PlumBot: Bot: Creating new article from JSON

2026-03-11T05:38:58Z

Bot: Creating new article from JSON

New page

📐 '''Prescribed capital requirement''' is a regulatory minimum amount of capital that an [[Definition:Insurance carrier | insurer]] or [[Definition:Reinsurer | reinsurer]] must hold, calculated according to a formula or model specified by the supervising authority to ensure the company can absorb losses and continue meeting [[Definition:Policyholder | policyholder]] obligations under adverse conditions. The term is most closely associated with frameworks like [[Definition:Solvency II | Solvency II]] in Europe — where it is called the [[Definition:Solvency capital requirement (SCR) | Solvency Capital Requirement]] — and Australia's [[Definition:Australian Prudential Regulation Authority (APRA) | APRA]]-administered regime, but virtually every insurance regulatory system imposes some version of a prescribed capital floor. It differs from an insurer's own internal [[Definition:Economic capital | economic capital]] assessment in that the methodology and calibration are set externally by the [[Definition:Insurance regulator | regulator]], leaving less room for company-specific judgment.

⚙️ Calculation methods vary by jurisdiction but generally account for the major risk categories an insurer faces: [[Definition:Underwriting risk | underwriting risk]], [[Definition:Credit risk | credit risk]], [[Definition:Market risk | market risk]], and [[Definition:Operational risk | operational risk]]. Under Solvency II, for example, insurers can use a [[Definition:Standard formula | standard formula]] or, with supervisory approval, an [[Definition:Internal model | internal model]] that reflects their specific risk profile. The prescribed requirement is calibrated to a confidence level — often 99.5% over a one-year horizon — meaning the capital should be sufficient to withstand a 1-in-200-year loss event. Falling below the requirement triggers a ladder of supervisory interventions: at the [[Definition:Solvency capital requirement (SCR) | SCR]] level, the regulator demands a remediation plan; at the lower [[Definition:Minimum capital requirement (MCR) | Minimum Capital Requirement]], the company may face restrictions on new business or even license revocation.

🏗️ The prescribed capital requirement shapes strategic decisions well beyond the compliance department. Insurers factor the capital charge associated with each [[Definition:Line of business | line of business]], [[Definition:Investment | investment]] asset class, and [[Definition:Reinsurance | reinsurance]] structure into their pricing, portfolio allocation, and growth plans. A product that generates attractive [[Definition:Underwriting profit | underwriting margins]] but consumes disproportionate capital may be less valuable on a risk-adjusted basis than a lower-margin line with modest capital requirements. For [[Definition:Insurtech | insurtechs]] seeking their own carrier licenses, understanding the prescribed requirement is essential from inception — it determines how much [[Definition:Surplus | surplus]] must be raised before a single policy can be written and influences the pace at which the company can scale.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Solvency capital requirement (SCR)]]
* [[Definition:Minimum capital requirement (MCR)]]
* [[Definition:Solvency II]]
* [[Definition:Risk-based capital (RBC)]]
* [[Definition:Economic capital]]
* [[Definition:Surplus]]
{{Div col end}}

Definition:Prescribed capital requirement - Revision history

PlumBot: Bot: Creating new article from JSON