DEFINITION of 'Direct Premiums Written'

Total premiums received before taking into account reinsurance ceded. Direct written premiums represent the growth of a company’s insurance business during a given period. It can include both policies written by the company and policies written by its affiliated companies.

BREAKING DOWN 'Direct Premiums Written'

While insurance companies can increase revenue by increasing premiums on policies up for renewals, the main driver for growth is new policies. Direct written premiums show how many new premiums were written over the course of the year, even if those premiums are ultimately not collected.

A new insurance policy written by an insurance company is included in the direct written premiums figure, since the risk presented by the policy has not yet been passed on to any reinsurance company in exchange for a portion of the policy’s premium. Premiums obtained through reinsurance services are not included in this figure because they do not represent premiums written by the company. Instead, those are premiums ceded by other companies in exchange for taking on risk.

Direct written premiums differ from direct premiums earned. The latter depends on how the company intends on earning the premium over the life of the policy. When direct written premiums exceed direct premiums earned a company is said to see increased underwriting volume. The sum of an insurance company’s direct written premiums and its assumed premiums is referred to as gross premiums written. It does not take into account the company’s risk management efforts using ceded reinsurance.

State taxes that insurance companies owe can depend on how many states the insurer operates in. Insurance companies that operate in different states may owe a proportional amount of their direct written premiums, with the proportion equal to the amount of direct written premiums from the state levying taxes divided by the total amount of direct written premiums the company has for all states that it operates in.

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