A method of cancellation
which returns 90% of the prorate unearned premium for the remainder of
the policy term, after the effective date of cancellation.
Explanation: When a policy
is cancelled the premium is divided into two categories:
1) the cost for the period
the policy was active, and
2) the cost associated with the period the policy
was not active, but would have been if not for the cancellation.
We earn the cost
of the policy for the active period, and 10% of the non-active period. This is
earned because we processed the policy with the expectation that it
would run for the full term. The policy did not run for the full term because of