Technical provisions (Solvency II)

Reviewed by Matthew Bartlett, Director · Last reviewed 2026-06-22

Category: Capital management · Reviewed by Simon Temme, Account Executive · Last reviewed

Technical provisions (TPs) under Solvency II are the value of insurance and reinsurance liabilities recorded on the balance sheet. They are calculated as the best estimate plus a risk margin, as required by Article 77 of the Solvency II Directive.

Best estimate

The probability-weighted average of future cash flows, taking into account the time value of money using a risk-free interest rate term structure published by EIOPA / the PRA. The best estimate must:

• Reflect the expected present value of all in- and out-flows arising from existing obligations and the next 12 months of business.
• Be calculated gross of reinsurance, with reinsurance recoveries shown separately as an asset.
• Use actuarial and statistical methods appropriate to the line of business.
• Include allowance for expenses, claims handling and ULAE.

Risk margin

The amount required to ensure the value of technical provisions equals what would be required to transfer the obligations to a third party — calculated as the present value of the cost of holding the SCR for non-hedgeable risks for the remaining run-off, using a 6% cost-of-capital rate (5% in the post-Brexit UK regime from end-2023, per HMT and PRA reforms).

Segmentation

Technical provisions are reported by:

• Solvency II line of business (16 non-life lines, 33 life lines in the QRTs).
• Currency.
• Geographic territory (homogeneous risk groups).

References

• Solvency II Directive 2009/138/EC, Articles 76–86.
• Delegated Regulation 2015/35.
• PRA Insurance Rulebook, Technical Provisions.
• HMT (2023). Reforming the Risk Margin.

Cross-references

• Risk margin Solvency II
• IBNR
• Outstanding claims reserve

Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.