Underwriting Expenses

AAA

DEFINITION of 'Underwriting Expenses'

Costs and expenditures associated with underwriting activity. Underwriting expenses include a wide range of expenditures, and the exact definition differs for insurers and investment banks. As a major expense category, the lower these expenditures are as a proportion of underwriting activity, the higher the profitability of the insurer or investment bank.

INVESTOPEDIA EXPLAINS 'Underwriting Expenses'

For an insurer, underwriting expenses may include direct costs such as business acquisition, actuarial reviews and inspections, as well as indirect costs such as commissions paid and accounting, legal and customer service expenses. For an investment bank, underwriting expenses would include such costs as due diligence activities and research, legal and accounting fees.


The expense ratio for an insurer is obtained by computing underwriting expenses as a percentage of premiums earned for a given period. Since the profitability of an insurer has an inverse correlation with the expense ratio, insurers strive to keep this ratio in check in order to remain profitable.

RELATED TERMS
  1. Underwriting Fees

    Underwriting fees are monies collected by underwriters for performing ...
  2. Underwriting Standards

    Guidelines established to ensure that safe and secure loans are ...
  3. Underwriting

    1. The process by which investment bankers raise investment capital ...
  4. Negotiated Underwriting

    A process in which both the purchase price and the offering price ...
  5. Underwriter

    A company or other entity that administers the public issuance ...
  6. Insurance Underwriter

    A financial professional that evaluates the risks of insuring ...
Related Articles
  1. Home & Auto

    The History Of Insurance

    The first written policy appeared in Hammurabi's Code. Find out how it evolved from there.
  2. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  3. Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of Annuities

    These may look like good retirement vehicles, but beware of the fees buried in the fine print.
  4. Insurance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  5. Fundamental Analysis

    What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health.
  6. Fundamental Analysis

    What is a bad interest coverage ratio?

    Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio.
  7. Technical Indicators

    What is a good gearing ratio?

    Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect relative financial stability.
  8. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  9. Investing Basics

    What is the difference between interest coverage ratio and TIE?

    Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.
  10. Investing Basics

    What is accrual accounting used for in finance?

    Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders and managers.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center