What are the minimum capital requirements?
Insurance & Reinsurance
The Solvency II capital requirements prescribed in the 2015 Regulations are calculated based on the specific risks borne by the relevant insurer and are prospective in nature. In calculating its solvency and capital requirements insurers are required to include both existing business and any new business expected to be written over the following 12 months. Solvency II imposes a solvency capital requirement (“SCR”) and a lower, minimum capital requirement (“MCR”) on insurance undertakings.
An insurance undertaking may calculate the SCR based on the formula set out in the 2015 Regulations or by using its own internal model approved by the Central Bank. The SCR should amount to a high level of eligible own funds, thereby enabling the undertaking to withstand significant losses and ensure a prudent level of protection for policyholders and beneficiaries. The MCR should be calculated in a clear and simple manner, corresponding to an amount of eligible basic own funds, below which policyholders and beneficiaries would be exposed to an unacceptable level of risk if the undertaking were allowed to continue its operations.
An insurance undertaking must have procedures in place to immediately identify and inform the Central Bank of any deterioration in its financial condition. As such, the reporting requirements in respect of SCR and MCR provide for clear channels by which the Central Bank can monitor the financial state of an insurance undertaking. In the event of a breach of capital requirements, the Central Bank will employ an escalating level of supervisory intervention, beginning with the implementation of a recovery plan by an insurance undertaking, as approved by the Central Bank. Where there is a breach of the SCR or MCR, compliance must be re-established within six months or three months respectively, otherwise the Central Bank may restrict
The risk based capital requirement, the SCR, will be calculated using either a standard formula, a bespoke internal model that has been approved by the insurer’s supervisor, or a mixture of both. The standard formula will cover underwriting risk, market risk, credit risk and operational risk in a formulaic way (e.g. assumed stress level for equities). The calculation will be calibrated to seek to ensure a 99.5 per cent confidence level over a 1 year period which is said to equate to a BBB rating. There is also an MCR set at lower threshold (e.g. about 85 per cent confidence level). The MCR should not be less than 25 per cent of the SCR. The MCR has an absolute floor of €3.7 million for life insurers, €2.5 million for non-life insurers and €3.6 million for reinsurers.
The minimum capital requirement is the amount of eligible basic own funds below which it is less than an 85 % probability that the insurance company have enough funds to cover its undertakings towards policyholders and beneficiaries in the coming 12-month period. Meeting this capital requirement is an essential requirement for an insurance company to continue its insurance business. If an insurance company fails to meet the minimum capital requirement, the insurance company must immediately notify the FSA of the said failure.
The risk based capital requirement, the SCR, will be calculated using either a standard formula, a bespoke internal model that has been approved by the insurer’s supervisor, or a mixture of both. The standard formula will inter alia cover underwriting risk, market risk, credit risk and operational risk in a formulaic way (e.g. assumed stress level for equities). The calculation will be calibrated to seek to ensure a 99.5 per cent confidence level over a one year period. This means that insurers holding eligible own funds equivalent to the SCR will, with a probability of at least 99.5%, be able to cover any unexpected losses they might incur during the year to come. There is also an MCR set at lower threshold (e.g. about 85 per cent confidence level). The MCR should not be less than 25 per cent of the SCR. The MCR has an absolute floor of € 3.7 million for life insurers, € 2.5 million for non-life insurers and € 3.6 million for reinsurers.
The minimum capital requirements for Norwegian insurance companies follow from section 3-4 of the Financial Institutions Act, which is based on the Solvency II Directive (2009/138/EC). The minimum requirements are as follows:
- Life insurance companies: MEUR 3.7
- Non-life insurance companies: MEUR 2.5, or MEUR 3.7 in case the company is covering certain liability insurance products or credit or guarantee insurances
- Re-insurance companies: MEUR 3.6 (limited to MEUR 1.2 for companies which only covers risks on behalf of a limited number of clients as defined in its statutes)
In addition to the minimum capital requirements, more specific capital requirements are stipulated in chapter 14 (II) of the Financial Institutions Act.
The following are the minimum paid-in capital requirements for insurance and reinsurance companies in effect until 31 March 2016 determined by the SHCP in 2014 for each line of business:
- Life: 36.68 million pesos;
- Pensions: 15.67 million pesos;
- Accidents and health:
- Personal accident or medical expenses: 9.17 million pesos; and
- Health, including medical expenses: 9.17 million pesos;
- Property and casualty:
- one line: 27.51 million pesos;
- two lines: 36.68 million pesos;
- three or more lines: 45.85 million pesos;
- Mortgage insurance: 65.65 million pesos; and
- Financial guarantee insurance: 178.65 million pesos; and
- one line: 19.66 million pesos;
- two lines: 26.22 million pesos; and
- three lines: 32.78 million pesos.
As per IA Resolution No. 42 of 2009, a UAE licensed Insurer must have paid up capital of at least 100,000,000 Dirhams. A UAE licensed Reinsurer must have paid up capital of no less than 250,000,000 Dirhams.
Minimum capital requirements for an insurance brokerage, as per Resolution No. 15 of 2013 are 3,000,000 dirhams. It is noted that foreign companies or free zone entities can establish branches within onshore UAE, but the capital requirements for this option are 10,000,000 Dirhams. Additionally, a broker must obtain a bank guarantee in favor of the IA in an amount of at least 3,000,000 Dirhams.
The capital requirements for DIFC establishments are quite variable, and depend on the specific activity that the entity is engaged in. The relevant capital adequacy regulations, set by the DFSA, are risk based and require analysis on a case by case basis. Having said this, a general rule of thumb is that an initial investment of US $1,000,000 is required to obtain a DIFC/DFSA Category 4 license, which will permit the licensee to engage in the insurance intermediary activity.
All state insurance laws set forth minimum capital and surplus requirements in order obtain a license to write insurance. The minimum requirements differ among the states and vary according to the kind of insurance that will be offered and the number of lines of business that are included in the license. The minimum capital levels were set, in many cases, years or decades ago and are relatively low by today’s standards.
Thus, in practice, state insurance regulators often require far higher levels of capital as a condition of licensure or a change of control. The regulator’s determination of the required capital level is based largely on the kind of insurance business at issue and the insurer’s business plan and financial projections.
As noted above, risk-based capital requirements play a significant role in measuring capital requirements for insurers based on the amount and risk in an insurer’s assets and liabilities.
Article 193(2) VAG sets out the following minimum capital requirements for insurers and reinsurers:
- EUR 2.5 million for non-life insurance companies, excluding those providing indemnity insurance, credit insurance and fidelity insurance;
- EUR 3.7 million for non-life insurance companies, including those providing indemnity insurance, credit insurance and fidelity insurance;
- EUR 5.2 million for composite insurance companies;
- EUR 3.7 million for life insurance companies;
- EUR 3.6 million for reinsurance companies;
- EUR 1.2 million for captive reinsurance companies; and
- in case of composite insurance companies, at least the sum of the minimum capital requirements for non-life and life insurance companies.
In addition, insurance companies are required to prove fulfilling the solvency capital requirements which have to be calculated in accordance with Article 174 et seq VAG.
Insurance and reinsurance companies must have a minimum capital of UF 90,000 (approximately USD 3,675,000) and UF 120,000 (approximately USD 4,825,694), respectively, at the time of its incorporation and throughout their existence. Chilean insurance and reinsurance companies are subject to limits of maximum level of debt set forth by the Insurance Act, which may not exceed 5 times a company’s equity for non-life insurance companies and 15 times a company’s equity for life insurance companies. Furthermore, insurance companies’ investments representing technical reserves and risk equity (similar but not the same as solvency margin) are also restricted and subject to specific single and combined limits.
The applicable minimum capital requirements depend on the type of insurance business conducted by an insurance company. In life insurance (Art 7 ISO) they are:
- 5 million Swiss Francs for life insurers (excluding occupational schemes) that provide, exclusively, death benefits and/or waiver of premium in the event of disability
- 8 million Swiss Francs for life insurers (excluding occupational schemes) that provide in addition to death benefits and/or waiver of premium in the event of disability a capital guarantee or other guarantee at the maturity date
- 10 to 12 million Swiss Francs for collective life insurance in the framework of occupational schemes.
In non-life insurance (Art 8 ISO) they are:
- 8 million Swiss Francs for most classes of non-life insurance business (excluding those mentioned under the following bullet point).
- 3 million Swiss Francs for class B 9 (other property losses), B 16 (various financial losses), class B 17 (legal cost insurance), B 18 (assistance).
In reinsurance (Art 9 ISO) they are:
- 10 million Swiss Francs and 3 million for captive reinsurers.
The SBS provides by means of a general rule of quarterly update the minimum stock capital of insurance companies and other companies in the financial system. As of the date of issuance of this questionnaire (January, 2017), the last update corresponding to the period October – December, 2016 is in force, the same that provides the following:
|Insurance Companies||Minimum Capital|
|Companies operating in a single branch (general risks or life risks)||$4,814,395|
|Companies operating in both branches (general risks and life risks)||$6,618,017|
|Insurance and reinsurance companies||$16,848,606|
An insurer/Indian reinsurer is required to have a minimum paid up equity share capital of INR 100 crores (c. US$ 15,000,000).
A foreign reinsurer seeking to set up a branch office in India is required to have a minimum net owned fund of INR 5,000 crores (c. US$ 750,000,000) and is further required to infuse a minimum assigned capital of INR 100 crores (c. US$ 15,000,000) into the branch office.
Syndicates of Lloyd’s India are required to maintain a minimum assigned capital of INR 5 crores (c. US$ 750,000) through their service companies set up in India.
The minimum capital requirement for brokers is in the following terms:
- Direct brokers - INR 50 lakh (c.US$ 75,000);
- Reinsurance brokers - INR 2 crore (c.US$ 300,000);
- Composite brokers - INR 2.5 crore (c.US$ 375,000).
|Direct Insurers (excluding insurers underwriting investment-linked policies or short term accident and health policies only)||S$10 million|
|Direct Insurers (investment-linked policies and short-term accident and health policies)||S$5 million|
|Approved Marine, Aviation and Transit Insurer||S$2 million, in the form of a bank deposit|
|Authorised Reinsurer||S$2 million per class of authorised reinsurance business, and in the form of a bank deposit|
The supervised entity must continuously meet a Minimum Capital Requirement (CMR), equivalent to the highest value between the base capital and the risk capital.
The base capital is composed of a fixed amount stipulated in the authorization to operate, plus a variable amount for operation in each of the regions of the country, according to the following table:
|Region||States||Variable portion (R$)||Variable portion (£)|
|1||AM, PA, AC, RR, AP, RO||120.000||30.000|
|2||PI, MA, CE||120.000||30.000|
|3||PE, RN, PB, AL||180.000||45.000|
|5||GO, DF, TO, MT, MS||600.000||150.000|
|6||RJ, ES, MG||2.800.000||700.000|
|8||PR, SC, RS||1.000.000||250.000|
* EAPC non-profit will equal zero. EAPC is a corporation created to institute plans of income and framed within the jurisdiction of the Ministry of Finance and the National Council of Private Insurance (CNSP), being supervised by SUSEP. Local Reinsures: fixed amount of R$ 60 million.
The risk capital is the sum (through correlation) between capital instalments based on the risk of underwriting, credit, operation and market. It is worth mentioning that market risk capital is still being paid in. The payment of 100% will only be required by the end of 2017.
Minimum capital – for non-life activities – NIS 35 million (i.e. about $ 9 million)
For life activities – NIS 50 million (i.e. app. $ 13 million)
The minimum capital requirement (‘MQR’) corresponds to the amount of eligible basic own funds below which an insurance undertaking can no longer be considered as viable (Article 189 of the Supervision Act). In that case, there is an unacceptable level of risk were the undertaking to be allowed to continue its operations. The MQR must be calculated in a clear and simple manner. In doing so, the undertaking must use a linear function. This function is to be calibrated to the Value-at-Risk of the basic own funds of the undertaking, subject to a confidence level of 85 % over a one-year period. The MQR also has an absolute floor which varies between 1,200,000 EUR and 3,700,000 EUR, depending on the activities and on the insurance branches. Moreover, the MQR cannot fall below 25 % nor exceed 45 % of the undertaking’s Solvency Capital Requirement. The MQR must be calculated at least quarterly, and the results of that calculation must be reported to the NBB.
The Minimum Capital Requirement (MCR) under Solvency II is a minimum level of security below which the amount of financial resources should not fall. The Minimum Capital Requirement has an absolute floor based on the risk-based Solvency Capital Requirement (SCR):
- EUR 2,5 million for non-life insurance undertakings, including captive insurance undertakings;
- EUR 3,7 million for life insurance undertakings, including captive insurance undertakings; and;
- EUR 3,6 million for reinsurance undertakings, except in the case of captive reinsurance undertakings, in which case the Minimum Capital Requirement shall be no less than EUR 1,2 million.
The ICA requires federally regulated insurance companies to maintain adequate capital and companies operating in Canada on a branch basis to maintain an adequate margin of assets in Canada over liabilities in Canada. In this regard, life insurers must comply with the Minimum Continuing Capital and Surplus Requirements (MCCSR) Guideline while property and casualty insurers must comply with the Minimum Capital Test (MCT) Guideline. Both guidelines outline the capital framework, using a risk-based formula, for target and minimum capital/margin required, and define the capital/assets that are available to meet the minimum standard. In theory, an insurer could commence to carry on business with as little as five million dollars in capital (a minimum set many years ago) but that amount is unlikely to suffice to meet the current risk-based tests. OSFI generally requires companies to maintain a capital target sufficiently above the minimum levels required to satisfy the tests.