Written Premium (Insurance)
Written premium in insurance refers to the total amount of premium an insurer charges for policies issued or renewed during a specific period, regardless of whether these premiums have been fully paid or earned. It's a key indicator of business volume.
Tumisang Bogwasi
Tumisang Bogwasi
What is Written Premium (Insurance)?
Written premium in insurance refers to the total amount of premium an insurer charges for policies issued or renewed during a specific period, regardless of whether these premiums have been fully paid or earned. It represents the gross revenue generated from new and existing insurance contracts before any deductions for cancellations, endorsements, or reinsured portions.
This metric is a fundamental indicator of an insurance company’s growth in business volume and its Market Positioning within the industry. It reflects the insurer’s underwriting activity and its ability to attract and retain clients by issuing policies. Written premium is distinct from earned premium, which recognizes revenue proportionally over the policy term as coverage is provided.
Understanding written premium is crucial for assessing an insurer’s financial health, operational scale, and future revenue potential. It provides insight into the company’s appetite for risk and its strategic expansion or contraction in various lines of business.
Definition
Written premium is the total amount of premiums on insurance policies that an insurer has issued or renewed during a specified accounting period.
Key Takeaways
- Written premium is the gross revenue from policies issued or renewed, irrespective of collection or earning status.
- It serves as a primary metric for an insurance company’s sales volume and Capacity Management.
- This figure differs from earned premium, which represents the portion of premium corresponding to coverage already provided.
- Analyzing written premium trends helps assess an insurer’s growth, market share, and risk exposure.
- It is a key input for underwriting results and future financial projections.
Understanding Written Premium (Insurance)
Written premium is a core concept in insurance accounting and financial analysis. When an insurance policy is issued, the full premium amount for the policy term is recorded as written premium at the inception date.
This initial recording occurs regardless of the payment schedule, meaning whether the premium is paid upfront, monthly, or quarterly. As time passes and coverage is provided, a portion of the written premium is recognized as earned premium.
The unearned portion of the premium is held as a liability on the insurer’s balance sheet, known as the unearned premium reserve. This reserve accounts for the insurer’s obligation to provide future coverage.
Written premium is a forward-looking indicator, signaling the potential future earned premium and associated claims exposure. Growth in written premium can indicate successful sales efforts and increased Funding Requirement for reserves.
Formula (If Applicable)
While written premium is primarily a total accumulation rather than a calculated formula, it can be understood as:
Written Premium = Sum of (Gross Premium for each new policy + Gross Premium for each renewed policy – Premiums for canceled policies + Premiums for endorsements) during a period.
Alternatively, from an accounting perspective, the change in written premium over a period can be viewed through the lens of premiums in force and adjustments.
Real-World Example
Consider an insurance company,
