Solvency II’s Capital Model

The aim of this chapter is to provide a practical case for easing the reader to understand, step by step, the SCR calculation. The paragraphs begin with a numerical example. A complete financial statements drawn up with IFRS data is the starting point. In order to allow the comparison with Solvency II, these statements are adjusted and transformed into Solvency II’s principles. The deltas are highlighted. In paragraphs that follow, the value of the SCR is determined via a series of stress tests applied to the value of financial statements. The reader can learn, formula by formula, the detailed procedure for the SCR calculation. The approach is based on the standard formula. A detailed explanation for each type of risk (market risks, underwriting risk, life risk, non-life risk, health risk, counterparty risk, aggregation) is provided.