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Gross premiums written

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In the insurance industry, gross premiums written is the sum of both direct premiums written (see next paragraph) and assumed premiums written, before deducting ceded reinsurance. Direct premiums written represents the premiums on all policies the company's insurance subsidiaries have issued during the year. In the United States, assumed premiums written represents the premiums that the insurance subsidiaries have received from an authorized state-mandated pool or under previous fronting facilities. (From EIG 8-K filed Nov 14, 2007)

When a non-life (property and casualty) insurance company issues a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. Insurance companies often purchase reinsurance from another insurance company to protect themselves against the risk of a loss above a certain threshold; the cost of reinsurance (reinsurance premiums) is deducted from gross premiums written to arrive at net premiums written. Net premiums written is the sum of all types of insurance premiums which a company may collect throughout the whole duration of existing insurance policies minus the costs like agents' commissions and premiums paid made for outwards reinsurance.

Net Premiums Written

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Net premiums written is gross written premium (direct written premium plus assumed written premium) less ceded written premium. It gives an indication of the level of sales for risks that the company retains for itself. Although there is a presumption that an insurance company is financially sound when it possesses a positive net premiums written^{[citation needed]}, it is also important to remember that having a negative net premiums doesn't mean that the company is insolvent and is not capable of providing the benefits promised.^[confusing] The nature and timing of reinsurance and other transactions can lead to the net premium written being negative, but this is likely to be temporary.

Under accrual-basis accounting, only premiums pertaining to the relevant accounting period are recognized as revenues. These premiums are called net premiums earned.

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Gross premiums written (GPW), also known as gross written premium, represents the total amount of premiums that an insurance company charges policyholders on policies issued during a specified period, before any deductions for reinsurance ceded, commissions, or other expenses.^[1] This metric encompasses both direct premiums written—those issued directly to policyholders—and assumed premiums from reinsurance arrangements, serving as the insurer's initial revenue stream from new and renewed policies.^[2] GPW is a fundamental indicator of an insurer's business activity and market scale, reflecting the volume of risks underwritten without accounting for subsequent adjustments.^[3] In the insurance industry, GPW is distinct from net premiums written, which subtract ceded reinsurance costs to show the premiums retained by the insurer after sharing risks with reinsurers.^[1] It excludes premium taxes but includes loading for expenses and profit, and is net of returns from policy cancellations during the period, focusing solely on the contractual amounts charged to policyholders.^[4] Insurers report GPW in financial statements and regulatory filings, such as those required by bodies like the National Association of Insurance Commissioners (NAIC) in the United States, where it helps assess an entity's exposure to policyholder surplus and overall underwriting leverage.^[5] This reporting is crucial for solvency monitoring, as high GPW relative to surplus can signal increased financial risk.^[5] Beyond individual company analysis, aggregate GPW serves as a key economic indicator of the insurance sector's size and contribution to national economies, often measured in millions of U.S. dollars to gauge industry growth and penetration.^[4] For instance, rising GPW trends can highlight expanding insurance demand driven by factors like regulatory changes, economic development, or heightened risk awareness, while comparisons across insurers reveal competitive positioning and profitability potential.^[6] Although GPW does not directly measure profitability—since it precedes claims and operational costs—it provides a foundational benchmark for forecasting revenue and evaluating strategic expansion in diverse lines such as property, casualty, life, or health insurance.^[3]

Overview and Definition

Definition

Gross premiums written (GPW or GWP) refers to the total amount of premiums charged by an insurance company on all policies issued during a specific accounting period, prior to any deductions for reinsurance ceded or other adjustments.^[7] This metric captures the full revenue potential from new and renewed insurance contracts without accounting for subsequent modifications or transfers of risk.^[8] GPW encompasses both direct premiums written, which are premiums from policies sold directly to policyholders, and assumed premiums written, which are premiums received from reinsurance agreements where the insurer takes on risk from another entity.^[9] It excludes premiums ceded to reinsurers, distinguishing it from net premiums written, which deduct such cessions from GPW.^[10] Premiums under GPW are recognized at the time the policy is issued, based on the effective period of coverage, rather than when payments are received or when the coverage is earned over time.^[7] This timing reflects the point of contractual commitment by the insurer. GPW is typically denominated in monetary units, such as U.S. dollars, and reported for defined intervals like quarters or annual periods to assess business volume.^[8]

Historical Context

The concept of gross premiums written emerged in the 19th century alongside the formalization of insurance accounting practices in Europe and the United States, driven by the expansion of mutual and stock insurance companies following the Industrial Revolution. As commerce and industry grew, insurers needed standardized methods to record total premiums received from policyholders before any deductions, reflecting the increasing volume of marine, fire, and life policies. In the US, life insurance in force expanded nearly six-fold from 1870 to 1895, with premiums becoming a key metric for tracking business scale amid rising foreign participation—by 1881, 25% of US fire premiums were underwritten by European firms.^[11] In Europe, similar developments occurred, with UK insurers deriving up to 40% of their premiums from US risks between 1870 and 1914, necessitating robust ledger systems to manage cross-border exposures.^[11] Key milestones in the US included early efforts by the National Association of Insurance Commissioners (NAIC), founded in 1871, to promote uniform accounting practices in the late 19th century, which incorporated premiums written as a core reporting element and laid the groundwork for solvency monitoring through standardized annual statements by the early 20th century.^[12] Internationally, the influence of standards like IFRS 17, effective January 1, 2023, has refined premium recognition by shifting from upfront revenue booking to coverage-period allocation, while still utilizing gross premiums written for volume metrics; as of 2025, the standard remains in full effect with minor clarifications issued by the IASB.^[13] The concept evolved from basic ledger entries to a standardized solvency metric following a wave of insurance company failures in the 1980s and 1990s, including a significant number of insolvencies in the life and health sectors during the late 1980s and early 1990s, highlighting weaknesses in traditional accounting amid aggressive investments and undercapitalization.^[14] These events prompted the NAIC to introduce risk-based capital (RBC) requirements in 1994 for property/casualty insurers, incorporating gross premiums written into underwriting risk assessments to better gauge exposure.^[15] Global variations persist, such as under the EU's Solvency II framework, implemented in 2016, which emphasizes gross premiums written in risk-based capital calculations for the premium risk module, calibrating solvency requirements to 99.5% value-at-risk over one year.^[16]^[17] This contrasts with US statutory approaches but aligns in prioritizing premiums for regulatory oversight. As a foundational metric, gross premiums written remains essential in modern financial reporting for assessing insurer scale and performance.

Components and Calculation

Key Components

Gross premiums written consist primarily of two key components: direct premiums written and assumed premiums written. These elements represent the total inflows of premium revenue an insurer records before any adjustments for reinsurance ceded or other deductions.^[2]^[18] Direct premiums written refer to the premiums collected by an insurer on policies it issues directly to policyholders, covering risks without involvement of intermediary reinsurance arrangements. This includes initial premiums for new policies, as well as renewal premiums for existing coverage, encompassing deposits, estimates for exposures, audit adjustments, endorsements, and cancellations that affect the total amount charged.^[18]^[19] These premiums arise from the insurer's primary underwriting activities, such as issuing auto insurance policies where the full premium is charged based on the driver's risk profile or property insurance for homeowners without reinsurance offsets at this stage.^[2] Assumed premiums written are the premiums an insurer receives when it acts as a reinsurer, taking on risks from another insurance company (the ceding company) under a reinsurance treaty or agreement. These are calculated as the reinsurer's proportionate share of the original premiums written by the ceding insurer, reflecting the portion of risk transferred. For instance, in a property-casualty reinsurance treaty, an insurer might assume 30% of premiums from a primary insurer's commercial liability policies, receiving that share as assumed premiums.^[20]^[18] At the gross premiums written stage, no deductions are made for ceded premiums paid to reinsurers or for unearned premium portions that remain allocated to future periods; the focus is solely on the total gross inflows from both direct and assumed sources.^[2]^[19] This measure applies across all lines of insurance, including property, casualty, life, and health, where examples might involve life insurance premiums for term policies or health coverage charges for group plans.^[18] The combination of direct and assumed premiums written forms the basis for gross premiums written as a measure of an insurer's overall premium volume.^[2]

Calculation Formula

The calculation of gross premiums written (GPW) is given by the formula:

\text{GPW} = \text{Direct Premiums Written} + \text{Assumed Premiums Written}

where direct premiums written represent the total premiums charged by the insurer on policies issued directly to policyholders, and assumed premiums written are the premiums received by the insurer under reinsurance agreements where it accepts risk from another insurer.^[21]^[2]^[22] To compute GPW, insurers follow a procedural approach: first, aggregate all premiums from policies issued during the accounting period based on the contractually determined amounts charged to policyholders for the policy's effective coverage period; second, add premiums assumed from reinsurance treaties as specified in the agreements; third, incorporate adjustments for policy endorsements, cancellations, refunds, and other changes that affect the total premium amount.^[23]^[7]^[1] The computation uses an accrual basis, accruing unpaid premiums that are reasonably expected to be collected within the period.^[24] For illustration, consider an insurer that issues 100 automobile policies at $1,000 each during the period and assumes $50,000 in reinsurance premiums; the GPW would then be calculated as

(100 \times 1,000) + 50,000 = 150,000

.^[21]^[2] This metric is derived from policy issuance records for direct business and reinsurance schedules in the insurer's accounting systems, ensuring comprehensive capture of written activity.^[23]^[25]

Relations to Other Premium Metrics

Net Premiums Written

Net premiums written (NPW) represents the portion of gross premiums written (GPW) that an insurance company retains after deducting the premiums ceded to reinsurers for the transfer of risk. This metric reflects the insurer's direct underwriting exposure, excluding the costs associated with reinsurance arrangements that mitigate potential losses.^[26]^[27] The formula for calculating NPW is straightforward: NPW = GPW - Ceded Premiums Written, where ceded premiums written denote the amounts paid by the primary insurer to reinsurers as compensation for assuming a portion of the risk. Ceded premiums serve as the cost of obtaining reinsurance protection, allowing the insurer to diversify risk and stabilize financial performance. This deduction ensures that NPW captures only the premiums for which the insurer bears the ultimate responsibility.^[26]^[28] NPW serves as a key indicator of an insurer's actual risk exposure and retained revenue stream following reinsurance decisions, enabling stakeholders to assess the company's core underwriting capacity without the influence of external risk-sharing. It is particularly useful in evaluating solvency and profitability, as it highlights the net amount of premiums available to cover claims and operational costs after reinsurance outflows.^[27]^[29] The amount of ceded premiums—and thus the resulting NPW—varies based on the type of reinsurance employed. In proportional reinsurance, such as quota share agreements, the reinsurer assumes a fixed percentage of both premiums and losses, leading to ceded premiums that are directly proportional to GPW. Conversely, non-proportional reinsurance, like excess of loss treaties, involves the reinsurer covering losses exceeding a specified threshold, with ceded premiums typically fixed or based on estimated risk rather than a percentage of total premiums, resulting in potentially lower or more variable deductions. These distinctions influence how much risk and revenue the primary insurer retains.^[30]^[31] For illustration, consider an insurer with GPW of $150,000 and ceded premiums of $30,000 under a reinsurance arrangement; the resulting NPW would be $120,000, representing the retained premiums subject to the insurer's direct risk.^[26]

Earned Premiums

Earned premiums represent the portion of gross premiums written that an insurance company recognizes as revenue during a specific accounting period, corresponding to the coverage provided up to that point. This recognition is based on the time elapsed since policy inception or the extent of risk exposure incurred, ensuring that revenue is not recorded upfront but allocated proportionally over the policy term. According to the National Association of Insurance Commissioners (NAIC), earned premiums constitute the share of prepaid premiums allocated to the insurer's loss experience, expenses, and profit for the period to date.^[18] The process begins at policy issuance, where the full gross premiums written are recorded as a liability in the unearned premium reserve, reflecting the prepaid nature of the coverage. As the policy period progresses, this reserve decreases ratably, transferring the earned portion to revenue. For instance, in an annual policy, premiums are typically earned monthly or daily under the pro-rata method, which assumes an even distribution of risk throughout the term. The Casualty Actuarial Society outlines this transition, noting that the unearned premium reserve holds the value for future coverage periods until the risk expires.^[19] The standard formula for calculating gross premiums earned is: Gross Premiums Earned = Gross Premiums Written + Unearned Premium Reserve (beginning of period) - Unearned Premium Reserve (end of period). This equation captures the net change in the reserve over the period, adjusted for new premiums written. The pro-rata method underpins this calculation, apportioning premiums linearly based on time, as prescribed in statutory accounting principles for property/casualty insurance. For example, consider a $12,000 annual policy where coverage has been provided for six months; the earned premium would be $6,000, with the remaining $6,000 held in the unearned premium reserve.^[19]^[32] This time-based recognition adheres to the matching principle in accounting, aligning premium revenue with the losses and expenses incurred during the same period to accurately reflect profitability. By deferring unearned portions as a liability, insurers avoid overstating income and ensure financial statements portray the true economic activity, as emphasized in insurance accounting standards. The Insurance Information Institute highlights that this approach supports solvency monitoring by tying revenue to actual risk provision.^[33]

Applications and Reporting

Financial Reporting

Gross premiums written (GPW) is disclosed in insurance companies' financial statements as a measure of total premium volume generated from policies issued during the period, typically appearing in the management's discussion and analysis (MD&A) section and notes to the consolidated financial statements rather than directly on the income statement, where earned premiums represent revenue.^[34] It serves as a top-line indicator of underwriting activity before deductions for reinsurance cessions or unearned portions.^[35] Detailed breakdowns, such as direct premiums written (from policies sold directly to customers) versus assumed premiums written (from reinsurance agreements), are provided in the notes to offer transparency on premium sources.^[36] Under US GAAP, ASC 944 governs the financial reporting of insurance contracts, requiring disclosure of GPW in both GAAP financial statements and statutory filings to reflect premium inflows and support analysis of operational scale.^[37] In contrast, IFRS 17 emphasizes measurement of insurance contracts at initial recognition using fulfillment cash flows, which incorporate expected future premiums without deferring recognition for certain contract types; while GPW is not a required line item on the income statement, it is commonly disclosed in the notes to financial statements for comparability with prior metrics.^[38] Analysts use GPW to derive key performance metrics, including the loss ratio (incurred losses divided by premiums, often benchmarked against GPW for volume context) and the combined ratio (sum of loss and expense ratios), which assess underwriting efficiency; rising GPW trends signal business expansion and market penetration.^[39] For US insurers, SEC disclosure requirements mandate reporting GPW in quarterly (10-Q) and annual (10-K) filings, with reconciliations to net written premiums (after reinsurance) and earned premiums to illustrate the full revenue progression.^[34] In practice, GPW growth exemplifies market expansion; for instance, Allstate Corporation reported a 6.3% increase in property-liability GPW to $15.6 billion in the third quarter of 2025 compared to the prior year, driven by higher average premiums and policies in force for auto and homeowners lines, as detailed in its earnings release.^[35] This metric, when viewed alongside net and earned premiums, provides a comprehensive picture of revenue dynamics in financial reporting.^[36]

Regulatory and Performance Uses

Gross premiums written (GPW) serves as a foundational metric in regulatory frameworks for assessing insurer solvency and capital adequacy. In the United States, under the National Association of Insurance Commissioners (NAIC) Risk-Based Capital (RBC) requirements, GPW is integrated into formulas for underwriting risk charges, particularly for property/casualty and health insurers, where it contributes to calculating net and gross premiums at risk to determine minimum capital levels needed to cover potential losses.^[40]^[16] Similarly, in the European Union, Solvency II's standard formula employs GPW within the non-life premium risk sub-module to quantify the risk of adverse changes in premium volumes, influencing the solvency capital requirement (SCR) and thresholds for licensing or solvency margins.^[41]^[16] In performance evaluation, GPW measures underwriting volume and market share, providing insights into an insurer's competitive positioning and growth trajectory across segments like life or property/casualty.^[42] Year-over-year comparisons of GPW track expansion, as evidenced by global premiums growing at an average of approximately 4.5% annually from 2019 to 2023, signaling industry health and strategic success.^[43] This metric also ties into executive incentives, where premium growth targets often align with compensation structures to drive business development.^[3] Regulators conduct audits focusing on GPW accuracy through tools like the NAIC's Insurance Regulatory Information System (IRIS) ratios, where the GPW-to-policyholders' surplus ratio flags potential overexposure, prompting examinations by state insurance departments.^[44] Discrepancies in GPW reporting, such as inconsistencies between statutory filings and audited statements, can initiate investigations to ensure compliance and prevent solvency risks.^[5] Globally, GPW gauges insurance penetration in emerging markets, where premiums as a percentage of GDP rose to 7.4% by 2024, highlighting development in regions like Latin America with life premiums surging 212% from 2011 to 2022.^[45]^[46] Following the 2023 implementation of IFRS 17, GPW informs contract boundary assessments by delineating coverage periods for premium recognition, affecting how future cash flows are evaluated for groups of insurance contracts.^[47]^[48] Despite its utility, GPW has limitations as a performance indicator, as it measures sales volume without capturing profitability; for instance, elevated GPW amid poor underwriting discipline can result in substantial losses if claims exceed premiums.^[49]^[5]

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