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The gross premium income is essentially an income statement that shows the total sum that an insurer has earned from premiums.
Basically, it does not include any sums that are not paid or will be paid outside those premiums. They are very important in determining the income of an insurer and do not take into account other assets.
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What is gross premium income?
Gross premium income is a statement that indicates the earning of an insurer from already paid premiums. We can express it mathematically as
Gross premium income = Total Net Written Premium – Insurance Premium Tax
This means that when you deduct the insurance premium tax from the total net written premium, the gross premium income remains. However, what is net written premiums and insurance premium tax? Let’s see:
Net written premium
the net written premium is the exact measure of a premium that an insurer or broker keeps as profit. Basically, it excludes all sums paid out as reinsurance. Therefore, after an insurer receives a premium, he or she pays out all sums owed for reinsurance and other operational costs. After this, we call the amount left, the net written premium. However, note that this is not the same as the net premium earned, which only takes into account the premiums earned in a particular period.
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Insurance premium tax
insurance premium tax is the tax on insurance premiums. In addition, they vary from one area to another and are not included in the income statement owing to the fact that it’s the government’s money. Basically, this sum does not belong to the insurer.
What does gross premium income consist of?
This balance statement takes into account all the sum that an insurer has earned, without including money that is yet to be paid. Also, the gross premium income does not take into account any external assets that the insurer may possess.
Therefore, as a result of this, you cannot exactly examine an insurer’s financial health status by only apply the gross premium income formula.
Also, gross premium incomes are not very relevant to brokers. This is because the major share of the money goes to the insurer. Therefore, brokers take more interest in the Gross Broking income. Essentially, we can express the gross broking income as:
Gross Broking Income = Gross Premium Income – Policy Fees
Also, note that we do not consider the Gross premium Income to be same as the Gross Written Premium income.
Gross Premium Income is an important statement for insurers and others looking into the financial standing of an insurer. However, because it does not take into account other assets, we cannot exactly state it to be an accurate judge. Instead, it is more relevant to discovering the exact premium earning of an insurer.