What Are Net Premiums Written?

Net premiums written is the sum of premiums written by an insurance company over the course of a period of time, minus premiums ceded to reinsurance companies, plus any reinsurance assumed. 澳洲幸运5开奖号码历史查询:Net premiums written represents how much of 𝓡the premiums the company gets to keep for assumin🎶g risk.

Understanding Net Premiums Written

Looking at changes in net premiums written from year to year is one way to gauge the health of an insurance company. The health of an insurance company depends on the types of policies and the risks associated with those policies. An increase in net premiums written represents an increase in new insurance policies written, while a decrease indicates fewer policies originated. Decreases in net premiums written could be the result of competitors entering the market and taking up 澳洲幸运5开奖号码历史查询:market share, or it could be because premiums are not competitive with what other co🦋mpanies are offering. Companies th♎at offer policies to a larger pool of people may reduce the possibility of declines.

Insurance companies may receive premiums in one payment up front, but they may also offer installment plans to policyholders. Installment plans provid𒆙e the insurance company with premiums over the course of the year, which are accounted for differently when determining how much revenue the insurance company brings in.

As policyholders using installment plans make payments, a company categorizes these as net 澳洲幸运5开奖号码历史查询:earned premiums. When determining an insurance company’s 澳洲幸运5开奖号码历史查询:tax liability on premiums, it is typical for reinsurance premiums paid to be deducted.

Adjusting for 澳洲幸运5开奖号码历史查询:liabilities associated with unearned premiums over the course of a year is called net premiums unearned. It is a liability because if the policy is canceled early then the insurer has to return a portion of the original premium. If a company is able to write more premiums over the course of the year, its 澳洲幸运5开奖号码历史查询:written premiums will exceed its earned premiums.

Insurance providers in the United Kingdom use the 澳洲幸运5开奖号码历史查询:annual premium equivalent (APE) to meas🔴ure new policy premiums from ongoing premiums.

The Net Premium Calculation

Since the net premium calculation does not take into account expenses, companies must determine the number of expenses that can be added without causing a loss. Types of expenses that a company must take into account include 澳洲幸运5开奖号码历史查询:commissions paid to agents who sell the policies, legal expenses associated with settlements, salꦏaries, taxes, clerical expenses, and other general expenses. Commissions typically vary with t⛎he policy’s premium, while general and legal expenses may not be tied to the premium.

The calculated difference between net premium and gross premium equals the expected 澳洲幸运5开奖号码历史查询:present value of expense loadings (the amount included in the premium char🧸ged for administrative costs) minus the expected present v⛄alue of future expenses. Thus, a policy’s gross value will be less than its net value when the value of future expenses is less than the present value of those expense loadings.