Direct Premiums Written

What Are Direct Premiums Written?

Direct premiums written are the total premiums received before considering reinsurance ceded. Direct premiums written address the growth of a company's insurance business during a given period. It can incorporate the two policies written by the company and policies written by its affiliated companies.

Seeing Direct Premiums Written

A insurance policy is a binding contract between the insured-or customer-and the insurance company-or insurer-by which the insurer consents to pay for any losses that are covered inside the policy. In return for covering the losses to the insured, the insurance company gets a premium or payment from the customer.

For the insurance company to create a gain, the company needs to collect a greater amount altogether premiums as compared to the total amount paid out in insurance claims. Insurance companies can increase revenue by expanding premiums on existing policies that have come up for renewal. In any case, one of the primary drivers of growth for insurance companies comes from the revenue created from composing new policies. Direct premiums written addresses the premiums on all policies that an insurance company and its auxiliaries that have written or issued during the year.

Insurance companies don't quickly record the premiums paid by customers as earnings. All things considered, the premium is viewed as unearned income since the insurance company actually has an obligation to satisfy to the insured, meaning an insurance claim could be recorded the same length as the policy stays open. When the coverage has expired, the premiums that were paid can be recorded as earned revenue, which is called direct premiums earned. Direct written premiums, then again, show the number of new premiums were written notwithstanding if those premiums have been collected yet.

Direct Written Premiums and Reinsurance

If an insurance company needs to reduce the risk in its portfolio, importance reduce the risk of claims being paid out, it can surrender or offer the policy to another insurance company able to take on the policy. The company that is giving the policy is called the ceding company while the company getting the policy is called a reinsurer. The reinsurer collects the premiums from the customers or policyholders yet pays a portion of the revenue back to the ceding insurer-called ceding commissions.

Any premiums earned as a reinsurer are excluded from direct written premiums in light of the fact that they don't address premiums written by the company. Any new insurance policy written is remembered for the direct written premiums figure since the risk introduced by the policy has not yet been given to any reinsurance company in exchange for a portion of the policy's premium.

Direct Premiums Written versus Gross Premiums Written

When direct written premiums surpass direct premiums earned a company is viewed as encountering an increase in underwriting volume. The sum of an insurance company's direct written premiums and its assumed premiums is alluded to as gross premiums written. Assumed premiums are the revenue received for policy coverage that is given due to a reinsurance agreement. Gross premiums written is the sum of direct premiums written and assumed premiums written prior to the effect of ceded reinsurance is considered.

Be that as it may, gross premiums written doesn't consider the company's risk management strategies and strategies, especially taking into account its utilization of ceded reinsurance. Albeit direct premiums written is before any allowance for premiums that have been ceded to reinsurers, it fundamentally addresses the premiums from policies issued or written during the year.

Special Considerations

State taxes that insurance companies owe relies on the number of states the insurer that operates in. Insurance companies that operate in various states might owe a proportional amount of their direct written premiums, with the proportion equivalent to the amount of direct written premiums from the state demanding taxes isolated by the total amount of direct written premiums the company has for all states wherein it operates.

Features

• Direct premiums written address the growth of a company's insurance business during a given period.
• When direct written premiums surpass direct premiums earned a company is supposed to encounter an increase in underwriting volume.
• Direct premiums written are the total premiums received before considering reinsurance ceded.