Profit commission

A profit commission (PC, also called a profit sharing commission) is the share of its profit on a treaty that a reinsurer pays back to the cedant when the loss experience has been good. A quota share wording puts the clause in one line. The cedant receives a percentage of the reinsurer's profit, meaning ceded premium less loadings less ceded losses, if that result is positive. As a formula, the PC equals the PC rate times ceded premium less loadings less ceded losses less any deficit carried forward, and nothing if that amount is negative. The loading covers the reinsurer's expenses and the base commission already paid. The cedant thus shares in the result when losses finish under the agreed threshold, which keeps it focused on the quality of what it writes. The account is often struck year by year with a deficit carryforward. A losing year is set against the following ones before any new commission is due, for a number of years set in the treaty or until the deficit is extinguished. It is mostly found on proportional treaties, rarely on excess of loss. A sliding scale commission works differently. It moves the ceding commission itself in the opposite direction from the loss ratio, between a floor and a cap. Both can sit in the same treaty, and the loading then decides what is left to share. In direct insurance, the same idea applies to a broker, an agent or a large group account, which gets back part of the underwriting result of its book. When two reinsurance quotes are compared, the PC rate, the loading and the length of the carryforward weigh as much as the base commission.