Unearned premium reserve
The share of premium already collected but relating to coverage after the closing date, topped up by an unexpired risk reserve when that share is not enough to cover expected claims.
An annual policy written on October 1 has collected twelve months of premium by December 31 but has only run for three. The remaining nine months are a debt to the policyholder, not income, and the unearned premium reserve isolates them. When risk is spread evenly, the calculation is pro rata temporis. Otherwise that breaks down: hail cover or a travel policy is earned on the seasonal profile of the risk, not on the calendar. The unexpired risk reserve takes over when unearned premium is not enough to pay claims and expenses for the remaining period, which happens on a line priced below cost. Under IFRS 17 the premium allocation approach carries the same mechanism and adds the onerous contract test. That test forces immediate recognition of the expected loss rather than discovering it month by month.
Homeowners book as of December 31, 2025, written premium 120M EUR spread evenly across the year: unearned premium reserve 60M EUR. Take a 14M EUR agricultural hail line written in January for an April to September season. Pro rata temporis would still return about 0.6M EUR at December 31 although the risk is spent, and the correct reserve is zero.
UPR, unearned premium reserve, unexpired risk reserve, URR
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