Insurance Underwriting – Non-UK (WUE) Practice Exam

Return on capital employed shows how effectively a business uses the capital it has at its disposal to generate profit. For an insurer, this ratio compares the operating profit (the earnings from underwriting and investment activities after operating expenses) to the capital employed (the funds invested in the business, typically equity plus long‑term debt minus current liabilities). A higher ROCE means the insurer is turning its capital into earnings more efficiently, which is a sign of good capital management and competitive performance. This measure is not about liquidity, which relates to short‑term cash availability; nor is it about dividends paid, which are distributions of profits rather than a snapshot of how efficiently capital is used; nor is it about revenue growth, which is about top-line income rather than how effectively capital supports earning that income. In short, ROCE focuses on the relationship between the capital used and the profits generated from that capital, giving a clear view of efficiency in capital use.