Premiums
Written, earned and unearned premium, and exposure.
The same premium can be counted three ways, and each answers a different question. Mixing them up is the most common mistake in insurance reporting.
Written premium
Written premium is the full premium of every policy that starts in a period, counted the day it starts. It measures sales: how much business was booked.
Earned premium
An insurer only earns a premium as time passes and it carries the risk. A year's premium is earned day by day across the year:
Unearned premium is the rest: premium already received for cover still to come. It is a liability, because the insurer owes that cover (or a refund if the policy is cancelled).
A worked example
A Motor Comprehensive policy costs €1,200 and starts on 1 October 2025. In 2025 it gives 92 days of cover (1 October to 31 December), so:
Written premium in 2025 is the full €1,200; earned premium is €302.47; unearned at 31 December is €897.53, to be earned in 2026.
Billed premium
Customers may pay in monthly instalments (premium_transactions). Billing is about cash, not risk: a policy paid monthly and one paid up front earn exactly the same. Analysts sometimes use premium billed in a period as a quick stand-in for earned premium; it is close for a steady book, but it is not the same thing.
Exposure is the amount of risk carried, measured in policy-years: the same 92-day policy is policy-years of exposure in 2025. It is the denominator of claim frequency (see Measuring a portfolio).
Check your understanding
Answer every question, then check.