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.
A PDR / URR arises when the expected combined ratio on unexpired risk exceeds 100%. Indicators include:
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.
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.
UK insurers must disclose URR in statutory accounts. Material URR positions indicate pricing inadequacy and can lead to PRA supervisory engagement.
Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.
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