Question

What is the purpose of the provisional commission in reinsurance accounting?

a.

To ensure timely payment of commission

b.

To calculate the actual rate of commission

c.

To stabilize the results under a treaty

d.

To adjust the commission at the end of the treaty period

Posted under IC85 Reinsurance Management

Answer: (c).To stabilize the results under a treaty Explanation:The purpose of the provisional commission in reinsurance accounting is to stabilize the results under a treaty. As the actual rate of commission cannot be determined until the end of the year, a provisional commission is charged based on an agreed midpoint between the minimum and maximum commission. This provisional commission helps balance the profitability for the reinsurer in both good and bad years, ensuring a more stable outcome.

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