Source Text - App A Page 1 - Profit Commission
Can you please help me understand how is the profit commission calculated in column 6.
I am trying to calculate it as follows for Iteration #1: 25% * (App A Page 2 Col 7 Total Minus NPV Treaty Losses Minus NPV Reinsurer Expenses). So, I am getting ".25(5879913-4649828-0.05.98*8000000)" = 209,51 instead of 164,736. Also, in this example will the highest profit commission be calculated using LR as 61% ?
Comments
Using iteration 1 as an example:
Profit Commission = (0.66-0.63)*8M = 205920.8 (Don't use 0.63, but do direct loss/ subj prem to get more than 2 digits)
8M here is the reinsurance premium.
For some reason, you multiply this number here again by 0.8(?!) to get 164,736.
I think the formula here is incorrect as the QS is being applied twice.
And yes, maximum commission occurs at a LR of 61% or lower.
Sorry not following: "Profit Commission = (0.66-0.63)*8M" would be equal to "240,000" and not "205920.8" that you noted, did you have any other adjustment in the formula ? In the formula you mentioned the 25% profit commission is not accounted for, so, where is that information used ?
So, the solution in paper in paper is incorrect ?
Don't use the rounded number for 0.63. It's rounded to 2 significant digits. Use (5,074,049/8,000,000-0.63)*8M.
You are getting confused between the ceding commission which is 25% and the profit commission. I did not mention anything about the ceding commission in my formula