SCR and MCR

Under Solvency II there will be two important capital thresholds monitored by supervisors:  

A Solvency Capital Requirement (SCR), which will be the normal target level of capital for a firm. This number may be derived either through a firm's own capital model or through a standard, generic capital model. We expect that most UK firms will focus their attention and resources building an internal capital setting model.  

A Minimum Capital Requirement (MCR), which represents an absolute regulatory minimum level of capital needed by a firm. MCR should be set at an appropriately low level to reflect its role as a trigger for the most severe regulatory action, for example a suspension of new business or a winding up of the business (if the firm cannot present a creditable recovery plan).The MCR is likely to be calculated according to a corridor approach associating a linear approach with a cap and a floor as a percentage of the SCR.

European Parliament's compromise on the corridor approach for the calculation of the MCR. 

Between SCR and MCR there will be a ‘ladder of intervention’ where regulatory action will escalate according to the severity of the firm’s position, including the proximity to the MCR. The Supervisors’ response will take into account the prospect of the firm restoring its capital to the SCR level, including any dependencies and the expected timeframe needed to complete these actions.