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📋 '''Scratch''' is a term used in insurance and [[Definition:Reinsurance | reinsurance]] markets to describe the breakeven point on an account, treaty, or book of business — the threshold at which [[Definition:Premium | premiums]] collected exactly equal [[Definition:Loss | losses]] and [[Definition:Expense | expenses]] incurred, producing neither profit nor deficit. When an [[Definition:Underwriter | underwriter]] or [[Definition:Reinsurer | reinsurer]] says a program "scratched," they mean it returned to zero — no money was made, but none was lost either. The concept is particularly common in [[Definition:Lloyd's | Lloyd's]] market vernacular and in [[Definition:Treaty reinsurance | treaty reinsurance]] negotiations, where participants evaluate historical performance relative to scratch to judge whether a relationship or portfolio merits continued support.

⚙️ Determining whether a book has scratched requires aggregating all premiums earned against all incurred losses (both paid and [[Definition:Reserve | reserved]]) plus allocated expenses, such as [[Definition:Brokerage | brokerage]], [[Definition:Acquisition cost | acquisition costs]], and administrative overhead. In reinsurance, the calculation often involves tracking the development of [[Definition:Loss ratio | loss ratios]] over multiple years, since long-tail lines like [[Definition:Liability insurance | casualty]] and [[Definition:Professional liability insurance | professional liability]] may not reveal their true outcome for a decade or more. A treaty that appears profitable in its early years can deteriorate past scratch as late-reported claims emerge, making the concept dynamic rather than static. Underwriters use scratch as a reference point in pricing discussions — a proposed rate might be described as "above scratch" or "below scratch" to signal whether it is expected to generate an [[Definition:Underwriting profit | underwriting profit]] or merely cover costs.

💡 While scratching might sound like a neutral outcome, it is generally viewed unfavorably by insurers and reinsurers because it means [[Definition:Capital | capital]] was deployed and risk was borne with no return. [[Definition:Investor | Investors]] and [[Definition:Capital provider | capital providers]] expect compensation for assuming [[Definition:Insurance risk | insurance risk]], so consistently scratching on a portfolio indicates that pricing is inadequate relative to the volatility involved. In performance reviews and [[Definition:Renewal | renewal]] negotiations, accounts that have historically hovered around scratch may face pressure for rate increases, restructured terms, or non-renewal. For [[Definition:Managing general agent (MGA) | MGAs]] and [[Definition:Coverholder | coverholders]] reporting results to their capacity providers, demonstrating that a book comfortably exceeds scratch — after accounting for [[Definition:Catastrophe loss | catastrophe loads]] and trend — is essential to maintaining [[Definition:Binding authority agreement | binding authority]] relationships.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Loss ratio (L/R)]]
* [[Definition:Combined ratio]]
* [[Definition:Underwriting profit]]
* [[Definition:Treaty reinsurance]]
* [[Definition:Breakeven loss ratio]]
* [[Definition:Expense ratio]]
{{Div col end}}

Definition:Scratch - Revision history

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