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Earned premiums

Portion of written premiums corresponding to the coverage period already elapsed, the reference denominator for technical ratios.

Definition

Council Directive 91/674/EEC of December 19, 1991 on the accounts of insurance undertakings opens the non-life technical account with earned premiums: written premiums, adjusted for the change in the unearned premium reserve. They measure the share of premium matching coverage already provided during the period. For an annual policy incepting July 1, half the premium is earned by December 31; the other half forms the unearned premium reserve (UPR). Earned premiums are the natural denominator of the loss ratio, expense ratio and combined ratio, because they track risk actually run. A fast-growing portfolio shows earned premiums below written premiums, and the reverse holds in contraction. Before comparing two competitors' published ratios, check that they start from the same basis, earned or written.

Its 6 cross-references, woven across the glossary's 18 categories
Earned premiums: Actuarial science glossary illustration, AlgoPolis
Example

Textbook case: an insurer collects 1,000,000 EUR of written premiums of which 80,000 EUR relates to near-future coverage. Earned premiums amount to 920,000 EUR, the base for the year's loss ratio.

Read next
Actuarial scienceWritten premiumsTotal premiums billed to the policyholder at inception, regardless of when the coverage period falls.Read the entry →Actuarial scienceExpense ratioRatio of underwriting expenses to premiums, measuring the share of premium absorbed by operational and distribution costs.Read the entry →Actuarial scienceUnearned premium reserveThe share of premium already collected but relating to coverage after the closing date, topped up by an unexpired risk reserve when that share is not enough to cover expected claims.Read the entry →
Put it to work
QuizReading an insurance income statementAcademy questions on this concept, each one marked and explained.Test yourself →
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