Reinsurance tutorials #20
What is a commission?
In the Insurance and Reinsurance Industry, there are various commissions applicable to the Agreements dealt with.
As a first example, there is the “Ceding Commission”, an allowance served by the Reinsurer to the Ceding Company to cover part or all acquisition, administrative, underwriting, and other costs. The Ceding Commission is usually expressed as a percentage of the reinsurance premium.
A Profit Commission is another kind that could also be part of the reinsurance Agreement.
Another one is the Brokerage Commission. As Reinsurers, we pay to the Reinsurance broker a Reinsurance Brokerage Commission for the placement of the business and services associated. The Reinsurance Brokerage Commission is usually expressed as a percentage of the reinsurance premium. The commission level varies from Treaty to Treaty depending on the business size, nature of the risk, reinsurance structure…
The Overriding Commission in the Reinsurance Industry can be defined as a commission paid to an intermediary for a retrocession placement. It is generally expressed as a percentage of the premium. It might also be expressed via a sliding scale. In this case, the overriding commission will decrease as the loss ratio increases.
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