Key Takeaways
- Net premiums after reinsurance and cancellations.
- Reflects insurer's retained risk exposure.
- Used to calculate reinsurance payments.
- Focuses on written, not earned premiums.
What is Gross Net Written Premium Income?
Gross Net Written Premium Income (GNWPI) is a key insurance metric representing the total premiums an insurer writes on policies during a period, minus premiums ceded to reinsurers and policy cancellations. It reflects the net premium revenue retained by the insurer before accounting for earned premiums, which differ as they recognize revenue over time, as explained in earned premium.
GNWPI serves as a foundational figure for underwriting performance evaluation and reinsurance premium calculations, particularly in contracts involving facultative reinsurance.
Key Characteristics
GNWPI has distinct features essential for assessing an insurer's retained risk and revenue base.
- Net of Ceded Premiums: It subtracts premiums paid to reinsurers that benefit the contract, ensuring focus on retained risk.
- Written, Not Earned: GNWPI is based on premiums written at policy inception, differing from earned premiums that are recognized over coverage periods.
- Contract-Specific: Often used in calculating reinsurance obligations under treaties and agreements.
- Adjustments Included: Accounts for policy cancellations, returns, and sometimes deductible credits.
How It Works
GNWPI starts with the insurer’s total gross written premium, which includes direct premiums from policyholders and assumed premiums from other insurers. From this, premiums ceded to reinsurers related to the contract are deducted along with any policy returns or cancellations, yielding the net figure.
This net premium forms the basis for reinsurance premium calculations and underwriting assessments. For instance, insurers like Prudential use GNWPI to determine reinsurance costs and monitor retained risk exposure. It complements other metrics such as the deferred acquisition cost (DAC) by indicating premium inflow before expenses are amortized.
Examples and Use Cases
Understanding GNWPI is critical in industries with significant insurance and reinsurance activities.
- Health Insurance: Companies like UnitedHealth rely on GNWPI to evaluate net premium revenues after reinsurance cessions, impacting profitability analysis.
- Commercial Insurance: Large insurers calculate GNWPI to set reinsurance rates, especially in facultative reinsurance arrangements.
- Reinsurance Treaties: GNWPI serves as the premium base in excess-of-loss contracts, influencing how much the ceding insurer pays the reinsurer.
Important Considerations
Keep in mind that GNWPI excludes investment income and earned premium recognition timing, so it should be analyzed alongside these metrics for a full picture of insurer financial health. Variations in contract terms may affect which premiums are ceded or retained, requiring careful review when comparing across companies.
When evaluating insurance companies or their reinsurance programs, consider how GNWPI interacts with other financial measures like DAC and the dynamics of facultative reinsurance to gauge underwriting efficiency and risk retention.
Final Words
Gross Net Written Premium Income reveals the net premium an insurer retains after reinsurance adjustments, directly impacting risk and profitability assessments. To gauge your exposure accurately, review your reinsurance terms and calculate GNWPI regularly for informed underwriting and pricing decisions.
Frequently Asked Questions
Gross Net Written Premium Income (GNWPI) is the total premiums an insurer writes on policies during a period, minus premiums ceded to reinsurers, cancellations, and returns. It reflects the net premium revenue an insurer retains after reinsurance and adjustments.
Gross Written Premium (GWP) includes all premiums written before any deductions, while GNWPI subtracts ceded reinsurance premiums and cancellations. GNWPI shows the actual premium income retained by the insurer after transferring risk to reinsurers.
GNWPI is crucial for assessing an insurer’s underwriting performance, financial health, and risk exposure. It serves as the base for calculating reinsurance premiums owed and helps in strategic decisions like pricing and reinsurance purchasing.
GNWPI is calculated by subtracting ceded premiums to reinsurers and policy returns or cancellations from the Gross Written Premium. The formula is GNWPI = Gross Written Premium - Ceded Premiums - Returns/Cancellations.
No, GNWPI focuses on written premiums recorded when policies are issued, not earned premiums recognized over time. It also excludes investment income, concentrating solely on premiums related to underwriting.
In reinsurance contracts, GNWPI determines the amount the ceding insurer must pay the reinsurer based on contract-specific rates. It reflects the premium base tied to the insurer’s retained risk after ceding premiums.
Yes, some contracts may exclude certain reinsurance benefiting the agreement or focus on specific business lines like captive programs or large deductible risks, affecting how GNWPI is calculated and applied.
