Under tax accounting, earned premium is EP = WP - 80% * Change in UEPR. Which equation expresses EP under tax accounting?

• A. EP = WP - Change in UEPR
• B. EP = WP - 80% * Change in UEPR
• C. EP = WP + 80% * Change in UEPR
• D. EP = WP - 50% * Change in UEPR

Answer: (B)

In tax accounting, earned premium is the portion of written premium that is recognized as revenue this year after accounting for how much is still unearned, which is captured by the change in the unearned premium reserve (UEPR). The 80% factor means that only 20% of the change in UEPR is treated as earned in the period, while 80% is deferred.

So the earned premium is the written premium minus 0.8 times the change in UEPR. For example, if written premium is 1,000 and UEPR increases by 200, then EP = 1,000 − 0.8×200 = 840. This reflects that 40 of the change becomes earned this year (0.2×200), while 160 remains deferred. If UEPR decreases, the earned premium increases accordingly because you’re effectively releasing previously deferred amount. This is why the expression matches the tax treatment: 80% of the change in UEPR is not recognized as earned in the current year.