Prudential Regulation Authority Rulebook

3.1

A firm must calculate its SCR either in accordance with the standard formula or using an internal model for which internal model approval has been granted.

[Note: Art. 100 of the Solvency II Directive]

3.2

A firm must calculate its SCR on the presumption that it will pursue its business as a going concern.

[Note: Art. 101(2) of the Solvency II Directive]

3.3

A firm’s SCR:

1. (1) must be calibrated to ensure that all quantifiable risks to which the firm is exposed are taken into account, including at least the non-life underwriting risk, life underwriting risk, health underwriting risk, market risk, credit risk, and operational risk;
2. (2) must cover existing business, as well as the new business expected to be written over the following 12 months; and
3. (3) with respect to existing business, must cover only unexpected losses.

[Note: Art. 101(3)–(4) of the Solvency II Directive]

3.4

A firm’s SCR must correspond to the value-at-risk of its basic own funds subject to a confidence level of 99.5% over a one-year period.

[Note: Art. 101(3) of the Solvency II Directive]

3.5

When calculating the SCR, firms must take account of the effect of risk-mitigation techniques, provided that credit risk and other risks arising from the use of risk-mitigation techniques are properly reflected in the SCR.

[Note: Art. 101(5) of the Solvency II Directive]

3.6

Notwithstanding 3.2 to 3.5, a firm’s SCR shall not cover the risk of loss of basic own funds resulting from changes to the volatility adjustment.

[Note: Art. 77d(6) of the Solvency II Directive]