Category: Capacity and rating · Reviewed by Jake Leat, Associate Director · Last reviewed 2026-06-05
The solvency ratio is the ratio of an insurer’s eligible own funds to its Solvency Capital Requirement, expressed as a percentage. It is the headline measure of capital adequacy under Solvency II, with a minimum acceptable ratio of 100 per cent (own funds equal to SCR) and well-capitalised insurers typically reporting 160–250 per cent.
Category: Capacity and rating Also known as: SCR ratio, Solvency II ratio, own funds ratio Related concepts: Solvency II SCR, Solvency II MCR, combined ratio
The solvency ratio is calculated as:
Solvency Ratio = Eligible Own Funds / Solvency Capital Requirement
Eligible own funds comprise basic own funds (capital, reserves, subordinated debt) and ancillary own funds (callable contributions, letters of credit), tiered by quality. Tier 1 (highest quality) capital must comprise at least 50 per cent of the SCR; restrictions apply to the inclusion of Tier 2 and Tier 3 capital.
Ratios are reported by all Solvency II insurers in their Solvency and Financial Condition Reports (SFCRs) annually. UK insurers typically target ratios of 160–200 per cent or higher to provide comfortable headroom above the regulatory minimum.
The solvency ratio framework is set out in the Solvency II Directive 2009/138/EC [1] and the PRA Insurance Rulebook. An insurer with a solvency ratio below 100 per cent is in breach of the SCR and required to submit a recovery plan to the PRA. An insurer with a ratio approaching the Minimum Capital Requirement (typically around 25–45 per cent of SCR) triggers urgent regulatory intervention.
The solvency ratio is the principal external measure of an insurer’s financial strength after the rating agency ratings. It features prominently in SFCRs, annual reports, investor presentations and broker carrier security assessments.
For Apex clients we monitor reported solvency ratios as one input to the carrier security analysis underlying placement decisions. A ratio below 130 per cent or showing a persistent declining trend may indicate stress and warrants attention.
The solvency ratio interacts with the reinsurance cycle: in hard markets, profitability strengthens ratios; in soft markets and following catastrophic events, ratios may decline. Major insurers respond by capital actions: subordinated debt issuance, share buy-backs or dividend reduction, and (in some cases) reinsurance to manage SCR.
An illustrative example: a UK insurer reports eligible own funds of £450m and SCR of £250m, producing a solvency ratio of 180 per cent. Following a £30m unexpected catastrophe loss, own funds fall to £420m and the ratio reduces to 168 per cent — still well above the regulatory minimum but a material reduction from the prior position.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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