings shall immediately inform the supervisory authority as soon as they observe that the Minimum Capital Requirement is no longer complied with, or where there is a risk of non-compliance in the coming three months.

2. Within one month from the observation of the non-compliance with the Minimum Capital Requirement the insurance or reinsurance undertaking concerned shall submit, for approval by the supervisory authority, a short-term realistic finance scheme to restore, within three months from that observation, the eligible basic own funds, at least to the level of the Minimum Capital Requirement or to reduce its risk profile to
ensure compliance with the Minimum Capital Requirement.

3. The supervisory authority of the home Member State may also restrict or prohibit the free disposal of the assets of the insurance or reinsurance undertaking. It shall inform the supervisory authorities of the host Member States accordingly. Those authorities shall, at the request of the supervisory authority of the home Member State, take the same measures. The supervisory authority of the home Member State shall designate the assets to be covered by such measures.

Article 164
Solvency Capital Requirement and Minimum Capital Requirement


1. Each Member State shall require for branches which are set up in its territory an amount of eligible own funds consisting of the items referred to in Article 98(4).

The Solvency Capital Requirement and the Minimum Capital Requirement shall be calculated in accordance with the provisions of Chapter VI, Sections 4 and 5.

However, for the purpose of calculating the Solvency Capital Requirement and the Minimum Capital Requirement, account shall be taken of the following:

(a) for non-life insurance, only of the operations carried on by the branch concerned;

(b) for life insurance, only of the operations effected by the branch concerned.

2. The eligible amount of basic own funds required to cover the Minimum Capital Requirement and the absolute floor of that Minimum Capital Requirement shall be constituted in accordance with Article 98(5).

3. The eligible amount of basic own funds may not be less than one-half of the absolute floor required under point (d) of Article 127(1).

The deposit lodged in accordance with point (e) of Article 160(2) shall be counted towards such eligible basic own funds to cover the Minimum Capital Requirement.

4. The assets representing the Solvency Capital Requirement must be kept within the Member State where the activities are carried on up to the amount of the Minimum Capital Requirement and the excess within the Community.

SUBSECTION 4 – CALCULATION METHODS

Article 228
Method 1 (Default method): Accounting consolidation-based method


1. The calculation of the group solvency of the participating insurance or reinsurance undertaking shall be carried out on the basis of the consolidated accounts.

The group solvency of the participating insurance or reinsurance undertaking is the difference between the following:

(a) the own funds eligible to cover the Solvency Capital Requirement, calculated on the basis of consolidated data;

(b) the Solvency Capital Requirement at group level calculated on the basis of consolidated data.

The rules laid down in Title I, Chapter VI, Section 3, Subsections 1, 2 and 3 and in Title I, Chapter VI, Section 4, Subsections 1, 2 and 3 shall apply for the calculation of the own funds eligible for the Solvency Capital Requirement and of the Solvency Capital Requirement at group level based on consolidated data.

2. The Solvency Capital Requirement at group level based on consolidated data (consolidated group Solvency Capital Requirement) shall be calculated on the basis of either the standard formula or an approved internal model, in a manner consistent with the general principles contained in Title I, Chapter VI, Section 4, Subsections 1 and 2 and Title I, Chapter VI, Section 4, Subsections 1 and 3.

The consolidated group Solvency Capital Requirement shall have as a minimum the sum of the following:

(a) the minimum capital requirement (Minimum Capital Requirement) as referred to in Article 127 of the participating insurance or reinsurance undertaking;

(b) the proportional share of the Minimum Capital Requirement of the related insurance and reinsurance undertakings.

That minimum shall be covered by eligible basic own funds as determined in Article 98(5).

For the purposes of determining whether such eligible own funds qualify to cover the minimum consolidated group Solvency Capital Requirement, the principles set out in Articles 219 to 227 shall apply mutatis mutandis. The provisions set out in paragraphs 1 and 2 of Article 137 shall apply by analogy.

Article 238
Subsidiaries of an insurance or reinsurance undertaking: non-compliance with the Solvency Capital Requirement


1. Without prejudice to Article 136, the supervisory authority having authorised the subsidiary shall – in case of non-compliance with Solvency Capital Requirement – forward without delay to the college of supervisors the recovery plan submitted by the subsidiary in order to achieve, within six months from the observation of the non-compliance with the Solvency Capital Requirement, the reestablishment of the level of eligible own funds or the reduction of its risk profile to ensure compliance with the Solvency Capital Requirement.

The college of supervisors shall do everything within its power to reach an agreement on the proposal of the supervisory authority regarding the approval of the recovery plan within four months from the date of the observation of the non-compliance with the Solvency Capital Requirement.

In the absence of an agreement, the supervisory authority having authorised the subsidiary makes its own decision on the approval of the recovery plan, taking duly into account the views and reservations of the other supervisory authorities within the college.

1a. When the supervisory authority having authorised the subsidiary identifies, in accordance with article 134, deteriorating financial conditions it shall notify without delay the college of supervisors. With the exception of in emergency situations, the measures to be taken should be discussed under the college of supervisors.

The college of supervisors shall do everything within its power to reach an agreement on the proposal of the supervisory authority regarding the measures to be taken within one month from the date of the communication.

In the absence of an agreement, the supervisory authority having authorised the subsidiary makes its own decision, taking duly into account the views and reservations of the other supervisory authorities within the college.

1b. Without prejudice of Article 137, the supervisory authority having authorised the subsidiary shall – in case of non-compliance with Minimum Capital Requirement – forward without delay to the college of supervisors the short-term finance scheme submitted by the subsidiary in order to achieve, within three months from the observation of the non-compliance with the Minimum Capital Requirement, the reestablishment of the level of eligible own funds covering the Minimum Capital Requirement or the reduction of its risk profile to ensure compliance with the Minimum Capital Requirement.

The college of supervisors should also be informed of any measures taken to enforce the Minimum Capital Requirement at the level of the subsidiary.


 
From the Amended Proposal for a Directive on the taking-up and pursuit of the business of Insurance and Reinsurance (SOLVENCY II)

Minimum Capital Requirement – Articles 126 to 129

The Minimum Capital Requirement represents a level of capital below which policyholders' interests would be seriously endangered if the undertaking were allowed to continue to operate.

In the event that the Minimum Capital Requirement is breached ultimate supervisory action is triggered, i.e. authorisation is withdrawn (see Articles 127 and 137).

Undertakings are therefore required to hold eligible basic own funds to cover the Minimum Capital Requirement (see Article 126).

As ultimate supervisory action may require authorisation by national courts, the Minimum Capital Requirement needs to be calculated quarterly, in accordance with a simple and robust formula, on the basis of auditable data.

Article 127 on the specific design and calibration of the Minimum Capital Requirement includes a short list of general principles.

In particular, the text enables the two following approaches to be tested:

– the Minimum Capital Requirement calculated using a simplified version of the standard formula (modular approach) taking account of life underwriting risk, non life underwriting risk and market risk, and calibrated to a one-year 90% Value-at- Risk;

Minimum Capital Requirement calculated as a percentage of the Solvency Capital Requirement (compact approach), calibrated to 1/3 of the Solvency Capital Requirement.

For example, Article 127(1) point (c) enables the Minimum Capital Requirement to be calibrated to a confidence level between 80% (as 1/3 of an Solvency Capital Requirement calibrated to a 99.5% VaR is equivalent to a 80% VaR, assuming a normal distribution) and 90% (the level used in the modular approach being tested).

Article 50 - Report on Solvency and financial condition:

Contents:

A description of the capital management, including at least the following:

(i) the structure and amount of own funds, and their quality;

(ii) the amounts of the Minimum Capital Requirement and of the Solvency Capital Requirement;

(iii) information allowing a proper understanding of the main differences between the standard formula and any internal model used by the undertaking for the calculation of its Solvency Capital Requirement;

(iv) the amount of any non compliance with the Minimum Capital Requirement or any significant non compliance with the Solvency Capital Requirement during the reporting period, even if subsequently resolved, with an explanation of its origin and consequences as well as any remedial measures taken.

SECTION 5 - MINIMUM CAPITAL REQUIREMENT

Article 126

General provisions

Member States shall ensure that insurance and reinsurance undertakings hold eligible basic own funds, to cover the Minimum Capital Requirement.

Article 127

Calculation of the Minimum Capital Requirement

1. The Minimum Capital Requirement shall be calculated in accordance with the following principles:

(a) it shall be calculated in a clear and simple manner, and in such a way as to ensure that the calculation can be audited;

(b) the Minimum Capital Requirement shall correspond to an amount of eligible basic own funds below which policyholders and beneficiaries are exposed to an unacceptable level of risk if insurance and reinsurance undertakings were allowed to continue their operations;

(c) the level of the Minimum Capital Requirement shall be calibrated to the Value at- Risk of the basic own funds of an insurance or reinsurance undertaking subject to a confidence level in the range of 80% to 90% over a one-year period;

(d) it shall have an absolute floor of 1 000 000 EUR for non-life insurance and reinsurance undertakings and 2 000 000 EUR for life insurance undertakings.

2. Insurance and reinsurance undertakings shall calculate the Minimum Capital Requirement at least quarterly and report the results of that calculation to supervisory authorities.

Article 128

Implementing measures

The Commission shall adopt implementing measures specifying the calculation of the Minimum Capital Requirement.

Those measures designed to amend non-essential elements of this Directive, by  supplementing it shall be adopted in accordance with the regulatory procedure.

Article 137

Non-Compliance with the Minimum Capital Requirement

1. Insurance and reinsurance undertakings shall inform the supervisory authority as soon as they observe that the Minimum Capital Requirement is no longer complied with, or where there is a risk of non-compliance in the coming three months.

2. Within one month from the observation of the non-compliance with the Minimum Capital Requirement the insurance or reinsurance undertaking concerned shall submit, for approval by the supervisory authority, a short-term realistic finance scheme to restore, within three months from that observation, the eligible basic own funds, at least to the level of the Minimum Capital Requirement or to reduce its risk profile to ensure compliance with the Minimum Capital Requirement.


To learn more you may visit:
 
Architecture of the Minimum Capital Requirement (MCR)
 
Minimum Capital Requirement (MCR) - Pros and cons of different approaches
 
Consultation Paper No 55 - Draft CEIOPS’ Advice (Level 2): Calculation of the MCR
 
Final CEIOPS’ Advice for Level 2 Implementing Measures on Solvency II:
Article 130,
Calculation of the MCR, October 2009
 
CEIOPS’ Advice for Level 2 Implementing Measures on Solvency II:
Article 130 - Calibration of the MCR (8 April 2010)
 

Solvency ii Training

Certification:
Certified Solvency ii Professional (CSiiP)

Certified Training Course:
Certified Solvency ii Professional (CSiiP): Preparing for the Solvency ii Directive of the EU - Prep Course (3 days)

To learn more:
www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm

Certification:
Certified Solvency ii Equivalence Professional (CSiiEP)

Certified Training Course:
Certified Solvency ii Equivalence Professional (CSiiEP): Preparing for Equivalence with the Solvency ii Directive of the EU - Prep Course (3 days)


To learn more:
www.solvency-ii-association.com/Certified_Solvency_ii_Training_Non_EEA_Countries.htm

The Solvency ii Association has signed an exclusive worldwide partner agreement with Solvency II Training Ltd, so the Association will provide Solvency II Training classes worldwide only on behalf of Solvency II Training Ltd.

Solvency II Training Ltd is a niche training consultancy, specialising in the provision of Solvency II training programs to organisations & individuals within the European Union (EU), European Economic Area (EEA) & Non-EEA Countries, including the Offshore Financial Centres (OFCs).

For Further Information or to Register for one of our Solvency II Training courses contact:

Solvency II Training Ltd.
Level 33, 25 Canada Square
Canary Wharf, London E14 5LQ
Tel:  +44 (0) 207 060 3312
Fax: +44 (0) 207 681 3317
Email: info@solvencyiitraining.eu
Web: www.solvencyiitraining.eu