Question

What is the factor that determines the level of ceding commission?

a.

The level of exposure in the treaty

b.

The negotiation between the ceding insurer & the reinsurers

c.

The type of treaty (quota share or surplus)

d.

Both b and c

Posted under IC85 Reinsurance Management

Answer: (d).Both b and c Explanation:The level of the ceding commission is determined through negotiation between the ceding insurer & the reinsurers, and it also depends on the type of treaty. A quota share treaty would assist for a higher ceding commission as compared to a surplus treaty as the latter puts in more level of exposure for lesser reinsurance premium ceded to reinsurers. The higher level of surplus, such as second and third surplus would have lower ceding commission as compared with the first surplus treaty due to a reduction in premium ceded to the higher surplus treaties even while keeping high level exposures to these surplus levels.

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