DEFINITION of 'Underwriting Income '
Profit generated by an insurer's underwriting activity over a period of time. Underwriting income is the difference between premiums collected on insurance policies by the insurer, and expenses incurred and claims paid out. Huge claims and disproportionate expenses may result in an underwriting loss, rather than income, for the insurer. The level of underwriting income is an accurate measure of the efficiency of an insurer's underwriting activities.
BREAKING DOWN 'Underwriting Income '
For example, if an insurer collects $50 million in insurance premiums over a year, and spends $40 million in insurance claims and associated expenses, its underwriting income is $10 million.
An insurer's underwriting income may fluctuate from quarter to quarter, with natural and other disasters such as earthquakes, hurricanes and fires leading to huge underwriting losses. Hurricane Katrina, the largest natural catastrophe in US history, caused an underwriting loss of $2.8 billion for the US property/casualty insurance industry in the first nine months of 2005, compared with underwriting income of $3.4 billion in the corresponding period of 2004.