GIM6040 | Technical provisions: background: Unexpired Risks Provision: differences between accounts and regulatory return

There is one difference in approach to the calculation of a URP as between the shareholder accounts and the regulatory return. In the shareholder accounts the need for, and amount of, the reserve will be assessed across the company’s business as a whole.

The FSA, however, requires the URP to be determined separately for each accounting class, without taking into account any surplus expected to arise on the unexpired risks within other accounting classes. To enable the two approaches to be reconciled the Accounts and Statements Regulations require the use of negative figures for the URP for those accounting classes where there is expected to be a surplus of the UPP over the cost of claims.

These negative figures will appear on the accounting class level forms 22 at line 19 (line 15 of form 20), but the overall figure that is taken to line 13 of form 15 cannot be negative, and ought to equate to the figure shown in the shareholder accounts.

The total amount allowed does not exceed the deduction made in the company’s accounts (see McGowan v General Accident, 5TC308).