What Is Gross Net Written Premium Income (GNWPI)?
Gross Net Written Premium Income (GNWPI) represents the dollar amount of premiums from an insurance company that determines the portion owed to a reinsurer. This figure serves as the foundation on which the reinsurance premium rate is applied, considering factors like cancellations, refunds, and premiums for reinsurance coverage.
Key Takeaways
- Gross net written premium income (GNWPI) reflects the insurer’s premiums used to calculate the amount owed to a reinsurer.
- GNWPI serves as the base for applying the reinsurance premium rate, factoring in cancellations, refunds, and reinsurance coverage premiums.
- Reinsurers typically deserve a share of an insurer’s premiums for assuming some risks.
- The calculation for the reinsurer’s due amount could be based on written premiums (using GNWPI) or earned premiums (using Gross Net Earned Premium Income).
- If the reinsurer’s risk exposure increases over time, the written premium income surpasses the earned premium income.
Understanding Gross Net Written Premium Income (GNWPI)
When engaging in a reinsurance agreement, an insurance company mitigates risk by transferring some to a reinsurer. In return for this risk assumption, the reinsurer gains a stake in the insurer’s premiums.
In non-proportional reinsurance setups, the reinsurer’s entitled premiums are determined by a fixed rate, multiplied by a base premium representing the insurer’s entitled premium sum.
Special Considerations
The methodology for calculating premium amounts is stated in the reinsurance contract. Parties agree on the reinsurance rate premium percentage applied to the base premium, and whether earned or written premiums are used to calculate the base premium, also known as subject premium.
For setups using earned premiums, Gross Net Earned Premium Income (GNEPI) is the base, common for excess of loss reinsurance. If written premiums are chosen, GNWPI comes into play.
Calculating Gross Net Written Premium Income involves the ceding insurer’s premium income, deducting refunds, cancellations, and reinsurance premiums from the total. This metric indicates the net premiums without expenses deducted but excludes assets. If the reinsurer’s risk intake grows, the written premium income surpasses earned premiums.
GNWPI vs. Gross Broking Income
While Gross Net Written Premium Income offers insights into an insurer’s performance, it omits returns on investments like equities or bonds and the insurer’s assets. Many firms find Gross Broking Income more informative as it accounts for these elements. Therefore, while GNWPI is valuable, it is not a standalone indicator of an insurer’s financial well-being.