VATINS3230 | Types of insurance: reinsurance: overriding or ceding commissions

Frequently there can appear to be a payment from the re-insurer to the insurer (or it can look as if the insurer has deducted amounts from the premiums it pays the re-insurers). These deductions are normally in relation to proportional or facultative treaties (rarely excess of loss) and are reimbursements to the insurer of the cost of obtaining the original insurance, and is quite sensible because the re-insurers are now feeling the benefit deriving from the original insurance business. Therefore, reinsurers are paying a commission to the insured to compensate them for expenses incurred in obtaining and administering (e.g. retail brokerage, taxes, fees, home office expenses) the original business. There can also be ceding commission when retrocession has occurred. As with discounts, there is no supply to the re-insurer in respect of this deduction and so there is no liability to be determined.