What is UPR?
Underwriters should be familiar with UPR or more specifically, unearned premium reserves. The usual computation method is the use of 1/24th method reduced by the actual commission payable except for marine cargo, which is calculated by applying 25% to the net premium without any deduction for acquisition costs. If you have a habit of reading your company’s finance accounts, you should see this reported as part of the NOTES to the accounts…. What is a premium deficiency reserve? We can rephrase it as “unallocated expenses and deferred acquisition costs”. Before we can get to the quantum of deficiency in premium reserves, the actuary must have worked out the best estimate ultimate loss ratio (to have some idea, refer to PL….). From this best estimate, an additional % loading is imposed (ie. 4%) for policy administration expenses expected. This ratio is then further adjusted by the actuary to account for the actual deferred acquisition cost that the company has factored into the calculati
