Liability for remaining coverage (LRC, IFRS 17)

A one-year property policy takes effect on July 1, 2026 for a premium of EUR 1,200. At December 31, six months of cover have been provided, six months remain: the liability for remaining coverage is about EUR 600, the rest having already moved to insurance revenue. The ancestor of this item is the unearned premium provision, and under IFRS 17 the liability for remaining coverage is its cousin. Paragraph 40 of the standard splits the liability of a group of contracts in two: the liability for remaining coverage, which gathers the fulfilment cash flows relating to future service and the contractual service margin at that date, and the liability for incurred claims, which looks at the past. Under the general model, the liability for remaining coverage is a valuation of future, discounted cash flows, with risk adjustment and margin, that is, what it takes to serve the rest of the contract. Under the premium allocation approach it is much simpler: premiums received, less acquisition costs, less what has already been recognized in revenue, and the result looks like the unearned premium, with a correction for discounting if the gap between payment and cover exceeds one year. It runs off with time and feeds revenue: a euro that leaves the liability for remaining coverage enters revenue. A loss test exists: if facts suggest the group is onerous, the liability is adjusted to the general estimate.