Question

What is ceding commission?How is the ceding commission calculated?

a.

The commission paid by the reinsurer to the ceding insurerOn the original premium paid by the insured

b.

The commission paid by the ceding insurer to the reinsurerOn the reinsurance premium ceded by the ceding insurer

c.

The commission paid by the ceding insurer to agents and brokersOn the sum insured ceded by the ceding insurer

d.

The commission paid by the reinsurer to agents and brokersOn the earned premium for the treaty year

Answer: (b).The commission paid by the ceding insurer to the reinsurerOn the reinsurance premium ceded by the ceding insurer Explanation:The reinsurer agrees a commission by way of a percentage of the reinsurance premium given to him, known as ceding commission, to the ceding insurer to compensate for his original commissions and brokerages, acquisition cost, costs of keeping the business on the books, and administration expenses.The ceding commission is calculated on the ceded premium by applying the agreed percentage as set out in the treaty slip and agreed. This is incorporated in the treaty document.

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Q. What is ceding commission?How is the ceding commission calculated?

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