Written Premium

Study guides: Exam DISC-IA, Exam 5

Written Premium is the full premium booked when a policy is issued, for the entire policy term, regardless of how much of the coverage period has elapsed.

$\text{Written Premium} = \sum_{\text{policies issued in period}} \text{full-term premium}$

$\text{Earned Premium} = \text{Written Premium} - \Delta\text{UEP}$

Written premium is a transaction measure: the whole $\$1{,}200$ of an annual policy is written on the day it is bound, even though only $\$100$ has been earned a month later. The unbooked remainder sits in the unearned premium reserve.
In a growing book written premium exceeds earned premium, because the UEP is rising; in a shrinking book the relationship reverses. The gap is therefore a measure of growth, not of profitability.
Written premium is the right measure for production, market share, commission (paid on writings) and for the average written premium series used in premium trend analysis — trend is a written-level phenomenon, since it is driven by what is being sold today.
It is the wrong denominator for a loss ratio: losses in the period arise from coverage provided in the period, which is earned premium.
Written premium may still change after issuance — endorsements, cancellations and audits all book additional or return premium into a later period, so "written premium" for a policy year keeps moving until the audits close.
Statutory definition and types: SSAP No. 53 defines written premium as the contractually determined amount charged to the policyholder for the policy's effective period, recorded on the effective date. An insurer's written premium is direct (its own policies), assumed (reinsurance it accepts) or ceded (reinsurance it buys, which reduces its written and earned premium), and net written premium is direct plus assumed less ceded (Premium Accounting).

Written, Earned and Unearned from One Policy A $12$ -month homeowners policy is written $10/1/2024$ for $\$1{,}200$ .

Give calendar year $2024$ 's written, earned and unearned premium for this policy.
Answer
 $\begin{align*} \text{CY 2024 written} &= \$1{,}200 \\ \text{CY 2024 earned} &= \$1{,}200 \times \tfrac{3}{12} = \$300 \\ \text{UEP at } 12/31/2024 &= \$1{,}200 \times \tfrac{9}{12} = \$900 \end{align*}$ 
The remaining $\$900$ earns during $2025$ — so this single policy contributes $\$1{,}200$ to CY 2024 written premium and only $\$300$ to CY 2024 earned premium. Checking the identity for CY 2024:

$\$1{,}200 - (\$900 - \$0) = \$300 \;\checkmark$

Written Premium Growth Overstates Rate Adequacy An insurer reports the following:

Year Written premium Earned premium

$2023$ $\$40{,}000{,}000$ $\$37{,}000{,}000$

$2024$ $\$52{,}000{,}000$ $\$44{,}000{,}000$

Incurred losses were $\$26{,}640{,}000$ in $2023$ and $\$31{,}680{,}000$ in $2024$ . Management reports "the loss ratio improved from $66.6\%$ to $60.9\%$ ".

Evaluate the claim.

Answer Management divided losses by written premium:

$\frac{\$26{,}640{,}000}{\$40{,}000{,}000} = 66.6\% \qquad \frac{\$31{,}680{,}000}{\$52{,}000{,}000} = 60.9\%$

On the correct earned basis:

$\frac{\$26{,}640{,}000}{\$37{,}000{,}000} = 72.0\% \qquad \frac{\$31{,}680{,}000}{\$44{,}000{,}000} = 72.0\%$

The loss ratio did not improve at all — it is flat at $72\%$ . The apparent improvement is entirely an artefact of $30\%$ written-premium growth outrunning $19\%$ earned-premium growth: losses emerge on earned exposure, so a fast-growing book always looks better on a written basis than it is.

This is one of the standard data-reasonableness checks: any loss ratio quoted against written premium in a growing book should be recomputed before it is believed.

Year	Written premium	Earned premium
$2023$	$\$40{,}000{,}000$	$\$37{,}000{,}000$
$2024$	$\$52{,}000{,}000$	$\$44{,}000{,}000$

How it appears on the exam

DISC-IA: The objective on types of written premium asks how direct, assumed, ceded and net written premium relate, and when a transaction, such as an endorsement, an audit adjustment or premium paid before the effective date, counts as written premium.

Exam 5: Written premium feeds premium trend and the bridge to earned premium through the change in the unearned premium reserve.

Exam traps

Net is after ceding: Net written premium subtracts ceded premium from direct plus assumed; leaving out assumed business understates it.

Advance premium is not written: Premium paid before the policy's effective date is a liability, not written premium, until coverage begins.

Written on the effective date: Written premium is recorded when the policy takes effect, not when it is collected.