Underwriting Profit

Underwriting profit refers to the profit that an insurance company earns from its underwriting activities, which involves evaluating, pricing, and assuming the risk of policies. It is the difference between the premiums collected from policyholders and the claims paid out, after accounting for administrative expenses. If the premiums exceed the claims and costs, the insurer earns an underwriting profit; if claims and expenses exceed the premiums, it results in an underwriting loss.

Example

An insurance company collects $10 million in premiums but only pays out $7 million in claims and $1.5 million in administrative costs, resulting in an underwriting profit of $1.5 million.