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Reinsurance Terms Cede – When a company reinsures its liability with another, it “cedes” business. Ceding Commission – The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits – sometimes expressed as a percentage of the gross reinsurance premium. Ceding Company – The original or primary insurer; the insurance company, which purchases reinsurance. Claims-Made Basis – A form of reinsurance under which the date of the claim report is deemed to be the date of the loss event. Claims reported during the term of the reinsurance agreement are therefore covered, regardless of when they occurred. A claims made agreement is said to “cut off the tail” on liability business by not covering claims reported after the term of the reinsurance agreement – unless extended by special agreement. See Occurrence Basis. Commission – In reinsurance, the primary insurance company usually pays the reinsurer its proportion of the gross premium it receives on a risk. The reinsurer then allows the company a ceding or direct commission allowance on such gross premium received, large enough to reimburse the company for the commission paid to its agents, plus taxes and its overhead. The amount of such allowance frequently determines profit or loss to the reinsurer. Commutation Clause – A clause in a reinsurance agreement, which provides for estimation, payment and complete discharge of all future obligations for reinsurance losses incurred regardless of the continuing nature of certain losses such as unlimited medical and lifetime benefits for Workers’ Compensation. Contingent Commissions (or Profit Commission) – An allowance payable to the ceding company in addition to the normal ceding commission allowance. It is a pre-determined percentage of the Reinsurer’s net profits after a charge for the Reinsurer’s overhead, derived from the subject treaty. Contributing Excess – Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each such reinsurer shall contribute towards any excess loss in proportion to his original participation in such risk. Example: Retention $100,000, Reinsurer A accepts one-half contributing share part of $1,000,000 in excess of said $100,000; Reinsurer B accepts remaining one-half contribution share part of $1,000,000. NEXT PAGE
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