Premium deficiency reserve (PDR)

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Reviewed by Apex Insurance Brokers · Last reviewed 2026-06-22

Category: Reserving · Reviewed by Chrissie Anderson, Client Executive · Last reviewed

A Premium Deficiency Reserve (PDR) — known in the UK as an Unexpired Risk Reserve (URR) when the deficiency is calculated above the UPR — is the additional liability required when the unearned premium reserve is insufficient to cover the claims, expenses and reinsurance costs expected to arise from the unexpired portion of in-force policies.

When required

A PDR / URR arises when the expected combined ratio on unexpired risk exceeds 100%. Indicators include:

• Significant loss ratio deterioration in the current underwriting year.
• Rate inadequacy identified after pricing decisions.
• Cost pressures (claims inflation, increased reinsurance cost) not anticipated when premium was set.
• Catastrophe exposure on policies still in force.

Calculation

URR = [(Expected loss ratio + Expense ratio) − 100%] × UPR

If positive, the URR is added to the UPR to establish total premium provisions adequate to meet expected claims.

Solvency II equivalent

Under Solvency II, premium provisions are calculated as the best estimate of cash flows arising from the unexpired risk, naturally incorporating any premium deficiency without requiring a separate URR.

Disclosure

UK insurers must disclose URR in statutory accounts. Material URR positions indicate pricing inadequacy and can lead to PRA supervisory engagement.

References

• ABI SORP for insurers.
• PRA Insurance Rulebook, Technical Provisions.
• IFoA reserving guides.

Cross-references

• Unearned premium reserve
• Combined ratio underwriting
• Technical provisions Solvency II

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