In Q1 of the September 2020 SP1 paper, "A health and care insurance company has sold both individual and group Income Protection products" and the question asked for an outline of the different types of reserves the insurer may need to hold for its IP products. The examiner's report's answer listed: Unearned premium reserves for group risk. [Note – no credit should be awarded if there is no mention of group risk] Unexpired risk reserve for group risk. [Note – no credit should be awarded if there is no mention of group risk] The answer seems to imply that UPR and URR relate to group risk only. My query is wouldn't individual policies have unearned component as well? Many thanks in advance for your help.
Hi Patty, Yes, you're absolutely right, but this is a distinction between long-term and short-term reserving terminology. IP is a long-term product, so we need to list out the long-term reserves. The "unearned" component for IP is the policy reserve (or reserves for policies / healthy lives). Group business is written on an annually renewable basis (even for long-term products like IP), so we need to list out the short-term reserves - in this case UPR and URR. I hope this helps! Anna
