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Why is profit loading seen as an expense incurred by a product provider?

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asked Sep 29 in BUS 4027W - Actuarial Risk Management by anonymous

In chapter 10 on contract design, one factor that must be considered is expenses and charges. I came across this mnemonic for expenses incurred by a product provider that had "profit loading" as an expense. 

I thought profit loading would be a factor added to premiums to ensure that the insurer could make a profit i.e. an income. Why would it be an expense then?

1 Answer

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answered Oct 4 by jolegutko (850 points)

I think it is seen as an expense only in the broadest possible sense of the word - an outflow from the product to the insurer. Not a real expense but counting on the same side of the equation as it were.