Insurance agency glossary
The vocabulary of agency operations and M&A, defined the way operators use it.
Short definitions in the operator's working language. Each term links to a full entry; entries link to the guides and tools where the concept does work.
A
- Add-backs Adjustments that restate agency earnings to what a buyer would actually receive: owner comp normalization, one-time costs, personal expenses.
- Admitted vs. non-admitted Whether the insurer is licensed in the state and backed by the guaranty fund, or operating with freedom of rate and form outside it.
- AMS (agency management system) The operating system of an agency: client records, policies, accounting, carrier downloads, and workflow in one platform.
B
- Binding authority The power an agency holds from a carrier to put coverage in force on the spot, without waiting for the carrier to approve the risk first.
- Book of business The portfolio of client accounts and their renewable revenue; the asset an agency actually owns and sells.
- BOR (broker of record) letter The client's written designation of a new agent on an account; the instrument by which books move between agencies.
C
- Carrier appetite What a carrier actually wants to write right now: the classes, lines, and risk profiles it will quote competitively rather than decline or surcharge.
- Claims-made vs. occurrence Two coverage triggers: occurrence forms respond by when the loss happened; claims-made forms respond by when the claim is made, within the policy's dates.
- Contingent commission Carrier profit-sharing paid to agencies based on the book's volume, growth, or loss performance; high-margin and volatile.
E
- E&O (errors and omissions) insurance The agency's own professional liability coverage for claims that it failed to place, advise, or service correctly.
- E&S (excess and surplus lines) The non-admitted market where risks the standard market declines are written, with freedom of rate and form and without state guaranty fund backing.
- Earn-out Deal consideration paid only if post-closing metrics hit; contingent by design and controlled by definitions in the purchase agreement.
- EBITDA (agency context) Earnings before interest, taxes, depreciation, and amortization; the cash-flow proxy agency buyers price, after normalizing owner compensation.
- Expirations The renewal dates and client data behind a book of business; ownership of expirations is ownership of the agency's core asset.
H
- Hard market The phase of the insurance cycle with rising rates, shrinking capacity, and tightened underwriting; placement becomes the agency's product.
L
- LOI (letter of intent) The pre-contract agreement setting headline price, structure, and exclusivity; mostly non-binding except where it binds hard.
- Loss ratio Claims paid plus reserves as a share of earned premium; the carrier's core profitability read on a book, and the agency's contingents lever.
M
- MGA (managing general agent) A wholesale intermediary that holds underwriting authority from carriers: it prices, binds, and sometimes handles claims on the carrier's paper.
O
- Override Compensation above base commission paid by carriers, wholesalers, or finance companies on volume an agency directs or originates.
P
- PE-backed aggregator A private-equity-financed platform that grows by acquiring agencies, funding purchases with equity and leverage.
- Perpetuation The plan for the agency to outlive its current owners: internal succession, family transfer, or structured sale.
- Producer The licensed person who sells: brings in the business, owns the client relationships, and is compensated on the book they build.
- Producer validation The point where a producer's book generates enough commission to cover their full compensation; the break-even of a producer hire.
Q
- Quality of earnings (QoE) The diligence analysis testing whether reported EBITDA is durable, recurring, and accurately stated.
R
- Retention The share of clients or revenue that renews year over year; the single most-watched durability measure of a book.
- Retroactive date The date before which acts are not covered on a claims-made policy; moving it forward silently uninsures past work.
- Rollover equity Sale proceeds converted into shares of the buyer's platform: illiquid, marked by the platform, exposed to its leverage, with its upside.
S
- Soft market The expanding phase of the cycle: capacity abundant, rates flat or falling, underwriting flexible, and remarketing easy.
- Succession planning The funded, dated mechanics of transferring agency ownership and leadership; perpetuation's working schedule.
W
- Wholesale broker An intermediary between retail agencies and markets they cannot access directly, typically for E&S and specialty placements.