Profit commission calculation from the binder's own clauses, shown step by step so both sides agree the number
One commission figure both sides can check, shown step by step.
See one case, screen by screen ↓Under many binding authority agreements the MGA earns a commission that slides with the program's loss ratio, plus a share of the profit once the underwriting year has developed. The calculation applies the binder's clauses — pivot, slope, cap, floor, expense allowance, deficit carry-forward and profit commission cap — to the premium and claims totals at the valuation date. Profit Commission Calculation does that from the contract and the bordereaux, and shows every step.
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Many binders pay the MGA a commission that slides with the program's loss ratio, plus a profit commission once the underwriting year has developed. The formulas sit in two or three clauses of the binding authority agreement, each with its own pivot, slope, cap, floor, expense allowance and deficit carry-forward — often drafted years earlier and rarely examined in detail at signature.
At each adjustment the MGA's finance team and the carrier's program accountant each paste the same premium and claims bordereaux into their own workbook, strip out cancellations, fees and taxes by hand, and pick an IBNR. They reach different figures. The reasons are small and familiar — an unagreed reserve study, cancellations booked after the valuation date, an expense allowance on written instead of earned premium — and the emails go back and forth for weeks while settlement and month-end close slip.
Estimated split for one binder's annual adjustment, by hand and with the solution.
Six specialist agents read the binder, total the bordereaux and explain the carrier's figure; the head of finance decides and signs.
Harrowgate Specialty Underwriters writes the Corner Table Restaurant Program under binder HSU-CPI-24, fronted by Calder Point Insurance Company. It is Monday 12 October 2026: the first adjustment of underwriting year 2024, as at 30 September 2026. Here is what happens, screen by screen, in the working solution.
Rachel opens the calculator. The sliding scale is drawn the way the binder writes it — a 32.50% cap, a slope through 27.50% at a 55% loss ratio, a 22.50% floor — with the profit commission as a band above it. The program is the dot: a 56.18% loss ratio, $13,598,371 of commission income, with its earlier valuations as a trail behind it.
“Calder Point’s statement for Corner Table 2024 is $481,222 below ours — three differences explained.”
Clauses 14 and 15 and Schedule 4 sit beside a margin note for every term the calculator uses: provisional rate, sliding scale, loss-ratio definition, valuation dates, profit commission, expense allowance, deficits, payment and IBNR. One question came up — clause 14.2 says “two decimal places” but not which way — and was confirmed as half up with Marcus Leland on 28 Sep.
Never infers a term the binder does not state; every parameter quotes its clause.
33 premium and 33 claims bordereaux — 18,406 premium lines and 2,977 claim lines — totalled by underwriting year to 30 Sep. Two duplicate claim rows for Harbor Light Oyster Bar ($41,800) came out; 11 flat cancellations from the October bordereau ($214,300) stay out of this adjustment; policy fees and surplus lines taxes are excluded as clause 14.3 says.
Late items are reported, never moved between periods.
Three views of IBNR for 2024 side by side: $3,182,000 in the Schedule 4 letter signed by both sides on 2 Oct, Calder Point’s Q3 reserve study at $3,744,000, and Harrowgate’s own actuary at $3,050,000. Only the letter is used. Using the study instead would move the loss ratio to 57.37% and cost Harrowgate $335,098.
Earned premium $47,181,700; incurred $26,506,100; loss ratio 56.18%. Adjusted rate 27.50 − 0.50 × 1.18 = 26.91%, so $12,696,595 of commission and $278,373 back to Calder Point. Profit after the expense allowance and the 2023 deficit of $1,346,948 is $4,508,880; the profit commission at 20% is $901,776. Net due to Harrowgate now: $172,515.
“Arithmetic is exact to the cent and rounded as clause 14.2 says.”
Rachel clicks the adjusted rate. Clause 14.2 opens with the operative words marked — 27.50% at a loss ratio of 55.00%, 0.50 point per point to a maximum of 32.50% or a minimum of 22.50%, rounded to two decimal places — read from the signed binder of 18 Dec 2023, page 14.
On 6 Oct the reserve on Copper Kettle Brasserie in Savannah — a kitchen fire of 22 Nov 2025 — went from $380,000 to $1,850,000. Put on the curve, the dot slides to a 59.29% loss ratio and a 25.36% rate; income falls to $12,719,318, down $879,053. The 50% of profit commission paid now stays covered, so nothing would be clawed back.
“Not in this adjustment — clause 14.3 measures losses at 30 Sep. It moves the 2027 one.”
Calder Point’s statement of Fri 9 Oct shows $13,117,149. The bridge from Harrowgate’s figure takes three steps, each with its clause: IBNR from an unagreed reserve study ($335,098, clause 14.3 and Schedule 4), cancellations booked after the valuation date ($134,900, clause 14.3), and the expense allowance on written instead of earned premium ($11,224, clause 15.2).
Recommends; never accepts or disputes on Harrowgate’s behalf.
For each difference Rachel chooses “Hold our figure” or “Accept theirs”. The reply to Marcus Leland is drafted from her decisions — the three differences, each with its clause and amount, and the worksheet linked — and is sent only when she says.
Rachel signs calculation statement PCS-2024-01 for a net $172,515, below the $500,000 second-signature limit. Her signature is recorded with the worksheet, the binder version and the bordereaux it used. Marcus Leland countersigns through the shared statement link, and the settlement instruction goes to Calder Point’s treasury: $172,515 to Harrowgate by 11 Nov.
The statement drafter never sends or settles before both signatures.
The same adjustment, seen by the four people who carry it — what it looked like in spreadsheets, and what it looks like now.
Six specialist agents read the binder, total the bordereaux and explain the carrier's figure; the head of finance decides and signs.
Reads the commission, profit commission and reserve clauses of the binding authority agreement and every endorsement into the calculator’s terms: provisional rate, pivot, slope, cap, floor, rounding, loss-ratio definition, valuation dates, expense allowance, deficit years, profit commission cap and payment split.
Reads premium and claims bordereaux in each delegate’s own layout, totals them by underwriting year to the valuation date, excludes fees and taxes as the binder says, and ties them to the carrier’s ledger and cash.
Applies the IBNR the binder’s reserve schedule makes binding, compares it with any other study, and watches large losses every morning for reserve moves after the valuation date.
Runs the sliding scale and the profit commission with deficits and caps, using only the binder terms and the agreed totals, and writes the worksheet with a source for every line.
Reads the carrier’s statement, rebuilds its figure from its own inputs, and bridges from one figure to the other one difference at a time — amount, clause, both readings and the evidence.
Drafts the calculation statement, the reply to the carrier and the settlement instruction.
Decides each difference and signs; carrier countersigns. The agents propose; a named person decides.
The finance team can ask about any rate, clause, claim or difference with the carrier — or try a loss on the curve. Every answer points to its clause.
Why is the adjusted commission 26.91%?
The loss ratio is 56.18%: incurred $26,506,100 — paid, outstanding and the agreed IBNR of $3,182,000 — over earned premium of $47,181,700. Clause 14.2 starts at 27.50% at 55.00% and takes off 0.50 point for each point above, so 27.50 − 0.50 × 1.18 = 26.91%, rounded to two decimals. That is $12,696,595, so $278,373 of the provisional commission goes back to Calder Point.
What would the Copper Kettle fire do to our commission?
The reserve went from $380,000 to $1,850,000 on 6 Oct, after the valuation date. Added to 2024, the loss ratio moves to 59.29%, the rate to 25.36% and the profit commission to $754,039. Total income falls to $12,719,318 — $879,053 less, about 60 cents per dollar of loss. The $450,888 paid now stays covered, so nothing would be clawed back.
Why is Calder Point’s figure $481,222 lower?
Three differences, each in the binder wording: IBNR from an unagreed reserve study (clause 14.3 · Schedule 4, $335,098), cancellations booked after the valuation date (clause 14.3, $134,900), and the expense allowance on written, not earned, premium (clause 15.2, $11,224). Together they explain the whole $481,222.
How much more loss before the 50% paid now is clawed back?
About $4,340,000 of further incurred loss on 2024. At that point the loss ratio is 65.38% and the profit commission falls to $449,918, below the $450,888 paid now, and the difference would be repaid within 30 days. Copper Kettle uses 34% of that headroom.
13 screens from the working solution, on its sample data. Pick one to see it large.
Contract terms come from the binder. Everything else is a setting, and every change is versioned.
| Setting | Default | Choose from |
|---|---|---|
| Valuation dates | Annually at 30 September, first at 33 months | From the binder, clause 14.4 |
| IBNR used in the calculation | Agreed under the binder's reserve schedule | Reserve schedule · carrier's latest study · own actuary |
| Watch reserve moves after the valuation date | $250,000 | $100,000 · $250,000 · $500,000 |
| Hold interim profit where the MGA sets reserves | On | On · off |
| Rate rounding | Two decimals, half up | Two decimals, half up · two decimals, down · four decimals |
| Agree automatically within | $5,000 | Any amount |
| Recalculate when a bordereau lands | Every open underwriting year, every month | On · off |
| Second signature | Above $500,000 · Chief Financial Officer | Above $250,000 · above $500,000 · always |
Every figure is labelled: a target the solution is built to, an estimate, a typical published result, or a proven one.
“demo” = seen in the working solution, on its sample program data · “target” = the design goal, measured in the live solution · “estimated” = our estimate · “typical” = published figures (LMA model profit commission clauses, Aug 2025, and Browne Jacobson on LMA3113A — 12 months after expiry under the older clauses) · interim-profit hold per NAIC Managing General Agents Act (Model 225). People, companies, programs and insureds named on this page are fictional — characters and sample data in the working solution.
Under many binding authority agreements the MGA earns a commission that slides with the program's loss ratio, plus a share of the profit once the underwriting year has developed. The calculation applies the binder's clauses — pivot, slope, cap, floor, expense allowance, deficit carry-forward and profit commission cap — to the premium and claims totals at the valuation date. Profit Commission Calculation does that from the contract and the bordereaux, and shows every step.
The Binder terms reader takes the scale from the clause — for example 27.50% at a 55% loss ratio, 0.50 point per point, a 32.50% cap and a 22.50% floor. The Commission calculator works out the loss ratio from the agreed totals, applies the scale with the clause's rounding, and writes each step on the worksheet with its source. The result is drawn on the binder's own curve.
Yes. A negative profit in one underwriting year is carried into the next for as many years as the binder allows, and the profit commission is held to its cap. In the working solution the 2023 deficit of $1,346,948 is carried into 2024, and the 5.00% cap of $2,359,085 is shown as not reached.
The figure the binder's reserve schedule makes binding — usually the one agreed in writing for the valuation date. Other studies, such as the carrier's latest reserve study or the MGA's own actuary, are shown beside it with their effect, but not used. Which view counts is a setting.
The Counterparty reconciler reads the carrier's statement, rebuilds its figure from its own inputs and bridges from one figure to the other one difference at a time, each with its amount, the clause, both readings and the evidence. It recommends; it never accepts or disputes on the MGA's behalf.
Yes. The agents calculate and explain; the head of finance decides each difference and signs the statement, a second signer is needed above a set amount, and the carrier countersigns before anything settles. The agents never set reserves, accept or dispute, or send.
Yes. The carrier's program accountant sees the shared statement and worksheet and countersigns through its link. An auditor can read and re-perform any calculation, with the clause and bordereau total behind every line.
The Agentic Solution Engine builds and deploys it from your requirements — your binders, a sample of bordereaux and your reserve letters — and it goes live once every quality gate has passed. We will walk you through it on one of your own binders first.
Every bordereau in your layout on arrival, each rejected row with its reason.
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1-min demoBinder Guidelines SearchFewer needless referrals, and every answer shows the clause that decides it.
1-min demoWe’ll run Profit Commission Calculation on one of your own binders and a year of its bordereaux.