The contract usually calls for a ______________of commission to be paid throughout the year, with an adjustment up or down at the end of the year depending on the final loss ratio.

Question

Options

• Aadministrative agreement
• Bprovisional rate
• Crevolutionary rate
• Dwrite-ins aggregated rate

• A
  10% (6)
• B
  83% (49)
• C
  5% (3)
• D
  2% (1)

Explanation

Option B is correct because a "provisional rate" is a temporary, estimated commission rate used during the policy year when the final loss ratio isn't yet known. Insurers and reinsurers agree on this interim figure upfront, then settle the difference - either paying more or receiving a refund - once actual losses are tallied at year-end.

Why the others are wrong:

• A (administrative agreement) refers to a service or operational arrangement, not a commission rate structure.
• C (revolutionary rate) is not a recognized insurance term - it's a distractor designed to sound official.
• D (write-ins aggregated rate) relates to statistical reporting categories on financial statements, not commission payment structures.

Memory tip: Think of "provisional" as "temporary provision" - like a placeholder that gets replaced when the real numbers arrive. If the loss ratio is better than expected, the reinsurer pays more commission; if worse, they get some back. The provisional rate is just holding the spot until the truth is known.

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