Proportional reinsurance treaty where the reinsurer shares a fixed percentage of every premium and every loss.
Quota share is the simplest form of proportional reinsurance. The cedant cedes a fixed percentage (cession rate) of every policy in the portfolio, receiving in return a ceding commission and transferring the same fraction of every loss. Example: 30% quota share → the reinsurer receives 30% of premiums and pays 30% of each loss. Quota share is used to reduce volatility, release capital or facilitate the launch of a new portfolio. It also transfers profits proportionally: in a good year the cedant shares its gains. It differs from surplus share, which only applies to risks exceeding the cedant's full retention.
40% QS: GWP 10 M EUR → ceded premiums 4 M EUR, commission received 1 M EUR (25%). 500K EUR loss → cedant 300K EUR (60%), reinsurer 200K EUR (40%).
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