Unearned premium reserve (UPR)

Category: Reserving · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed

Unearned premium reserve (UPR)

The Unearned Premium Reserve (UPR) is the portion of premium written but not yet earned at the reporting date. It is the liability to provide cover for the unexpired portion of policies in force.

Earning patterns

• Pro-rata (1/365) — premium earned linearly across the policy period. Standard for most general business.
• 24ths method / 8ths method — simplified pro-rata used in older systems where exact date data is unavailable.
• Risk-based / non-linear — for policies with varying exposure across the period (e.g. seasonal construction).
• Single payment / instant earning — for single-occurrence policies.

Worked example

A £12,000 annual policy incepted on 1 July, reporting at 31 December:

• 6/12 earned = £6,000.
• UPR = £6,000.

Relation to URR

If the UPR is judged inadequate to cover the future claims and expenses on the unexpired period, an Unexpired Risk Reserve (URR) is held in addition, representing the deficiency.

Solvency II treatment

Under Solvency II, premium provisions are valued on a best-estimate basis (Article 36 of Delegated Regulation 2015/35) rather than UPR. The UPR is a UK GAAP / IFRS 4 concept; under IFRS 17, the Liability for Remaining Coverage broadly replaces it.

References

• Solvency II Delegated Regulation 2015/35, Article 36.
• IFRS 17 — Insurance Contracts.
• IFoA reserving guides.

Cross-references

• Premium deficiency reserve
• Outstanding claims reserve
• Technical provisions Solvency II

Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.