SCR calculation software: what "transparent" should mean before you sign

Every product page for SCR calculation software says the calculation is transparent. The word costs nothing to print. This article turns it into a list of things you can check on a demo, with the article of Delegated Regulation (EU) 2015/35 behind each one, so that “transparent” means something you have seen rather than something you have been told. It covers who needs the path from input data to template S.25.01, a twelve-point checklist for the demo, a test plan that rebuilds one filed quarter, where a spreadsheet gives way, and the parameter changes of 30 January 2027 that any tool bought now has to absorb. It is written for the actuary or CFO comparing tools, including anyone looking at SCR Tool, our standard formula SCR calculation software.

Who needs the path from input to S.25.01

The SCR is one number, reported in row R0220 of template S.25.01.21, but at least three people who did not calculate it have to be able to follow it back.

The external auditor is the first. From the 2027 financial year, Article 51a of Directive 2009/138/EC, inserted by Directive (EU) 2025/2, requires the Solvency II balance sheet in the SFCR to be audited. The SCR sits outside that scope under the EU minimum, but Member States may extend the audit, and the risk margin depends on projected SCRs, so the auditor reaches the capital calculation anyway and asks for the inputs, the formula and evidence that the reported number is the one the calculation produced.

The supervisor is the second. Article 36 of the Directive places the SCR inside the supervisory review process, and Article 102 requires a recalculation without delay when the risk profile deviates from the assumptions behind the last one. A reviewer who asks how a figure was produced expects an answer that starts with the data.

The ORSA is the third. Article 45 requires the undertaking to assess whether its risk profile deviates significantly from the assumptions underlying the standard formula. That needs a calculation you can take apart: which sub-modules carry the capital, which simplifications were used, and what the total does under a different asset mix.

The working definition used below follows. Transparent means an independent reader can go from any figure in S.25.01 back to the input data and the article that sets the formula, without the person who ran it in the room.

The checklist: twelve things to verify on a demo

Ask for the screen, not the slide. Each row gives what to look for and where the requirement comes from in Delegated Regulation (EU) 2015/35, unless another act is named. The mechanics behind the modules are in our article on how the SCR is calculated under the standard formula.

Four rows deserve a comment.

Row 3 is where most spreadsheets fail quietly. EIOPA publishes the term structures and the symmetric adjustment in the first business days of every month, and the capital charge moves with them even when the balance sheet has not changed. A tool should show which month’s publication it used and let you rerun the same balance sheet against the previous month. Our article on the market risk module and the symmetric adjustment shows the size of that effect.

Row 4 draws the hardest reviewer questions. Article 207(2) lets an increase in deferred tax assets count only where the undertaking can demonstrate future taxable profits after the assumed loss, and rows R0590 to R0640 of S.25.01 document the tax position before and after the shock. If the tool shows a single figure for the adjustment, ask where those rows come from.

Row 5 matters for any undertaking with ring-fenced funds or a matching adjustment portfolio. Each fund needs its own notional SCR, and the lost diversification is a positive adjustment that a spreadsheet built for one balance sheet does not know about. Our explainer on ring-fenced funds under Solvency II covers the mechanics, and RFF Tool runs those calculations across all funds at once.

Row 11 is easy to forget on a demo about the SCR. The MCR corridor is tied to the SCR, so the two belong in the same run; our post on the solvency ratio, SCR and MCR shows why a change in one moves the other.

The test plan: rebuild one quarter and reconcile every difference

A demo shows what the tool does with the vendor’s data. The test plan shows what it does with yours.

Pick a quarter you have already filed, ideally the last annual one, so that S.25.01, S.26.01 and, for a non-life undertaking, S.27.01 exist as reported. Load the original inputs: the asset list from S.06.02, the technical provisions by line of business, the reinsurance recoverables, the premium and reserve volumes, the deferred tax position. Use the EIOPA parameters for that reference date.

Compare the output with the filed templates row by row: the module rows R0010 to R0050 of S.25.01, the diversification in R0060, operational risk in R0130, the two adjustments in R0140 and R0150, the total in R0220. For market risk go one level down into S.26.01 and compare each sub-module.

Then reconcile every difference to a named cause: a different parameter version, a rounding or currency convention, an undocumented override in the old workbook, a simplification used in one calculation and not the other, or an input adjusted after export. A difference with no cause is a defect in one of the two calculations, and you want to know which before you sign. When the list is empty, the tool reproduces your filed SCR.

Where spreadsheets fail for the SCR

Excel can compute the standard formula. The arithmetic is not the problem; what happens around it is.

Version drift. The workbook is copied each quarter and each copy is edited. After a few years there is no single place where the current method is defined, and two analysts rebuilding last year’s SCR from the same inputs can get different numbers without either being wrong about the regulation.

Hidden overrides. A cell meant to hold a formula holds a value, typed in during a close to make a reconciliation work. It looks like every other cell, survives the next quarter’s copy, and is found by an auditor or by whoever finally rebuilds the workbook.

No audit trail. A workbook records its current state, not how it got there. Article 258(1)(i) of the Delegated Regulation requires adequate and orderly records, and a supervisor asking who changed the equity shock in March, and why, will not find the answer in a file’s modified date.

Manual parameter updates. The monthly EIOPA publications are pasted in by hand, so a wrong month, currency or tab is a plausible error every time.

Shape mismatch. The workbook produces numbers in the layout its author chose, and each quarter someone maps them onto S.25.01, S.26.01 and S.27.01. The mapping becomes its own source of differences.

These are governance problems, and the checklist rows on versioning, logs and template export test for them.

What changes on 30 January 2027 that the tool must absorb

Directive (EU) 2025/2 and Delegated Regulation (EU) 2026/269 both apply from 30 January 2027, so a tool bought in 2026 has to run the fourth quarter of 2026 on the current rules and the first quarter of 2027 on the new ones, from the same data. Our article on Directive (EU) 2025/2 covers the directive; the points below change the standard formula arithmetic and are cited by the numbered points of Delegated Regulation (EU) 2026/269.

The risk margin. Point (8) rewrites the formula in Article 37(1) so that each projected SCR is multiplied by a time-dependent factor, the larger of 0.965 to the power of the projection year and 50 percent. The recital describes it as an annual reduction of risks of at least 3.5 percent, capped at half. Point (9) replaces Article 39 and sets the cost-of-capital rate at 4.75 percent, down from 6 percent. Both must switch on the reference date, not on the calculation date.

The symmetric adjustment. Point (51) replaces Article 172(4) with a band of minus 13 to plus 13 percent, widened from plus or minus 10. A tool that hard-codes the cap will apply the wrong band to a first quarter 2027 calculation.

Interest rate risk. Points (43) and (44) rewrite Articles 166 and 167. The shocks are recalibrated so that rates can fall below zero, and the downward scenario gets a maturity-dependent floor: minus 1.25 percent for maturities of one to seven years, minus 0.893 percent from twenty years, interpolated between. The tool must show which calibration it used.

The market risk correlation matrix. Point (41) adds a second scenario-dependent parameter for the pair interest rate and spread, 0.25 in the downward scenario against 0.5 today. The matrix in row 2 of the checklist must therefore be versioned by date, not edited in place.

The amended templates apply from the first quarter of 2027 under taxonomy 2.10.0, so the export in row 10 needs both layouts for a while; our list of Solvency II QRTs tracks which templates change. On a demo, ask for the same balance sheet with a reference date in December 2026 and in March 2027, and ask the vendor to point to each difference above in the output.

Where this lands in the software

SCR Tool is built around the path this article describes. The overview shows every module, you can drill down into any component with the formulas visible, and results are presented in the QRT format, so S.25.01, S.26.01 and S.27.01 come out as reported. The Market-Risk-Constructor imports asset data and fund look-through information from QRT Tool and produces a transparency list where the charge on each asset can be tracked; the risk-free interest rate term structures and the symmetric adjustment are embedded, so they need no manual update. DataCollector pulls the remaining inputs from databases, Excel or CSV files through transformations defined once and reused every quarter. UK undertakings can import the PRA variants of the parameters. For undertakings with ring-fenced funds, RFF Tool calculates the SCR for every fund and the remaining part in one run and passes the results to QRT Tool for reporting.