Solvency II standard formula

The standard formula, the default Solvency II SCR calculation, sits in Directive 2009/138/EC, Articles 103 to 111, calibrated by Commission Delegated Regulation (EU) 2015/35 of October 10, 2014; both have applied since January 1, 2016. CEIOPS, EIOPA's predecessor, ran the impact studies (QIS5 in 2010), but the binding text is the Commission's. Any insurer or reinsurer without an approved internal model computes its SCR this way. The balance sheet is split into modules: market (equity, interest rate, property, currency, spread, concentration), counterparty default, life, health and non-life underwriting, intangible assets. Each module produces a capital charge. They are aggregated through a correlation matrix fixed by the regulation, and the resulting BSCR is smaller than the sum of the charges; the gap is the diversification benefit. Operational risk is then added outside the matrix, as a factor on premiums and provisions, capped at 30% of the BSCR by Article 107. The target is a one-year 99.5% VaR, the 1-in-200 loss. Two assumptions hold the structure up: moderate, stable correlations, and loss distributions that can be estimated from history. Cyber breaks both. An accumulation on a single provider drives tail correlation toward one exactly when the capital is needed, and a short history that changes character every couple of years cannot calibrate a 1-in-200 tail. The formula has no cyber catastrophe sub-module: cyber underwriting goes into non-life premium and reserve risk on generic factors, and an incident suffered by the insurer itself falls into the capped operational charge.