Premium earned is the amount of premiums earned by the risk covered by an insurer during a period. Premium written is the amount customers are required to pay for policies written during the year. The two differ because of the timing of premium payments.
For example if:
- An insurance policy that runs from the 1st July 2005 to the 30th June 2006.
- The premium is £1,000.
- The insurance company has a December year end.
Then, as the policy runs for six months of this year and six months of next, half the risk is taken in the current year and half next year. Therefore the premium earned is £500 for 2005 and £500 for 2006.
However as the cover is agreed during 2005, the gross premium written is £1,000 for 2005.