Key takeaways
– Gross net written premium income (GNWPI) is a reinsurance rating base equal to an insurer’s written premium income after deducting cancellations, refunds and premiums ceded to reinsurers — but before deducting operating expenses.
– GNWPI is used when a reinsurance contract specifies written (rather than earned) premium as the subject premium to which a reinsurance rate is applied.
– Contracts differ: some reinsurance agreements use gross written premium before cessions, others use net written premium (GNWPI), and many excess-of-loss treaties prefer earned premium (GNEPI). Always check the contract definition.
– GNWPI is a useful indicator of underwriting scale and reinsurance exposure but does not capture investment income, asset values or full financial health.
Source: Investopedia (Ellen Lindner), “Gross Net Written Premium Income (GNWPI)” — https://www.investopedia.com/terms/g/gross-net-written-premium-income.asp
What GNWPI means (plain language)
– “Gross” here means the figure does not deduct operating expenses or investment items.
– “Net” means adjustments have been made for policy cancellations, refunds and premiums ceded to reinsurers.
– “Written premium” refers to premium on policies issued (the contractual premium), not necessarily the portion earned in the accounting period.
How GNWPI is calculated (formula and example)
Basic formula:
GNWPI = Gross written premiums (for the period) − Cancellations and refunds − Premiums paid for reinsurance ceded
Example:
– Gross written premiums in period = $100,000,000
– Cancellations/refunds = $5,000,000
– Premiums ceded to reinsurers (paid) = $10,000,000
GNWPI = $100,000,000 − $5,000,000 − $10,000,000 = $85,000,000
How GNWPI is used in reinsurance pricing
– In non‑proportional (e.g., excess-of-loss) reinsurance, the reinsurer’s premium is often computed as a fixed rate multiplied by the subject premium base. If the treaty specifies written premium as the base, GNWPI may be that base.
– If the treaty uses earned premiums instead, Gross Net Earned Premium Income (GNEPI) is used.
– Precise entitlement depends on the reinsurance contract’s definition of the “subject premium” — some contracts define subject premium before cessions, others after.
Practical steps — for insurers negotiating or drafting reinsurance treaties
1. Define the subject premium clearly in the treaty:
– State whether the base is gross written premium, net written premium (GNWPI), gross earned premium, or net earned premium (GNEPI).
2. Specify exactly which deductions are allowed:
– Are commissions, brokerage, or acquisition costs excluded or included?
– How to treat mid‑term cancellations and refunds?
3. Decide timing and reporting:
– Monthly, quarterly or annual reporting rules, and any retrospective adjustments.
4. Include audit and reconciliation rights:
– Allow reinsurer access to books to verify subject premium calculations.
5. Address currency, taxes and retrospective adjustments:
– How are exchange differences or premium adjustments handled?
6. Consider runoff and portfolio transfers:
– How to treat premiums on policies transferred in or out of the portfolio.
Practical steps — for company finance, actuarial and accounting teams
1. Reconcile written and earned premium:
– Maintain schedules showing gross written, cancellations, ceded premiums, unearned premium reserve movements, and earned premium.
2. Produce GNWPI on an agreed cadence:
– Create a standard calculation template matching contract wording.
3. Monitor movements vs. GNEPI:
– Track when GNWPI materially diverges from earned premium (e.g., fast growth, large cancellations).
4. Compute useful ratios:
– Reinsurance cost ratio = premiums ceded / GNWPI
– Trend GNWPI growth rate and compare to policy count / exposure metrics.
5. Note regulatory and tax impacts:
– Regulatory returns and tax filings may require different recognition conventions; ensure consistency with local rules.
Practical steps — for analysts and investors
1. Locate GNWPI in filings or notes:
– If not reported explicitly, reconstruct using notes to the financial statements.
2. Compare GNWPI to GNEPI and gross written premium:
– Understand timing and business mix effects.
3. Use GNWPI to assess reinsurance loading and exposure:
– Compute ceded premium as a share of GNWPI.
4. Watch for red flags:
– Rapid divergence between written and earned premiums, large increases in cancellations/refunds, or frequent retrospective adjustments can signal business quality or control problems.
5. Combine with other metrics:
– Loss ratios (losses / earned premium), combined ratios, investment yields and solvency ratios provide fuller insight into financial health.
Special considerations and pitfalls
– Contract variability: Different treaties define the subject premium differently. The same label (e.g., “written premium”) can be interpreted in multiple ways if not precisely defined.
– Timing mismatch: Written premium can spike before it is earned; GNWPI may therefore overstate current period revenue for underwriting performance purposes.
– Circularity risk in examples: Some explanations subtract premiums ceded to get GNWPI, then use GNWPI as a base to apply a reinsurance rate — clarify whether the contract expects the base to be before or after ceded premiums.
– Accounting vs. cash flow: GNWPI is an accounting construct (written, net of cancellations/ceded) and may not match cash receipts.
– Not a standalone measure of solvency: GNWPI excludes investment income, reserves, assets and liabilities. Use alongside balance-sheet and income-statement metrics.
GNWPI vs. Gross Broking Income
– GNWPI is a premium measurement specific to insurers and their ceded reinsurance calculations.
– Gross broking income typically refers to a broker’s revenue (commissions, fees and sometimes contributions from ancillary items). It is broader and can include investment returns generated by broking operations or aggregates used in broker reporting.
– For insurers and reinsurers, GNWPI tells you about underwriting exposure and reinsurance rating bases; gross broking income is relevant when assessing intermediary economics and distribution profitability.
– If you need to compare firms or evaluate profitability, be careful to compare like with like and to understand whether measures are on an earned or written basis and whether they are gross or net of cessions.
Checklist of questions to ask when you see “GNWPI” referenced in a contract or report
– Does the contract define the subject premium? Is it written or earned?
– Are premiums ceded included or excluded in the base?
– How are cancellations, refunds and mid‑term endorsements handled?
– What reporting frequency and reconciliation procedures are required?
– Are retrospective adjustments permitted, and how are they treated?
Further reading / source
– Investopedia, “Gross Net Written Premium Income (GNWPI),” Ellen Lindner — https://www.investopedia.com/terms/g/gross-net-written-premium-income.asp
If you want, I can:
– Draft a sample clause defining GNWPI for inclusion in a reinsurance treaty.
– Build a simple spreadsheet template to compute GNWPI, GNEPI and related ratios from a company’s premium schedules.