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# What Is an Annual Premium Equivalent (APE)? Calculation Defined

## What Is Annual Premium Equivalent (APE)?

An annual premium equivalent (APE) is a common sales measure calculation used by insurance companies in the United Kingdom. The annual premium equivalent is the sum of the total value of regular–or recurring–premiums plus 10% of any new single premiums written for the fiscal year. If desired, the premiums earned by an insurance company can be extended to include all revenues of a given insurance company.

### Key Takeaways

• An annual premium equivalent (APE) is a common sales measure calculation used by insurance companies in the United Kingdom.
• The annual premium equivalent is the total value of regular or recurring premiums plus 10% of new single premiums written in the period.
• The APE metric is used by the insurance industry to allow sales comparisons for policies with the two different types of premiums.

## Understanding Annual Premium Equivalent (APE)

Annual premium equivalent (APE) is specifically used when sales contain both single premium and regular premium business. Single premium insurance policies require a single lump-sum payment from the customer or policyholder. The regular premium policies are annualized by taking the premium amount and multiplying it by the frequency of payments in the billing cycle.

The annual premium equivalent calculation is used by the insurance industry to allow comparisons of new business achieved in a specific period. A single-payment premium actually spreads a sale over a long period of time. By contrast, a recurring premium involves separate annual premiums. The APE metric is used to compare single premium payments to the recurring payment premiums. This process helps accurately compare sales between policies with the two different types of premiums.

Insurance companies commonly take the approach of comparing 100% of regular premiums, i.e. the annual premiums received for a policy and 10% of single premiums. However, this only works under the assumption of an average life insurance policy lasting 10 years. Therefore, taking 10% of a single premium annualizes the single lump-sum payment received over the 10 years the policy is in effect.