Finance Department

 

Date of this Version

2001

Document Type

Article

Citation

Journal of Actuarial Practice 9 (2001), pp. 45-66

Comments

Copyright 2001 Absalom Press

Abstract

MUlti-year policies with large aggregate deductibles or multiple triggers raise some interesting issues about the correct amount of unearned premium reserve that a company should carry. Examples in this paper illustrate some of the difficulties that arise when trying to establish such reserves. The basic approach taken here is that the pure premium portion of the unearned premium reserve should always be adequate to cover the remaining risk. This approach, however, can lead to some unusual and controversial earning patterns; there are even situations where a negative premium is earned. In addition, the earning pattern for a particular loss scenario can differ materially from the earning pattern that is expected when the contract is written.

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