Insurance: Minimum Capital Requirement (MCR) ratio in Europe by country 2017-2022

In 2022, the total European insurance industry had a ratio of own funds to minimum capital requirement (MCR) of 7.1 percent. The country with the highest MCR ratio was Austria with 10, while Iceland recorded the lowest with 3.54 This means the funds available to Austrian insurers were 10 times larger than the MCR, while the funds available to Icelandic insurers were only 3.54 times higher. 

SCR Ratio and MCR Ratio

According to the European Insurance and occupational Pensions Authority (EIOPA) “Insurance undertakings are required by the Solvency II regulation to hold a certain amount of capital of sufficient quality in addition to the assets they hold to cover the contractual obligations towards policyholders. The amount of capital (called eligible own funds) required is defined by the Minimum Capital Requirement (MCR) and the Solvency Capital Requirement (SCR), which depend on the risks to which the undertaking is exposed. "In addition to the MCR ratio, insurers must also calculate Solvency capital requirement (SCR). The SRC is a ratio that ensures insurers have enough capital of quality to cover their financial obligations over a 12-month period and avert becoming solvent. In Europe, it was the German insurance market that had the highest SCR ratio at the end of 2020.

Profitability of insurers

The combined ratio, which is the sum of claims and expenses incurred divided by premiums earned, is a measure of profitability used by insurance companies to see how efficiently they are running their business. The combined ratio can be displayed as a measure of 1 or as a percentage of 100. Insurance markets with a ratio of over 1 means that companies are paying out more in claims than they are receiving through premiums earned. The expense ratio is another measure of profitability and is calculated as the sum of expenses divided by premiums earned.