https://www.insurerbrain.com/w/index.php?action=history&feed=atom&title=Definition%3AProvisional_commission 2026-04-30T02:43:57Z Revision history for this page on the wiki MediaWiki 1.43.8 https://www.insurerbrain.com/w/index.php?title=Definition:Provisional_commission&diff=9702&oldid=prev 2026-03-11T05:43:02Z

<p>Bot: Creating new article from JSON</p> <p><b>New page</b></p><div>💰 &#039;&#039;&#039;Provisional commission&#039;&#039;&#039; is a [[Definition:Commission | commission]] rate initially paid to a [[Definition:Cedent | cedent]] under a [[Definition:Reinsurance | reinsurance]] treaty — typically a [[Definition:Quota share | quota share]] or other [[Definition:Proportional reinsurance | proportional arrangement]] — that is later adjusted upward or downward based on the actual [[Definition:Loss ratio (L/R) | loss experience]] of the ceded business. Rather than fixing the commission at inception, the [[Definition:Reinsurer | reinsurer]] and cedent agree to a provisional rate as a starting point, with a sliding scale or profit commission formula determining the final payout once results mature. This mechanism aligns the interests of both parties around underwriting performance.<br /> <br /> 📈 The adjustment mechanics are spelled out in the [[Definition:Reinsurance treaty | treaty]] terms. A common structure uses a [[Definition:Sliding scale commission | sliding scale]]: if the loss ratio comes in below a specified threshold, the commission increases, rewarding the cedent for delivering profitable business. Conversely, if losses deteriorate beyond expectations, the commission ratchets down — sometimes to a contractual minimum — so the reinsurer recovers some of the shortfall through reduced acquisition cost payments. Settlements typically occur after a defined development period, once [[Definition:Incurred losses | incurred losses]] have stabilized enough to calculate the final commission accurately. During the interim, [[Definition:Bordereaux | bordereaux]] reporting and periodic loss development reviews keep both sides informed.<br /> <br /> 🎯 This arrangement creates a powerful incentive structure that standard fixed-commission treaties lack. Cedents are motivated to maintain disciplined [[Definition:Underwriting | underwriting]] and effective [[Definition:Claims management | claims management]] because doing so directly improves their commission income. Reinsurers benefit from reduced [[Definition:Moral hazard | moral hazard]], knowing the cedent shares in the financial consequences of poor results. For [[Definition:Reinsurance broker | reinsurance brokers]] structuring placements, the provisional commission is often a key negotiation lever — calibrating the scale, the minimum and maximum commission rates, and the loss ratio breakpoints to produce an outcome that satisfies both the cedent&#039;s cash-flow needs and the reinsurer&#039;s return targets.<br /> <br /> &#039;&#039;&#039;Related concepts:&#039;&#039;&#039;<br /> {{Div col|colwidth=20em}}<br /> * [[Definition:Sliding scale commission]]<br /> * [[Definition:Proportional reinsurance]]<br /> * [[Definition:Quota share]]<br /> * [[Definition:Ceding commission]]<br /> * [[Definition:Profit commission]]<br /> * [[Definition:Loss ratio (L/R)]]<br /> {{Div col end}}</div>

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