Unexpired risk reserve

If an insurer considers its unearned premium reserve to be too small, then it may create an unexpired risk reserve, more formally called an “additional reserve for unexpired risk”, in addition to it. The unearned premium reserve always appears, the additional reserve for unexpired risk appears when necessary.

If the estimated cost of claims and expenses resulting from claims exceeds the unearned premium reserve, then an unexpired risk reserve should be created equal to this excess. This is essentially a provision for an expected loss.

The expected costs can be estimated from the claims ratio, estimated changes in the level of claims, the effect of reinsurance (which may significantly offset the cost of claims) and cost of processing claims, etc.

There are a number of more technical and detailed discussions on the web, including discussions of the issues inevitable in estimating a loss that was fairly recently (i.e. at the time the insurance was written) unexpected.