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CMA Final · Risk Management in Banking and Insurance · Structure and Type of Re-insurance

Under a quota share treaty, a reinsurer accepts 40% of every policy written by the cedant, in return for 40% of the premium and 40% of the losses. Which feature best describes this arrangement?

A quota share treaty is proportional reinsurance. The reinsurer takes a fixed percentage of every policy and receives the same percentage of premium while paying the same percentage of losses. It differs from excess of loss, which responds only above a retention.

  1. AIt is a proportional treaty in which premium and losses are shared in a fixed ratioCorrect
  2. BIt is a non-proportional treaty in which the reinsurer pays only losses above a retention
  3. CIt is a facultative arrangement negotiated separately for each risk
  4. DIt is a catastrophe cover that responds only to an aggregate event loss

Explanation

In a quota share the reinsurer takes a fixed percentage of every policy and shares premium and losses in that same percentage. This makes it proportional. The excess-of-loss option describes a non-proportional treaty, which does not share premium pro rata.

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