Category: Reinsurance fundamentals · Reviewed by Amy Price, Account Executive · Last reviewed 2026-06-05
Sliding scale commission is a form of reinsurance commission that varies inversely with the loss ratio on the cession: lower losses attract a higher commission allowance and higher losses attract a lower commission, subject to contractual minimum and maximum commission rates and to a ‘provisional’ rate paid pending the development of the loss ratio.
Category: Reinsurance fundamentals Also known as: sliding scale, loss-sensitive commission Related concepts: reinsurance commission, profit commission, loss ratio
A sliding scale commission is defined by a table that maps achieved loss ratios to commission rates. A typical table might read:
The commission is paid initially at the provisional rate and adjusted annually (typically over a three-year run-off) to the actual rate determined by the achieved loss ratio. The adjustment may be a payment from cedant to reinsurer (where loss ratios are worse than provisional) or from reinsurer to cedant (where loss ratios are better).
Accounting for sliding scale commission under IFRS 17 requires the cedant to recognise a best-estimate commission income (and the reinsurer a best-estimate expense) by reference to its expected loss ratio at each reporting date. As the loss ratio develops, the commission estimate is revised and recognised in the profit and loss account.
Sliding scale commissions are commonly used in working-layer property and casualty quota share treaties where there is meaningful loss volatility and where both parties wish to share the upside and downside of underwriting performance.
The mechanism reduces the cedant’s incentive to cede business with anticipated adverse loss ratios (because the cedant will lose commission as losses develop) and the reinsurer’s incentive to underprice the cession (because the reinsurer benefits from lower-than-expected losses through a higher cost of commission to the cedant).
Sliding scale commissions are often combined with a profit commission clause to provide a layered set of incentives across the range of loss outcomes.
An illustrative example: a UK property quota share treaty has a provisional commission of 30 per cent, slides 1 for 1 between 50 per cent loss ratio (35 per cent commission) and 70 per cent loss ratio (15 per cent commission). The cedant cedes £10m of premium and the achieved loss ratio at year 3 is 60 per cent, producing a 25 per cent commission rate. The cedant has been paid £3m at the provisional rate and must refund £0.5m to the reinsurer (5 per cent of £10m).
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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