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📊 '''Acquisition ratio''' is a key [[Definition:Expense ratio | expense metric]] in the insurance industry that measures the proportion of [[Definition:Net earned premium | net earned premiums]] consumed by the costs of acquiring new business — including [[Definition:Commission | commissions]], [[Definition:Brokerage | brokerage fees]], and other direct costs associated with selling and onboarding policies. Unlike the broader [[Definition:Expense ratio | expense ratio]], which captures all operational overhead, the acquisition ratio isolates the cost of getting business onto the books. Insurers, [[Definition:Reinsurer | reinsurers]], and analysts across all major markets track this metric closely, though its precise composition can vary depending on the [[Definition:Accounting standard | accounting framework]] in use — [[Definition:US GAAP | US GAAP]], [[Definition:IFRS 17 | IFRS 17]], or local statutory standards each treat certain acquisition-related costs differently in terms of timing and capitalization.

⚙️ The ratio is calculated by dividing total acquisition expenses by net earned premiums over a given period. What counts as an acquisition expense typically includes agent and broker commissions, [[Definition:Contingent commission | contingent commissions]], premium taxes, and costs directly tied to the underwriting and issuance of new policies. Under [[Definition:IFRS 17 | IFRS 17]], certain acquisition costs are capitalized as part of the [[Definition:Contractual service margin (CSM) | contractual service margin]] and amortized over the coverage period, which can smooth the ratio's impact on reported earnings compared to regimes where such costs are expensed immediately. In [[Definition:Lloyd's of London | Lloyd's]] and London market reporting, acquisition costs are a prominent line item in [[Definition:Syndicate | syndicate]] accounts, often scrutinized by [[Definition:Managing agent | managing agents]] and capital providers alike. A personal lines [[Definition:Direct writer | direct writer]] will generally report a lower acquisition ratio than a company heavily reliant on independent [[Definition:Insurance broker | brokers]] or [[Definition:Managing general agent (MGA) | MGAs]], because it avoids paying intermediary commissions.

💡 Keeping the acquisition ratio in check is fundamental to an insurer's long-term profitability and competitive positioning. When acquisition costs rise faster than premium growth — a common challenge during [[Definition:Soft market | soft market]] cycles or when entering new distribution partnerships — the [[Definition:Combined ratio | combined ratio]] deteriorates even if [[Definition:Loss ratio | loss experience]] remains favorable. Investors and [[Definition:Rating agency | rating agencies]] such as [[Definition:AM Best | AM Best]] and [[Definition:S&P Global Ratings | S&P Global Ratings]] pay particular attention to trends in this ratio when assessing an insurer's operational efficiency and distribution strategy. In fast-growing [[Definition:Insurtech | insurtech]] ventures, high acquisition ratios are sometimes tolerated in early years as the cost of building market share, but sustained elevation raises questions about the scalability of the [[Definition:Distribution channel | distribution model]].

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

Definition:Acquisition ratio - Revision history

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