What Does Underwriting Expenses Mean?
Underwriting expenses are the costs that an insurance company must pay to remain in operation. These costs are subtracted from the income of insurance companies to calculate net profit. Underwriting expenses can include a wide variety of costs. These expenses are also used by insurance companies to calculate the expense ratio, which is a ratio used to determine the percentage of premiums earned in a given period that must go to underwriting expwnses.
Insuranceopedia Explains Underwriting Expenses
Although insurance companies receive substantial income from premiums, they too have expenses they must pay in order to run their businesses. For example, salaries, actuarial reviews, advertising fees, commissions, etc, all must be paid. Many insurance companies advertise on television. These advertisements are just one underwriting expense among many. After these underwriting expenses are paid, the insurance company can keep whatever is left over as profits. If the underwriting expenses are significantly lower than the generated income, then the insurance company can make substantial gains.