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Answer: If capital falls below the solvency capital requirement, an insurance company is not allowed to take on further business.
## Explanation Under Solvency II framework: - **Option A is correct**: When an insurance company's capital falls below the Solvency Capital Requirement (SCR), regulatory intervention occurs, which typically includes restrictions on taking on new business. - **Option B is incorrect**: Policy transfers to another insurance company generally occur at more severe capital deficiency levels, typically when capital falls below the Minimum Capital Requirement (MCR), not just the SCR. - **Option C is incorrect**: Insurance companies are required to have a solvency capital plan at all times, not only when capital falls below the MCR. The solvency capital plan is a continuous requirement under Solvency II. **Key Solvency II Capital Requirements**: - **Solvency Capital Requirement (SCR)**: The target capital level where regulatory intervention begins - **Minimum Capital Requirement (MCR)**: The absolute minimum capital level below which the company faces severe regulatory action including potential license revocation Therefore, the correct statement is that when capital falls below the SCR, the company faces restrictions on taking new business.
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In Solvency II, which of the following is true?
A
If capital falls below the solvency capital requirement, an insurance company is not allowed to take on further business.
B
If capital falls below the solvency capital requirement, an insurance company's policies may be transferred to another insurance company.
C
Insurance companies are only required to formulate a solvency capital plan if capital falls below the minimum capital requirement.
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