Question

What is the purpose of reinsurance commission?

a.

To reimburse the reinsurer for acquiring the business

b.

To reimburse the ceding insurer for acquiring the business

c.

To cover the administrative expenses of the reinsurer

d.

To cover the administrative expenses of the ceding insurer

Posted under IC85 Reinsurance Management

Answer: (b).To reimburse the ceding insurer for acquiring the business Explanation:Reinsurance commission is an amount paid by the reinsurer to the ceding insurer as a percentage of the premium. The purpose of the reinsurance commission is to reimburse the ceding insurer for the expenses incurred in acquiring the business, including agency commission and expense of management. The ceding insurer invests time and resources in prospecting, issuing policies, and adjusting claims, which benefit the reinsurer indirectly. Therefore, the reinsurer compensates the ceding insurer through the reinsurance commission. Option b accurately describes the purpose of reinsurance commission. Options a, c, and d incorrectly describe the purpose or the recipient of the commission.

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