Solvency Two, sets two types of capital requirements for insurance companies, the solvency capital requirements and the minimum capital requirement, with the solvency capital requirement being the higher of the two. But how are they calculated? Well, essentially, the regulator calculates stressed valuations for the investments and technical provisions of the company reflecting the exposure of these to market risk, credit risk, and underwriting risk. Now, these stressed valuations reduce the value of investments and potentially increase the value of the liabilities, and therefore this reduces the amount of own funds that the company has, and the change in own funds is what determines the capital requirement. So the capital requirement is sometimes referred to as a value-at-risk measure for own funds. Now, for the solvency capital requirement, the stressed valuations would cover 99.5% of the likely scenarios that could occur on a one-year time horizon. The capital requirement here, covers all but the most extreme of risk events to the insurance company. Now, for those of you that are familiar with value-at-risk measures, this is equivalent to calculating a value-at-risk measure for own funds with a confidence level of 99.5%. But note, that within the solvency capital requirement, the market risk is usually the largest component. Because this drives changes in both the investments and also the technical provisions. Now, own funds must exceed the solvency capital requirement, and that's shown in this formula here. Though, in practice, most insurance companies aim to have a ratio above 150%, with many of them targeting 200% to ensure that they have a sufficient buffer. Note, that tier-one capital, that's the highest quality capital, which mostly covers common equity, must cover at least 50% of the solvency capital requirement. Now, the process is the same for the minimum capital requirement, but this time, the stressed valuations cover only 85% of the likely scenarios that could occur on a one-year time horizon. So this is less extreme in terms of the scenarios than for the solvency capital requirement, which is why the minimum capital requirement is lower. Again, comparing this to a value-at-risk measure, this is equivalent to calculating a value-at-risk measure for own funds with a confidence level of 85%. Now, again, own funds must exceed the minimum capital requirement as shown in this formula. Though, in practice, the solvency capital requirement is usually the key focus for analysts, investors, and also the companies themselves, as this would be breached first.