When premiums earned during any accounting period are less than incurred losses plus underwriting expenses there will be an

When premiums earned during any accounting period are less than incurred losses plus underwriting expenses there will be an

• A. Underwriting loss.
• B. Investment gain.
• C. Net underwriting profit.
• D. Surplus increase.

Answer: (A)

The key idea is that the underwriting result depends on whether earned premiums cover the costs of claims and underwriting expenses. If earned premiums are less than incurred losses plus underwriting expenses, the insurance operations for that period did not break even, resulting in an underwriting loss. This negative result reduces underwriting profitability (and, absent offsetting investment income, would reduce surplus). The other options describe outcomes that require earned premiums to exceed costs (net underwriting profit), investment income independently (investment gain), or a rise in surplus from overall profitability (surplus increase), which doesn’t fit when underwriting is negative.

The key idea is that the underwriting result depends on whether earned premiums cover the costs of claims and underwriting expenses. If earned premiums are less than incurred losses plus underwriting expenses, the insurance operations for that period did not break even, resulting in an underwriting loss. This negative result reduces underwriting profitability (and, absent offsetting investment income, would reduce surplus). The other options describe outcomes that require earned premiums to exceed costs (net underwriting profit), investment income independently (investment gain), or a rise in surplus from overall profitability (surplus increase), which doesn’t fit when underwriting is negative.