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📋 '''Premium split''' describes the allocation of total [[Definition:Premium | premium]] among multiple parties involved in an insurance or [[Definition:Reinsurance | reinsurance]] arrangement. In co-insurance structures, the premium split determines what percentage of the total premium flows to each participating [[Definition:Insurance carrier | carrier]] based on its share of the risk. In [[Definition:Delegated underwriting authority (DUA) | delegated authority]] arrangements, the term can also refer to how the premium dollar is divided between the capacity provider, the [[Definition:Managing general agent (MGA) | MGA]] or [[Definition:Coverholder | coverholder]], and intermediaries — encompassing [[Definition:Commission | commissions]], [[Definition:Overrider | overriders]], and the carrier's net retained premium. The way premium is split has direct consequences for each party's profitability, incentive alignment, and regulatory capital treatment.

⚙️ How a premium split operates depends on the transaction structure. In a [[Definition:Co-insurance | co-insurance]] placement — common in the [[Definition:London market | London market]], continental European commercial lines, and large-risk programs across Asia — a [[Definition:Broker | broker]] secures multiple carriers to participate on a single policy, with each carrier's premium share corresponding to its signed [[Definition:Line (insurance) | line]]. A carrier writing 25% of a $4 million policy premium receives $1 million and is liable for 25% of any covered losses. In [[Definition:Quota share | quota share]] reinsurance treaties, the premium split between [[Definition:Cedant | cedant]] and reinsurer follows the cession percentage, with the cedant retaining a [[Definition:Ceding commission | ceding commission]] that compensates for acquisition and administration costs. Multi-layered [[Definition:Excess of loss | excess-of-loss]] programs involve a different kind of split: each [[Definition:Layer | layer]] carries its own premium, and the allocation across layers reflects the probability and severity of losses attaching at each attachment point, as determined by [[Definition:Actuarial science | actuarial]] modeling.

💡 Getting the premium split right is crucial for maintaining sustainable partnerships between carriers, intermediaries, and program administrators. An MGA that negotiates an outsized commission split may deliver short-term revenue growth but risks attracting adverse selection or under-reserving the carrier's portfolio, leading to deteriorating [[Definition:Loss ratio | loss ratios]] and eventual program non-renewal. Conversely, carriers that squeeze intermediary compensation too aggressively may lose access to high-quality distribution and [[Definition:Underwriting | underwriting]] talent. Regulators in several jurisdictions — including the [[Definition:Financial Conduct Authority (FCA) | FCA]] in the UK and various US state [[Definition:Department of insurance | insurance departments]] — scrutinize premium splits within delegated programs to ensure that sufficient premium is retained by the risk-bearing entity to fund claims and reserves. In [[Definition:Insurtech | insurtech]] distribution models, where digital platforms and [[Definition:Embedded insurance | embedded insurance]] partnerships add new participants to the value chain, premium split design has become an increasingly strategic lever for balancing growth, profitability, and fair customer outcomes.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Co-insurance]]
* [[Definition:Ceding commission]]
* [[Definition:Quota share]]
* [[Definition:Commission]]
* [[Definition:Delegated underwriting authority (DUA)]]
* [[Definition:Line (insurance)]]
{{Div col end}}

Definition:Premium split - Revision history

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