Written premium is an insurance accounting metric that measures the total dollar amount of premiums that an insurer has contracted to receive for policies it issued (or assumed) during a specific period. It represents the “sales” or production of insurance business in that period — not the revenue the insurer has yet earned by providing coverage over time.
Key takeaways
– Written premium (often reported as Gross Written Premiums, GWP) equals the total premiums on policies issued or assumed during the reporting period.
– Net Written Premiums (NWP) adjust GWP for reinsurance ceded (and assumed), showing how much premium the insurer retains for its own risk.
– Written premiums are distinct from earned premiums. Earned premiums are recognized as revenue over the coverage period as the insurer fulfills its obligation.
– Insurers initially record premiums as unearned (a liability); they are moved to earned premium (revenue) over the life of the policy.
– Trends in written premiums (growth, retention, mix) are important indicators of an insurer’s underwriting activity, market share, and business strategy.
How written premium works
1. What is included
• Direct written premiums: premiums on policies the company issues to policyholders.
• Assumed written premiums: premiums the company accepts from other insurers via reinsurance assumed.
• Ceded (reinsured) premiums: portion of premiums transferred to reinsurers (subtracted when calculating NWP).
2. Basic formulas
• Gross Written Premiums (GWP) = sum of all premiums on policies written (direct + assumed) during the period.
• Net Written Premiums (NWP) = GWP − Ceded Written Premiums + Assumed Reinsurance (if applicable).
• Earned Premiums (for a given period) = Beginning Unearned Premiums + Written Premiums during period − Ending Unearned Premiums.
3. Journal entries (high-level)
• When premiums are received or billed:
• Dr Cash or Premium Receivable
• Cr Unearned Premiums (liability)
• As coverage is provided (to recognize revenue):
• Dr Unearned Premiums
• Cr Premium Revenue (earned premium)
Written premium vs. earned premium
– Written premium measures production (policies sold) in a period; earned premium measures revenue recognized for coverage provided in that period.
– Example: A 12-month policy sold on Jan 1 for $1,200 is $1,200 written premium in January (for GWP) but only $100 of earned premium each month. After three months, earned premium = $300; unearned = $900.
– Because insurers receive premiums in advance, they hold the unearned portion as a liability (unearned premium reserve) until coverage is provided.
Gross premiums vs. net premiums
– Gross written premium (GWP): headline production number — useful to see total sales and market activity.
– Net written premium (NWP): GWP adjusted for reinsurance; it reflects the premium the insurer actually retains for its own risk exposure.
– Retention ratio = NWP / GWP (measures how much premium is retained vs. ceded).
Special considerations and complications
– Reinsurance: heavy ceded reinsurance can make GWP large while NWP (and retained risk) is small. Watch both numbers.
– Policy term and timing: multi-year policies, mid-term cancellations, and endorsements affect how much written premium later becomes unearned or returned.
– Installment payments and receivables: premium receivable credit quality matters for realized cash flow.
– Returns and cancellations: cancellations lead to returned premium that reduces written premium or is reflected through adjustments.
– Seasonality and renewals: written premium spikes can reflect renewal cycles or marketing campaigns; look at renewal rates for quality.
– Accounting and regulation: insurers must follow insurance-specific accounting standards (e.g., FASB ASC 944 in U.S. GAAP) and regulatory reporting (state regulators / NAIC in the U.S.). These affect presentation and required reserves (unearned premium reserves).
Practical steps — for insurance accountants / operations teams
1. Measure and record written premium (monthly/quarterly)
• Aggregate premiums on all policies issued or assumed during the period.
• Separate direct written premium, assumed written premium, and ceded premium.
2. Establish and reconcile unearned premium reserve
• Calculate unearned portion by policy based on coverage period and effective dates.
• Reconcile beginning and ending unearned premium balances to written premiums and earned premiums for the period.
3. Produce GWP and NWP figures
• Report both GWP and NWP each reporting period.
• Calculate retention ratio (NWP/GWP) and investigate material changes.
4. Adjust for cancellations and endorsements
• Track return premiums and endorsements that change premium amounts; adjust written and unearned premiums accordingly.
5. Coordinate with reinsurance accounting
• Ensure ceded premiums and commissions are properly recorded and matched to reinsurance treaties.
6. Disclosure and compliance
• Follow applicable accounting standards and regulatory reporting requirements for premiums, reserves, and reinsurance.
Practical steps — for insurance analysts and investors
1. Look at both GWP and NWP
• GWP shows market activity; NWP shows retained business and actual risk exposure.
2. Follow trends, not just levels
• Year-over-year and sequential growth rates help identify business momentum or attrition.
3. Check retention and cession patterns
• A falling retention ratio can mean more risk transferred to reinsurers; investigate why.
4. Compare to earned premium and underwriting results
• Compare NWP growth vs. growth in premiums earned, loss ratios, and combined ratio to assess profitability of new production.
5. Watch policy count and average premium per policy
• Rising average premium could indicate pricing changes or a shift in product mix.
6. Adjust for one-time items
• Mergers, portfolio acquisitions, or catastrophe-related premium spikes can distort short-term comparisons.
7. Use complementary ratios
• Loss ratio = Incurred losses / Earned premiums.
• Expense ratio = Underwriting expenses / Earned premiums.
• Combined ratio = Loss ratio + Expense ratio (underwriting profitability measure).
Worked examples
1. Simple production example
• Company issues 1,000 one-year policies at $1,000 each during the year.
• GWP = 1,000 × $1,000 = $1,000,000.
• If the company cedes $200,000 in premiums to reinsurers, then NWP = $1,000,000 − $200,000 = $800,000.
2. Written vs. earned timing example
• One policy: 12-month term, premium $1,200, effective Jan 1.
• Jan 1 (when written): GWP increases by $1,200; cash received or receivable recorded; $1,200 credited to Unearned Premiums.
• End of March: Earned premium = 3/12 × $1,200 = $300; Unearned remaining = $900.
Interpreting changes in written premium — what to watch for
– Increasing GWP with declining NWP: more reinsurance cessions or growth in assumed business where risk is ceded away — investigate retention.
– High written premium growth but rising loss/combined ratios: growth may be unprofitable or driven by adverse selection/pricing.
– Declining written premium: could indicate loss of market share, price discipline (pulling back on underwriting), or product exits.
– Stable/repeatable written premium with high renewal rates: indicates consistent, potentially profitable core business.
Where written premium appears in financial reporting
– Written premium itself is a production metric often shown in the insurer’s MD&A or management discussion and regulatory filings.
– Earned premium appears on the income statement (top-line revenue for underwriting operations).
– Unearned premium appears on the balance sheet as a liability (unearned premium reserve).
Sources and further reading
– Investopedia — Written Premium:
– FASB ASC 944 — Financial Services — Insurance (U.S. Generally Accepted Accounting Principles guidance for insurance accounting)
– National Association of Insurance Commissioners (NAIC) — regulatory and reporting requirements for insurers
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.