Basic Own Funds

Overview

This calculator implements the Basic Own Funds determination in Article 88 of the Solvency II Directive.^[1] It mirrors the article as a three-term sum bridge: assets valued under Article 75, liabilities valued under Article 75 and Section 2, and subordinated liabilities.^[2]

Input Terms

• Total Assets: The Solvency II value of assets used in the excess-assets-over-liabilities test.^[2]
• Total Liabilities: The corresponding Solvency II liability value, including technical provisions where relevant.^[2]
• Subordinated Liabilities: Subordinated liabilities included in basic own funds before tier classification.^[1]

Technical Rationale

Own funds exist to absorb losses and protect policyholders. The practical question behind Article 88 is: what financial cushion does the undertaking have if conditions deteriorate?

Ordinary liabilities, such as obligations to policyholders, suppliers, employees, or tax authorities, must be honoured and therefore do not absorb losses for policyholder protection purposes. They reduce the undertaking's cushion. Subordinated liabilities are different because their holders have contractually accepted a lower ranking: they are paid only after senior creditors and policyholder obligations have been met. If the undertaking suffers losses, subordinated-liability holders absorb that loss before policyholders are affected.

For that reason, Article 88 treats subordinated liabilities as part of basic own funds rather than as ordinary liabilities in the capital-cushion view. Leaving them inside the liability base would understate the loss-absorbing resources available to the undertaking. Adding them back to the excess of assets over liabilities makes the result reflect the full basic own-funds capacity available before tiering, eligibility caps, deductions, and coverage tests.

Important Notes

• Input ownership: The three Article 88 terms should be sourced from validated balance-sheet evidence. This page only performs the Article 88 sum.
• Scope boundary: The output does not replace own-funds classification, tiering, cap, or deduction checks.
• Current-rule check: Professional use must verify the current consolidated Solvency II Directive and related Delegated Regulation treatment before relying on the result.