Glossary · Insurance agency commissions
Combined ratio
A combined ratio is a carrier’s loss ratio plus its expense ratio. Under 100% means the carrier made an underwriting profit; over 100% means it paid out more in losses and expenses than it took in. Commission is part of the expense ratio, which is why carriers watch what they pay agencies.
What it means
The NAIC’s glossary of insurance terms describes the combined ratio as “an indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.” The same glossary defines the expense ratio as the “percentage of premium income used to attain and service policies.”
How it works: the loss ratio measures claims against earned premium; the expense ratio measures the cost of getting and servicing business, including agency commission, against premium. Add them. The ratio leaves out investment income, so a carrier can run a combined ratio over 100% and still be profitable overall.
How it shows on a commission statement
You will not find a combined ratio on a commission statement. It matters for commission indirectly: carriers under pressure on their combined ratio may cut commission schedules, tighten contingent agreements or drop supplementals. When a carrier announces a rate change, check that new statements apply it only from the date and lines in the notice.
Example
- Earned premium
- $10,000,000.00
- Incurred losses and loss adjustment expense
- $6,600,000.00
- Loss ratio
- 66.0%
- Expenses, including $1,300,000 agency commission
- $3,000,000.00
- Expense ratio
- 30.0%
- Combined ratio, 66.0% + 30.0%
- 96.0%
Commonly confused
- Loss ratio is only the claims side; the combined ratio adds expenses. See loss ratio.
- An agency’s own loss ratio decides its contingent commission; a carrier’s combined ratio is the carrier’s result and does not usually enter that calculation directly. See contingent commission.
- Commission rate is one of the costs inside the expense ratio. See commission rate.
Common mistakes to check
- Reading an agency loss ratio as if it were the carrier’s combined ratio.
- Assuming a combined ratio over 100% means the carrier lost money overall, ignoring investment income.
- Missing a commission schedule change that followed a carrier’s poor underwriting year.
Questions
What does a combined ratio over 100% mean?
The carrier paid more in losses and expenses than it earned in premium, an underwriting loss. Investment income may still leave it profitable overall.
Does the combined ratio affect agent commission?
Indirectly. Commission is part of the expense ratio, so carriers with a high combined ratio may lower commission schedules or tighten contingent programs. Your own commission is still set by your agreement.
Sources
- National Association of Insurance Commissioners, Glossary of Insurance Terms, entries for combined ratio and expense ratio. Retrieved October 12, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: insurance loss ratio calculator.