Return Premium

[Bond Artist]

How come there is no return premium for the first year that a bond is in place, but there can be return premium for the second year?

[marietta68]

Underwriting expenses have increased over the years and it's become a burden to incur those expenses in anticipation of earning a year's premium (less those expenses and agent's commission), only to have to turn around and make a refund because the bond is cancelled mid-term. There are exceptions for large commercial accounts with multiple bonds and large aggregate programs, but for single shot deals, it's the cost of doing business. The renewals are less expensive to handle, thus the cancellation returns are entirely appropriate - subject to the company's minimum earned premium.