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💰 '''Reinsurance commission''' is the compensation paid by a [[Definition:Reinsurance | reinsurer]] to the [[Definition:Ceding company | ceding company]] — the primary [[Definition:Insurance carrier | insurer]] that transfers risk — as part of a reinsurance arrangement. It serves primarily to reimburse the ceding company for the [[Definition:Acquisition cost | acquisition costs]] it incurred in writing the original [[Definition:Insurance policy | policies]], including [[Definition:Commission | agent commissions]], [[Definition:Underwriting | underwriting]] expenses, and administrative overhead. In essence, it recognizes that the cedant has already spent money to originate and manage the business before passing a portion of the [[Definition:Premium | premium]] to the reinsurer.

⚙️ The commission is typically expressed as a percentage of the [[Definition:Ceded premium | ceded premium]] and is negotiated as part of the [[Definition:Reinsurance treaty | reinsurance treaty]] or [[Definition:Facultative reinsurance | facultative]] agreement. In [[Definition:Proportional reinsurance | proportional (pro rata) reinsurance]] — such as [[Definition:Quota share reinsurance | quota share]] and [[Definition:Surplus share reinsurance | surplus share]] treaties — reinsurance commissions are standard, since the reinsurer receives a proportional share of premium and in return compensates the cedant for origination costs. The commission rate may be fixed or structured as a [[Definition:Sliding scale commission | sliding scale commission]], where the percentage adjusts based on the actual [[Definition:Loss ratio | loss ratio]] of the ceded business: better-performing portfolios earn the cedant a higher commission, while poor performance reduces it. This sliding-scale mechanism aligns incentives between the parties. Some treaties also include a [[Definition:Profit commission | profit commission]], which provides an additional payment to the cedant when the ceded business generates underwriting profit for the reinsurer over a defined accounting period. In [[Definition:Non-proportional reinsurance | non-proportional reinsurance]] such as [[Definition:Excess of loss reinsurance | excess of loss]], traditional reinsurance commissions are less common because the premium structure differs — though [[Definition:Brokerage | brokerage fees]] paid to intermediaries still feature.

📊 Reinsurance commissions have significant financial implications for both parties and are a key negotiation point in treaty renewals. For the cedant, a generous reinsurance commission can offset acquisition expenses and even contribute to underwriting profitability on the retained book. For the reinsurer, the commission rate directly affects the margin available on assumed business and must be calibrated against expected [[Definition:Loss experience | loss experience]]. Under accounting frameworks like [[Definition:US GAAP | US GAAP]], [[Definition:IFRS 17 | IFRS 17]], and various local standards, the treatment of reinsurance commissions — including how [[Definition:Ceding commission | ceding commissions]] are recognized and amortized — can meaningfully influence reported financial results. Regulators also pay attention to commission structures, particularly when unusually high commissions could signal [[Definition:Finite reinsurance | finite reinsurance]] arrangements where risk transfer may be insufficient.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Ceding commission]]
* [[Definition:Sliding scale commission]]
* [[Definition:Profit commission]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Ceded premium]]
* [[Definition:Reinsurance treaty]]
{{Div col end}}

Definition:Reinsurance commission - Revision history

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