Technical provisions shall equal the sum of a best estimate and a risk margin. The best estimate shall be the probability‑weighted average of future cash‑flows, discounted using the relevant risk‑free interest rate term structure, calculated on up‑to‑date and credible information with realistic assumptions and appropriate actuarial and statistical methods. Cash‑flow projections shall reflect all inflows and outflows required to settle insurance and reinsurance obligations over their lifetime and shall be calculated gross; amounts recoverable from reinsurance and special purpose vehicles shall be calculated separately in accordance with Article 81.3. Where future cash flows can be reliably replicated by financial instruments with an observable market value, the market value of those instruments shall determine the technical provisions and separate best estimate and risk margin calculations are not required.

The risk margin shall ensure the technical provisions equal the amount insurers would require to take over and meet the obligations and shall be calculated as the cost of providing eligible own funds equal to the time‑adjusted Solvency Capital Requirement necessary to support the obligations over their lifetime, the adjustment being exponential and time‑dependent. The Cost‑of‑Capital rate shall be the same for all undertakings, reviewed periodically, and equals the additional rate above the relevant risk‑free interest rate that an undertaking would incur holding eligible own funds equal to that Solvency Capital Requirement. The rate shall be assumed to be 4.75% as of 30 January 2027, with the next review by the Commission not earlier than 31 January 2032. Methods shall appropriately reflect financial options and guarantees; small and non‑complex undertakings and those with prior supervisory approval may use a prudent deterministic valuation for immaterial life options and guarantees.