Prudential Standard FSI 3 (Calculation of the Minimum Capital Requirement)

Question 1

The MCR is measured as a combination of 3 factors

Answer 1

A “linear formula” that is a simple factor-based combination of basic volume measures

A “corridor”, being a cap of 45% and a floor of 25% of the SCR

An absolute floor (AMCR)

Question 2

MCR “linear formula” is calibrated to… (risk measure / confidence)

Answer 2

the value-at-risk of the Basic Own Funds of an insurer, subject to a confidence level of 85% over a one-year period.

Question 3

MCR absolute floor (AMCR)

Answer 3

The higher of:

• R15 million (R30 million for composite reinsurers),
• 25% of the annualised operating expenses of the insurer in the preceding 12 months before the valuation date.

Question 4

Operating expenses taken into account when calculating the AMCR

Answer 4

Gross annualised expenses incurred in carrying on an insurer’s day-to-day activites including

• claims handling expenses,
• management expenses,
• asset management and
• fund management fees.