Cash Flow Underwriting
What Does Cash Flow Underwriting Mean?
Cash flow underwriting is a type of underwriting in which an insurance company prices premiums lower than usual to attract more business. The company then invests a larger amount of money than it typically would to compensate for any gaps in its monetary reserves needed to pay out claims.
Insuranceopedia Explains Cash Flow Underwriting
Cash flow underwriting is a strategy that insurance companies often employ during “soft” market conditions characterized by high competition. Lower premiums are naturally appealing to policyholders, so companies that reduce their premiums often experience an influx of business. If these lower premiums are invested wisely, the company can remain profitable despite receiving less in premium payments. However, if the investments are not managed effectively, it could lead to significant financial difficulties due to the combination of reduced earnings and declining assets.
