Earned premium

From Wikipedia, the free encyclopedia

Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. For instance, if a 365-day policy with a full premium payment at the beginning of the term has been in effect for 120 days, 120/365 of the premium is considered earned. Conversely, 245/365 of the premium is considered unearned. The calculations differ for policies where premiums are monthly, quarterly, or based on some other schedule besides full initial payment.

Under statutory accounting in the United States, property-casualty insurance companies are required to maintain a reserve for the unearned premiums on their policies. Total earned premium for an accounting period is commonly calculated as written premium for the period, plus the unearned premium at the start of the period, minus the unearned premium at the end of the period. Earned premium is often used in calculating an insurer's "loss ratio", where the numerator is total losses (including claim payments and loss reserves) during a period and the denominator is earned premium for the period.


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