Considerations in the Calculation of Premium Deficiency Reserves

Effective in 2001, statutory accounting rules will change as a result of the NAIC's (National Association of Insurance Commissioner's) "codification" project. One of these changes will be the creation of a new statutory reserve requirement for property/casualty companies, the required calculation of a "premium deficient, reserve". Although these reserves have been required under US. GAAP accounting rules for quite some time, there has been little said about them in the available actuarial literature, especially as to how they might be calculated This paper is meant to address that gap, both as to current U.S. GAAP accounting rules and the new statutory accounting rules (including a discussion as to how the premium deficiency reserve differs under these two accounting systems).