Linear MCR

Overview

This calculator implements the Linear Minimum Capital Requirement (MCR) within the Solvency II standard formula.^[1] The Linear MCR is a volume-based component calculated as a weighted sum of technical provisions and written premiums or capital at risk, reflecting the undertaking's business scale before the SCR corridor constraints are applied in the Combined MCR step.^[2]

Input Terms

• Linear MCR (Non-Life): The weighted sum of technical provisions and written premiums for non-life business.^[3]
• Linear MCR (Life): The weighted sum of technical provisions and capital at risk for life business.^[4]

Technical Rationale

The Linear MCR is the primary component used to determine the final Minimum Capital Requirement. It ensures that the absolute floor for capital adequacy is never lower than a base level derived directly from the undertaking's current business volume and obligations.

The calculation applies prescribed factors to net technical provisions and net written premiums (for non-life) or technical provisions and net amount at risk (for life). These factors are calibrated to provide a point of intervention for supervisory authorities when a firm's financial position deteriorates significantly.^[1] The final Linear MCR is the sum of the non-life and life components, providing the input for the Combined MCR calculation.

Important Notes

• Two-Step MCR Structure: The Linear MCR is corridor-clipped to a band of 25% to 45% of the Solvency Capital Requirement (SCR), producing the Combined MCR. The Combined MCR is then compared against the MCR Absolute Floor to produce the Final MCR, which is the operative supervisory threshold.^[2]
• Linear Approximation: The MCR is intended to be a simple, proxy-based measure of capital adequacy, providing a more stable and less risk-sensitive floor than the SCR.
• Regulatory deviation: Material deviation from standard-formula assumptions at this layer may support a capital add-on or a move toward an internal model where justified.^[5]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.28.01 standard-formula reporting view.^[6]