The SCR – Solvency Capital Requirement – is the higher of the two capital requirements under Solvency II. The lower is the MCR.
In most cases the Standard Formula is used to calculate the SCR. Once the SCR is calculated it is usually presented as a ratio of Own Funds.
The five major components of the SCR is:
- Market Risk
- Underwriting risk for life, non-life and health
- Counterparty Default Risk
All summations of modules is done by using correlation matrixes. The reason for this is to avoid double counting of risks.
It is possible that the SCR is lower than the MCR but it is unusual. It might be seen for instance in start-ups.
Relevant EIOPA guidelines can be found here.