Strongbow insurance company has the following results for its fire portfolio and requests the reinsurers to calculate the amount of the profit commission for the 2021 treaty year. The treaty is on an underwriting year basis, any deficit being carried forward to extinction. Outstanding Loss reserves at the end of the previous year was R550 000. Unearned Premium Reserve at the end of the previous year was R3 200 000. Management Expenses were agreed at 7.5%. Unearned premium Reserves are calculated at 40%.

The flat commission to the cedant was 25%. The profit commission was agreed at 25%. The Reinsurance Premium for 2021 was R15m. Total Reinsurance claims paid were R2.5m. Reinsurers outstanding losses at the end of the current year are R750 000.

Use the table below to calculate the profit commission amount.

Items of income A

Items of Outgo B