Download Reinsurance Commission Reinsurance commission is a financial

Reinsurance Commission
Reinsurance commission is a financial advantage arising out of the reinsurance business. Cedants
benefit from contributions by reinsurers towards their acquisition and management expenses.
Reinsurers acquire business without the expense of underwriting primary accounts.
Reinsurance commission usually applies to proportional business. If reinsurance is arranged through
a broker, then the broker’s remuneration becomes known as brokerage.
Profit commission
Cedants are entitled to some compensation from reinsurers in respect of the disparity in workloads
arising from the account; this is the principle of reinsurance commission. Too high a rate of
commission can generate problems for the reinsurer, so profit commission is the answer.
profit commission is an extra commission payable by the reinsurer over and above the flat rate
commission based on the net profit made by the reinsurer from the treaty. Profit commission is
calculated based on an agreed rate on profit.
Sliding scale commission
Sliding scale commission is another technique which attempts to maintain a reasonable relationship
between cedant and reinsurers as far as payment of an equitable commission is concerned. Here is
created an alternative form of profit sharing whereby the ceding commission is varied according to
the loss ratio experience of the treaty. Loss ratio is the claims ratio as a percentage of premium; all
the terms need to be agreed and defined for each individually treaty.
Example;
Loss ratio
Less than 45%
52% but not more than 45%
56% but not more than 52%
60% but not more than 56%
64% but not more than 60%
Over 64%
Rate of commission payable
40%
38%
36%
34%
32%
30%
Loss participation
A loss participation clause also known as MALUS clause is a form of reverse profit commission. A
share of the losses under a proportional treaties must be borne by the cedant if loss ratio exceeds a
certain percentage. The cedant’s share of the losses will be capped at an agreed maximum figure.
Loss participation is a threat to cedants or penalty borne by cedant.