Ceding commission

Ceding commission encompasses the amounts the reinsurer pays back to the cedant under proportional treaties, in return for the business ceded. It serves several functions and takes several complementary forms. The ceding commission proper compensates the cedant for the costs it has incurred to produce and manage the portfolio, acquisition, underwriting and administration costs, from which the reinsurer benefits indirectly since it receives a proportional share of the premiums. The override may be added to it to remunerate an intermediary or to recognize the particular value of a source of business. The profit commission, finally, introduces an incentive dimension, by paying the cedant a fraction of the profit the treaty actually generates, which aligns interests by rewarding quality underwriting and low loss experience. The whole set of these commissions is a central element in the negotiation of proportional treaties and in their economic balance, their level reflecting both the expected profitability of the portfolio and the balance of power between cedant and reinsurer, itself a function of the state of the market cycle and the quality of the relationship.

On a quota share treaty, the reinsurer pays the cedant a commission of thirty percent of the ceded premiums to cover its costs, increased by a profit commission if the portfolio's loss experience remains below the agreed threshold.

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