Solvency UK and global standards · RiskAtoms Academy

By the end you will be able to

1Describe the main Solvency UK reforms and when each took effect.
2Compute the book's risk margin and ratio if it were regulated in the UK, and compare them with the EU today and from 2027.
3Outline the IAIS ICS, US risk-based capital and the Bermuda regime, and how each relates to Solvency II.
4Read one loss distribution with each regime's risk measure and explain why the answers differ.

Why it matters

The same book of business can carry different capital in London, Frankfurt, New York, Hamilton and Zurich. On RiskAtoms Insurance SE one UK rule alone, the risk margin, would lift the ratio from 186.0% to 204.9%. Groups that write across borders, and the reinsurers they buy cover from, have to understand all of them.

Core explanation

One idea, many rulebooks

Illustrative dataRiskAtoms Insurance SE, under the rules

The same made-up composite insurer as M3.8: Insurance risk, in € millions at 31 December 2025. Its booked figures stand: own funds €9,300m, a Solvency Capital Requirement of €5,000m, a ratio of 186%. L4.6.05: The standard formula: structure rebuilt the standard formula article by article; where Level 3 stated a figure or used its own cat model, the “rules in outline” view computes the formula instead (SCR €5,155.9m, ratio 180.4%). The book applies no long-term guarantee measure, no transitional and no internal model. Every what-if on this page is labelled, holds the deferred-tax adjustment at the book's 19.4% of BSCR plus operational risk, and is before tax. Every policy, bond, treaty and counterparty is invented.

Added here. The UK figure changes the risk margin only, with the SCR held: it is what the book would show if regulated in the UK. The tail measures are read on the book's simulated net annual cat cost. Nothing is computed for the ICS, the US or Bermuda. illustrative

Solvency UK

The UK kept Solvency II's structure on leaving the EU and then reformed it as Solvency UK, in three steps.

Risk margin, 31 December 2023. A 4% cost of capital, with each year's projected SCR multiplied by max(λ^t; 0.25): λ = 0.9 for long-term business, 1 for general insurance (HM Treasury regulations, now SI 2023/1347 reg 7B).
Matching adjustment, 30 June 2024. Assets with highly predictable (not only fixed) cash flows can enter MA portfolios, capped at 10% of the MA benefit; more liabilities qualify; the firms attest each year that the fundamental spread covers the risks they keep (PS10/24, 6 June 2024).
The rest, 31 December 2024. Higher thresholds (premiums of £25m), a simpler TMTP recalculation, streamlined internal model rules with a residual model limitation add-on, no branch capital for third-country branches, a mobilisation regime for new insurers (PS2/24, 28 February 2024), and about a third fewer reporting templates (PS3/24, 29 February 2024).

The PRA's supervisory statement SS5/24 on funded reinsurance (26 July 2024, updated since) sets its expectations for life insurers that enter into funded reinsurance as cedants, backed by collateral, the risk L3.8.07: Longevity risk flagged.

The IAIS Insurance Capital Standard

On 5 December 2024 the IAIS adopted the ICS as a group-wide prescribed capital requirement for IAIGs: 59 groups in 18 jurisdictions at adoption. Like Solvency II it is calibrated to a 99.5% VaR over one year, on a market-adjusted valuation with a margin over current estimate in place of a risk margin and two tiers of capital. Each jurisdiction implements it; the IAIS assesses implementation, with a baseline self-assessment in 2026 and jurisdictional assessments from 2027. It also concluded that the US Aggregation Method can provide comparable outcomes, with convergence still needed on interest rate risk and the timing of supervisory intervention.

The US, Bermuda and Switzerland in outline

US risk-based capital, adopted for life insurers in 1992 and in force from 1993, uses separate factor formulas for life, property and casualty, and health business. The RBC ratio is total adjusted capital over the authorised control level: from 300% no action is needed; between 200% and 300% a trend test can trigger action; below 200% action levels step up; below 70% the regulator must take control. Bermuda's BSCR works on an economic balance sheet at fair value; the target capital level is 120% of the ECR. The EU found Bermuda's regime equivalent in a decision adopted on 26 November 2015 and applying from 1 January 2016 (Delegated Decision (EU) 2016/309, published in March 2016, excluding captives and special purpose insurers). The Swiss SST uses expected shortfall.

Regime	Risk measure	Valuation	Status
Solvency II	99.5% VaR, one year	Market-consistent, risk margin 6% CoC	In force; reformed from 30 Jan 2027
Solvency UK	99.5% VaR, one year	As Solvency II, risk margin 4% tapered	Reforms 31 Dec 2023 to 31 Dec 2024
IAIS ICS	99.5% VaR, one year	Market-adjusted, MOCE	Adopted 5 Dec 2024; IAIGs only
US RBC	Factor-based, no single stated level	Statutory accounting	Life since 1993
Bermuda	99% TVaR, one year (internal models)	Economic balance sheet	EU-equivalent from 1 Jan 2016 (decided Nov 2015)
Swiss SST	99% ES, one year	Market-consistent	FINMA Circular 2008/44 from 1 Jan 2009 (archived)

Sort itWhose rule is it?

Sort each rule into the regime it belongs to.

Target capital from the 99% expected shortfall over one year.
Risk margin at a 4% cost of capital, tapered by 0.9^t for long-term business.
Group-wide standard for internationally active groups, adopted in Cape Town in December 2024.
Action when capital falls below 200% of the authorised control level; the regulator must take control below 70%.
The PRA removed the regular supervisory report from year-end 2023.

The formal version

The regimes differ in their risk measure and in their risk margin. With losses $L$ over one year:

\begin{aligned} \text{VaR}_p(L) &= \min\{\ell : P(L \le \ell) \ge p\}, \qquad \text{ES}_p(L) = \frac{1}{1-p}\int_p^1 \text{VaR}_u(L)\,du \\ \text{RM}_{\text{UK}} &= 4\% \sum_{t \ge 0} \max(\lambda^t;\ 0.25)\, \text{SCR}(t)\, \text{DF}(t+1), \qquad \lambda = 0.9\ \text{(long-term)},\ 1\ \text{(general)} \end{aligned}

On a sample of $n$ simulated years sorted from smallest to largest, VaR is the $\lceil pn \rceil$ -th value and ES the average of the values above it.
For a normal distribution, ES at 99% is 2.665 standard deviations and VaR at 99.5% is 2.576: almost the same capital. The measures part company in heavy tails.
The taper factor for long-term business by year: 0: 1.000; 5: 0.590; 10: 0.349; 15: 0.250; 20: 0.250; 30: 0.250. Percentages throughout (M-A01: Percentages).

Try it

Pick a measure and a level, and see which regime would use it on this tail.

Try itOne tail, four rulebooks

Measure

Confidence level

VaR at 99.5%, one year€1,125.1m

Regimes that name this measure: Solvency II / Solvency UK; IAIS ICS

Solvency II / Solvency UK: VaR 99.5%

€1,125m

IAIS ICS: VaR 99.5%

€1,125m

Swiss SST: ES 99%

€1,736m

Bermuda (ECR, internal model): TVaR 99%

€1,736m

Mean year

€144m

Illustrative: each regime applies its measure to the whole balance sheet, not to one risk, and each has its own valuation. Here the measures are read on one simulated distribution: the book's net annual catastrophe cost after its cat XL, 50,000 years.

Worked example

RiskAtoms Insurance SE, if regulated in the UK

€ millions, 31 December 2025. Only the risk margin changes; SCR held at €5,000m; before tax. UK illustrative

Same book, three risk margins

Step 1 of 5

1
Today's EU risk margin
$\text{RM}_{\text{EU}} = 6\% \sum_t \text{SCR}(t)\,\text{DF}(t+1) = 1{,}878.4\text{m}$

Regulatory lens

Status as at 4 November 2026 as at 4 Nov 2026.

In the UK

UK SI 2023/1347 reg 7B (risk margin, inserted by SI 2024/1083 from 31 December 2024); PRA PS10/24 (matching adjustment, from 30 June 2024), PS2/24 and PS3/24 (from 31 December 2024). The TMTP must still run off to nil by 1 January 2032, as in the EU.

In the EU

EU from 2027 The EU's own reform applies from 30 January 2027 (L4.6.12: The 2025 review: Solvency II from 2027). Equivalence decisions, such as Bermuda's, let the EU rely on another regime for reinsurance, group solvency and group supervision.

In the US

The NAIC's RBC model laws (#312 for life and property/casualty, 1993; #315 for health, 1998) are adopted state by state. The IAIS has found the US Aggregation Method can give outcomes comparable to the ICS.

Spark Atoms

Spark AtomWhy heavy tails split the measures

On the book's cat tail, VaR at 99.5% is €1,125.1m but ES at 99% is €1,736.0m: 1.54 times as much. A few very large years in the worst 1% pull the average far above the 1-in-200 point. A regime on ES charges for that; one on VaR does not.

Spark AtomThree cuts to the same risk margin

EU today €1,878.4m, EU 2027 €1,272.6m, UK €933.2m: the UK went furthest, and moved first.

Key takeaways

Solvency UK changed the risk margin (4%, tapered) from 31 December 2023, the MA from 30 June 2024 and most other rules from 31 December 2024.
If RiskAtoms were regulated in the UK its risk margin would be €933.2m and its ratio 204.9%, against 186.0% today and 198.1% under the EU's 2027 risk margin.
The IAIS adopted the ICS on 5 December 2024 for IAIGs: 99.5% VaR over one year, implemented by each jurisdiction.
US RBC is factor-based with action levels from 200% down to 70%; Bermuda's ECR is EU-equivalent; the SST uses 99% ES.
The same tail gives very different capital under VaR and ES when it is heavy.

Reaction

Check what stuck

Glossary

Solvency UK: Solvency UK: the UK's version of Solvency II after Brexit, reformed by HM Treasury regulations and PRA rules taking effect between 31 December 2023 and 31 December 2024.
ICS: Insurance Capital Standard (ICS): the IAIS's group-wide prescribed capital requirement for internationally active insurance groups (IAIGs), adopted on 5 December 2024.
IAIG: IAIG: an internationally active insurance group, identified by size and international reach under the IAIS's Common Framework.
Risk-based capital (RBC): Risk-based capital (RBC): the US state regulators' capital formulas, set through the NAIC. A company's total adjusted capital is compared with its authorised control level RBC.
BSCR (Bermuda): Bermuda Solvency Capital Requirement (BSCR): the Bermuda Monetary Authority's standard formula. The enhanced capital requirement (ECR) is the higher of the BSCR or an approved internal model's figure, and of the minimum margin of solvency.
SST: Swiss Solvency Test (SST): FINMA's risk-based regime, with target capital set by the 99% expected shortfall of the change in risk-bearing capital over one year.
Expected shortfall: Expected shortfall (ES), also called TVaR: the average loss in the worst (1 − p) of outcomes, rather than the loss at the p-th percentile (VaR).
Equivalence: Equivalence: an EU finding that a third country's regime gives protection equivalent to Solvency II, which eases reinsurance, group supervision and group solvency for firms across the border.

Deep Dives & Origins

Deep Dives

L2.5.08: Expected shortfall: expected shortfall and the SST first met. Intermediate.
L4.6.04: The risk margin: the risk margin on each basis in full. Intermediate.

Origins

The Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023, SI 2023/1347 reg 7B, inserted by SI 2024/1083 (legislation.gov.uk).
Prudential Regulation Authority, PS2/24 (28 February 2024), PS3/24 (29 February 2024) and PS10/24 (6 June 2024), Review of Solvency II.
IAIS, press release on the adoption of the Insurance Capital Standard, 5 December 2024.
IAIS, ICS calibration document and Level 1 and Level 2 text, 2024.
NAIC, Risk-Based Capital (insurance topic page).
Bermuda Monetary Authority, guidance on internal capital models and the 2024 long-term insurance handbook; Commission Delegated Decision (EU) 2016/309.
FINMA, Circular 2008/44 Swiss Solvency Test (archived).

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