Stand:updated on 01.01.2016 | Topic Own funds Own funds and own funds requirements
In the insurance business, the term solvency refers to an insurer's level of own funds, i.e. the assets of the undertaking, free of any foreseeable liabilities. Insurers must have own funds available to cover any unexpected losses they might incur. Own funds therefore ensure that policyholders' claims against the insurers are covered even under adverse circumstances.
The solvency of insurers is subject to statutory provisions. An insurer's solvency is deemed sufficient if the level of own funds meets at least the required solvency margin (own funds requirements). With regard to the required solvency margin, a distinction is made between the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR). If insurers do not hold sufficient own funds to meet these requirements, this results in supervisory consequences with various levels of severity.
Solvency II also lays down explicit own funds requirements for groups.
