The E&S Audit Surprise: What Every Agent Should Know About Minimum Earned Premiums

In today’s market, strong relationships and clear communication can be the difference between winning an account and keeping it long-term. One common reason an insured begins looking for other options is a difficult audit outcome. This is one area where the excess and surplus lines (E&S) market can differ significantly from the admitted space, especially when it comes to earned premium provisions and how they apply at audit.

WHAT IS MINIMUM EARNED PREMIUM AND WHAT IS NORMAL?

One key difference in the E&S market is the use of minimum earned premium provisions, which are less common in the admitted space. With an admitted policy, the insured typically has the flexibility to cancel during the policy term and receive return premium for the unused portion. E&S carriers, however, often include a minimum earned premium (MEP), which is fully earned at inception regardless of when the policy is canceled. In many situations, the MEP is 25%, but it can vary based on class, term, account characteristics, and other underwriting factors. This is important to explain when presenting terms for two reasons. First, if the insured cancels before the MEP is satisfied, they should not expect a full premium refund. Second, because many E&S casualty policies are agency billed, it is critical to collect the premium up front. If the premium is financed, the MEP should be included in the down payment because it is fully earned. If it is not collected up front, the agency may be responsible for collecting the remaining earned premium. This can be very different from the direct-bill installment plans insureds may be used to with admitted carriers.

WHAT IS MINIMUM DEPOSIT PREMIUM AND WHAT DOES THIS MEAN AT AUDIT?

Minimum deposit premium is the amount the carrier requires up front, and many E&S carriers require a 100% minimum deposit. On the casualty side of E&S, policies are also frequently written on auditable exposure bases such as payroll, sales, or units. The premium is estimated at binding, and an audit is later completed to reflect actual exposures. Because these policies are auditable, they often include minimum audit premium wording. Most of the time, carriers set the minimum audit premium at 100%, similar to the minimum deposit premium. In other words, even if the insured’s operations finish well below projections and the calculated premium is lower than the deposit, the insured may still be responsible for at least the minimum audit amount. This can differ from admitted policies, where premium adjustments more often reflect the insured’s actual exposure with fewer return premium limitations.

Typically, the lowest an E&S carrier will consider is 90% or 95%, and even that can be difficult to obtain. This matters because if a company projects $10 million in sales but finishes the year at $9 million, an admitted carrier may return premium for the $1 million difference at audit. In E&S, if the minimum audit premium is 100%, there may be no return premium. That is why discussing audit provisions up front is essential to set expectations, avoid surprises and retain E&S business.

HOW ARLINGTON/ROE CAN HELP!

At Arlington/Roe, we try to be as transparent as possible because we see these situations every day. We understand that many agents don’t handle E&S accounts daily, so even familiar provisions can be easy to overlook when an insured is moving into the E&S market for the first time. We also look for opportunities to negotiate audit terms when possible, whether that means seeking a lower minimum audit premium or working with the underwriter to secure a more favorable rating for projected growth. Our goal is to help you set clear expectations, protect your agency, and differentiate yourself in the E&S space.