insurance

Direct Premium Written

The total amount of insurance premiums an insurance company collects directly from policyholders during a specific period, before any deductions for reinsurance. This metric measures the gross revenue generated from insurance policies sold directly by the company to consumers or businesses.

Example

“ABC Insurance Company reported $50 million in direct premium written for the quarter, representing all the premiums collected from their auto, home, and business policyholders.”

Memory Tip

Think 'Direct = Straight from customer' and 'Written = Recorded on the books' - it's the money insurance companies write down from selling policies directly to you.

Why It Matters

Direct premium written indicates an insurance company's financial health and growth trajectory, which affects their ability to pay claims and remain solvent. As a consumer, companies with strong direct premium written numbers are generally more stable and reliable for long-term coverage needs.

Common Misconception

Many people confuse direct premium written with the company's profit or the amount available to pay claims, but this figure represents gross revenue before expenses, reinsurance costs, and claim payments. A high direct premium written doesn't automatically mean the company is profitable or financially sound without considering their claims ratio and operating expenses.

In Practice

State Farm collected $2.5 billion in direct premium written during Q3, including $800 million from auto insurance, $600 million from homeowners insurance, and $1.1 billion from other policies. However, after paying $300 million to reinsurers and $1.8 billion in claims and expenses, their actual profit was much smaller. This $2.5 billion figure helps regulators and investors assess the company's market share and business volume.

Etymology

This accounting term developed in the insurance industry to distinguish between premiums collected directly from customers versus those obtained through reinsurance or other indirect channels.

Common Misspellings

Direct Premiums WrittenDirect Premium WritenDirect Premuim WrittenDirect Premium Writtin

Related Terms

reinsurance

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