what is the difference between "unearned premium reserve" and "unexpired risk reserve".
Total Comments: 8
Posted: Mon Oct 01, 2007 12:08 pm Post Subject:
Hi ranjan, welcome to ampminsure forums. :D
Unearned premium is that portion of premium which is not earned by the insurer i.e. the amount of premium that the insurance company is yet to receive from the policy holder.
The insurer has to maintain a reserve for this unearned premium to meet the sudden need of cash if the policy holder or the insurer decides to cancel the policy anytime during its tenure. This reserve is called ‘unearned premium reserve'.
All the insurance companies have to maintain the minimum level of ‘unearned premium reserve' in order to meet the condition set by the insurance regulatory board.
Unexpired risk reserve works somewhat similarly like ‘unearned premium reserve'. The insurer can maintain an extra level of reserve if he feels that the specified ‘unearned premium reserve' level is not sufficient to meet his requirements. However, it is not specified by the regulatory board. The insurer may or may not maintain this extra reserve depending upon his needs.
Hope the input helps.
Regards,
Juanita
Posted: Mon Oct 01, 2007 12:38 pm Post Subject:
Wow great info Juanita. It's nice to know that such a thing as unexpired risk reserve exists to keep the insurers committed towards theirs customers.
Posted: Mon Oct 01, 2007 12:58 pm Post Subject: Unexpired risk reserve - Does an insurer need to maintain it
A portion of the premium always remains unearned for the insurer till the end of the term of the policy. The insurance company has to stash a certain portion of that unearned premium in order to meet any sudden requirements. Different states have their own way of deciding the minimum amount required as reserve.
The minimum reserve requirement also varies with the type of insurance. Unexpired risk reserve is a bit different than the Unearned premium reserve. Jeremy
Posted: Thu Jan 29, 2009 07:20 am Post Subject:
I think unexpired risk reserve is calculated for 1 year policies. For long term life insurance policies what kind of calculation can we use?
Is an insurer expected to back unearned premium reserves with assets?
Posted: Fri Jul 15, 2011 06:12 pm Post Subject:
Insurers are required to fund policy claims liabilities with assets or reinsurance. Unearned premiums may be counted as part of those assets There is no such thing as "unearned premium reserves", but unearned premiums are a liability on the insurer's balance sheet.
Posted: Sat Feb 18, 2012 12:21 am Post Subject:
Unearned premium reserve is simply the amount of premium income that relates to a future year, and so is not accounted for in the current year. It is purely an accounting concept.
So if an insurer writes a year policy on the 1 Jan which lasts for 5 years, it is entitled to all that income (i.e. a contract has been signed), but by the end of the first year it has only 'earned' one year's worth. This is because the insurer has only been exposed to the risk for that year.
There is no need for this to be backed with assets as the amount will be earned over the term of the policy. So for each of the 5 years the reserve will be reduced by an equal amount, and that amount will be recognised as revenue in the profit and loss account/ income statement.
Posted: Mon Oct 01, 2007 12:08 pm Post Subject:
Hi ranjan, welcome to ampminsure forums. :D
Unearned premium is that portion of premium which is not earned by the insurer i.e. the amount of premium that the insurance company is yet to receive from the policy holder.
The insurer has to maintain a reserve for this unearned premium to meet the sudden need of cash if the policy holder or the insurer decides to cancel the policy anytime during its tenure. This reserve is called ‘unearned premium reserve'.
All the insurance companies have to maintain the minimum level of ‘unearned premium reserve' in order to meet the condition set by the insurance regulatory board.
Unexpired risk reserve works somewhat similarly like ‘unearned premium reserve'. The insurer can maintain an extra level of reserve if he feels that the specified ‘unearned premium reserve' level is not sufficient to meet his requirements. However, it is not specified by the regulatory board. The insurer may or may not maintain this extra reserve depending upon his needs.
Hope the input helps.
Regards,
Juanita
Posted: Mon Oct 01, 2007 12:38 pm Post Subject:
Wow great info Juanita. It's nice to know that such a thing as unexpired risk reserve exists to keep the insurers committed towards theirs customers.
Posted: Mon Oct 01, 2007 12:58 pm Post Subject: Unexpired risk reserve - Does an insurer need to maintain it
A portion of the premium always remains unearned for the insurer till the end of the term of the policy. The insurance company has to stash a certain portion of that unearned premium in order to meet any sudden requirements. Different states have their own way of deciding the minimum amount required as reserve.
The minimum reserve requirement also varies with the type of insurance. Unexpired risk reserve is a bit different than the Unearned premium reserve. Jeremy
Posted: Thu Jan 29, 2009 07:20 am Post Subject:
I think unexpired risk reserve is calculated for 1 year policies. For long term life insurance policies what kind of calculation can we use?
Posted: Fri Jul 15, 2011 12:22 pm Post Subject: unearned premium reserve
Is the insurer required to have unearned premium reserves backed by assets?
Posted: Fri Jul 15, 2011 12:26 pm Post Subject: unearned premium reserve
Is an insurer expected to back unearned premium reserves with assets?
Posted: Fri Jul 15, 2011 06:12 pm Post Subject:
Insurers are required to fund policy claims liabilities with assets or reinsurance. Unearned premiums may be counted as part of those assets There is no such thing as "unearned premium reserves", but unearned premiums are a liability on the insurer's balance sheet.
Posted: Sat Feb 18, 2012 12:21 am Post Subject:
Unearned premium reserve is simply the amount of premium income that relates to a future year, and so is not accounted for in the current year. It is purely an accounting concept.
So if an insurer writes a year policy on the 1 Jan which lasts for 5 years, it is entitled to all that income (i.e. a contract has been signed), but by the end of the first year it has only 'earned' one year's worth. This is because the insurer has only been exposed to the risk for that year.
There is no need for this to be backed with assets as the amount will be earned over the term of the policy. So for each of the 5 years the reserve will be reduced by an equal amount, and that amount will be recognised as revenue in the profit and loss account/ income statement.
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