Category: Capacity and rating · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-05
The Solvency Capital Requirement (SCR) is the level of capital that a Solvency II insurer must hold to ensure it can meet its obligations over a 12-month horizon with 99.5 per cent confidence. The SCR is the principal Pillar 1 capital requirement under Solvency II and the denominator of the solvency ratio.
Category: Capacity and rating Also known as: Solvency Capital Requirement, SCR Related concepts: solvency ratio, Solvency II MCR, standard formula, Solvency II ORSA
The SCR is calculated either by reference to the European Insurance and Occupational Pensions Authority (EIOPA) standard formula [1] or by an insurer’s approved internal model. The standard formula aggregates capital charges across defined risk modules:
The aggregation allows for diversification between risks via prescribed correlation matrices. The output is a single SCR figure representing the 1-in-200 year value-at-risk on a 12-month horizon.
The SCR is set out in the Solvency II Directive 2009/138/EC [1] and the Commission Delegated Regulation (EU) 2015/35 [2]. UK implementation is through the PRA Insurance Rulebook. The UK is currently reforming the regime through Solvency UK to recalibrate certain capital charges (matching adjustment, risk margin) and reduce administrative burden.
For most UK insurers the SCR is calculated using the standard formula, with adjustments for entity-specific parameters (USPs) where approved. Larger insurers and the Lloyd’s market use internal models that better reflect their specific risk profile.
SCR is reported quarterly to the PRA in the QRT (quantitative reporting template) returns and annually in the SFCR. Changes to the SCR drive capital actions, reinsurance purchases and underwriting strategy decisions.
For Apex clients, the SCR is not directly relevant at policyholder level, but it determines the cedant’s capacity to write business and its appetite for risk. Major changes in SCR (e.g. following a model change or a portfolio acquisition) can affect placement strategy.
An illustrative example: a UK property insurer’s SCR under the standard formula is composed of (illustrative figures): premium and reserve risk £75m, catastrophe risk £45m, market risk £30m, counterparty default risk £8m, operational risk £15m. Aggregated with diversification benefit (typically 25–35 per cent of the sum), the SCR is approximately £125m. The insurer holds £230m of eligible own funds, producing a solvency ratio of 184 per cent.
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.
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