Category: Reinsurance fundamentals · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
Reinsurance commission, also called ceding commission, is the allowance paid by a reinsurer to a cedant under a proportional reinsurance treaty. It compensates the cedant for the costs of acquiring and administering the underlying insurance business — typically including original commission paid to brokers, taxes, and the cedant’s own underwriting and administration expenses.
Category: Reinsurance fundamentals Also known as: ceding commission, original commission allowance Related concepts: ceded premium, profit commission, override commission, sliding scale commission Related legislation: IFRS 17 Insurance Contracts
Reinsurance commission is a feature of proportional (and not non-proportional) reinsurance. It is typically expressed as a percentage of ceded premium and may be either flat (fixed for the contract period) or variable by reference to loss experience (a sliding scale commission). Commercial property and casualty quota share treaties commonly carry flat commissions in the range of 25–35 per cent; specialty lines (cyber, financial lines, marine) may carry higher commissions reflecting higher original acquisition costs.
The commercial purpose of the ceding commission is to ensure the cedant is no worse off, in terms of expense ratio, after cession than before. Without it, the cedant would bear the acquisition cost on 100 per cent of the gross premium but receive cession premium net of only the cession share — leaving the cedant under-recovered on its overheads.
Reinsurance commission is recognised as a reduction of ceded premium (or equivalently, an income item) under IFRS 17 and FRS 103. For Solvency II purposes, the net cash flow (ceded premium less commission) is the basis on which the reinsurance recoverable is valued [1].
In practice the commission terms are negotiated as part of the overall treaty placement. The reinsurer’s view of the appropriate commission depends on the expected loss ratio of the underlying portfolio, the cedant’s expense base, and the prevailing market conditions. In a soft reinsurance market commissions trend up; in a hard market they trend down.
The commission may be combined with a profit commission clause, which provides for an additional payment to the cedant if the treaty produces a profit for the reinsurer over a defined period. This aligns the cedant’s interests with the underwriting result.
In sliding scale arrangements the commission varies inversely with the loss ratio: low loss ratios attract a higher commission (rewarding good underwriting) and high loss ratios attract a lower commission (sharing the cost of poor experience).
An illustrative example: a cedant places a 50 per cent quota share treaty on its UK professional indemnity portfolio at a 30 per cent flat ceding commission. On £20m of ceded premium the reinsurer pays the cedant £6m of commission, retaining £14m of net premium. A 5 per cent profit commission clause provides that, if the reinsurer’s loss ratio is below 60 per cent at year 3, 5 per cent of the profit will be returned to the cedant.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
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