Alberta General Insurance Level 1 Practice Exam

What determines underwriting profit?

1. The difference between incurred claims and earned premiums

2. The amount by which earned premiums exceed incurred claims and expenses

3. The total of earned premiums

4. The investment income generated by the insurer

The correct answer is: The amount by which earned premiums exceed incurred claims and expenses

Underwriting profit is determined by the amount by which earned premiums exceed incurred claims and expenses. This means that the insurance company is making more money from premiums than they are paying out in claims and expenses. Options A, C, and D are incorrect because they do not take into consideration all of the factors that contribute to underwriting profit. Option A only looks at the difference between two factors, while option C only considers one factor. Option D does not mention any expenses or claims at all. Thus, option B is the most accurate and complete explanation for what determines underwriting profit.