A quota-sharing contract is a pro-rata reinsurance contract, in which insurers and reinsurers share premiums and losses on a fixed percentage basis. Sub-quota stock reinsurance allows an insurer to maintain a certain risk and premium, while sharing the rest with an insurer, within a predetermined limit. Overall, it is a way for an insurer to increase and obtain a portion of its capital. 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 quota-sharing contract reduces financial risk due to unfavourable fluctuations in claims. Cedent may continue to participate in insurance profits in a certain percentage negotiated, although it has re-insured the business, and has access to the external know-how of a professional reinsurer. A quota contract is a reinsurance contract whereby the insurer pays a portion of its risks and premiums within a limit of dollars. Losses above this limit are the responsibility of the insurer, although the insurer may use a surplus of reinsurance-loss contract to cover losses above the ceiling per insurance coverage.
Imagine a quota contract that gives part of the maintenance of an insurer. 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. 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. When an insurance company has a new policy insurance, the policyholder pays a premium.