Underwriting income or loss is calculated by subtracting losses and expenses from what measure?

• A. Earned Premiums
• B. Premiums Written
• C. Policyholder Surplus
• D. Gross Income

Answer: (A)

Underwriting income or loss focuses on the results of the risk underwritten during the period. For this, premiums earned are used because they reflect the portion of premiums that actually covers risk during the period, i.e., revenue recognized as coverage is provided. Subtracting losses and underwriting expenses from earned premiums gives the underwriting profit or loss.

Premiums written include all policies issued in the period, regardless of how much coverage has actually expired or been earned, so they don’t accurately match the period’s incurred losses and expenses. Policyholder surplus is a balance-sheet measure of net assets, not a measure of underwriting performance. Gross income includes other income sources (like investment income), which aren’t part of underwriting results.