View source for Definition:Quota share

📋 '''Quota share''' is a form of [[Definition:Proportional reinsurance | proportional reinsurance]] in which the [[Definition:Ceding company | ceding insurer]] transfers a fixed percentage of every [[Definition:Premium | premium]] and [[Definition:Loss | loss]] on a defined book of business to the [[Definition:Reinsurer | reinsurer]]. If a treaty specifies a 30% quota share, the reinsurer receives 30% of the written premium and pays 30% of every claim — no matter how large or small — on every policy falling within the treaty's scope. This simplicity makes quota share one of the most widely used [[Definition:Reinsurance | reinsurance]] structures in the market, favored for its transparency, ease of administration, and clean alignment of interests between cedent and reinsurer.

🔄 The mechanics revolve around two key economic levers: the cession percentage and the [[Definition:Ceding commission | ceding commission]]. The ceding commission — a percentage the reinsurer pays back to the cedent out of the ceded premium — compensates the insurer for [[Definition:Acquisition cost | acquisition costs]], overhead, and profit margin. Negotiations over the commission rate are central to every quota share placement; a higher commission effectively boosts the cedent's [[Definition:Combined ratio | combined ratio]] on the retained portion, while a lower commission reflects the reinsurer's assessment of the book's profitability. Some treaties include a [[Definition:Sliding scale commission | sliding scale commission]] that adjusts up or down based on actual [[Definition:Loss ratio (L/R) | loss experience]], introducing performance incentives into the arrangement.

💡 Quota share treaties are especially valuable for insurers seeking to grow into new lines or geographies without straining their [[Definition:Capital | capital]] base. A startup [[Definition:Managing general agent (MGA) | MGA]] writing [[Definition:Specialty insurance | specialty]] risks, for instance, may cede 60% or more to a reinsurer, effectively borrowing the reinsurer's [[Definition:Underwriting capacity | capacity]] and balance sheet strength while it builds [[Definition:Loss data | loss history]] and scales operations. Established carriers use quota shares to manage [[Definition:Solvency | solvency]] ratios, reduce [[Definition:Catastrophe | catastrophe]] volatility across a portfolio, or fund rapid premium growth. [[Definition:Rating agency | Rating agencies]] and [[Definition:Regulator | regulators]] evaluate quota share treaties carefully, since the degree of genuine [[Definition:Risk transfer | risk transfer]] — including features like [[Definition:Loss corridor | loss corridors]] or [[Definition:Aggregate limit | aggregate caps]] — determines whether the cedent receives full credit for the cession.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Proportional reinsurance]]
* [[Definition:Surplus share]]
* [[Definition:Ceding commission]]
* [[Definition:Reinsurance treaty]]
* [[Definition:Risk transfer]]
* [[Definition:Sliding scale commission]]
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