What Is Gross Net Written Premium Income (GNWPI)?
Let me explain what gross net written premium income, or GNWPI, really means. It's the specific dollar amount from an insurance company's premiums that we use to figure out how much is owed to a reinsurer. This figure serves as the base when applying the reinsurance premium rate, and it factors in things like cancellations, refunds, and any premiums already paid out for reinsurance coverage.
Key Takeaways
- GNWPI is the premium amount from an insurer that determines payments to a reinsurer.
- It acts as the base for applying the reinsurance premium rate, including adjustments for cancellations, refunds, and reinsurance premiums.
- Reinsurers get a share of the insurer's premiums for assuming some of the risks.
- The rate for reinsurer payments can use written premiums (GNWPI) or earned premiums (GNEPI).
- If the reinsurer's risk increases over time, written premium income exceeds earned premium income.
Understanding Gross Net Written Premium Income (GNWPI)
When an insurance company signs a reinsurance agreement, it lowers its risk by passing some of that exposure to a reinsurer. In return, the reinsurer gets a cut of the insurer's premiums. That's straightforward.
In non-proportional reinsurance deals, the reinsurer's premium share comes from a fixed rate multiplied by a base premium. This base is the portion of the insurer's premiums that the reinsurer has a claim to.
Special Considerations
The reinsurance contract spells out exactly how we calculate the subject premium. You and the parties involved agree on the reinsurance rate percentage applied to this base, and decide if it's based on earned or written premiums.
If it's earned premiums, we use gross net earned premium income (GNEPI) as the base— that's common for excess of loss reinsurance. For written premiums, it's GNWPI.
To calculate GNWPI, start with the ceding insurer's premium income, not receipts. It's 'net' after subtracting cancellations, refunds, and reinsurance premiums, but 'gross' since we don't deduct expenses. And if the reinsurer's risk grows over time, written premium income will outpace earned premium income.
GNWPI vs. Gross Broking Income
GNWPI gives you a solid view of an insurer's performance, but it skips over investment earnings from things like stocks or bonds. It also ignores the insurer's assets. That's why many companies prefer looking at gross broking income, which includes those elements. So, rely on GNWPI as an indicator, but don't use it alone to judge an insurer's overall financial health.
