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Unexpired premium reserve

F

Flamy

Member
For group life contracts under pillar 1 peak 1, the unexpired premium reserve is taken as a fraction of the monthly/yearly premium. Why is the reserve calculated using the premium and not the liabilities that would arise from the business? Any help is much appreciated!
 
For group life contracts under pillar 1 peak 1, the unexpired premium reserve is taken as a fraction of the monthly/yearly premium. Why is the reserve calculated using the premium and not the liabilities that would arise from the business? Any help is much appreciated!
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This is a simplified approach which applies to general insurance too. If we've calculated the premium so that it covers the expected cost of claims (plus expenses and profit too) then taking the unexpired premium reserve as a fraction of this premium should be sufficiently prudent.

As the contract is written on an annual basis it is unlikely that our estimate of future experience will be very different from that used a few months earlier when we priced the product.

However, if we now believed that the premium charged was inadequate we would hold an additional unexpired risk reserve to cover the shortfall.

Best wishes

Mark
 
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