Q&A – Pacific Cross Insurance Company Limited Broker Incentive Scheme 2022

16 August 2022

This document is a Q&A designed to supplement the announcement sent by Pacific Cross International Head of Distribution, Mr. Rob Wyld.

The announcement introduced PCIC’s new broker incentive scheme which will take immediate effect. We hope this file will help to answer some of your questions regarding the new scheme.

 

Question 1:

If I was receiving Pacific Cross shares as part of the old scheme, what will happen to those shares?

Answer:

You will retain them. They will not be recalled, rescinded or otherwise as part of the new scheme.

 

Question 2:

The new scheme takes effect January 1, 2021. Does that mean I won’t receive Pacific Cross shares based on my performance in 2021?

Answer:

That is correct. Your 2021 performance will count toward the new scheme and if you qualify, would receive the incentive awarded by the new scheme.

 

Question 3:

If I want to stay on the old scheme, can I?

Answer:

No. The new scheme takes over for any and all existing ones. There is no option given regarding which scheme will apply. Effective immediately, PCIC is applying only this new scheme to all brokers.

 

Question 4:

The new scheme sounds confusing. How exactly does it work?

Answer:

We pay 5% to you based on “profit” earned from the business you write with us.

To calculate that “profit” we take your total earned premium for the specified time period and then subtract
- incurred losses (this means claims paid)
- commission paid on the earned premium
- 20% of earned premium for expenses

The remaining amount is the profit on your business. You receive 5% of this amount as an incentive. Here is an example calculation:

Earned premium for 2021 = $100,000
Claims paid for 2021 on the business from above earned premium = $20,000
Commission paid on above earned premium = $20,000
Expense allowance on above earned premium = $20,000

100,000
- 60,000
-----------
profit: 40,000 x .05 = $2,000

In this example the incentive paid to the broker would be $2,000.

 

Question 5:

How will the incentive be paid to me? Will there be any fees? Any taxes?

Answer:

If you are eligible for incentive, it can be paid to you in the same method as your commissions are paid. Fees and taxes would be applied the same as they would be to your normal commission payments. PCIC cannot comment on or guarantee anything regarding tax and financial reporting legislation in your territory or country of business or residence.

 

Question 6:

What does the 2-year accounting approach and the deficit carried forward mean?

Answer:

The 2 year accounting approach is explained in Rob’s letter to you. Using 2021 as an example, we will use your earned premium from 2021 to determine if you qualify for the scheme. If yes (earned premium over $100,000) then we will account for all claims against that business at the end of 2022. This means that at the end of this year, you would receive incentive payment for the business you wrote in 2021, hence the “2-year” approach.

Deficit carried forward means that in a given year, if your previous year’s business and underwriting results have resulted in a deficit (a loss for PCIC) that deficit would be carried forward to the following year’s business. Below is an example:

Earned premium for 2021 = $100,000
Claims paid for 2021 on the business from above earned premium = $70,000
Commission paid on above earned premium = $20,000
Expense allowance on above earned premium = $20,000

Deficit for 2021 to be carried forward to 2022 = $10,000

 

Question 7:

What can I expect next?

Answer:

If your 2021 production qualifies you for this scheme, we will be sending you an estimate of your profit participation (how much money you can expect to receive based on the new scheme). This will be sent to you around in Q4 of 2022.

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