Net Earned Premium to GWP
The Insurance Margin is derived from the fact that insurers hold a “float”. The float is the combined funds derived from premium income. Until a policyholder makes a claim against their insurance policy – the insurer is able to invest their premium income to generate further returns. The insurer is allowed to keep the whole of the profits from these investments. In fact, insurance company shareholders expect an insurer to invest their float. It can bring in a significant amount of profit and boost the dividends paid to shareholders each year.
Calculated as: Net Earned Premiums / Gross Written Premiums x 100