Glossary

Expense ratio

The share of premium an insurer spends on commissions, salaries, marketing, taxes and other costs of selling and running its business, excluding claim payments.

Also called: underwriting expense ratio, operating expense ratio, acquisition cost ratio, statutory expense ratio

The expense ratio measures what it costs an insurer to operate, relative to premium. The numerator is underwriting expenses: agent commissions and other acquisition costs, salaries, marketing, technology, premium taxes and general overhead. Claim payments are not included. Say a company spends $30 million on those items against $100 million of premium. Its expense ratio is 30%.

Insurers report it two ways. Statutory statements usually measure expenses against written premium, while GAAP reports usually use earned premium, so figures from two sources may not match. Add the expense ratio to the loss ratio and you have the combined ratio.

The ratio reflects how a company sells. An insurer that pays commissions to independent agents carries different acquisition costs than a direct writer that sells online or through exclusive agents on a different compensation plan. Neither model is better for the consumer by definition, and a low expense ratio does not guarantee good claims service or a low price. A company that spends little on claims staffing can look efficient until a catastrophe year strains it.

Policyholders feel expenses indirectly, because rates must cover them along with losses and profit. If you are comparing carriers, price and service matter more than the ratio, and the captive agents, independent agents and direct insurers guide explains how distribution affects what you pay and what advice you get.

Last reviewed October 10, 2026

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Related terms

Loss ratio The share of earned premium an insurer pays out or sets aside for claims, shown as a percentage and used to judge profitability and set rates. Combined ratio An insurer's loss ratio plus its expense ratio, where a result under 100% means premiums covered claims and costs and over 100% means an underwriting loss. Underwriting profit What an insurer keeps from premiums after paying claims, claim-handling costs and operating expenses, before any investment income is counted. Direct writer An insurer that sells straight to consumers by website, phone, app or its own employees rather than through independent agents who represent several companies. Independent agent An agent or agency appointed by several insurance companies that compares their coverage and prices for a customer and is paid by commission. Captive agent An agent who sells for a single insurance company or group, usually under an exclusive contract, so every quote comes from that company's products.

Related guides

The combined ratio: reading home insurer results What a combined ratio of 95 or 108 means for a home insurer, how net, direct and underlying versions differ, and why no single ratio proves a company is sound. How home insurers make money, and lose it Home insurers earn from underwriting and from investing premiums. How loss ratios, expenses and catastrophe years combined in 2023 to 2025 industry results. Reading a home insurer's earnings report How to read a public home insurer's quarterly release or 10-K: homeowners combined ratio, catastrophe losses, reserve development and premium growth.