Earned Premium is important to the company and is of utmost use while calculation of Reserves
Earned Premium
Earned premium is the premium collected by an insurance company for the portion of a policy that has expired. In other words, the earned premium is what the insured party has paid for a portion of time in which the insurance policy was in effect, but has since expired.
Earned Premium (EP) is that portion of a policy’s premium that applies to the expired portion of the policy. Although insurance premiums are often paid in advance, insurers typically “earn” the premium at an even rate throughout the policy term. The unearned portion of the premium that has been paid is kept in the “unearned premium reserve.”
There are different types of methods from which Earned premium is calculated. The most common is 1/365 method while the others maybe 1/24, 1/8 or can be customized according to the policy but should be reasonable else as an actuary, you are answerable to all the regulator and auditors’ queries and this could be one.
Questions Related to Earned Premium
Earned premium is the premium collected by an insurance company for the portion of a policy that has expired. In other words, the earned premium is what the insured party has paid for a portion of time in which the insurance policy was in effect, but has since expired.
There are few methods that can be used but the most basic is 1/365 method for the calculation of Earned premium.
EP is calculated hereby using 1/365 method.