A minimum earned premium is a policy provision that sets a floor on what the insurer keeps if the insured cancels mid-term. It’s stated as a percentage of the annual premium (for example, “25% minimum earned”) or a dollar amount. Some policies or fees are 100% fully earned at inception, meaning no refund at all.
MEPs are most common on excess and surplus lines (non-admitted) policies, where forms and cancellation terms are less regulated than in the admitted market. Admitted policies more often use the pro-rata or short-rate refund rules in their filed forms.
How it shows up in an agency
A restaurant owner places GL with an E&S carrier through a wholesaler: $8,000 premium, 25% minimum earned, plus wholesaler fees and surplus lines tax. Two months later the owner sells the restaurant and cancels.
- Pro-rata earned premium at two months: about $1,333
- Minimum earned premium: $2,000
- The carrier keeps $2,000, the larger of the two. The policy fee, broker fee and taxes are often fully earned and not refunded either.
The producer told the client about the MEP before binding and noted it in the file, so the conversation is short.
How MEP interacts with cancellation
- When the insured cancels, the insurer keeps the greater of the earned premium (pro rata or short rate, per the form) and the MEP.
- When the insurer cancels, for reasons other than nonpayment, many forms and states require a pro-rata refund regardless of the MEP. Check the policy and the state’s surplus lines rules.
Common confusion
- It isn’t a deposit. On auditable policies, there may also be a minimum premium at audit. That’s a separate provision.
- Premium finance. If a financed E&S policy cancels for nonpayment, the MEP can leave the client owing the finance company money.
- Disclose it. Put the MEP in the proposal. It’s one of the most common surprises for small business owners.