Own Funds Classification (Tiering)

Overview

This calculator determines the Eligible Own Funds Tiering limits within the Solvency II standard formula.^[1] It classifies basic own funds items into Tiers 1, 2, and 3 based on their quality and loss-absorbing capacity, and subsequently applies the quantitative limits set out in the Solvency II Directive to determine the maximum amounts of each tier eligible to cover the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR).^[2]

Input Terms

• Tier 1 Unrestricted: High-quality capital items such as ordinary share capital and the reconciliation reserve.
• Tier 1 Restricted: Capital items like subordinated liabilities that meet Tier 1 criteria but are subject to limits.
• Tier 2: Capital items of medium quality, such as certain subordinated liabilities and ancillary own funds.
• Tier 3: Lower-quality capital items, such as net deferred tax assets.

Technical Rationale

Solvency II enforces strict eligibility limits to ensure a high quality of capital. For the SCR: - Tier 1 must be at least 50% of the SCR. - Tier 3 is limited to a maximum of 15% of the SCR. - Tiers 2 and 3 combined are limited to a maximum of 50% of the SCR.

For the MCR, only Tier 1 and Tier 2 are eligible, with Tier 1 requiring at least 80% coverage and Tier 2 limited to 20% of the MCR.

Important Notes

• 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.^[3]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.23.01 own funds reporting view.^[4]