Written Premium
Candlefocus EditorMeasuring premiums as a gross or a net figure determines how much of the premiums an insurance company gets to keep as income, allowing them to assume the associated risk. The net figure, which is the total of the premiums minus their associated expenses and taxes, is what an insurance company actually books as earnings. It's this figure that appears on the income statement.
Written premiums are the main source of income for insurance companies and are usually reported on the top line of the income statement. This tells investors and consumers how much money the company exposed itself to during that period.
In addition to allowing insurance companies to access funds necessary to assume associated risk, written premiums also provide equity to various businesses that offer insurance and act as a major source of finance for disaster relief, pension schemes and other social welfare activities and projects.
Given the pivotal role written premiums play in the insurance industry, it is important that insurance companies have the necessary funds to pay out all claims that have been made or will be made. This is why companies are constantly undertaking assessments to calculate reserves needed to cover outstanding claims, ensuring premiums remain enough to cover all losses.
In conclusion, written premiums are a key financial indicator for insurance companies as it records the total amount of money received for covering risks. This can provide investors with valuable insight as to the financial stability of a company and the nature of their risk-taking. As such, managing written premiums is a key factor in the success of all insurance companies.