[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Underwriting Profit** ## Definition ==Underwriting Profit== is the profit from insurance operations before considering investment income, calculated as premium minus losses, LAE, and expenses. ## Formula ``` Underwriting Profit = Earned Premium - Incurred Losses - LAE - Expenses Or as ratio: Underwriting Profit Ratio = Underwriting Profit / Earned Premium ``` ## Combined Ratio ``` Combined Ratio = Loss Ratio + Expense Ratio Underwriting Profit Ratio = 1 - Combined Ratio Example: Loss & LAE Ratio: 68% Expense Ratio: 30% Combined Ratio: 98% Underwriting Profit: 2% ``` ## Target in Ratemaking ``` Rate formula includes profit target: Permissible Loss Ratio = 1 - Expense Ratio - Profit Target Example: Expense Ratio: 30% Profit Target: 5% Permissible Loss Ratio: 65% ``` ## Related Concepts - [[Profit and Contingency Provision#Definition]] - [[Combined Ratio#Definition]] ## References - Werner & Modlin, Chapter 5