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Unearned Premium Reserves: Half a Day!


   Insurance policies in Turkey usually start at 12:00 midday on the commencement date and end at 12:00 midday. This small nuance has traditionally been ignored by insurance companies when calculating Unearned Premium Reserves, actuaries just accruing the premium on a 365ths (daily) basis.

 Sector Announcement 2009/09 dated 27 March 2009 puts an end to this practice, and requires actuaries to recognise this half a day when calculating the UPR. So, for a policy commencing on 31 March 2009, 0.5/365 of the premium is assumed to be earned in the first quarter 2009, with 364.5/365 of the premium being unearned.  

This does seem to be a little over-accurate. Pedants may suggest the next step would be to accrue the premium on an hourly basis, taking into account leap-years and daylight saving time in the summer!  

However, thanks to article 1 of the “Teknik Karşılıklarla İlgili Mevzuatın Uygulanmasına İlişkin Sektör Duyurusu” (Sector Announcement Related to the Application of Legislation Concerning Technical Reserves), it is now mandatory.

Tags: reserves | UPR |
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