Quota share reinsurance
Quota share reinsurance is a proportional arrangement in which the reinsurer takes a fixed percentage of the premiums and pays that same percentage of the losses on the covered policies.
In a quota share treaty, the ceding insurer and reinsurer split every risk in the covered book by an agreed percentage. If the reinsurer's share is 40 percent, it receives 40 percent of the premiums and pays 40 percent of every covered loss, from the first dollar, while the insurer keeps the remaining 60 percent. The reinsurer usually pays the insurer a ceding commission to help offset acquisition and administrative costs.
Because the split applies proportionally to all covered losses, quota share is a form of proportional reinsurance. It is commonly used to reduce an insurer's net exposure, support surplus and capacity, and share results on a new or growing line of business. It is simple to administer, though it cedes premium on good and bad risks alike.
For example, a young insurer expanding into a new state might cede 50 percent of that book through quota share so a reinsurer shares the growth and the risk in equal measure. Quota share is one common way for RiskCube Re to share in the results of an MGA's or carrier's portfolio while supplying capacity for growth.
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.