Quota share reinsurance

This type of reinsurance was the earliest form of proportional reinsurance and is still widely used wherever appropriate. Quote share reinsurance arrangements agreement represent a sharing of all business in a fixed ratio, or proportion. A 50% quota share agreement is one in which premiums, losses, and loss expenses are shared equally, half being retained by the insurer and half being ceded to the reinsurer. A 70% quota share would involve a 70% share ceded to the reinsurer, with the remaining 30% retained by the insurer. The insurer's needs and objectives, and the amount of proportional capacity available in the reinsurance marketplace at the time of placement, will determine the percentage share it will retain for its own account. Quota share treaties are invariably obligatory contracts. The contract will contain a stipulated limit of liability with respect to any single original policy. There will ordinarily be certain forms of coverage or classes of business that are excluded under the terms of the contract. These may not be ceded to the reinsurer without prior review and approval (usually referred to as a special acceptance) by the reinsurer. The reinsurance premium is simply the reinsurer's proportional share of the insurer's original premium for all business ceded. The reinsurer's share of the insurer's acquisition costs and general operating expenses associated with the ceded business is recovered by the insurer via a ceding commission allowance, a deduction from the reinsurer's share of the gross original premium.