Net written premiums are:

Question

Options

• Adirect written premiums plus mortgage reinsurance premiums, minus ceded reinsurance
• Bdirect written premiums plus assumed reinsurance premiums, minus ceded reinsurance premiums
• Cwritten premiums plus insurance premiums, minus ceded reinsurance premiums
• Dassumed reinsurance premiums plus credit life insurance premiums, minus depreciated

• A
  10% (2)
• B
  81% (17)
• C
  5% (1)
• D
  5% (1)

Explanation

Net written premiums represent the total premium volume an insurer retains after accounting for all reinsurance activity. Option B is correct because the formula captures all three components: premiums written directly by the insurer, premiums assumed from other insurers via reinsurance agreements (inflows), and premiums ceded to reinsurers (outflows) - giving a true picture of net retained risk.

Why the distractors fail:

• A substitutes "mortgage reinsurance premiums" - this is not a standard category in the net written premium formula; assumed reinsurance is the correct term.
• C uses the vague phrase "insurance premiums," which is redundant and imprecise - it doesn't correctly distinguish the assumed reinsurance component.
• D replaces "direct written premiums" with "credit life insurance premiums" (a product type, not a formula component) and ends with "depreciated," which is an asset accounting concept entirely unrelated to premium calculations.

Memory tip: Think of it as a bank account - direct written + assumed reinsurance are deposits (money coming in), and ceded reinsurance is a withdrawal (risk transferred out). Net = deposits minus withdrawals.

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