Own Funds (Eigenmittel)
Own funds are an insurer's eligible capital under Solvency II that must be available to meet the solvency capital requirement.
Concept
Own funds are an insurance undertaking’s eligible capital under the rules of Solvency II, which must be available to cover the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR), and generally arise as the excess of assets valued on a market-consistent basis over technical provisions and other liabilities.
Quality Tiers
Solvency II classifies own funds into three quality tiers, depending on their availability in ongoing operations and in a wind-up scenario as well as their subordination relative to other liabilities: Tier 1 comprises the highest-quality capital, such as paid-in share capital, Tier 2 subordinated liabilities with limited maturity, and Tier 3 other, lower-quality own funds items; regulatory ceilings apply to how much of each tier may be counted toward the capital requirements.
Relevance for the Solvency Ratio
The ratio of eligible own funds to the Solvency Capital Requirement yields the solvency ratio (SCR ratio), the central regulatory metric for assessing an insurer’s financial strength; a solvency ratio of at least 100% indicates that sufficient own funds are available to cover the capital requirement.