What is Quota Share Reinsurance?

Quota Share Reinsurance 
What is Quota Share Reinsurance?

The distinguishing characteristic of quota share reinsurance is that the primary insurer and the reinsurer use a fixed percentage in sharing the amounts of insurance, policy premiums, and losses (including loss adjustment expenses). Quota share reinsurance can be used with both property insurance and liability insurance but is more frequently used in property insurance.

For example, an insurer may arrange a reinsurance treaty in which it retains 45 percent of policy premiums, coverage limits, and losses while reinsuring the remainder. Such a treaty would be called a “55 percent quota share treaty” because the reinsurer accepts 55 percent of the liability for each loss exposure subject to the treaty.

Most reinsurance agreements specify maximum dollar limit above which responsibility for additional coverage limits or losses reverts to the primary insurer (or is taken by another reinsurer). With a pro rata reinsurance agreement, that maximum dollar amount is stated in terms of the coverage limits of each policy subject to the treaty. For. example, a primary insurer and a reinsurer may share amounts of insurance, policy premiums, and losses on a 45 percent and 55 percent basis, respectively, subject to a $1 million maximum coverage amount for each policy.

In addition to a maximum coverage amount limitation, some pro rata reinsurance agreements include a per occurrence limit, which restricts the primary insurer’s reinsurance recovery for losses originating from a single occurrence. This per occurrence limit may be stated as an aggregate dollar amount or as a loss ratio cap. The per occurrence limit diminishes the usefulness of pro rata reinsurance in protecting the primary insurer from the effects of catastrophic events. Primary insurers exposed to catastrophic losses usually include catastrophe excess of loss reinsurance in their reinsurance programs.

What is Quota Share Reinsurance? What is Quota Share Reinsurance? Reviewed by Gaurav Chhokar on December 01, 2019 Rating: 5

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