Article 76 Solvency II requires that the value of technical provisions corresponds to the current amount insurance and reinsurance undertakings would have to pay in case of immediate transfer of their insurance and reinsurance obligations to another insurance or reinsurance undertaking. According to Article 76(5) Solvency II, the calculation of technical provisions should be done in accordance with Articles 77 to 82 and 86 Solvency II. In particular, Article 77(2), second subparagraph Solvency II requires that the calculation of the best estimate is based upon up-to-date and credible information and realistic assumptions and be performed using adequate, applicable and relevant actuarial and statistical methods.

Further provisions concerning the assumptions underlying the calculation of technical provisions are set out in Article 22(1) DR. This includes conditions for using undertaking-specific information on expenses. More specifically, according to Article 22(1)(c) DR the assumptions are based on the characteristics of the portfolio of insurance and reinsurance obligations, where possible regardless of the insurance or reinsurance undertaking holding the portfolio. However, according to Article 22(1), second subparagraph DR, undertakings shall use information on expenses specific to the undertaking where it better reflects the characteristics of the portfolio of insurance and reinsurance obligations than information that is not limited to the specific undertaking (e.g. a hypothetical reference portfolio) or where a prudent, reliable and objective calculation is not possible without that information.

As concluded in Q&A 2257, if an undertaking incurs expenses which are permanently and systematically higher than those projected for best estimate valuation, it should base the assumptions on expenses on the undertaking´s specific experience and observations because a prudent, reliable and objective valuation of technical provisions without that information is then not possible.

In accordance with these conclusions, assumptions on investment expenses derived from a hypothetical reference portfolio should not be considered prudent, realistic and adequate to value the technical provisions and determine a transfer value, in the situation where the actual expenses of the undertaking are permanently and systematically higher than these assumptions.

Note also that according to Article 24 DR, in case where the cash flows relating to the insurance obligations depend on the actual expenses incurred by the insurance or reinsurance undertaking (this could e.g. be the case where the contract includes discretionary benefits), the undertaking should base the valuation of the technical provisions on undertaking-specific expenses in order to reflect the characteristics of the portfolio of insurance and reinsurance obligations.

Any method used to determine the investment expenses for the purpose of the calculation of the technical provisions need to satisfy these requirements.   

Note that Guideline 28A of the EIOPA Revised guidelines on valuation of technical provisions deals with the identification and allocation of investment management expenses that need to be taken into account in the assumptions to calculate the best estimate as part of the technical provisions. The guideline does not specifiy any new methods but tries to ensure that all relevant expenses (see also Article 31 DR) are considered and provides explanations on the allocation to products. Any method chosen should satisfy the requirements of Article 22 DR as described above. Please also look at the explanatory text  of Guideline 28A (EIOPA-BoS-22/217) for further details on the guideline.