What contract usually includes a fixed commission rate and a fixed reinsurer's fee or profit factor?

Question

Options

• Aguaranteed profit
• Bprofit compensator
• Cprofit contract
• Dcharge contract

• A
  72% (36)
• B
  18% (9)
• C
  4% (2)
• D
  6% (3)

Explanation

Option A is correct because a guaranteed profit contract locks in both a fixed commission rate for the cedant and a fixed reinsurer's fee or profit factor at inception - neither party's take varies with actual loss experience, making the financial outcome essentially "guaranteed" from the outset.

Option B (profit compensator) is not a recognized standard reinsurance contract type and describes no established structure in reinsurance terminology.

Option C (profit contract) sounds plausible but is not a defined contract form; "profit" alone is too generic and doesn't imply the fixed-rate structure the question describes.

Option D (charge contract) is also not a standard reinsurance term - it may evoke premium "charges" but has no established definition that matches a fixed commission plus fixed profit factor structure.

Memory tip: Think "guaranteed = fixed." If both the commission and the profit factor are locked in and unchanging, the reinsurer has essentially guaranteed its profit margin - hence "guaranteed profit" contract. Anytime you see "fixed commission + fixed profit factor," anchor to the word "guaranteed."

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