Insurance premium


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Insurance & Reinsurance expert
Practice notes

Insurance premium


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Insurance & Reinsurance expert

Practice notes
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An insurance premium is the sum paid for insurance or reinsurance cover and is the consideration paid by the (re)insured for the (re)insurer’s contractual obligation to indemnify it against risks specified in the policy.

The premium is used by (re)insurers primarily to:

  1. •

    establish reserves for known and unknown losses

  2. •

    pay claims

  3. •

    generate investment returns

  4. •

    purchase reinsurance

  5. •

    comply with regulatory solvency margin requirements

  6. •

    pay Insurance Premium Tax (IPT) to HMRC. For more information on IPT, see Practice Note: Insurance premium tax

Calculating the insurance premium

It is the role of underwriters and actuaries to calculate the premium in accordance with their assessment of the risk. How it is calculated depends greatly on the particular class of insurance.

Calculating a life and health premium is mainly a mathematical task carried out by actuaries based on large data sets of longevity and morbidity statistics, taking into account prevailing and long-term inflation rates and anticipated returns on investments.

Certain classes of general insurance, such as motor, may also be rated in this way where there

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Insurance premium definition
What does Insurance premium mean?

The sum paid or payable by a litigant who has taken out an 'after the event' insurance policy taken out in respect of particular litigation and covering against the risk of losing that litigation.

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