I understand that if an insurer for example writes monthly renewable products, at the end of the month the UPR for that particular product will be zero. My question is for that product is it possible for individuals to actually pay premiums in advance and how will that be treated lets say at the end of a financial year.
Hi Nyaman I'm not entirely sure what you mean about paying premiums in advance, and which financial year you're referring to. If you pay a premium in advance of any cover (which is of course the norm on any product), regardless of how long the cover is, then between the date of premium payment and the date of cover, the UPR would be the full premium (ignoring DAC for now). Let me know if I've got the wrong end of the stick! Ian
Hi Ian. Thank you for your response. Let me illustrate what am asking probably by a way of an example. An individual has a monthly renewable policy but has decided to pay for example 3 months premiums in advance at the beginning of December 2019. For a year end valuation as at 31 December how will the other 2 months premiums be treated? Nyaman
If you ignore the renewable option, and just treat it as a 3-month long policy which starts on 1/12, then (assuming risk uniform) the UPR at 31/12 would be 2/3 of the premium paid. Adding the 'renewable option' bit is very unusual (for general insurance). But anyway, how the policy would be treated would depend on the purpose of the valuation and the accounting principles guiding them. These are called 'boundary conditions' - where/when a policy is deemed to 'start' and 'finish', and the rules could vary (eg IFRS4, IFRS17 or Solvency II). This is covered further in Subject SA3. You might also want to see the Subject SA3 exam paper in September 2017 (Q1), where this was explicitly examined (in the context of Solvency II).
