Cash Flow Underwriting

AAA

DEFINITION of 'Cash Flow Underwriting'

A pricing tool used by insurance companies. Cash flow underwriting occurs when a given insurance product is priced below the rate of premium required to take into account the cost of expected losses that will be incurred. The purpose of this strategy is to generate substantial investment capital from the increased business that will come from the lower pricing.

INVESTOPEDIA EXPLAINS 'Cash Flow Underwriting'

The investment capital that is presumably generated by the sales from the lower-priced product can be used to invest in vehicles that will pay higher rates of return. If a smaller amount were invested, then a less advantageous investment may have to be used instead. Ultimately, the higher investment returns make up for the difference in pricing for the insurer.

RELATED TERMS
  1. Cash Flow Statement

    One of the quarterly financial reports any publicly traded company ...
  2. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  3. Insurance Score

    A rating computed and used by insurance companies that represents ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  6. Automated Underwriting

    A computer-generated loan underwriting decision. Using completed ...
Related Articles
  1. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  2. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  3. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  4. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  5. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  6. Stock Analysis

    Did J.C. Penney’s Turnaround Plan Work Out?

    J.C. Penney has wrapped up another year of its turnaround plan: ultimately, to make money in a stock, the underlying business has to make money, too.
  7. Investing

    Is Caterpillar Here To Stay?

    Because Caterpillar is the largest construction and mining equipment manufacturer in the world, investors can count on it to keep paying dividends.
  8. Investing

    Is J.C. Penney Fighting An Uphill Battle?

    J.C. Penney's revenue is once again on the ascent, its free cash flow is closing in on positive territory, and its gross margin has rebounded sharply.
  9. Investing

    What Is The Real Picture Of Linn Energy?

    Numbers don't always tell the full story. Take, for example, the long-term chart for LINN Energy which was expected to be down more than 40%.
  10. Insurance

    Life Insurance: How Much Does Age Raise Your Rate?

    If you need life insurance, try to get it before your next birthday. Here's why.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center