Solvency quota share

A solvency quota share is a proportional treaty whose primary purpose is not protection against a loss but reduction of the regulatory capital requirement. By ceding a fraction of the portfolio, the cedant transfers the matching share of underwriting and reserving risk, which the prudential regime recognizes by lowering required capital. The problem it solves is the cost of capital: raising equity is slow, dilutive and expensive, while a quota share is put in place within weeks, unwound just as fast if the need disappears, and paid for by a negotiable commission. It has become the standard tool for fast growing insurers, whose underwriting consumes capital faster than earnings replace it. Its prudential recognition is never assured in advance: the supervisor tests the reality of transfer, the reinsurer's quality and the absence of clauses that would negate the effect, since a loss ratio cap or a corridor set too wide can be enough to cut the relief obtained sharply.

An insurer cedes 30 percent of its property book in 2026, that is 210 million euros of premium, against a 29 percent commission. The capital requirement falls by 74 million and the solvency ratio gains 23 points. The supervisor nevertheless cuts the recognized relief by 11 million, on the ground that the 125 percent loss ratio cap limits transfer in the extreme scenarios the model applies.

Solvency quota share, Qualifying quota share, Quote-part de capital, Capital quota share