What is the Solvency Capital Requirement (SCR) under Solvency II?

The **Solvency Capital Requirement (SCR)** is the amount of eligible own funds an insurance or reinsurance undertaking must hold to meet its obligations over the next twelve months with high probability. Its legal basis is **Art. 100 of the Solvency II Directive (2009/138/EC)**; the calibration sits in **Art. 101(3)**: the SCR equals the **Value-at-Risk of basic own funds at a 99.5% confidence level over one year** — the ability to withstand a loss that arises, in statistical terms, once in 200 years ^[1].

Undertakings compute the SCR either with the **standard formula** (Arts. 103–111), which combines prescribed risk modules and correlations, or with an **internal model** (Arts. 112–127) that must be approved by the supervisor in advance. The SCR covers at least non-life, life, health and market risk, counterparty default risk and operational risk, and reflects risk mitigation and diversification effects.

Below the SCR sits the **Minimum Capital Requirement (MCR)** (Arts. 128–131) — a hard floor. Under **Art. 129**, the linear MCR is bounded to **25%–45% of the SCR** (the corridor) and additionally backstopped by an **absolute floor** in euros that varies by line of business. The MCR itself is calibrated to a lower level (85% Value-at-Risk over one year) — deliberately the sharper, simpler threshold.

The two thresholds trigger different interventions. Breaching the **SCR** requires the undertaking to submit a **recovery plan** to the supervisor within two months and restore own funds within six (Art. 138). Breaching the **MCR** invokes the sharper rung: a short-term finance scheme and, if it fails, **withdrawal of authorisation** (Art. 139). It is precisely this ladder that makes ongoing SCR monitoring — and the forward-looking ORSA — a core risk-management duty ^[1].

The **amending directive (Directive (EU) 2025/2)** applies from **30 January 2027** and adjusts several SCR-relevant levers. The most visible is the **reduction of the risk margin**: the cost-of-capital rate falls to **4.75%** and a time-dependent, decaying factor is added — together roughly **−21%** on the risk-margin level. Alongside it, the extrapolation of the risk-free term structure, spread and (long-term) equity risk and correlations are recalibrated ^[2].

The accompanying **delegated regulation (Level 2)** was finalised in late October 2025 and also applies from 30 January 2027. For insurers this means the Level 2 and Level 3 run-up publications appear **before** the application date — the reason to read EIOPA and national sources continuously rather than reacting only in 2027.