Property and Casualty Insurance Practice Exam

What is written premium?

1. The premium that has been earned by the insurer.

2. The total gross amount of premium income on the company's books.

3. The amount of premium collected after claims are paid.

4. A projection of future premium income.

The correct answer is: The total gross amount of premium income on the company's books.

Written premium refers to the total gross amount of premium income recorded by an insurance company for policies that have been written during a given time period, typically over the course of a year. This figure encompasses all premiums that have been contracted for new policies, regardless of whether the policies have begun or if the premiums have been earned through the passage of time or receipt of payment. It represents the total expected revenue from insurance premiums before any deductions such as commissions, taxes, or fees. The essence of written premium lies in its role as a metric for assessing an insurer’s new business generation. It provides a clear picture of how much premium revenue the insurer has secured at a given time, making it a crucial aspect of an insurance company’s financial health. This is why the total gross amount of premium income on the company's books is seen as an accurate representation of the written premium. Other options represent different concepts within insurance finance. For example, premium that has been earned reflects the portion of the written premium that has been recognized as income over time as the insurer provides coverage, while projections of future premium income pertain to anticipated revenues based on trends and existing contracts but do not capture the actual amount written.