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📋 '''Surplus share reinsurance''' is a [[Definition:Proportional reinsurance | proportional reinsurance]] structure under which the [[Definition:Ceding company | ceding insurer]] retains a defined dollar amount — its "line" or [[Definition:Retention | retention]] — on each individual risk, and the [[Definition:Reinsurer | reinsurer]] assumes whatever portion of the risk exceeds that retention up to an agreed multiple. Because the split between retained and ceded amounts varies from policy to policy, surplus share reinsurance gives the cedent granular control over its net [[Definition:Exposure | exposure]] in a way that flat-percentage [[Definition:Quota share reinsurance | quota share]] treaties cannot.

🔧 Operationally, the cedent sets its retention based on the amount of risk it is comfortable holding net, informed by its [[Definition:Risk-based capital (RBC) | capital position]], [[Definition:Catastrophe modeling | catastrophe models]], and portfolio strategy. The treaty capacity is then expressed as a number of "lines" — for example, a nine-line surplus share over a $1 million retention means the reinsurer can accept up to $9 million on any single risk. For each policy written, the cedent calculates the cession percentage by dividing the amount above the retention by the total [[Definition:Sum insured | sum insured]]. [[Definition:Premium | Premium]], [[Definition:Ceding commission | ceding commission]], and [[Definition:Insurance claim | losses]] all follow that same percentage split. Administration is more demanding than a quota share because the cession ratio must be computed risk by risk, often requiring robust data systems — an area where [[Definition:Insurtech | insurtech]] automation has increasingly streamlined the process.

🎯 Surplus share reinsurance is especially popular among [[Definition:Property insurance | property]] insurers and [[Definition:Managing general agent (MGA) | MGAs]] that write a wide spread of values. It lets them retain — and profit from — the smaller, more predictable risks while transferring the outsized exposures that could strain [[Definition:Policyholder surplus | surplus]]. This selective approach can improve the cedent's [[Definition:Loss ratio (L/R) | loss-ratio]] stability and capital efficiency simultaneously. In [[Definition:Treaty reinsurance | treaty reinsurance]] negotiations, the size of the retention and the number of lines are key bargaining points: a higher retention earns a better [[Definition:Ceding commission | ceding commission]] from the reinsurer, but it also leaves the cedent more exposed when large losses occur. Striking that balance is at the heart of sound [[Definition:Reinsurance program | reinsurance-program]] design.

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

Definition:Surplus share reinsurance - Revision history

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