Unearned premium for CY is computed as which?

Study for the SOA Fundamentals of Actuarial Mathematics (FAM) Exam. Prepare with flashcards and multiple choice questions with detailed explanations. Get ready for your future as an actuary!

Multiple Choice

Unearned premium for CY is computed as which?

Explanation:
Unearned premium at the end of the year comes from three parts: what was unearned at the start, plus premiums written during the year, minus the portion that has already been earned in the year. The balance carried from last year plus new premiums minus earned premiums gives the ending unearned premium. Mathematically: UPR_end = UPR_begin + Premium Written - Premium Earned. The previous year's ending unearned premium is exactly the beginning balance for the current year, so you add it to the current year’s premiums written and subtract what has been earned. For example, if the unearned premium at the start is 100, you write 500 in premiums, and 450 are earned during the year, the ending unearned premium is 100 + 500 - 450 = 150. This matches the option that uses Premium Written minus Premium Earned plus Premium Unearned from the previous year. The other forms omit the starting balance or misplace terms, leading to incorrect ending balances.

Unearned premium at the end of the year comes from three parts: what was unearned at the start, plus premiums written during the year, minus the portion that has already been earned in the year. The balance carried from last year plus new premiums minus earned premiums gives the ending unearned premium.

Mathematically: UPR_end = UPR_begin + Premium Written - Premium Earned. The previous year's ending unearned premium is exactly the beginning balance for the current year, so you add it to the current year’s premiums written and subtract what has been earned.

For example, if the unearned premium at the start is 100, you write 500 in premiums, and 450 are earned during the year, the ending unearned premium is 100 + 500 - 450 = 150.

This matches the option that uses Premium Written minus Premium Earned plus Premium Unearned from the previous year. The other forms omit the starting balance or misplace terms, leading to incorrect ending balances.

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