Gross Premiums Written

• The Bottom Line: Gross Premiums Written (GPW) is the total revenue an insurance company generates from all policies sold in a period, serving as the starting point for understanding its market share and growth.
• Key Takeaways:
• What it is: GPW represents the total dollar amount of all insurance policies written by an insurer before deductions for costs like reinsurance. Think of it as the company's total “sales sticker price.”
• Why it matters: It's the top-line revenue figure for an insurer, indicating its size, growth, and market penetration. For a value investor, it's a key indicator of a company's competitive position.
• How to use it: Never look at it in isolation. Always analyze its trend over several years and, most critically, compare it to the company's combined_ratio to ensure growth is profitable, not just big.

Imagine you own a popular bakery. Every time a customer buys a loaf of sourdough for $5, a croissant for $3, or a cake for $30, you ring it up at the cash register. At the end of the day, the total amount in your register, before you've paid for flour, sugar, or your employees' wages, is your gross sales. This figure gives you a great sense of your bakery's popularity and growth. Are more people coming in? Are you selling more high-value items like cakes? Gross Premiums Written (GPW) is the insurance world's equivalent of your bakery's total gross sales. When an insurance company sells a policy—be it for a car, a home, a business, or a life—the total price of that policy is the “premium.” GPW is the sum of all these premiums for all policies sold within a specific period (usually a quarter or a year). It's the “top-line” number, the very first measure of an insurer's business activity. It tells you the total demand for its products before any adjustments. It’s called “gross” for a reason. Just like the bakery's gross sales don't account for the cost of ingredients, GPW doesn't account for a crucial expense for insurers: reinsurance. Reinsurance is essentially insurance for insurance companies. An insurer might sell a $100 million policy for a skyscraper but then pay another, larger insurance company (a “reinsurer”) a portion of that premium to take on some of the risk. The amount of premium revenue kept after paying for reinsurance is called net_premiums_written. So, GPW is the big, unadjusted number that shows the full scope of an insurer's sales engine. It’s the raw fuel coming into the company before it's refined.

“The floated funds are invested. A virtuous cycle is created. The business becomes a compounding machine. And the beauty of it is that the customers are paying you to hold their money.” - Mohnish Pabrai on the insurance business model, which starts with collecting premiums.

Understanding this distinction is vital. GPW tells you about market share and sales momentum. net_premiums_written tells you more about the amount of risk the company is actually shouldering itself. Both are important, but they tell different parts of the story.

For a value investor, analyzing an insurance company is unlike analyzing a manufacturer or a retailer. The “product” is a promise, and the “cost of goods sold” (i.e., future claims) won't be fully known for years. In this unique environment, GPW is more than just a sales figure; it's a critical clue about the company's strategy, discipline, and long-term viability. 1. A Barometer of Competitive Strength (Moat) Consistent, rational growth in GPW is often a sign of a durable competitive advantage. Why are customers and brokers choosing this insurer year after year? It could be due to:

• Brand Trust: Think of companies like Chubb or Berkshire Hathaway's GEICO. Their names carry weight, allowing them to attract and retain customers without having to be the cheapest option.
• Distribution Network: A powerful network of independent agents who prefer to work with a specific insurer is a massive advantage.
• Specialized Expertise: An insurer might dominate a niche market, like insurance for wineries or classic cars, allowing it to price policies rationally and grow steadily within its circle of competence.

A stagnant or declining GPW, on the other hand, can be a red flag that the insurer's moat is eroding. 2. The All-Important Question: Is Growth Good or Bad? This is where the value investing lens is indispensable. The stock market often cheers for rapid GPW growth, seeing it as a sign of success. A value investor, however, is deeply skeptical. In insurance, it is dangerously easy to grow by simply lowering prices and underwriting risky policies. Anyone can sell a $1 bill for 90 cents.

As Warren Buffett famously wrote in his 1982 Shareholder Letter: “The most important ingredient in GEICO’s success is its rock-bottom operating cost, which allows it to offer lower prices and still earn a handsome profit… To succeed, we must be the low-cost producer. Otherwise, we lose our underwriting discipline and fall into the trap of writing business at a loss just to keep the premiums flowing in.”

A value investor always asks: Is this growth being achieved profitably? To answer this, you must look at GPW in conjunction with the combined_ratio. A combined ratio below 100% means the insurer is making a profit on its underwriting activities. A ratio above 100% means it's paying out more in claims and expenses than it's collecting in premiums.

• Good Growth: Moderate, steady GPW growth paired with a consistent combined ratio under 100%. This is the hallmark of a disciplined, value-creating insurer.
• Bad Growth: Explosive GPW growth paired with a rising or high combined ratio (over 100%). This often signals a company chasing market share at any cost—a strategy that almost always ends in tears.

3. Fuel for the “Float” Engine The magic of the insurance business, as perfected by Buffett, is float. Float is the premium money collected upfront that an insurer holds before it has to pay out claims. This money isn't the insurer's own, but it can be invested for the insurer's benefit. A growing stream of profitably underwritten premiums (starting with GPW) leads to a larger and more stable pool of float. This low-cost (or even negative-cost, if underwriting is profitable) source of investment capital is a primary driver of an insurer's intrinsic_value. Therefore, understanding the source and quality of GPW is fundamental to valuing the entire enterprise.

Unlike a ratio you calculate, GPW is a line item you find in a company's financial reports. The real skill lies not in finding the number, but in interpreting what it means for your investment thesis.

You can typically find Gross Premiums Written in an insurance company's quarterly (Form 10-Q) and annual (Form 10-K) reports filed with the SEC. Look for it in these sections:

• Consolidated Statements of Earnings (Income Statement): It is often one of the very first lines under “Revenues.”
• Management's Discussion and Analysis (MD&A): This section provides a narrative context, where management explains why the GPW changed year-over-year. They might break it down by business segment (e.g., personal auto, commercial property) or geography.
• Notes to Financial Statements: The footnotes will provide detailed breakdowns and definitions of how the company accounts for its premiums.

Finding the number is the easy part. A true value investor acts like a detective, using GPW as a starting point to ask deeper questions. 1. Analyze the Trend, Not the Snapshot: A single GPW figure tells you very little. You need context. Plot the GPW over at least five, and preferably ten, years.

• Is the growth consistent and steady? (A good sign)
• Is it erratic and volatile? (A potential red flag – why?)
• Did it suddenly spike? (Investigate! Did they make an acquisition or enter a risky new market?)
• Is it declining? (Why are they losing business? Is it a strategic retreat from unprofitable lines, or are competitors eating their lunch?)

2. Context is King: Compare with the Combined Ratio: This is the single most important step. Create a simple table for yourself spanning 5-10 years, tracking GPW growth rate against the combined ratio.

This table immediately tells a story. From 2019-2021, the company was a disciplined grower. In 2022, management likely changed strategy, chasing growth at the expense of profitability. This is a massive warning sign for a value investor. 3. Break It Down by Business Line: A company's overall GPW might be growing at 5%, but this can hide important details. The MD&A section will often break down premiums by segment. You might find that their profitable “Commercial Property” line is shrinking, while they are rapidly growing a new, unproven, and likely unprofitable “Cybersecurity Insurance” line. This granular detail helps you assess the quality of the growth, not just the quantity. 4. Compare with Peers: How does the company's GPW growth stack up against its closest competitors? If the entire industry is growing at 3% due to inflation and economic growth, and your company is also growing at 3%, it's likely just keeping pace. But if the industry is flat and your company is growing at 8% (while maintaining a strong combined ratio), it suggests they are taking market share—a strong sign of a competitive advantage.

Let's compare two fictional property & casualty insurers: “Steadfast Mutual” and “Momentum P&C”. Both operate in the same market. Steadfast Mutual: This company is run with a value investor's mindset. Their goal is to achieve an underwriting profit every year, even if it means turning away business and growing slowly. They specialize in commercial insurance for small businesses, a market they have served for 50 years. Momentum P&C: This is a newer company, and its management team is heavily incentivized by stock options tied to revenue growth. Their strategy is to rapidly gain market share in personal auto insurance by offering the lowest prices, advertised heavily during the Super Bowl. Let's look at their performance over three years:

On the surface, Momentum P&C looks like a high-growth star. A naive investor might be drawn to its explosive GPW figures. But the value investor, by looking just one line deeper to the combined ratio, sees the truth. Steadfast Mutual is a compounding machine, slowly and steadily building intrinsic_value. Momentum P&C is an incinerator, burning cash to print meaningless revenue numbers. The GPW figure was the starting point that, when combined with profitability metrics, revealed the fundamental difference between these two businesses.

• Clear Indicator of Scale: GPW is the quickest way to gauge an insurer's size and market presence. It provides a straightforward measure of its sales activity.
• Excellent for Tracking Growth: It is the primary metric used to track an insurer's top-line growth over time and compare its growth trajectory to competitors.
• Simplicity: It's an easy-to-find and easy-to-understand number, making it an accessible starting point for any analysis of an insurance company.

• Profitability Blindness: This is the most critical weakness. GPW says absolutely nothing about the profitability of the policies written. An insurer can have record-breaking GPW and be on the brink of financial collapse.
• Ignores Reinsurance: Because it's a “gross” figure, it overstates the premium revenue the company actually keeps and the net risk it retains. net_premiums_written provides a clearer picture of the company's own risk book.
• Susceptible to Manipulation: Management teams focused on short-term stock performance can be tempted to “buy” GPW growth by underpricing risk, a practice that harms long-term shareholders. Always be suspicious of sudden, dramatic spikes in growth.
• Timing vs. Earning: GPW reflects policies written in a period, not the revenue actually earned. A one-year policy written on December 31st will be fully included in that year's GPW, but only 1/365th of that premium is “earned” on that day. For a more accurate picture of recognized revenue, analysts also look at earned_premiums.

• combined_ratio
• net_premiums_written
• earned_premiums
• underwriting_profit
• float
• loss_ratio
• intrinsic_value
• margin_of_safety