Earned and Unearned Premium calculations are performed by the End of Day function "Process Daily Premium" and the End of Month function, "Write Monthly Premium Totals." The End of Day process must be selected and run for the End of Month process to function correctly.
Daily, the system collects changed premium amounts from the beginning of the month to the current system date. Changed premium would be the entire written premium for a new business or renewal policy, the difference in written premium on an endorsement and reinstatement premium on a reinstatement transaction.
This premium information is stored per coverage and policy image.
The earned rate is then calculated per record to be the full term premium divided by the total number of days in the term. The number of days in the term is calculated by subtracting the policy's effective date from the policy's expiration date.
Earned days for the policy are calculated by subtracting the system date from the effective date of the policy and adding "1." (Note: The system adds one day here, because the policy is effective 1 full day on the effective date.)
The unearned days in a policy term are calculated by subtracting the earned days from the total number of days in the policy term.
Unearned premium is calculated by multiplying the earned rate times the unearned days.
Earned premium is calculated by subtracting the unearned premium from the written premium.
Earned premium is calculated month to date and year to date. The month to date earned premium is reset to 0 at the end of each month. The year to date earned premium is reset to 0 each year end.
For policies issued within the current month, month to date earned premium is calculated by subtracting the unearned premium from the written premium generated for the month. For policies issued before the current month, month to date earned premium is calculated by subtracting the unearned premium from the unearned premium saved from the prior end of month.
For policies issued within the current year, year to date earned premium is calculated by subtracting the unearned premium from the written premium generated for the year. For policies issued before the current year, year to date earned premium is calculated by subtracting the unearned premium from the unearned premium saved from the prior end of year.
Note: These calculations are performed on a policy image and coverage level on the changed premium. This ensures that earned and unearned premium are calculated appropriately given changes throughout the policy term.