What is “Gross Earned Premium”?

Gross earned premium is a term used in the insurance industry.  It refers to the sum of all the insurance premiums earned by an insurance provider over a specific time period. Simply put it is the revenue earned from the sale of an insurance product.

Gross earned premium is described as ‘gross’ as it is before the effects of reinsurance. Reinsurance is where an insurance company ‘resells’ some insurance contracts to another insurance company.  Insurance companies also generate income from other sources, such as investment income and installment income, which are not captured in gross earned premium. It is therefore important to use a range of metrics when assessing the earnings performance of an insurance company.

Gross earned premium differs from the total sum of premiums actually received in that period (the ‘gross written premium’), this is because insurance premiums are often received in full at the start of an insurance contract, while the insurance cover often starts part way through a fiscal period; in accordance with the ‘accruals principle’ the income earned should reflect the proportion of insurance cover provided during that period, rather than amounts received.

Gross earned premium is a closely monitored earnings metric because it reflects the growth or decline in the new insurance business.

Key Learning Points

  • Gross earned premium is effectively an insurance company’s ‘revenue line’ for the insurance business and is found at the top of the income statement
  • Gross earned premium differs from gross written premium which is received at the start of the contract. Earned premiums are recognized over time, as the insurance cover is provided
  • Gross earned premium is a key metric when assessing an insurance company’s performance as its growth/decline is an important insurance business growth indicator

Where to find Gross Earned Premium?

Insurance companies disclose the gross earned premium in their quarterly and annual income statements. It is disclosed at the top of the income statement, as it is a revenue item recognized from insurance premiums.

Below is a sample extract from an insurance company’s income statement:

Company income statement

Extract from DLG Insurance Company’s Income Statement for the year ended December 31, 2020

It is worth noting that DLG’s gross earned premium was £3,189.3m in 2020, which is a 0.4% decrease in the gross earned premium in 2019. This reduction in gross earned premium could reflect either a fall in the volume of a new business or competitive pressures reducing the pricing of new business.


Calculating Gross Earned Premium

The Gross earned premium on an insurance contract is calculated by multiplying the gross written premium by the proportion of insurance cover provided during the year.

We can therefore calculate gross earned premium using the formula:

Gross earned premium = gross written premium x % insurance cover provided

Example 1

Let’s take an example of an insurance company that has written an insurance policy of $1,000.0 on June 30. The policy provides cover for the next year, and the insurance company has a fiscal year-end of December 31.

The gross written premium for the policy is $1,000.0. However, the insurance company has provided only 50.0% of the insurance cover during the year to December 31. Therefore the gross earned premium will be $500.0.

Example 2

Based on the information below, we have been asked to calculate the gross earned premium from an insurance contract during the company’s fiscal year.


During the year to December 31, 2020, the proportion of the insurance cover provided by the insurance company can be calculated as follows:

We can now calculate gross earned premium as follows:

Therefore, although the insurance company has received $800.0 in insurance premium from this contract, the amount actually included in earnings will be $600.5. This reflects the proportion of the insurance cover provided in that year and the remaining premiums will be included in next year’s earnings.