Mcr formula solvency ii

•Factor-based formula •For unit-linked business (where the investment risk is borne by the policyholder): –Ops risk is 25% of the unit-linked expenses •For everything else: –calculate an operational risk component based on premiums and one based on reserves, and use the higher, –with a cap of 30% of the Basic SCR. 4 | Solvency II According to the fifth Quantitative Impact Study (QIS5), the market risk is the most important risk module under Solvency II. It represents approximately two-thirds of the Basic Solvency Capital Requirement (BSCR) for a life solo insurance undertaking, onethird for a non-life solo undertaking, and Pursuant to section 89 of the VAG, insurers subject to Solvency II must at all times have eligible basic own funds of at least the level of the Minimum Capital Requirement (MCR). For this reason, only basic own funds classified as Tier 1 and Tier 2 are eligible for covering the MCR . The standard formula approach under Solvency II is used by most European insurance companies to calculate the required solvency capital. The European Committee has now finalized several changes to the standard formula. This article reviews some important changes and discusses their possible impact. The Solvency II Directive is a new regulatory framework for the European insurance industry that adopts a more dynamic risk-based approach and implements a non-zero failure regime, i.e., there is a 0.5 percent probability of failure.