Final SCR

Overview

This calculator implements the final capital requirement for the Solvency Capital Requirement (SCR) under the Solvency II standard formula.^[1] The SCR is defined as the economic capital necessary to absorb the loss in basic own funds resulting from a 1-in-200 year stress event.^[2]

Input Terms

• BSCR: The Basic Solvency Capital Requirement, representing the diversified capital for market, underwriting, and counterparty risks, plus intangible asset risk.^[3]
• Operational Risk: A standalone additive charge capturing risks arising from inadequate or failed internal processes, personnel, or systems.^[4]
• LAC TP: The Loss-Absorbing Capacity of Technical Provisions, representing the reduction in liabilities due to future discretionary benefits being lowered following a stress.^[5][6][7]
• LAC DT: The Loss-Absorbing Capacity of Deferred Taxes, representing the tax relief available following a stress loss, bounded by the undertaking's net deferred tax liabilities.^[5][6][8]

Technical Rationale

The Solvency Capital Requirement is calibrated to a 99.5% confidence level over a one-year horizon. Under the Standard Formula, this is modeled by aggregating capital requirements across a comprehensive array of risk modules.

Operational risk is applied as an additive charge after the BSCR calculation rather than being integrated into the correlation matrix. This structure treats operational failure stemming from processes, systems, or governance as a fundamental baseline risk. Conversely, the LAC adjustments reflect genuine economic offsets; if a severe stress occurs, discretionary benefits can fall and tax liabilities can shrink, so requiring capital for losses that would already be absorbed in those ways would overstate the true solvency need.

Important Notes

• LAC Floor: If the LAC adjustments exceed the pre-adjustment SCR, the result is floored at zero to ensure the final capital requirement does not become negative.
• Regulatory deviation: If the standard formula materially misrepresents the undertaking's risk profile, the supervisory authority may impose a capital add-on or require a move toward an internal-model approach.^[9]
• Reporting: The SCR output is intended to reconcile to template S.25.01.01, Solvency Capital Requirement for undertakings on the Standard Formula, in the Solvency II QRT package.^[10]