[Solved] Which of the following statements about ceding commission in reinsurance is TRUE? — Ans: It is a rebate given by the reinsurer to the insurer to cover acquisition... | Insurance Awareness

Insurance Awareness - Reinsurance

Which of the following statements about ceding commission in reinsurance is TRUE?

AIt is a rebate given by the reinsurer to the insurer to cover acquisition expenses

BIt is a commission paid by the insurer to the reinsurer for accepting risk

CIt is a penalty charged by the reinsurer for late premium payment

DIt is the profit margin retained by the reinsurer

Step-by-Step Solution

Step 1: Understand ceding commission
Ceding commission is a payment from the reinsurer to the insurer to compensate for acquisition and administrative expenses.
Step 2: Analyze options
It is a rebate given by the reinsurer to the insurer to cover acquisition expenses correctly describes ceding commission. It is a commission paid by the insurer to the reinsurer for accepting risk reverses payer and receiver, "It is a penalty charged by the reinsurer for late premium payment" and "It is the profit margin retained by the reinsurer" are incorrect.
Final Answer:
It is a rebate given by the reinsurer to the insurer to cover acquisition expenses → Option A
Quick Check:
Ceding commission incentivizes insurers to cede risks by offsetting their costs.

Quick Trick: Ceding commission = reinsurer pays insurer to cede risk.

Common Mistakes:

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