Quota Share Reinsurance

What is Quota Share Reinsurance?

Quota share reinsurance is the simplest and most common form of proportional reinsurance. Under a quota share treaty, the cedant (primary insurer) and the reinsurer agree on a fixed cession percentage — say 40% — that applies uniformly to every policy written within the defined class of business. The cedant cedes 40% of every premium collected to the reinsurer and, in return, the reinsurer pays 40% of every covered loss. This symmetry means the economics of each policy are split in the same proportion as the overall treaty.

The reinsurer typically pays a ceding commission back to the cedant to cover the cedant's acquisition costs (broker commissions, policy issuance expenses) and a portion of its overhead. This commission is a key negotiating point at treaty renewal and reflects the quality and profitability of the ceded book. A well-performing book commands a higher ceding commission; a deteriorating loss ratio will see the commission reduced or the treaty restructured.

Why Cedants Use Quota Share Treaties

Quota share treaties serve two primary purposes. First, they provide capital relief: by ceding a fixed percentage of every risk, the cedant reduces its net retained exposure and frees up regulatory capital to write additional business. This is particularly valuable for growing MGAs and newer carriers whose balance sheets limit their underwriting capacity. Second, quota share treaties transfer underwriting risk — the reinsurer participates in both the upside (low-loss years) and the downside (high-loss years), stabilizing the cedant's net results.

Unlike excess of loss reinsurance, quota share protection begins from the first dollar of every loss. There is no retention threshold to meet. This makes quota share well suited to lines with high-frequency, moderate-severity losses where the cedant benefits from smoothing net results across a large volume of small claims.

Quota Share Reporting and Administration

Quota share treaties generate ongoing reporting obligations. The cedant must produce regular bordereaux — detailed cession statements listing every risk ceded, the corresponding premium, any losses attaching, and the reinsurer's share of each. These bordereaux are typically submitted monthly or quarterly and form the financial backbone of the reinsurance relationship. Loss bordereaux must be reconciled against claims system data, and any discrepancies investigated and resolved before submission to avoid disputes at settlement.

Accurate and timely bordereau reporting is a treaty obligation. Persistent delays or errors can trigger audit rights for the reinsurer and, in extreme cases, provide grounds for challenging treaty compliance. Automation of the cession calculation and reporting workflow substantially reduces the administrative burden and the risk of data errors in high-volume quota share portfolios.