Minimum Capital Requirement (MCR)
The Minimum Capital Requirement (MCR) is the absolute floor of eligible own funds under Solvency II, below which the supervisory authority is entitled to withdraw the insurer's authorization immediately.
Concept
The Minimum Capital Requirement (MCR) under Solvency II is the absolute floor of eligible basic own funds that an insurance undertaking must maintain at all times in order not to jeopardize its authorization. It sits significantly below the Solvency Capital Requirement (SCR) and marks the threshold below which particularly intensive supervisory intervention becomes necessary.
Calculation and Regulatory Range
The MCR is calculated using a linear formula based on metrics such as technical provisions, written premiums, and risk underwritten; it is constrained to a corridor between 25% and 45% of the SCR and must simultaneously not fall below an absolute minimum amount (the so-called absolute MCR floor), which varies depending on the insurance line and legal form of the undertaking.
Significance of a Breach
While a breach of the SCR triggers a graduated package of supervisory measures aimed at restoring coverage, a breach of the MCR triggers the most severe intervention powers available to the supervisory authority, up to and including withdrawal of authorization, since the MCR is regarded as the last line of defense for policyholder interests.