Cash Flow Underwriting Law and Legal Definition
Cash flow underwriting is a pricing tool used by insurance companies. It is an insurer's practice of nonselectively writing business in order to generate greater amounts of cash for investment purposes.
Cash flow underwriting happens when a given insurance product is priced below the rate of premium required to take into account the cost of expected losses that will be incurred. This is done to generate substantial investment capital from the increased business that will come from the lower pricing.
Sometimes it is done by discounting the insurance product below its true worth and using the funds generated to invest in financial instruments that earn a higher return than the original costs of the instrument.
