Solvency ratio, SCR and MCR: what each means, how the MCR corridor works and what a breach triggers

Solvency II gives every EU insurer two capital requirements, and with them two solvency ratios. The Solvency Capital Requirement is the amount that lets the undertaking absorb a one in two hundred year loss; the Minimum Capital Requirement is the lower amount below which the supervisor withdraws the licence. This article explains what each ratio means and what counts as healthy, works the linear MCR formula and the 25 to 45 percent corridor through the undertaking from our SCR post, sets out what the supervisor does at each breach, and ends with the rows in S.28.01 and S.23.01 where the numbers land. It is written for anyone evaluating SCR Tool, which calculates the SCR and the MCR from the same inputs, who wants to see the mechanics first.

Two requirements, two ratios

Article 100 of Directive 2009/138/EC requires an undertaking to hold eligible own funds covering the Solvency Capital Requirement, and Article 101 calibrates it to the Value-at-Risk of basic own funds at a 99.5 percent confidence level over one year. Our post on how to calculate the SCR under the standard formula builds that number module by module.

Article 128 requires eligible basic own funds covering the Minimum Capital Requirement, Articles 129 to 131 say how it is calculated, and Article 129(2) calibrates it to a Value-at-Risk at an 85 percent confidence level over one year. Below the SCR the supervisor works with the undertaking on a recovery plan; below the MCR the licence is at stake. When someone says “solvency ratio” without qualification they mean eligible own funds divided by the SCR; the MCR ratio is the same own funds, after stricter tier limits, divided by the MCR.

What is a healthy solvency ratio?

The law only sets the floor at 100 percent for both ratios. Above that, the board sets a target range in its risk appetite statement, and supervisors read the ratio together with the interest rate and equity sensitivities in the SFCR. For scale, EIOPA’s Financial Stability Report of June 2026 puts the median solo SCR ratio at end 2025 above 200 percent for life, non-life and composite undertakings.

The own funds behind the two ratios differ. Under Article 82 of Delegated Regulation (EU) 2015/35 the SCR may be covered by all three tiers, with tier 1 at least 50 percent of the SCR and tier 3 below 15 percent. The MCR may only be covered by basic own funds, with tier 1 at least 80 percent of the MCR, tier 2 at most 20 percent and no tier 3.

The MCR formula: linear function, corridor and absolute floor

Article 129(1) of the Directive makes the MCR a linear function of technical provisions, written premiums, capital at risk, deferred tax and administrative expenses, all net of reinsurance. Article 129(3) adds the corridor: the result may neither fall below 25 percent nor exceed 45 percent of the SCR, including any capital add-on. Article 129(1)(d) adds an absolute floor in euro. Article 248 of the Delegated Regulation puts the three pieces together:

MCR = max(MCR_combined; AMCR)

MCR_combined = min(max(MCR_linear; 0.25 x SCR); 0.45 x SCR)

MCR_linear is a non-life component plus a life component. Under Article 250 the non-life component sums, over the sixteen non-life and non-proportional reinsurance segments, a factor times the net technical provisions without risk margin plus a factor times the net written premiums of the last twelve months, floored at zero. The factors are in Annex XIX. Article 251 gives the life component five terms, with future discretionary benefits carrying a negative factor because they can be cut in a loss:

MCR_L = 0.037 x TP(guaranteed benefits) minus 0.052 x TP(future discretionary benefits) + 0.007 x TP(unit-linked) + 0.021 x TP(other life) + 0.0007 x capital at risk

The absolute floor after the 2021 indexation

Article 300 of the Directive revises the euro amounts every five years in line with the Harmonised Index of Consumer Prices. The first revision, Commission notice 2021/C 423/12, had to be applied by 19 October 2022. The amounts in force today:

Directive (EU) 2025/2 does not amend Article 129 or Article 300. The next revision counts inflation from 31 December 2020 to 31 December 2025; as of September 2026 no notice with revised amounts has appeared in the Official Journal, so the 2021 figures apply until one does.

A worked example: from the SCR post to the MCR

The SCR post ended with an SCR of 66.85 million and eligible own funds of 120 million, a solvency ratio of about 180 percent. That undertaking carries both a life and a non-life module, so as a direct insurer it would be a composite filing S.28.02; we treat it as a reinsurer, which files S.28.01 with an absolute floor of EUR 3.9 million. All figures are in millions.

Step 1 is the non-life component, with three segments:

MCR_NL = 6.22 + 4.13 + 4.54 = 14.89

Step 2 is the life component, with technical provisions for guaranteed benefits of 120, future discretionary benefits of 15, unit-linked business of 100, other life business of 30 and capital at risk of 1,000:

MCR_L = 4.44 minus 0.78 + 0.70 + 0.63 + 0.70 = 5.69

Step 3 adds the two: MCR_linear = 14.89 + 5.69 = 20.58.

Step 4 applies the corridor. The floor is 0.25 x 66.85 = 16.71 and the cap is 0.45 x 66.85 = 30.08. The linear MCR of 20.58 lies between them, so MCR_combined = 20.58.

Step 5 applies the absolute floor: max(20.58; 3.9) = 20.58. The MCR is 20.58 million.

Step 6 is the ratio. If all 120 million of own funds are tier 1, the MCR ratio is 120 / 20.58, about 583 percent, against an SCR ratio of about 180 percent.

When the cap or the floor takes over

Had the linear MCR come out at 35, the cap would have bitten: min(max(35; 16.71); 30.08) = 30.08, and the MCR would move with every SCR recalculation rather than with the provisions. Had it come out at 12, the floor would have bitten at 16.71, which is common for heavily reinsured undertakings, since the linear formula uses net figures.

A small non-life insurer with an SCR of 6 million and a linear MCR of 1.2 million gets 1.5 from the corridor, but the absolute floor of 2.7 million overrides it, so its MCR is 45 percent of its SCR. Our post on ring-fenced funds under Solvency II covers a different way the two ratios can part company.

What happens on a breach

Directive (EU) 2025/2 replaces Article 139 from 30 January 2027. The one-month and three-month clocks stay, but they also start on the observation of a risk of non-compliance, and the home supervisor must consider restricting the free disposal of assets if winding-up proceedings have not been opened within two months of being informed. Our comparison of Solvency UK and Solvency II lists what the PRA changed on both requirements.

Which templates carry the SCR and the MCR

S.25.01 reports the SCR annually: R0200 is the SCR excluding capital add-on, R0210 the add-on and R0220 the SCR, which is the reference for the corridor.

S.28.01 reports the MCR for an undertaking with only life or only non-life activity, and for reinsurers. The segment inputs go into rows R0020 to R0170 for non-life and R0210 to R0250 for life, the two components into C0010/R0010 (14.89) and C0040/R0200 (5.69), and the overall calculation into column C0070: R0300 linear MCR 20.58, R0310 SCR 66.85, R0320 MCR cap 30.08, R0330 MCR floor 16.71, R0340 combined MCR 20.58, R0350 absolute floor 3.9 and R0400 Minimum Capital Requirement 20.58.

S.28.02 is the composite version. It runs the overall calculation in C0130 rows R0300 to R0400, then repeats the corridor on notional figures in rows R0500 to R0560, non-life in C0140 and life in C0150, because Article 74(3) of the Directive requires a composite to cover a notional MCR for each activity separately.

S.23.01 holds the ratios: R0540 and R0550 the eligible own funds to meet the SCR and the MCR after the tier limits, R0580 the SCR, R0600 the MCR, R0620 the ratio to the SCR and R0640 the ratio to the MCR, which in the example print 1.7951 and 5.8309. Which variant of each template is quarterly and which annual is in our list of Solvency II QRTs.

How the numbers move quarter to quarter

The SCR is calculated at least once a year under Article 102 of the Directive and recalculated when the risk profile deviates significantly from the assumptions behind the last calculation. The MCR is calculated at least quarterly under Article 129(4), which also says the SCR need not be recalculated for the corridor. So in a normal year the bounds in R0320 and R0330 stay fixed from the annual SCR, and the linear MCR moves inside them as the quarter-end technical provisions and the trailing twelve months of premiums change.

Up to and including the annual 2026 submission, the quarterly set includes S.23.01 and S.28.01 or S.28.02, due five weeks after the quarter end under Article 312 of the Delegated Regulation. From the Q1 2027 reference date, under taxonomy 2.10.0 and the amended reporting ITS, S.28.01 and S.28.02 become annual and the quarterly MCR is carried in S.23.01 row R0600.

Where this lands in the software

SCR Tool calculates the SCR and the MCR from the same data. The Underwriting-Risk-Constructor takes liability data from TP Tool for the underwriting modules, and the same net technical provisions by segment feed the linear MCR. DataCollector pulls written premiums and capital at risk from databases, Excel or CSV files. The overview shows the linear components, the 25 and 45 percent bounds, the absolute floor and the resulting MCR next to the SCR, and you can drill into any component with its formula visible. Results are presented in the QRT layout, so S.28.01, S.28.02 and the S.23.01 ratios come out as reported.