Minimum Capital Requirement (MCR)

Article 129 of Directive 2009/138/EC, better known as Solvency II. The Minimum Capital Requirement (MCR) comes out of a linear formula, is then held between 25% and 45% of the SCR, and works under a different regime from the SCR. Falling below the SCR opens a recovery procedure under Article 138; the undertaking files a plan within two months, has six months to get back above the line, and keeps trading. Falling below the MCR is a terminal event. The supervisor demands a short-term finance scheme within one month, eligible basic own funds must be restored within three months (Article 139), and if that fails, authorization is withdrawn (Article 144). The linear formula runs on net technical provisions and net written premiums over the last twelve months, line of business by line of business, each with a factor set in Delegated Regulation (EU) 2015/35, Articles 248 to 253. It is deliberately crude, so that no one can contest it. The whole calculation fits on one line: combined MCR = min(max(linear MCR, 25% of SCR), 45% of SCR), then MCR = max(combined MCR, AMCR). The AMCR is the absolute floor in euros, different for life, non-life and reinsurance undertakings and indexed to inflation, which stops a tiny structure from operating with no meaningful own funds. Own funds eligible to cover the MCR are also narrower than for the SCR, since Tier 3 does not count at all and Tier 2 counts for no more than 20% of the MCR. That ratchet is why insurers and reinsurers alike steer on the SCR ratio and never on the MCR ratio; by the time the latter becomes the binding constraint, the game is over.