Gross premiums written
Gross premiums written is the sum of both direct premiums written and assumed premiums written before the effect of ceded reinsurance. Direct premiums written represents the premiums on all policies the Company’s insurance subsidiaries have issued during the year. 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 insurance company closes 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 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 agent`s commissions or payments made for reinsurance.
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 agent's commissions or payments made for reinsurance. It gives an indication of the level of sales for risks that they themselves cover. Although there is a presumption that an insurance company is financially sound when it possesses a positive net premiums written, 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. The nature and timing of reinsurance transactions or other factors which are present in the process of transactions can affect the net premium written negative, but negative net written premiums can 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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