Provisional commission

A provisional commission is the rate paid to the cedant during the year, pending the loss development that will settle the final rate of a sliding scale or profit commission. It is generally set near the expected rate, sometimes slightly below to reduce the risk of a clawback. Adjustments then fall at agreed dates, often twelve, twenty-four and thirty-six months after year end, each recalculating the rate on losses known at that point and producing a further payment or a repayment. The problem it solves is cash flow: a cedant cannot wait three years for the remuneration covering its acquisition costs, already paid out when the policy was written. The point to watch is symmetry: a provisional rate set too high produces repayments that arrive at the worst moment, namely when the treaty is performing badly, and a prudent finance function reserves for that debt as soon as it becomes likely.

A 2026 quota share pays a provisional commission of 30 percent on 62 million euros of ceded premium, that is 18.6 million. At the first adjustment in 2028 the loss ratio comes out at 68 percent and the scale sets the rate at 24 percent. The cedant must repay 3.72 million euros, of which it had reserved only 1.1 million, the gap falling entirely on the 2028 result.

Provisional commission, Commission provisoire, Commission d'acompte, Taux provisionnel