SIGMA is pleased to announce the release of our newest educational resource, the Premium Deficiency Reserve Calculation sample. This resource provides an illustrative example of the calculation of a premium deficiency reserve (PDR).

A company must record a PDR when the unearned premium of in-force business is not sufficient to cover the losses, loss adjustment expenses (ALAE and ULAE), and maintenance expenses (premium tax, other expenses, etc.) that will arise as premium is earned.

Below are a few key additional considerations that should be reviewed when determining a PDR:

• Business Grouping: the in-force business should be grouped in a manner that is consistent with how it is marketed, serviced, and measured
• Investment Income: companies have the option to consider investment income when performing this calculation
• Accounting Principles: the basis of accounting principles may result in adjustments to the calculation
• Disclosures: companies are required to make disclosures of the amount of the PDR and whether investment income was considered

The footnotes of the Premium Deficiency Reserve Calculation will walk through every component of the calculation. A login to our complimentary RISK66 education portal will be required to view and download this resource. For a fantastic companion piece to this resource, consider downloading our booklet, An Actuarial Advantage. 

As always, SIGMA is available to discuss solutions to challenges unique to a particular company or industry. Schedule a call today with one of our consulting actuaries.

We welcome your feedback by contacting us at support@SIGMAactuary.com.

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