Page 51 - Reinsurance Management IC85

The Insurance Times

The net profit under a treaty is mainly the difference
between earned premium and incurred losses, taking
into account commissions, and reinsurer's management
expenses. On a general basis it can be an agreed
percentage of the treaty profit.

The following methods are also used:-
a. On the amount of annual profit of the treaty,

i.e., taking the profit for each year separately .This
may not be in general use since reinsurance business
is susceptible to large fluctuations from year to year

b. On the "three year average" system: Under
this system, the profit of the treaty for the
concerned year is determined in the usual way,
then averaged for 2 years and thereafter being
average profit for 3 years.

c. On losses to extinction basis: Under this
method, any loss under the treaty is carried
forward to the next year and thereafter to each
succeeding year until such loss has been fully

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