Solvency Ratio (Solvabilitätsquote)
The solvency ratio relates an insurer's eligible own funds to its Solvency Capital Requirement, indicating the factor by which the regulatory minimum capital level is met.
Concept
The solvency ratio relates an insurer’s eligible own funds to its Solvency Capital Requirement (SCR) and is usually expressed as a percentage. A solvency ratio of 150%, for example, means that the insurer holds one and a half times as much eligible own funds as would be required to meet the regulatory Solvency Capital Requirement.
Relevance for Supervision and the Public
If the solvency ratio falls below the 100% threshold, the Solvency Capital Requirement is no longer fully covered by own funds, and the insurer must submit a recovery plan to the supervisory authority to restore its capital position; regardless of supervisory intervention thresholds, the solvency ratio is publicly disclosed as part of the SFCR and is used by market participants, rating agencies, and analysts as a key indicator of an insurer’s financial strength.
Volatility and Interpretation
Because of the market-consistent valuation of assets and liabilities under Solvency II, the solvency ratio can fluctuate considerably between reporting periods, for example due to changes in interest rates, capital market developments, or exceptional loss events; an isolated view of individual point-in-time figures should therefore always be supplemented by an analysis of underlying trends and sensitivity to key risk factors.