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📊 '''Acquisition cost ratio''' is a key financial metric in the insurance industry that measures the proportion of [[Definition:Written premium | written premiums]] consumed by the costs of acquiring new business — including [[Definition:Commission | commissions]], [[Definition:Brokerage | brokerage fees]], [[Definition:Underwriting | underwriting]] expenses, and other distribution-related charges. Expressed as a percentage, it tells management and analysts how efficiently an insurer or [[Definition:Reinsurance | reinsurer]] converts top-line premium into revenue available for claims and profit. Across global markets, the ratio appears in statutory filings, investor presentations, and [[Definition:Rating agency | rating agency]] assessments, though the precise components included can vary depending on whether the reporting entity follows [[Definition:US GAAP | US GAAP]], [[Definition:IFRS 17 | IFRS 17]], or local statutory accounting rules such as those prescribed by the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] in the United States or the [[Definition:Prudential Regulation Authority (PRA) | PRA]] in the United Kingdom.

⚙️ Calculating the ratio is straightforward in principle — divide total acquisition costs by net written or net earned premiums, depending on the convention used — but the devil is in the classification. Under US statutory accounting, [[Definition:Deferred acquisition cost (DAC) | deferred acquisition costs]] are amortized over the policy period and matched against earned premium, whereas IFRS 17 folds acquisition cash flows into the [[Definition:Contractual service margin (CSM) | contractual service margin]], altering how and when those costs hit the income statement. In [[Definition:Lloyd's of London | Lloyd's]] market reporting, syndicate-level acquisition costs include both broker remuneration and [[Definition:Coverholder | coverholder]] commissions under [[Definition:Binding authority agreement | binding authority agreements]], which can push the ratio higher for heavily delegated books of business. Reinsurers face their own nuances: [[Definition:Ceding commission | ceding commissions]] paid on [[Definition:Treaty reinsurance | treaty business]] constitute a significant acquisition cost, and a [[Definition:Quota share | quota share]] treaty with a high ceding commission will elevate the ratio even if the underlying risk is attractively priced.

💡 Investors and [[Definition:Insurance analyst | analysts]] scrutinize the acquisition cost ratio alongside the [[Definition:Loss ratio | loss ratio]] to build a complete picture of [[Definition:Underwriting profitability | underwriting profitability]] — together these components feed into the [[Definition:Combined ratio | combined ratio]], arguably the single most watched performance gauge in non-life insurance. A rising acquisition cost ratio may signal intensifying competition, over-reliance on expensive distribution channels, or unfavorable shifts in business mix toward broker-heavy lines such as [[Definition:Specialty insurance | specialty]] or [[Definition:Excess and surplus lines | surplus lines]]. Conversely, [[Definition:Insurtech | insurtech]] carriers that distribute directly through digital platforms often highlight a structurally lower acquisition cost ratio as a competitive advantage, although sustaining that advantage at scale remains an open question across markets from the United States to Southeast Asia.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Combined ratio]]
* [[Definition:Loss ratio]]
* [[Definition:Deferred acquisition cost (DAC)]]
* [[Definition:Expense ratio]]
* [[Definition:Ceding commission]]
* [[Definition:Commission]]
{{Div col end}}

Definition:Acquisition cost ratio - Revision history

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