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🤝 '''Quota share treaty''' is a form of [[Definition:Proportional reinsurance | proportional reinsurance]] in which a [[Definition:Ceding company | ceding insurer]] transfers a fixed percentage of every risk within a defined book of business to one or more [[Definition:Reinsurer | reinsurers]], sharing [[Definition:Premium | premiums]] and [[Definition:Loss | losses]] in the same proportion. If a treaty stipulates a 30% quota share, the reinsurer receives 30% of the premium (less a [[Definition:Ceding commission | ceding commission]]) and pays 30% of every claim arising from the covered portfolio — regardless of individual loss size. This stands in contrast to [[Definition:Excess of loss reinsurance | excess of loss]] arrangements, where the reinsurer's liability attaches only after losses exceed a specified threshold.

⚙️ Structuring a quota share treaty involves negotiating several key parameters: the cession percentage, the scope of business covered (by line, geography, or product), the ceding commission rate, and any [[Definition:Loss corridor | loss caps or corridors]] that may modify the basic proportional split. The ceding commission is a critical economic lever — it reimburses the cedent for [[Definition:Acquisition cost | acquisition costs]] and often includes a [[Definition:Profit commission | profit commission]] component that rewards favorable [[Definition:Loss experience | loss experience]]. From a financial reporting perspective, the treatment differs across regimes: under U.S. [[Definition:Statutory accounting principles (SAP) | statutory accounting]], a qualifying quota share treaty can provide immediate [[Definition:Surplus relief | surplus relief]] by reducing the cedent's unearned premium reserve, whereas under [[Definition:IFRS 17 | IFRS 17]], the economics are recognized differently through the contractual service margin. Regulators in all major markets scrutinize quota share treaties to ensure genuine [[Definition:Risk transfer | risk transfer]] exists and that the arrangement is not merely a financing mechanism dressed as reinsurance.

📈 For primary insurers, quota share treaties serve multiple strategic purposes beyond simple risk distribution. A newly formed [[Definition:Managing general agent (MGA) | MGA]] or startup carrier may use a high-percentage quota share to access the [[Definition:Underwriting capacity | capacity]] and balance sheet strength of an established reinsurer while building its own track record. Established insurers often deploy quota shares to manage [[Definition:Solvency | solvency]] ratios, smooth earnings volatility, or enter new lines of business with a partner willing to share the learning curve. From the reinsurer's vantage point, quota share participation provides a proportional share of a diversified portfolio and a steady premium flow — making it a staple of reinsurer growth strategies, particularly in markets like [[Definition:Lloyd's of London | Lloyd's]] where [[Definition:Syndicate | syndicates]] frequently cede portions of their stamp capacity via quota share. The simplicity of the proportional structure also makes quota shares among the easiest reinsurance treaties to administer, a practical advantage that keeps them popular worldwide despite the availability of more complex alternatives.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Proportional reinsurance]]
* [[Definition:Surplus share treaty]]
* [[Definition:Ceding commission]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Risk transfer]]
* [[Definition:Surplus relief]]
{{Div col end}}

Definition:Quota share treaty - Revision history

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