Indemnity Expense Ratio
The ratio of claim indemnity payments to earned premium, measuring how much of each premium dollar is paid out as loss settlements.
industryPublished 2026/06/07Last verified 2026/06/07
FAQs
- What is a good indemnity expense ratio?
- Benchmarks vary by line and carrier mix, but a pure loss ratio below 65% to 70% is generally considered acceptable in most commercial lines. Personal auto and workers' compensation tend to have higher expected loss ratios due to medical cost trends.
- How do salvage and subrogation affect the indemnity expense ratio?
- Both reduce incurred losses — subrogation recoveries and salvage proceeds are netted against gross paid losses in statutory financial statements, directly reducing the loss ratio numerator.
- Why does the indemnity expense ratio matter for reinsurance pricing?
- Reinsurers evaluate ceding carrier loss ratios to assess the quality of the book being ceded. Deteriorating loss ratios at treaty renewal typically result in higher reinsurance rates or more restrictive treaty terms.
Related Terms
Claims Leakage
Measurable overpayment on claims relative to the theoretically correct settlement, resulting from process failures, errors, or inadequate investigation.
Salvage Recovery
The process by which an insurer recovers value from damaged property it paid for in a total loss, typically by selling the salvaged asset.
IBNR Reserve
Incurred But Not Reported reserve: a liability estimate for losses that have occurred but have not yet been reported to the insurer.
Case Reserving
The process of establishing a specific dollar reserve for an individual open claim, representing the estimated total cost to resolve that claim.