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Underwriting Income


Underwriting income is a term used in the insurance industry, referring to the profit that an insurance company makes from premiums, after deducting costs for claims and operating expenses. It demonstrates the effectiveness of an insurer’s underwriting practices – the process through which an insurer identifies and measures the risk of potential clients. If the premiums received exceed the expenses and claims, the result is underwriting income, indicating a profitable insurance operation.


The phonetic pronunciation of “Underwriting Income” is: ʌn-dər-raɪ-tɪŋ ˈɪn.kʌm

Key Takeaways


Underwriting Income Definition: Underwriting income is a measure of the profits generated by an insurance company’s underwriting operations. It is determined by deducting the costs of claims and business operations from premium revenues.


Importance in Insurance Industry: The underwriting income is particularly critical in the insurance industry as it shows an insurer’s core business profitability. A positive underwriting income indicates that an insurance company is successful in its core business operations.3.

Factors Affecting Underwriting Income: There are several factors that can affect underwriting income, including the level of risk associated with insured entities, the accuracy of pricing policies, the volume of claims, and administrative costs. Efficient management of these factors can significantly increase an insurance company’s underwriting income.


Underwriting income is a significant metric in the insurance industry that reflects the profitability derived from underwriting activities. This entails the process of evaluating, defining, and pricing the insurance risk. It is important because it helps determine the financial health and performance of an insurance company. If underwriting income is positive, an insurance company is operating effectively – they are generating more premiums from policies than they are paying out in claims or spending on operational costs, indicating profitable underwriting decisions. It can be viewed as a direct measure of the quality of the underwriting activities and practices of an insurance business. Without underwriting income, insurance companies have to rely on investment income to maintain profitability, which can lead to financial instability. Therefore, sustainable underwriting income is crucial for the long-term viability of an insurance business.


Underwriting income is an integral part of the insurance industry and is central to its profitability. Its purpose is to reflect the profits earned from the premiums collected from policyholders, after accounting for any claims made and the administrative costs associated with managing the insurance policies. In simpler terms, when an insurance company takes on the risk from issuing insurance policies, it collects premiums. The money left over after paying out claims and administrative costs constitutes the underwriting income.The underwriting income serves as the main source of income for insurance companies before investment gains. Tracking this figure helps the insurance firm to know whether its core business operations are profitable or if they’re relying too much on their investment income to cover their operational costs. It’s significant for an insurance company to be profitable from their underwriting activities as it ensures the firm’s financial sustainability, independent of its investment activities. Therefore, underwriting income is a critical metric to assess the operational competency and the overall health of an insurance company.


Underwriting income is essentially the profit earned by an insurance company from the premiums it charges for coverage, after accounting for any claims made and administrative expenses. Here are three real-world examples:1. Allstate Insurance: Allstate Insurance might collect premiums worth $100,000 in a year from its clients. The company then pays out $50,000 in the form of claims to clients who have suffered qualifying losses. It also incurs $20,000 as administrative expenses such as paying their employees and maintaining their offices. Allstate’s underwriting income for the year would be $30,000 ($100,000 – $50,000 -$20,000) – illustrating that they made a profit from their underwriting activities.2. Berkshire Hathaway’s Insurance Group: Berkshire Hathaway, owned by Warren Buffett, is noted for its vast insurance operations. The company often earns significant underwriting income. For example, in 2017, it reported underwriting gains of $3.7 billion. This income helped finance the company’s investments in other sectors, showcasing another role underwriting income can play in a diversified corporation.3. AIG Insurance: Let’s say in one fiscal year, AIG Insurance earned premiums amounting to $70 billion. However, they had to pay out amounts of $65 billion for claims and benefits and also had to account for policy acquisition and administrative expenses of $5 billion. In this case, AIG’s underwriting income would be $0 ($70 billion – $65 billion – $5 billion) – indicating that the company broken even on its underwriting activities.

Frequently Asked Questions(FAQ)

What is underwriting income?

Underwriting Income refers to the income generated by an insurance company through the underwriting process of issuing and distributing insurance policies. It is calculated by subtracting the incurred losses and underwriting expenses from the earned premiums.

How is underwriting income calculated?

Underwriting income is calculated as: Earned Premiums – Incurred Losses – Underwriting Expenses.

What is the significance of underwriting income in the insurance industry?

Underwriting income is a key measure for an insurance company. It helps to determine the profitability of the company’s core operations, excluding investment income and other sources of profit.

Does a high underwriting income mean the insurance company is profitable?

A high underwriting income generally indicates that an insurance company is making money from its core operations. However, it is not the only source of an insurance company’s profitability. Companies also earn through investments and other services.

What happens if an insurance company has a negative underwriting income?

If an insurance company has a negative underwriting income, it means that its losses and expenses have exceeded its premiums. To remain profitable, the company will have to rely on income from other sources, such as investments.

How can an insurance company improve its underwriting income?

A company can improve underwriting income by charging higher premiums, reducing losses (through better risk assessment) and driving efficiency in the underwriting process. However, these actions may have to be balanced with maintaining a competitive position in the market.

Is underwriting income a part of an insurance company’s net income?

Yes, underwriting income is part of an insurance company’s net income. Net income includes underwriting income and any profit generated from other activities such as investments or other financial services.

Is underwriting income the same as operating income?

No, underwriting income is not the same as operating income, even though it’s part of the company’s operations. Operating income includes all operating profit (both underwriting and investment income) and subtracts operating expenses, including overheads, operating salaries, and other business-related expenses.

Related Finance Terms

  • Premiums Earned: This is the total amount of premiums that an insurance company has received from its customers and has “earned” by providing coverage.
  • Losses Incurred: These are the total losses an insurance company is expected to pay out to its policy holders during a specific period.
  • Underwriting Profit: This is what an insurer earns from premiums paid by policyholders, minus any claims paid out and administrative expenses.
  • Reserves: These are funds set aside by an insurance company to cover future claims, losses, or liabilities.
  • Loss Ratio: This term refers to the ratio of losses to earned premiums, and is used to determine the financial health of an insurance company.

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