A proportional treaty in which reinsurer and cedant share premiums and claims according to a fixed agreed percentage.
The quota share treaty is the simplest form of proportional reinsurance. The cedant and the reinsurer agree on a fixed percentage, for example 40 percent, that applies uniformly to all risks within the treaty's scope. The reinsurer then receives that share of premiums and symmetrically bears the same share of every claim, whatever its size. This proportional sharing is generally accompanied by a ceding commission paid by the reinsurer to the cedant, intended to reimburse part of the acquisition and administrative costs. The quota share offers several benefits, it lightens the cedant's exposure, eases its solvency capital requirement and stabilizes its results, while remaining administratively simple. Its limitation lies in its lack of differentiation, since it cedes the same proportion on small, well-controlled risks as on large, volatile ones, which can lead the cedant to cede more profit than necessary. This is why the quota share is often used by young or fast-growing insurers that need capacity and capital, or on new and poorly understood lines such as cyber was for a long time.
Under a 40 percent quota share, a cedant collecting 10 million euros of premiums passes 4 million to the reinsurer, who will bear 40 percent of every claim arising on the portfolio.
quote-part, quota share, réassurance proportionnelle