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Unexpired Risk in Marine Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 12/04/2024
  • 2 min read

Understanding the concept of unexpired risk in marine insurance is vital when purchasing a policy.

An unexpired risk reserve ensures the financial stability of insurance companies and allows them to seamlessly fulfil future claims.

Comprehending the unexpired insurance meaning in marine insurance, helps policyholders make informed decisions. This further ensures that policyholders can obtain adequate coverage and minimise risks when purchasing marine insurance in India.

Unexpired Risk Meaning

In the context of marine insurance, unexpired risk pertains to the part of an insurance policy that retains its effect and remains active. It signifies the period during which the insurance provider is liable to cover any potential losses or damages arising within this timeframe.

Unexpired risk impacts the extent of the protection that is offered under the policy. As the policy nears its termination date, the unexpired risk progressively diminishes until the policy ceases to be effective.

Consider this scenario: A cargo shipment is covered by a one-year marine insurance policy, and an incident arises six months into the policy's duration. In such a scenario, the unexpired risk would encompass the remaining six months of coverage. Throughout this period, the insurance provider would evaluate and potentially identify any legitimate claim associated with the incident within the unexpired risk timeframe.

Understanding the particulars of unexpired risk is essential for policyholders to ensure they maintain adequate coverage throughout the policy duration. Moreover, it also highlights the necessity for policy renewal or extension to sustain coverage beyond the initial policy term. This safeguards the policyholders against potential gaps in insurance protection.

Limits of Reserve for Unexpired Risk in Marine Insurance

The Income Tax Department provides clear guidelines regarding the limits of the reserve for unexpired risk in marine insurance as well as additional reserves applicable for deduction in non-life insurance sectors.

These limits of the reserve for unexpired risk in marine insurance are outlined under clause (c) of rule 5 of the First Schedule. They ensure regulatory compliance within the insurance industry. The particulars of the limits are as follows:

For insurance providers dealing with fire insurance, engineering insurance, and terrorism risk coverage, the total reserve amount, including any additional reserves, cannot surpass 100% of the net premium income from the preceding year.

For insurance providers involved in fire insurance and miscellaneous insurance (excluding those mentioned above), the permissible limit stands at 50% of the net premium from the previous year. For insurance providers specialising in marine insurance, including Export Credit Insurance, the threshold is at 100% of the net premium income from the prior year.

Insurance providers must adhere to these limits to ensure proper allocation of reserves and avoid regulatory penalties.

Additionally, any portion of the allocated reserves or additional reserves that do not meet the criteria for deduction under the specified rule for a particular previous year should be excluded from the total income for the subsequent assessment year. This ensures accurate financial reporting and compliance with tax regulations.

Provision of Unexpired Risk in Case of Marine Insurance

The provision of unexpired risk in the case of marine insurance stands as an essential component within the insurance regulatory framework. It serves as the key factor for ensuring the financial security of insurance providers and their ability to effectively address any future claims.

Across various jurisdictions, Section 64V (1) of the Insurance Act highlights the approach for evaluating the assets and liabilities of insurance providers. Notably, Proviso (ii)(b) with this section holds significance for establishing reserves aimed at addressing unexpired risks, which is a pivotal aspect of the operation of marine insurance. His provision plays a crucial role in ensuring the financial stability of insurers and their capacity to handle future claims, especially when it comes to marine insurance policies.

The Insurance Act’s Proviso (ii)(b) of Section 64V(1) mandates the creation of reserves tailored to unexpired risks across various insurance segments.

For marine insurance, particularly in marine cargo operations, a 50% reserve is obligatory. This implies insurers must allocate a portion of the premium income derived from marine cargo policies to anticipate potential future claims. This allocation is computed based on the premium, excluding reinsurance, and is received over the past twelve months. Such provisions ensure that insurance providers are financially capable of addressing claims that stem from active policies.

Regulatory Compliance

Ensuring regulatory compliance is imperative for insurance providers to highlight their financial stability and capacity to meet policyholder obligations. The unexpired risk reserve acts as a safeguard, allowing insurance providers to consider potential claims even after the current accounting period has ended.

Additional Regulation

Beyond the stipulations of the Insurance Act, Clause 2 of part I of Schedule B of the Insurance Regulatory and Development Authority (IRDA) (Preparation of Financial Statements & Auditors’ Report of Insurance Companies) Regulations, 2002, reinforces the necessity for insurance providers to establish reserves for unexpired risks.

This reserve specifically designates the portion of the written premium intended for future accounting periods. It is critical to ensure that this reserve meets or exceeds the thresholds mandated by the Insurance Act’s Section 64V(1)(ii)(b). The regulatory framework emphasises the significance of maintaining sufficient reserves, especially when it concerns marine insurance policies.

Objective of the Reserve

The reserve serves to secure the insurance provider’s ability to fulfil the upcoming obligation to its policyholders for all active policies. Given the typically extended duration of marine insurance policies, this reserve ensures that insurance providers can manage potential claims throughout the policy term.

Financial Reporting Implications

These reserve obligations significantly affect insurance provider’s financial statements. They are recorded as liabilities on the balance sheet, which illustrates the insurance provider's responsibility for future claims coverage. Moreover, they impact the income statement by acting as costs that diminish profits.


In conclusion, understanding the concept of unexpired risk in marine insurance is crucial for insurance providers and policyholders alike. The provision of unexpired risk reserves ensures the financial stability of the insurance providers and their ability to meet future claims under policies like transit insurance. These reserves act as a financial cushion and safeguard the interests of policyholders.

Compliance with specific reserve requirements highlighted in regulatory frameworks like the Insurance Act and related regulations is essential for insurance providers operating in the marine insurance sector. Adhering to regulatory guidelines and maintaining adequate reserves aids insurance providers in navigating the complexities of marine insurance policies effectively.

This is not only beneficial to insurance providers but also helps policyholders identify reliable and capable insurance providers in the market. One such trustworthy insurance provider is Tata AIG which offers a wide range of coverage options to choose from.


How are unexpired risk reserves calculated?

Unexpired risk reserves are calculated using the following formula:

URR= Max {(E[Claims] + E[Expenses] + DAC – UPR); 0}

Which section has specific guidelines for how insurance providers can manage their unexpired risk reserves?

Section 64V(1) (ii) (b) of the Insurance Act, 1938 has specific guidelines for how insurance providers can manage their unexpired risk reserves.

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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