Hi, I have a doubt in below example to explain difference between Underwriting risk & reserving risk; "For example, suppose a motor insurance policy is set up on 31 March 2014 and cover begins on 10 April 2014. If we are modelling the required capital as at 1 April 2014, then starting UPR will form part of the underwriting risk. However if we are modelling the required capital as at 10 April 2014, then starting UPR will form part of the reserving risk." If we are calculating the required capital at 10 April 2014, then I think 1/365th premium will come in reserving risk as risk start date is 10th April & 364/365th premium will be underwriting risk assuming Pro-rata. Please let me know if I am correct. Regards, Ashok
Hi Ashok The answer in reality is that it depends. Some insurers include the risks relating to business that has been written but is yet to be earned in the underwriting risk and others include it in the reserving risk.
