How to Calculate What Your Portfolio Is Paying in Carrier Underwriting Profit

There is a number sitting inside your insurance spend that most operators have never calculated. It is the amount of underwriting profit your carriers generate on your account every year, money that your low loss ratio and well-managed properties created, flowing entirely to carrier shareholders.

Calculating this number takes about 20 minutes. The result is often the most motivating data point in the conversation about captive insurance.

Step 1: Gather your total insurance spend by line

Pull 12 months of premium invoices or your most recent certificate of insurance renewals across every line your portfolio carries. Organize them by category:

• Property / habitational insurance (building coverage, named perils)

• General liability and umbrella

• Workers' compensation

• Resident / tenant liability programs

• Security deposit alternative programs

• D&O, E&O, EPLI (professional and management liability)

• Pet deposit or rent programs

• Rent guarantee or loss of rents

Total these up. For most 200–500 unit operators, this number will land somewhere between $150,000 and $600,000 annually depending on market, property age, and coverage structure. Write this number down. This is your total annual premium spend.

Step 2: Request your loss runs

A loss run is a claims history report produced by your insurer or broker showing every claim filed against your policies over a specified period. Request 3–5 years of loss runs across all lines. Most brokers will provide these without resistance, it is standard practice at renewal time. If your broker is reluctant, you can request loss runs directly from each carrier as the named insured.

From the loss runs, calculate your total claims paid over the same period that your premium data covers. Divide claims paid by total premiums paid to get your overall loss ratio.

Example: $450,000 in total premiums paid over 3 years. $62,000 in total claims paid over the same period. Loss ratio: 62,000 ÷ 450,000 = 13.8%.

Step 3: Apply the underwriting profit estimate

The underwriting profit available on your account is not simply 100% minus your loss ratio. Carriers also have operating expenses (administrative costs, broker commissions, claims management, overhead) that typically run 25–35% of premiums. The expense ratio varies by carrier and line of coverage, but 30% is a reasonable industry average.

Underwriting profit = 1 − loss ratio − expense ratio

Using the example above: 1 − 13.8% − 30% = 56.2% underwriting profit margin.

On $150,000 in annual premiums (one year of the three-year example): $150,000 × 56.2% = $84,300 in estimated underwriting profit generated by this portfolio for carrier shareholders in a single year.

This is money that, in a traditional insurance structure, a carrier is generating in profit that you will never see.

Step 4: Run the calculation by line

The overall loss ratio blends lines with very different economics. Running the calculation by line reveals where the profit concentration is highest, and therefore where captive participation has the greatest impact.

Resident liability: typically the most favorable

If your resident program charges $15/month across 200 enrolled residents: $36,000 in annual premium. If your actual pet and resident-liability claims on that program over the past 3 years total $3,200: loss ratio of 8.9%. Estimated underwriting profit margin: 1 − 8.9% − 30% = 61.1%. Annual underwriting profit generated for the carrier: $36,000 × 61.1% = $21,996. Per year. On one line. On one property.

Workers' compensation: frequently overlooked

A property management company with a $120,000 annual workers' comp premium and a 3-year claims history of $28,000: loss ratio of 23.3%. Estimated underwriting profit margin: 46.7%. Annual underwriting profit: $120,000 × 46.7% = $56,040. Going to the workers' comp carrier. Every year.

General liability: variable but significant

GL and umbrella on a 300-unit portfolio running $45,000 annually with $8,000 in claims over 3 years: loss ratio of 17.8%. Estimated annual underwriting profit generated: $45,000 × (1 − 17.8% − 30%) = $23,490.

Step 5: Project the 10-year opportunity cost

Most operators find the annual number interesting. The 10-year number is transformative.

Take your estimated annual underwriting profit generated for carriers. Assume modest portfolio growth of 5% per year compounding (additional units, rent increases, enrollment growth). The 10-year cumulative total of what leaves your portfolio as carrier profit is frequently $800,000–$2,000,000 for a mid-sized operator.

This is not money you paid for coverage. Coverage is the claims-paid portion. This is money you paid for nothing, the margin on a transaction you had no leverage over, in a structure you had no ownership in.

What to do with the calculation

Once you have these numbers, the question becomes straightforward: what amount of underwriting profit could you recover by moving into a captive structure?

The answer depends on your premium volume, loss history, and the specific structure available to you. Typical recovery rates in professionally managed captive programs run 15–30% of premiums contributed. In some cases (particularly on resident liability lines with very low loss ratios) recovery rates exceed 40%.

The calculation you just ran is the starting point for that conversation. It shows you the prize. The captive structure determines how much of it you can capture.