Travelers is paying more in contingent commissions and profit-sharing this year than it budgeted for, chief financial officer Dan Frey has said.
The reason is the insurer’s own good results. Underwriting has been strong enough that the costs tied to it have run above plan, Frey said. Travelers now expects its 2026 expense ratio to come in a little below 29%, with 2027 about the same. “That’s a trade we’re very willing to make,” he said.
The comment came in a quarter when Travelers’ commercial rate increases nearly disappeared. For agencies closing their books on 2026, it means contingent checks from one of the largest US carriers will be bigger than expected.
Contingent commissions, also called profit-sharing or bonus commissions, are paid on top of base commissions when the business an agency places with a carrier performs well. The risk management institute IRMI defines them as payments tied to the profitability of the book an intermediary places.
Agencies earn them with little added cost, so most of the money goes straight to profit. Along with base and supplemental commissions, they are central to how insurance agencies make money.
Asked by Wells Fargo analyst Elyse Greenspan about the expense outlook, Frey said commissions, including contingents and profit sharing, are the largest part of the expense ratio. Travelers will “decide what we want the expense ratio to be and then dial into that number,” he said.
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Because contingents depend on how profitable an agency’s book is, catastrophe losses can really matter. Travelers booked about $1.8 billion of pre-tax catastrophe losses in the first nine months of 2026, roughly half the $3.6 billion it took in the same period of 2025, according to its third-quarter earnings materials.
The improvement was largest in personal lines. The Personal Insurance segment’s loss and loss adjustment expense ratio for the nine months was 57.4%, down from 70.3% a year earlier, according to Travelers’ quarterly filing with the SEC.
Business Insurance earned a record $1.04 billion in the third quarter, segment president Greg Toczydlowski said on the call.
Brokers’ filings show the same trend. Brown & Brown’s profit-sharing contingent commissions were $85 million in the second quarter, up from $45 million a year earlier, and $182 million in the first half, up from $88 million, according to its 10-Q. Acquisitions account for part of the increase. The company also cited better underwriting results at its carriers and qualifying for contingents it had missed the year before.
Gallagher’s brokerage segment reported $115 million of contingent revenue in the first quarter, up from $93 million, according to its quarterly filing.
Marsh, the first large broker to report third-quarter results, does not disclose contingent commissions separately. Its quarterly filing gives one indirect measure though that we analysed. Contract assets, which Marsh says consist mainly of quota share reinsurance brokerage and contingent insurer revenue that it cannot yet bill, rose to $675 million at September 30 from $540 million at the end of 2025.
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At Brown & Brown, contingents made the difference between growth and decline. Without them, organic revenue fell 0.7% in the second quarter; with them, it rose 0.7%,.
In the first quarter, organic revenue was flat without contingents and up 2.2% with them, while total revenue rose 35% on acquisitions. Chief executive Powell Brown called it “a challenging growth environment.”
Those payments depend on the same profitable conditions that are now bringing rates down. Travelers’ renewal rate change in domestic Business Insurance, excluding National Accounts, fell to 0.9% in the third quarter from 4.3% a year earlier.
Across the market, WTW found large commercial accounts saw their first price decline since 2017 in the second quarter. This will affect commissions though - if rates keep falling, loss ratios are likely to rise over time, and contingent payouts would fall with them.
Read next: Brown & Brown Q1 revenue jumps 35%, but organic growth flatlines
In October 2004, New York attorney general Eliot Spitzer sued Marsh, alleging it steered clients to insurers that paid the largest contingents. The complaint said Marsh collected about $800 million in contingent commissions in 2003.
Marsh settled in January 2005, agreeing to an $850 million fund for clients and to stop accepting contingents. Aon and Willis made similar commitments.
In 2010, New York and other states amended those settlements to let Marsh, Aon and Willis collect contingents again. In return, the brokers agreed to follow New York’s new producer compensation disclosure rules nationwide.
Under that rule, Regulation 194, producers must tell buyers whether the insurer may pay them based on the sale, and must disclose more detail on amounts if the buyer asks.
Marsh, which dropped the McLennan name in January, still lists the “regulatory, contractual and reputational risks” tied to insurer revenue streams among the risk factors in its latest results release.
Travelers expects its 2027 expense ratio to be about the same as this year’s, but it did not say how much of that will be contingent pay. Several factors behind this year’s payouts are already weakening.
Travelers’ personal auto renewal premium change was negative in the third quarter, at minus 0.6%, and the carrier took about 10 small rate cuts. A year of average catastrophe losses would also undo much of 2026’s loss-ratio improvement.
Agencies planning 2027 budgets may want to treat this year’s contingent income as unusually high rather than a new baseline. Brown & Brown says most of its contingents depend on underwriting results, but some also depend on volume, growth or retention. Premium targets set during the hard market may be harder to reach as rates soften.
Chairman and chief executive Alan Schnitzer told analysts he expects Travelers to become “a consolidator of premium,” which requires agents to place more business with it. Bigger profit-sharing checks give them a reason to.
