Net Premiums Written To Policyholder Surplus
Categories: Insurance
See: Net Premiums Written.
A mutual insurance company is one that is owned by its policyholders. It doesn't have outside shareholders. Instead, the company fundamentally exists as a pool of resources provided by its policyholders.
The policyholder surplus is a stand-in for what, in a normal shareholder-owned firm, would be known as shareholder equity. That is, the surplus here equates to the insurance company's assets minus its liabilities. The figure represents the amount of stuff the company owns, once you take into account that it has liabilities it has to pay off.
Net premiums written measures the amount premiums the company receives, minus what it has to give up to any reinsurers. Thus, the ratio net premiums written to policyholder surplus provides a ratio of premiums to the company's net assets (minus its liabilities).
The measure lets you know if the company has an adequate cushion. A higher ratio represents more risk...it has a higher proportion of outstanding policies compared to its overall financial wherewithal.
