Premium records

Premium calculation

Written, earned, and unearned premiums are calculated on a daily basis. To determine the premium, divide the written premium by the number of days in the term. For example, if the policy term is 1 year, then you would divide the written premium by 365. 

Standard examples

  • A policy has a term length of 1 year and a written premium of $365. The premium for this policy is:
    $365/365 = $1.00 per day.
  • A policy has a term length of 1 year and a written premium of $700. The premium for this policy is:
    $700/365 = $1.9178 per day.
  • A policy has a term length of 1 year and a written premium of $2,345. The premium for this policy is:
    $2345/365 = $6.4246 per day.

Endorsement examples

When an endorsement occurs that increases or reduces the premium, the premium is calculated by adding the daily earned premium for the number of days each respective coverage premium is in effect. If a policy has a term length of 1 year and a premium of $3000 for 280 days, and then the premium is decreased to $2000 for the remainder of the policy term, the premium is calculated in the following way:

  • When the written premium is $3000, the premium earned per day is: $3000/365 = 8.2191780822 or roughly $8.22 per day. If this premium is earned for 280 days, then the earned premium is: $8.211780822 x 280 = 2301.3698630137 or roughly $2301.37. 
  • When the written premium is $2000, the premium earned per day is: $2000/365 = 5.4794520548 or roughly $5.48 per day. If this premium is earned for 85 days, then the earned premium is $5.4794520548 x 85 = 465.7534246575 or roughly $465.75. 
  • Therefore the premium, when taking the endorsement into account is (($3000/365) x 280) + (($2000/365) x 85) = 2,767.1232876712 or roughly $2,767.12.

Premium records

Premium record calculations display for each day the policy is in force. These calculations are accessed on the Accounts Receivable screen of every policy.

Sequential written and earned premiums

Sequential premium calculations indicate how much written and earned premium the policy wrote or earned on a given calendar day.

Earned and unearned premium

The running total of earned and unearned premium on each calendar day.

Catch-up records

When a policy is issued after its effective date, the premium records must “catch up.” The first record is the sum of earned premium up to the date the policy was issued. For example, if the policy earns $1 per day but is issued 10 days after the effective date, the earned premium will show $10 of earned premium on its date of issuance.

End of term

At the end of the term, the following is true:

  • The written sequential and earned premium equals the written premium.
  • The unearned premium is 0.

New business

Use Figure 1 to see how premium is tracked for new business.

Figure 1: New business.

The following are true in the above example:

  • The policy has a written premium of $1,105 (Written Premium column).
  • As of 8/25/16, the policy earned $69.69 (Earned Premium column).
  • The policy is earning $3.03 per day (Earned Sequential column).
  • The unearned premium is decreasing by $3.03 per day (Unearned Premium column).
  • The policy was issued late as there is a “catch up” record on 8/15/16. Even though the policy earned $3.03 per day, it was issued 13 days after its effective date. As such, on the day it was issued (8/15/16), it had already earned $39.39 in premium.

Renewal business

Use Figure 2 to see how premium is tracked in renewal business.  

Figure 2: Renewal business.

The following are true in the above example:

  • This policy renewed on 8/03/16 given the premium record row for that date. On that date, $650 worth of premium was written, an increase of $5 as indicated on the previous date’s row. Also, on the previous date’s row, the entire $655 of written premium was earned and the unearned premium was $0.
  • On the previous term, the policy earned $1.78/$1.79 per day (due to rounding). At renewal, the policy earned $1.81 per day.

Cancellation

Use Figure 3 to see how premium is tracked in business that is canceled. 

Figure 3: Canceled policy.

The following is true in the above example:

  • The policy canceled on 8/05/2016.
  • At cancellation, the written premium equals the earned premium. To balance those premiums, $1,324.71 in written premium was deducted.
  • At cancellation, the unearned premium is $0.