Annual Premium Equivalent (APE)

For insurance companies, measuring the revenue for certain products can cause accounting issues. Policies that get paid off in a single one-off premium pose a particular problem. Those policies might last for a long time, meaning that the liability and cost stay on a company's books for some time. However, the revenue gets booked all at once.

So if you were to look at a company's financial statement, it would look like one good month or quarter (the month or quarter where the premium check was cashed) followed by a bunch of bad ones (those months and quarters where there is no check, but the policy remains on the books).

Meanwhile, there are other policies that generate recurring payments. The customer pays for the policy over time, sending regular checks to cover the insurance. These more clearly show the benefits and liabilities tied to the policy, since the revenues appear in the financials on a recurring basis.

Annual Premium Equivalent is an accounting maneuver to solve this problem. The APE treats the single-premium plans as if they operated like recurring-payment policies. For accounting purposes, the revenue is figured over time, more accurately reflecting how the sales affect the company.