Ratio of an activity's profit to the regulatory capital it consumes, the indicator that replaces technical margin as the criterion for arbitrating between lines.
A line can show an excellent technical margin and destroy value, if it consumes capital the shareholder prices above the profit it produces. Regulatory return on equity corrects that illusion by relating profit to consumed capital, measured by the SCR allocated to the activity. Building it requires three decisions that are political rather than technical, and on which the resulting ranking entirely depends. Does the numerator take technical result alone, or add the investment income on the float, which massively favors long-tail lines. Is the denominator the line's standalone SCR or the diversified SCR after allocation, which changes the fate of a catastrophe line by a factor of two. And is the required rate uniform or differentiated by the activity's risk. Once those three choices are settled and stabilized, the indicator does work nothing else does: it makes a motor fleet and a cyber program comparable, which neither the combined ratio nor premium volume allows.
Portfolio review of a composite insurer, 2026 year. A motor fleet line shows a 97% combined ratio and consumes little capital: return on allocated capital 13.4%. A catastrophe line shows an 82% combined ratio, hence far better, but consumes much more capital after Euler allocation: return 7.9%, below the 9% internal cost of capital. It is the second, not the first, that the review proposes to cut.
RoRAC, return on risk-adjusted capital, rendement sur capital réglementaire, rentabilité sur SCR