Net Earned PremiumNEP
The real revenue line — premium actually earned in the period, after reinsurance ceded and the unexpired-risk portion set aside.
Why you care
NEP is an insurer's real revenue — the top line after two haircuts to GWP: premium ceded to reinsurers, and the slice of cover not yet run off. Every ratio you'll meet — loss ratio, expense ratio, combined ratio — divides into NEP. Get NEP wrong and every ratio downstream is wrong.
Run the numbers
GWP ₹120 cr. Cede ₹15 cr to reinsurers → ₹105 cr net written. Hold back ~₹5 cr as unexpired risk → NEP ≈ ₹100 cr (illustrative). That ₹100 cr is what the insurer actually earned and can measure claims and costs against.
Where this goes
NEP is the denominator for the two big cost lines: claims, as the loss ratio, and expenses, as the expense ratio. Both are "as a % of NEP." Add those two ratios and you get the combined ratio — so NEP sits under the whole engine.
Why you care
Net Earned Premium (NEP) is the premium an insurer has actually earned in the period: gross written premium, minus the premium ceded to reinsurers, minus the portion of risk that has not yet expired. It is the true revenue line of a general insurer, and it is the base almost every other number is expressed against.
This matters because insurance revenue is not "money received." A policy is a promise to carry risk for twelve months. If a customer pays ₹12,000 for a year's motor cover on 1 April, the insurer has not earned ₹12,000 that day. It earns it at ₹1,000 a month as the risk runs off, and holds the unearned part as a reserve. NEP is the accounting that turns "premium collected" into "premium earned in this period." Every ratio you will meet downstream — loss ratio, expense ratio, combined ratio — is measured as a percentage of NEP. If you don't know what the denominator is, you can't read any of them.
Run the numbers
Start from the ₹120 crore of GWP in the previous node and walk it down:
| Step | Amount | What happened |
|---|---|---|
| Gross written premium | ₹120 cr | Premium contracted on all policies written |
| Less: reinsurance ceded | −₹15 cr | Premium passed to reinsurers with the risk |
| Net written premium | ₹105 cr | Premium the insurer retains |
| Less: change in unexpired risk | −₹5 cr | Portion covering future months, held as reserve |
| Net earned premium (NEP) | ≈₹100 cr | Premium actually earned this period |
So a book that looks like ₹120 crore at the top is ₹100 crore of real revenue. Round-number NEP of ₹100 crore is the base we'll use for the rest of the general-insurance spine. It makes every ratio read straight off: ₹70 crore of claims is a 70% loss ratio, ₹35 crore of costs is a 35% expense ratio, and so on.
Where this goes
NEP is the denominator of the two cost ratios that decide the whole underwriting result. Claims incurred over NEP is the loss ratio; commissions plus operating expenses over NEP is the expense ratio. Add the two and you get the combined ratio, the single number that verdicts the underwriting engine. Everything from here forward is measured against this ₹100 crore, which is why getting NEP right is the quiet foundation of reading a general insurer at all.
What causes what
Before this
- Gross Written Premiumcauses Net Earned PremiumGWP is the gross figure; strip out the reinsurance ceded and the portion of risk still unexpired, and what's left is the premium actually earned.
- Reinsurancecauses Net Earned PremiumPremium ceded to reinsurers, including the mandatory GIC Re cession, is stripped out of the gross figure before you reach net earned premium.
After this
- Net Earned Premium causesLoss Ratio (Claims Ratio)NEP is the denominator claims are measured against — the earned premium the loss ratio divides into.
- Net Earned Premium causesExpense RatioThe same earned-premium base that operating and acquisition costs are measured against in the expense ratio.
- Net Earned Premium causesTechnical Reserves / Policy LiabilitiesEvery rupee of premium written adds unearned-premium and claims reserves — growing the book is what grows the pool.