Underwriting profit is a term used in the

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

industry. It consists of the

earned premium An insurance policy may be canceled before the end of the policy period. This has the effect of ending the policy coverage on the date of the policy cancellation. Cancellation methods Three different calculation methods are commonly used. Cancell ...

remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held

premium Premium may refer to: Marketing * Premium (marketing), a promotional item that can be received for a small fee when redeeming proofs of purchase that come with or on retail products * Premium segment, high-price brands or services in marketing, ...

s. Many companies will eschew underwriting profit in order to gain a greater

market share Market share is the percentage of the total revenue or sales in a market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those units would have a ...

Examples

For example, an auto insurer collects money every month from its customers in the form of a premium. Should a customer have a covered auto accident, the company pays out a claim. In the time between the receipt of each premium payment and the paying of the claim, the money received by the insurer can be invested. Returns from investments are the primary source of profits for an insurance company. If the amount of premiums taken in is greater than the claims paid out, even before taking into account investment returns, the excess additional profit is called "underwriting profit". Another prime example occurs when using Insured Profits.

Examples

See also