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🔄 '''Surplus share''' is a type of proportional (pro rata) [[Definition:Reinsurance | reinsurance]] arrangement in which the [[Definition:Ceding company | ceding insurer]] retains a fixed dollar amount of [[Definition:Liability | liability]] on each risk — known as the [[Definition:Retention | retention]] or "line" — and cedes the portion of each risk that exceeds that retention to the [[Definition:Reinsurer | reinsurer]], up to specified limits expressed as multiples of the retention. Unlike a [[Definition:Quota share reinsurance | quota share]], where every risk is split by a single percentage, a surplus share treaty allows the ceding company to keep 100 percent of smaller risks while transferring a larger proportion of bigger ones.

📐 Consider a surplus share treaty with a retention of $500,000 and a capacity of four lines, giving the reinsurer a maximum per-risk limit of $2 million. If the ceding company writes a policy with a [[Definition:Sum insured | sum insured]] of $1.5 million, it retains $500,000 (one line) and cedes the remaining $1 million to the reinsurer. [[Definition:Premium | Premium]] and [[Definition:Insurance claim | losses]] are divided in the same proportion — one-third retained, two-thirds ceded. On a smaller policy of $400,000, the entire risk falls within the retention, so no premium or loss passes to the reinsurer at all. This variable cession percentage is calculated risk by risk, making surplus share treaties more administratively complex than quota shares but far more efficient in targeting the risks that actually require [[Definition:Risk transfer | risk transfer]].

💡 The strategic appeal of surplus share arrangements lies in their precision. A [[Definition:Property insurance | property]] insurer writing a mix of residential and commercial risks can retain affordable exposures in full — preserving the associated [[Definition:Underwriting profit | underwriting profit]] — while offloading the large commercial accounts that could distort its [[Definition:Loss ratio (L/R) | loss ratio]]. For [[Definition:Managing general agent (MGA) | MGAs]] negotiating capacity with carrier partners, understanding how surplus share treaties shape a carrier's net retained book is essential to aligning program economics. The mechanism also underpins [[Definition:Treaty reinsurance | treaty reinsurance]] structures at [[Definition:Lloyd's of London | Lloyd's]], where syndicates routinely use surplus share placements to manage [[Definition:Line size | line-size]] volatility.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Surplus share reinsurance]]
* [[Definition:Quota share reinsurance]]
* [[Definition:Proportional reinsurance]]
* [[Definition:Retention]]
* [[Definition:Treaty reinsurance]]
* [[Definition:Ceding company]]
{{Div col end}}

Definition:Surplus share - Revision history

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