restriction on MCR and SCR with capital tiers in Solvency Ⅱ

[Smith]

Hi tutor,

Have a confuse point about the restriction on MCR and SCR with tiers in Solvency Ⅱ, that, according to CMP on page 28, Chapter 4, "80% of the MCR must be covered by Tier 1 capital", "50% of the SCR must be covered by Tier 1 capital". But in question 1.8 in Q&A Bank, solution stated that "at least 80% of the SCR must be covered by tier 1 capital", "at least 50% of the SCR must be covered by tier 1 capital". Are they contradicted each other?

Besides, according to the update of CMP 2014/2015, download from your website, that the first point in the solution of question 1.8 was deleted, i.e. "the MCR must be covered by tier 1 and 2 capital", why?

In addition, refer to the understanding of the word "must" in the CMP pertaining to this point, would like to consult with you, that, in the same page of CMP, it's stated that "the MCR must be covered by the combination of Tier 1 and 2 capital", "the SCR must be covered by the combination of Tier 1, 2 and 3 capital". Does that mean:
1) the MCR should be covered by the combination of tier 1 and 2 still, on the condition that the amount of tier 1 capital could cover the MCR lonely?
2) the SCR should be covered by the combination of tier 1, 2 and 3 capital still, on the condition that either tier 1 capital could cover the SCR lonely, or the combination of tier 1 and 2 could cover the SCR lonely?

thanks and regards,

 

[Ian Senator]

Have a confuse point about the restriction on MCR and SCR with tiers in Solvency Ⅱ, that, according to CMP on page 28, Chapter 4, "80% of the MCR must be covered by Tier 1 capital", "50% of the SCR must be covered by Tier 1 capital". But in question 1.8 in Q&A Bank, solution stated that "at least 80% of the SCR must be covered by tier 1 capital", "at least 50% of the SCR must be covered by tier 1 capital". Are they contradicted each other?

The solution in my copy doesn't quite match your description - perhaps you could have another look? I think they're consistent. Are you confusing SCR with MCR perhaps?

Besides, according to the update of CMP 2014/2015, download from your website, that the first point in the solution of question 1.8 was deleted, i.e. "the MCR must be covered by tier 1 and 2 capital", why?

This was a change to the Core Reading, as advised by the IFoA. The change reflects the change made to Chapter 4.

In addition, refer to the understanding of the word "must" in the CMP pertaining to this point, would like to consult with you, that, in the same page of CMP, it's stated that "the MCR must be covered by the combination of Tier 1 and 2 capital", "the SCR must be covered by the combination of Tier 1, 2 and 3 capital". Does that mean:
1) the MCR should be covered by the combination of tier 1 and 2 still, on the condition that the amount of tier 1 capital could cover the MCR lonely?
2) the SCR should be covered by the combination of tier 1, 2 and 3 capital still, on the condition that either tier 1 capital could cover the SCR lonely, or the combination of tier 1 and 2 could cover the SCR lonely?

I think you're working from the old material that you haven't updated for the CMP Upgrade. The bullet point about MCR being covered by Tier 1 and 2 has been removed for 2015 - we're now not told what Tiers together can cover the MCR, but are told that at least 80% of it must be Tier 1.