https://www.insurerbrain.com/w/index.php?action=history&feed=atom&title=Definition%3AEligible_own_funds 2026-04-30T12:08:52Z Revision history for this page on the wiki MediaWiki 1.43.8 https://www.insurerbrain.com/w/index.php?title=Definition:Eligible_own_funds&diff=8954&oldid=prev 2026-03-11T04:48:28Z

<p>Bot: Creating new article from JSON</p> <p><b>New page</b></p><div>🏛️ &#039;&#039;&#039;Eligible own funds&#039;&#039;&#039; is a regulatory capital concept under the [[Definition:Solvency II | Solvency II]] framework that represents the portion of an [[Definition:Insurance carrier | insurer&#039;s]] total own funds that regulators permit to count toward meeting [[Definition:Solvency capital requirement (SCR) | solvency capital requirements]]. Not all capital instruments and reserves an insurer holds qualify equally — Solvency II classifies own funds into tiers based on their quality, permanence, and loss-absorbing capacity, and imposes limits on how much of each tier can be used to satisfy the [[Definition:Solvency capital requirement (SCR) | SCR]] and the [[Definition:Minimum capital requirement (MCR) | minimum capital requirement (MCR)]].<br /> <br /> 📊 The framework groups own funds into three tiers. Tier 1 items — such as paid-in ordinary share capital, retained earnings, and certain deeply subordinated debt — offer the highest loss absorption and face the fewest restrictions. Tier 2 includes subordinated liabilities and callable instruments with specific contractual features, while Tier 3 covers items like net [[Definition:Deferred tax asset | deferred tax assets]] and certain short-dated subordinated liabilities. To determine eligible own funds, an insurer tallies its available own funds across all tiers, then applies the quantitative limits prescribed by the directive: for example, Tier 1 must constitute at least 50% of the SCR, and Tier 3 cannot exceed 15%. The resulting figure is what the [[Definition:Prudential regulator | prudential regulator]] recognizes as the insurer&#039;s capital buffer.<br /> <br /> ⚖️ For insurance company boards, chief financial officers, and [[Definition:Risk management | risk managers]], the composition of eligible own funds directly shapes strategic decisions about capital raising, dividend policy, and [[Definition:Reinsurance | reinsurance]] purchasing. An insurer whose own funds are heavily weighted toward lower-tier instruments may appear well-capitalized in aggregate yet still fall short of regulatory thresholds, triggering supervisory intervention. Beyond [[Definition:Regulatory compliance | compliance]], the concept influences how [[Definition:Rating agency | rating agencies]] and investors assess financial strength — a firm with predominantly Tier 1 eligible own funds signals resilience and operational flexibility. As the regulatory landscape evolves and stress scenarios intensify, maintaining a robust and well-tiered eligible own funds position remains a cornerstone of sustainable insurance operations.<br /> <br /> &#039;&#039;&#039;Related concepts:&#039;&#039;&#039;<br /> {{Div col|colwidth=20em}}<br /> * [[Definition:Solvency II]]<br /> * [[Definition:Solvency capital requirement (SCR)]]<br /> * [[Definition:Minimum capital requirement (MCR)]]<br /> * [[Definition:Own funds]]<br /> * [[Definition:Tiering of capital]]<br /> * [[Definition:Risk-based capital (RBC)]]<br /> {{Div col end}}</div>

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