In most cases policies are renewed
annually except in some cases where policies are issued for a shorter
period. Since insurers close their accounts on a particular date, not
all risks under policies expire on that date. Many policies extend into
the following year during which the risk continues.
Therefore on the closing date, there is unexpired liability under various policies which may occur during the remaining term of the policy beyond the year and therefore, a provision for unexpired risks is made at normally 50% in case of Fire Insurance and 100% of in case of Marine Insurance.
This reserve is based on the net premium income earned by the insurance company during the year
Reserve for unexpired Risk:
For Marine Business = 100% of net premium income
For others = 40% of net premium income
(Income tax authorities allow even a provision of 50% of net premium income from other sources)
For others = 40% of net premium income
(Income tax authorities allow even a provision of 50% of net premium income from other sources)