Key Takeaways
- Total premiums recorded at policy issuance.
- Includes new and renewal policy premiums.
- Top-line revenue indicator for insurers.
- Differs from earned premiums by timing.
What is Written Premium?
Written premium represents the total amount of premiums an insurer records when issuing new or renewing existing insurance policies. It reflects the full contractual charge for coverage during a specific period, recognized upfront regardless of payment schedules or risk exposure timing.
This metric is essential for measuring an insurer’s sales volume and revenue potential, appearing prominently on the income statement before adjustments like reinsurance or earnings amortization through DAC. Written premium differs from earned premium, which recognizes revenue over the policy term.
Key Characteristics
Written premiums are foundational in insurance accounting and underwriting. Key features include:
- Gross vs. Net: Gross written premiums include all policies before reinsurance deductions, while net written premiums subtract ceded amounts via obligatory reinsurance.
- Direct and Assumed: Categories distinguish premiums written directly by the insurer from those assumed through reinsurance or state pools.
- Timing: Recorded fully at policy issuance or renewal, not prorated over time, impacting balance sheet and income statement presentations.
- Regulatory Oversight: Insurers report written premiums to bodies like the NAIC for solvency and reserve requirements.
How It Works
When you purchase or renew an insurance policy, the insurer records the full premium as written premium immediately, regardless of whether you pay in installments. This upfront recording helps insurers track total sales volume and exposure.
Insurers then adjust these figures by subtracting premiums ceded to reinsurers, producing net written premiums that better reflect retained risk. These metrics influence financial ratios, solvency assessments, and pricing strategies.
Examples and Use Cases
Written premium figures provide insight into an insurer’s business scale and market position. Some examples include:
- Financial Institutions: JPMorgan Chase uses insurance subsidiaries where written premiums impact overall revenue profiles.
- Insurance Companies: Prudential reports gross and net written premiums to reflect its underwriting performance and risk retention.
- Reinsurance: Obligatory reinsurance agreements affect premium amounts, with insurers ceding portions to manage risk and capital.
Important Considerations
While written premiums are crucial for understanding an insurer’s revenue generation, they do not represent earned income until coverage periods elapse. You should also consider how unearned premiums affect financial statements and solvency.
Monitoring changes in written premiums alongside T-account entries can help track cash flows and liabilities. Always analyze written premiums in conjunction with net figures and regulatory reports for a complete financial picture.
Final Words
Written premium reflects the total value of insurance policies issued and is a key indicator of an insurer’s sales activity and revenue potential. To assess your insurance options effectively, compare written premium amounts alongside policy terms and coverage details.
Frequently Asked Questions
Written premium is the total amount of premiums recorded by an insurer when a new or renewed insurance policy is issued. It represents the full contractual charge for coverage during a specific period before any deductions for reinsurance or adjustments.
Written premiums are recorded in full at the time a policy is issued or renewed, reflecting sales volume. Earned premiums, however, are recognized over the policy term as coverage is provided, showing the revenue related to risk actually borne.
The main types include direct premiums written, which come from policies issued directly to policyholders, and assumed premiums written, which come from reinsurance or state pools where insurers take on risk from others.
Gross written premium (GWP) is the total of all premiums from new and renewed policies before subtracting reinsurance costs, commissions, or other expenses. It includes premiums billed but not yet collected.
Net written premiums are calculated by subtracting the premiums ceded to reinsurers from the gross written premiums. This figure shows the amount of premium the insurer actually retains after sharing risk.
Written premium is a key indicator of an insurer’s sales volume, market growth, and potential revenue. It appears at the top of the income statement as the primary source of revenue before adjustments.
Written premium is calculated by adding new premiums from first-time policies to renewal premiums from extended policies, without prorating for the policy term. For example, 100 new one-year policies at $1,000 each result in $100,000 written premium.
Insurers record written premiums at the time a policy is issued or renewed, capturing the full amount upfront regardless of whether payment is made in installments or in full.
