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reinsurance chapter

R

rajashri

Member
kindly explain clearly as to what a return commission is and overriding commission is

from the notes what is under stood is
during Quota share every portion of the risk is transferred
so a portion of premium , Sa, profit , expenses (including commission )is ceded with the reinsurer.
expenses include commission and other miscellaneous . so a prportion of the commission is called return and the other part is called overriding commission .

but this is true in case of quota share . how is it possible under surplus ?
because the notes explain in case of original term reinsurance this is possible .and surplus is a part of original term insurance .
 
Under original terms reinsurance (quota share or surplus), the reinsurer shares the same claims experience as the insurer. It receives the specified % of the insurance premiums and pays a specified % of claims.

The insurance premiums will be calculated (broadly speaking) as:

EPV (claims) plus
EPV (expenses) plus
loading for profit.

Since the reinsurer will pay the specified % of claims, it seems fair that they should receive that % of premium in respect of these. It also seems fair that the reinsurer should receive that % of the profit. However, it is the insurer that pays the expenses (eg the commission paid to brokers for selling the business and the expenses of administering the policy), so it doesn't seem fair that the reinsurer should receive much/any premium in respect of this.

So the insurer will pay the reinsurer a % of premiums (ie it overpays). In return, the reinsurer will pay a commission back to the insurer. This is what is meant by reinsurance commission here. The bit in respect of commission paid by the insurer is return commission and the rest is override commission.

This is how it works under both quota share and surplus.
 
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