Gross Written Premiums

Gross Written Premiums (GWP) is the total revenue an insurance company receives from all policies it sells (or “writes”) during a specific period, typically a quarter or a year. Think of it as the top-line “sales” figure for an insurer. It represents the grand total of all premium payments customers have agreed to pay for new and renewal policies before any deductions are made. This number is a crucial starting point for understanding an insurer's size, market share, and growth trajectory. However, it's vital to remember that GWP is a measure of gross revenue, not profit. It’s the sticker price of all the insurance sold, but it doesn't tell you how much it cost to sell it or how much risk the company took on to achieve those sales. For a value investor, GWP is the first chapter of the story, not the conclusion.

GWP is a fantastic indicator of an insurance company's pulse in the marketplace.

• What it shows:
  1. Growth: A rising GWP suggests the company is successfully attracting new customers, retaining old ones, or benefiting from rising premium rates. It's a key sign of business momentum.
  2. Market Share: Comparing a company's GWP to the industry total gives you a clear picture of its competitive standing. Is it a major player or a niche specialist?
  3. Customer Demand: It reflects the total demand for the company’s insurance products.
• What it doesn't show:
  1. Profitability: This is the big one. An insurer can easily grow its GWP by writing policies for incredibly risky ventures at bargain-basement prices. This might look great on the top line for a while, but it's a recipe for catastrophic losses down the road. Revenue is vanity, profit is sanity.
  2. Risk: GWP doesn't account for the portion of risk the insurer might have passed on to others.

To get a true picture of an insurer's health, you have to follow the money from Gross Written Premiums to the metrics that really matter. It's a three-step journey.

Insurers don't like to keep all their eggs in one basket. To protect themselves from massive, unexpected losses (like a major hurricane), they buy insurance for themselves. This is called reinsurance. The portion of the GWP that an insurer pays to a reinsurer is called Ceded Premiums. Subtracting this cost gives us a much more useful figure:

• Gross Written Premiums - Ceded Premiums = Net Written Premiums (NWP)

NWP represents the premiums the company gets to keep in exchange for the risk it has decided to hold. It’s a better reflection of the company’s core business and risk appetite.

An insurance company collects your premium upfront, but it provides the coverage over a period of time (e.g., 12 months for a car insurance policy). Accounting rules state that the company can only recognize the revenue as it “earns” it by providing that coverage. The money collected for future coverage sits on the balance sheet as a liability called the unearned premium reserve. As each day passes, a portion of that unearned premium becomes an Earned Premium.

• Earned Premiums are the true revenues used to calculate profitability. They are the funds that get matched against the claims and expenses incurred during the same period.

Never look at GWP in a vacuum. A savvy value investor uses it as a starting point for deeper questions.

• Check the Growth Rate: Is GWP growing consistently? Sudden, explosive growth can be a red flag, often signaling a drop in underwriting standards. Slow, steady, and disciplined growth is usually what you want to see.
• Check the Quality of Growth: This is the most important step. Compare GWP growth to the company's underwriting profit. Is the company making money on the policies it writes? The key metric here is the combined ratio. If GWP is growing by 15% but the combined ratio is 105% (meaning it's losing 5 cents on every dollar of premium earned), that growth is destructive. Profitable growth is when GWP increases while the combined ratio stays comfortably below 100%.
• Connect to the Float: Premiums are collected upfront but claims are paid later. This creates a pool of money that the insurer can invest for its own profit. This pool is the famous “float” that makes insurance such an attractive business for investors like Warren Buffett. Profitably growing GWP is the engine that grows this incredibly valuable float.