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Adjusted Underwriting Profit

Adjusted Underwriting Profit

What Is Adjusted Underwriting Profit?

Adjusted underwriting profit is the profit that an insurance company earns subsequent to paying out insurance claims and expenses. Insurance companies earn revenue by underwriting new insurance policies and earning income on their financial investments. Deducted from this revenue are expenses associated with running the business and payments on any claims that are made by insurance policyholders. The remainder is the adjusted underwriting profit. This term is specific to the insurance industry.

Understanding Adjusted Underwriting Profit

The adjusted underwriting profit is a measure of progress for an insurance company. It is important for a insurance company to effectively deal with their financial investments so they can pay out on the insurance policies they have sold. On the off chance that they practice prudent underwriting procedures and responsible asset-liability management (ALM), they ought to have the option to generate a gain. In the event that they endorse policies they shouldn't or fail to match their assets to their future insurance policy liabilities, they won't be as profitable.

Asset-liability management is the method involved with overseeing assets and cash flows to meet company obligations, which diminishes the company's risk of loss due to not paying a liability on time. On the off chance that assets and liabilities are dealt with appropriately, the business can increase profits. The concept of asset-liability management centers around the timing of cash since company managers need to know when liabilities must be paid. It is likewise worried about the availability of assets to pay the liabilities, and when the assets or earnings can be changed over into cash.

Life versus Non-Life Insurance

There are two types of insurance companies: life and non-life. Life insurers must frequently meet a known liability with obscure timing as a payout in one lump sum. Life insurers likewise offer annuities that might be life or non-life contingent, guaranteed rate accounts (GICs), or stable value funds.

With annuities, liability requirements are the funding income obligations however long the annuity might last. Then again, GICs and stable value products are subject to interest rate risk, which can dissolve surplus and prompt assets and liabilities to be mismatched. Liabilities of life insurers will generally be longer duration. Appropriately, longer duration and expansion safeguarded assets are chosen to match those of the liability (longer maturity bonds and land, equity, and venture capital), in spite of the fact that product lines and their requirements shift.

Non-life insurers, which are otherwise called property and casualty, need to meet liabilities (accident claims) of a lot more limited duration due to the common three to five-year underwriting cycle, which will in general drive the company's requirement for liquidity. Therefore, interest rate risk for a non-life insurance company is commonly to a lesser degree a consideration than for a life company. Nonetheless, the liability structure will change by company, as it is a function of its product line and the claims and settlement process.


  • Asset-liability management is many times the key determinant of a company's profits, as insurance companies must match the duration of the assets with the projected liabilities.
  • Adjusted underwriting profit alludes to an insurance company's profit in the wake of deducting insurance claims and different expenses.
  • Insurance companies generate revenues by underwriting insurance policies, charging premiums, and earning income from financial instruments.
  • Life insurance companies ordinarily have liabilities of longer duration compared to non-life (property and casualty) insurance companies and, thus, are presented to greater interest rate risk.