Loss ratio
A loss ratio compares incurred losses with earned premium for a defined period or group of business. A carrier report may include loss adjustment expenses or other adjustments in its calculation. Read the report's definition before comparing it with another figure.
Why carriers watch your agency's loss ratio
An agency's carrier reports may use loss ratio in performance reviews and contingent commission calculations. The agreement can specify which losses count, expense treatment, the measurement period, and adjustments for large claims. Those details matter more than a generic target percentage.
Review the size and mix of the book as well as the percentage. A single developing claim can substantially change a small book's result. Ask which periods and valuation dates are being compared before drawing a conclusion about the relationship.
Loss ratio vs combined ratio
A combined ratio includes an expense measure as well as the loss component. Insurer reports may use different conventions for loss adjustment expenses and denominators. Compare like definitions. A combined ratio above 100% generally indicates an underwriting loss before investment income.
For an agency, the useful next step is to understand the claims and exposures behind the figure. Track trends alongside growth, concentration, and service workload. A loss ratio alone does not describe the quality or value of the entire book.
A worked example
Suppose a report uses incurred losses without loss adjustment expenses. It shows $40,000 paid and $20,000 in outstanding reserves against $100,000 of earned premium. The loss ratio is 60%, not 40%. A later reserve change can change the result.
Common questions
What is a good loss ratio for an agency's book?
It depends on the line and the carrier's targets. The practical answer lives in your profit-sharing agreements, which spell out the loss ratio thresholds that trigger contingent commission. Read those, not a generic benchmark.
Is a very low loss ratio always good?
On a small book, no single year means much. One large claim can swing a small book from 10% to 200%. Carriers apply credibility adjustments for exactly this reason, and many average results over multiple years.
Sources
Part of the Relay insurance operations glossary. Updated 2026-07-11. See how we source content.
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