The Underwriting Profit Provision

This paper is a presentation of methods used for computing the provision for underwriting profit in property and casualty insurance rates. The provision for underwriting profit is one component of an actuarially derived premium rate. Adding the provision for underwriting profit to the sum of provisions for losses and expenses yields the total premium rate. Here the loss provision for property lines is assumed to include an adequate load for the long-run expectation of catastrophe losses. If the premium rate is greater than the sum of the loss and expense provisions, then the underwriting profit provision is positive. The underwriting profit provision could also be negative. Actual underwriting profit is the difference between the premium and the sum of losses and expenses. Since the rating provisions for losses and expenses may differ from the actual losses and expenses, the underwriting profit provision may differ from the actual underwriting profit.