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HMRC internal manual

General Insurance Manual

Technical provisions: background: Unexpired Risks Provision

The unexpired risks provision (URP) is a provision for anticipated losses on the “unearned” portion of premiums that have been deferred to the following accounting period (see GIM2130). Paragraph 51 of Schedule 3 to the accounting Regulations SI2008/410 and paragraphs 117 to 124 of the 2005 ABI SORP state that an unexpired risks provision (URP) should be set up where the expected claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date exceed the UPP, after deducting any deferred acquisition costs.

Traditionally the Revenue did not generally apply in the insurance field the principle that the URP represents an anticipation of a future loss and so offends against the principle that losses should not be anticipated for tax purposes. Later developments in the relationship between tax and accounting have tended to support this approach. The creation of a URP to supplement the UPP is thus permissible where the supplementary provision can be justified on a proper statistical basis. The tax treatment of the URP usually follows the accounting treatment.