In which we start a new Kaggle competition, submit a dummy attempt, and then build a very basic Excel model to establish a baseline for future progress.
Quota Share contracts generally deal with acquisition costs in one of two ways - premium is either ceded to the reinsurer on a ‘gross of acquisition cost’ basis and the reinsurer then pays a large ceding commission to cover acquisition costs and expenses, or premium is ceded on a ‘net of acquisition’ costs basis, in which case the reinsurer pays a smaller commission to the insurer, referred to as an overriding commission or ‘overrider’, which is intended to just cover internal expenses.
Another way of saying this is that premium is either ceded based on gross gross written premium, or gross net written premium.
I’ve been asked a few times over the years how to convert from a gross commission basis to the equivalent net commission basis, and vice versa. I've written up an explanation with the accompanying formulas below.
Source: @ Kuhnmi, Zurich
I work as an actuary and underwriter at a global reinsurer in London.