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EY 25: Premium smoothing reserving amount: non-participation policies not annuities
or “How insurance companies calculate reserves for certain policies”
You could also call this:

“Calculating reserve for future insurance premiums on non-annuity policies”

You need to calculate an unearned premium reserving amount for a class of policies in each income year. This amount is the difference between the opening unearned premium reserve and the closing unearned premium reserve.

The opening unearned premium reserve is usually the amount of the closing unearned premium reserve from the previous year. If there was no closing unearned premium reserve in the previous year, you need to calculate what it would have been using the method described for the closing unearned premium reserve.

The closing unearned premium reserve is the amount of unearned premium reserve for the class of policies at the end of the current year.

The unearned premium reserve is the amount of premium from the current year or earlier years that relates to life risk components and relevant costs for future years. You need to subtract any relevant life reinsurance premiums from this amount.

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Next up: EY 27: Capital guarantee reserving amount: non-participation policies not annuities

or “How to calculate and use the reserving amount for certain non-annuity insurance policies”
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Part E Timing and quantifying rules
Life insurance rules: Non-participation policies: reserves

EY 26Unearned premium reserving amount: non-participation policies not annuities

  1. For an income year (the current year), a life insurer has an unearned premium reserving amount for a class of policies calculated using the formula—

    opening unearned premium reserve − closing unearned premium reserve.

    Where:

    • In the formula,—

    • opening unearned premium reserve is—
      1. the amount of the life insurer’s closing unearned premium reserve for the class of policies, for the income year before the current year; or
        1. the amount that would be the unearned premium reserve for the class of policies, using subsection (3) with necessary modifications, calculated at the end of the prior year, if the life insurer has no closing unearned premium reserve for the income year before the current year:
        2. closing unearned premium reserve is the amount of the life insurer’s unearned premium reserve under subsection (3) for the class of policies, calculated at the end of the current year.

          1. A life insurer's unearned premium reserve is the amount of the premium in the current year or a prior year, for the relevant policies, that relates to life risk components and relevant costs, in income years after the current year, but subtracting relevant life reinsurance premiums.

          Notes
          • Section EY 26: substituted, on , by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section EY 26(2)(a)(ii): amended (with effect on 1 July 2010), on , by section 48(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).