What Is A 100 Quota Share Reinsurance Agreement


    Consider an insurance company that wants to reduce its exposure to debts arising from its insurance business. It enters into a co-payment reinsurance contract. The contract is insured by the insurance company, which withholds 40% of its premiums, losses and coverage limits, but hands over the remaining 60% to a reinsurer. This contract would be called a 60% quota contract, since the reinsurer pays this percentage of the insurer`s debts. The company that is leaving would prefer a surplus plan for the $1,000,000 debt, as it would pay 7.5% of the debt instead of paying the 25% it would pay as a quota share. For the $100,000 application, it would prefer a quota share, because it would pay 25% of the total debt, instead of the 75% below the excess loss option. Some quota contracts also contain entry limits that limit the amount of losses a reinsurer is willing to share per entry. Insurers are less willing to accept this type of agreement because it can lead to a situation in which the insurer is responsible for most of the losses resulting from a particular event of danger, for example. B a catastrophic tide. A financial co-payment allows for a reduction in the surplus, as legal accounting requires insurers and reinsurers to immediately calculate all acquisition costs for the accounting period during which the business is registered, even if the premium is not earned at the end of the period.

    This is a prepaid acquisition cost in the undeserved premium reserve or equity in the undeserved premium pool. In return, the insurer receives an increase in its acceptance capacity through automatic coverage. Quota contracts are a form of proportional reinsurance because they give a reinsurer a certain percentage of a policy. Financial quota units do not require the embailed company to pay a deductible before the coverage begins, as the entity is still responsible for a portion of the loss. Companies, including insurers, often treat reinsurance as a capitalist.