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Old 01-10-2019, 08:34 PM
joeleofu joeleofu is offline
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Default What is the name for this kind of reserves

I vaguely remember there is one kind of reserves for the expected claim liability on the unearned portion of insurance policies and that needs to be booked or somehow considered in the year end report. I am not talking unearned premium reserves for the possible refund of unearned premiums in the event of cancellation. I forgot whether it came from exam 6C or something. Does it come across anyone's memory? What is it called?
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Old 01-10-2019, 09:15 PM
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DD&R “free tail” reserves?
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Old 01-11-2019, 08:34 AM
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In the US, it is the unearned premium reserve.

It is kept separate from other loss reserves for the reason of refunds as well as for those losses that are yet to be incurred.

With that said, Canada might also have different terminology which would be covered on the Exam 6C material (if anywhere).
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Old 01-11-2019, 08:52 AM
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Could OP be referring to a premium deficiency reserve? If the refundable UEPR is not expected to be adequate to cover the claim liabilities of the unearned period, a PDR would be established for the excess.
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Old 01-11-2019, 09:52 AM
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Quote:
Originally Posted by manaknight14 View Post
Could OP be referring to a premium deficiency reserve? If the refundable UEPR is not expected to be adequate to cover the claim liabilities of the unearned period, a PDR would be established for the excess.
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Old 01-17-2019, 02:05 AM
joeleofu joeleofu is offline
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Quote:
Originally Posted by manaknight14 View Post
Could OP be referring to a premium deficiency reserve? If the refundable UEPR is not expected to be adequate to cover the claim liabilities of the unearned period, a PDR would be established for the excess.
yeah, that's what I was trying to get at.

But why is that required?

Isn't the purpose of reserving for setting aside some money for the obligation that has been incurred? If the premium hasn't been earned yet, there is NO obligation yet. I found it confusing
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Old 01-17-2019, 07:52 AM
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What if the rates charged are inadequate to cover the liabilities they're suppose to cover?
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Old 01-17-2019, 07:59 AM
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I'm probably forgetting my 6 material, but what's the liability there if the premium hasn't yet been earned (and in theory the related losses haven't yet been incurred)? Say you priced it to an LR 120 and that it's correct. Then when the premium earns, you would be booking to that 120, which'll flow into loss reserves, if unupaid, no?
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Old 01-17-2019, 08:21 AM
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What if you need to price a book to an average of $150 but regulators will only allow you to price it to an average of $100?
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Old 01-17-2019, 08:37 AM
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Then you'd book 150 on the earned premium. Aren't you supposed to book based on what's been incurred? In theory isn't the UPR supposed to be because you received money for WP but would have to give back the unearned portion if the contract were terminated? But you wouldn't be paying them for what you think the losses would be if they never incurred.

I understand the textbook definition of a premium deficiency reserve, but it doesn't really make sense to me why it's a thing.
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