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Table 5.2: Premium bases
Gross written The total premium on insurance underwritten by an insurer during a period before
premium (GWP) deduction of any outwards reinsurance premium deductions for retrocession cover.
Net written Written premiums net of outwards reinsurance premium deductions for retrocession/
premium (NWP) reinsurance cover.
Gross net written Gross written premium net of policy cancellations and outwards reinsurance premiums
premium (GNWP) but gross of commissions and expenses.
Gross net earned premium Represents the earned premiums of the reinsured company during the period for the
income (GNEPI) lines of business covered net, meaning after cancellations, refunds and premiums paid
for any reinsurance protecting the cover being rated.
Gross net earned Gross earned premium less any policy cancellations and outward reinsurance
premium (GNEP) premiums but inclusive of commissions and expenses.
Gross net retained Gross premium income less policy cancellations and returns less the premium outlay
premium income (GNRPI) for all other reinsurances with no deductions allowed for the reinsured’s costs.

C1 Adjustable premiums
Adjustable premiums are used in non-proportional reinsurance where the premium base on which the
The final premium
can only be premium is calculated can only be estimated at the start of the period of the contract. The final premium
calculated once the can only be calculated once the contract period has come to an end. In the case of an excess of loss
contract period has
5 cometoanend treaty, the reinsured’s actual premium income for the period of risk will only become known after the
Chapter during the period will take place, resulting in either an additional or return premium due to or by the
expiry date of the contract. At this point, any necessary adjustment to the premium for the risk run
reinsurer.
Deposit premium is the amount of premium required by the reinsurer as an initial payment either in full
at inception or by instalments during the period. Instalments are typically payable on the first day of
each quarter or half-year. A deposit premium is generally set at about 80% or 90% of the expected final
excess of loss premium, but it can be set at 100%. It will be adjusted after expiry of the contract. Reference copy for CII Face to Face Training
Minimum premium is the least premium to be charged by the reinsurer. Excess of loss reinsurance
contracts frequently contain a provision that the final adjusted premium may not be less than a stated
amount.

Consider this…
What is the benefit of a minimum premium provision for the reinsurer when the insurer’s declared actual premium is
much less than anticipated?

As is the custom in insurance transactions, the insurer pays consideration to the reinsurer at the start of
the year of cover. In practice, the reinsurer usually makes provision for a minimum and deposit premium
as a fixed amount.
The amounts of both premiums are generally set at about 80–90% of the estimated excess of loss
premiums and are usually the same. At the end of the year of occurrence the minimum premium is
adjusted, by multiplying the agreed excess of loss premium rate by the underlying premium actually
written, or accounted. If the amount obtained from this adjustment at the end of the year of occurrence
is less than the minimum premium, the insurer does not pay any more but obviously does not obtain a
refund.
Payment is considered completed if the same fixed amount has been arranged for deposit or advance
premiums and minimum premiums. If the effective premium is higher than the minimum, the insurer
pays the difference to the reinsurer.

C2 Basic information required for rating non-proportional reinsurance
Insurers requiring excess of loss cover need to provide certain key (or basic) information to the reinsurer,
Insurers need to
provide certain key sometimes in the form of a detailed questionnaire. The reinsurer then begins its rating process giving
information to the attention to the following main points:
reinsurer