Hi, I am quite confused about this topic. I want to know if URR is a notional reserve or is it actually a reserve that is held in real for future claims and expenses? I understood the concept as UPR being premium (which comes as money from policyholders) held with respect to unexpired portion of risk. If UPR held is more than calculated URR then the insurer sets up AURR on top of UPR to meet the future claims and expenses. Please clarify
All of these are actually reserves that are held by insurers. The UPR is a stab at the right number to hold, but the URR is a more accurate estimate. However, an insurer would normally hold one or the other, but not both as there is some overlap. Under Solvency II insurers must hold the URR as part of their premium provisions and UPR (net of DAC) can no longer be held. Just to correct something you mention above, you hold an AURR when the URR exceeds the UPR (net of DAC). If the UPR (net of DAC) is greater than the URR, then you don't need an AURR.
