What is Subject Premium? A Comprehensive Legal Overview
Definition & Meaning
Subject premium refers to the total premium amount that a cedant earns or writes, which is used to determine the reinsurance premium. This amount is calculated before any deductions for reinsurance premiums related to the specific reinsurance agreement. Essentially, subject premium represents the gross premium, while net premium is the amount remaining after accounting for adjustments like cancellations and refunds. Subject premium is often referred to as base premium.
Legal Use & context
In legal practice, subject premium is primarily used in the field of insurance and reinsurance. It plays a crucial role in determining the financial obligations of cedants when entering into reinsurance agreements. Understanding subject premium is essential for insurance professionals, as it impacts the overall pricing and risk assessment in these contracts. Users can manage related forms or agreements using templates available through US Legal Forms, which are drafted by experienced attorneys.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A cedant writes a policy with a total premium of $100,000. The reinsurance premium rate applied is 20%. The subject premium is $100,000, and the reinsurance premium calculated would be $20,000.
Example 2: A cedant has a subject premium of $50,000 but has to adjust this amount due to cancellations amounting to $5,000, resulting in a net premium of $45,000.