Written Premium

"Written Premium" in the context of Life Insurance and Living Benefits Insurance in Canada refers to the total amount of premium income that an insurance company records within a specific period (such as a fiscal year) for the policies it has issued and underwritten. This figure represents the gross premiums charged by the insurer for providing coverage, before any deductions for premiums ceded to reinsurers. Written premiums are a critical measure of an insurance company's sales performance and growth in its underwriting business.

Key aspects of Written Premium include:

1. Measurement of Growth: Written premiums provide an indicator of the insurance company's growth in terms of policy sales and market penetration within the life insurance and living benefits sector.
2. Gross vs. Net Written Premiums: Gross written premiums include all premiums received from policyholders. Net written premiums are calculated by subtracting the premiums ceded to reinsurers from the gross written premiums. This distinction helps in understanding the insurer's risk management strategy through reinsurance.
3. Revenue Recognition: Although written premiums are recorded as revenue when policies are issued, the recognition of this revenue in financial statements is spread over the policy period as earned premiums. This accounting practice aligns revenue recognition with the period of risk coverage.
4. Indicator of Financial Health: The volume of written premiums, along with other financial metrics, helps stakeholders assess the financial health and stability of an insurance company. It indicates the company's ability to attract and retain policyholders.
5. Impact on Claims and Reserves: The amount of written premiums directly impacts the insurer's capacity to pay claims and its requirements for setting aside reserves. A higher volume of written premiums suggests greater capacity for claim payments, assuming effective risk management and underwriting practices.
6. Regulatory Compliance: Insurance regulators monitor written premiums as part of their oversight of the insurance industry, ensuring that companies maintain adequate reserves and solvency levels to protect policyholders.

In the Canadian insurance market, tracking written premiums is essential for both insurers and regulators to monitor the industry's growth, competitiveness, and financial stability. For policyholders, understanding the concept of written premiums can provide insight into their insurer's market position and reliability.