This research evaluates insurance liabilities and analyses their influence on insurer’s capital. The author measures the changes in the amount of insurance liabilities due to the forthcoming Solvency II and IFRS 4 “Insurance contracts” phase II requirements by comparing a situation in life and nonlife insurance markets. Presenting the new approach to setting up a risk-free interest rate and its applicability to liability discounting, the author investigates applicability of this approach to small economies using the Solvency II QIS 5 methodology and the Lithuanian insurance market data.