How Do You Spell QUOTA SHARE?
Pronunciation: [kwˈə͡ʊtə ʃˈe͡ə] (IPA) 
Pronunciation: [kwˈə͡ʊtə ʃˈe͡ə] (IPA)
Quota share is a term commonly used in insurance and reinsurance industries to describe a type of proportional reinsurance arrangement between an insurer and a reinsurer. It specifies the portion or share of risk that the reinsurer agrees to assume from the insurer.
In a quota share agreement, the insurer cedes a specific percentage of its policies or premiums to the reinsurer, who in turn accepts and underwrites that portion of the risk. For example, if an insurer has a quota share arrangement of 50% with a reinsurer, it means that half of the insurer's policies or premiums will be transferred to the reinsurer. Consequently, the reinsurer is responsible for paying 50% of any claims that arise from those policies.
This arrangement allows the insurer to reduce its overall risk exposure by sharing it with the reinsurer. It enables the insurer to maintain a certain level of capacity to underwrite more policies while limiting its potential losses. For the reinsurer, participating in a quota share provides a means of diversification by spreading its risk across multiple insurers.
Quota share agreements are typically long-term contracts with predetermined proportional shares and terms. The reinsurer receives a proportional share of premiums and pays out its share of any claims. Depending on the agreement, the insurer may retain all policy and claims administration or transfer a portion of it to the reinsurer. Quota share arrangements are often structured as a bilateral agreement between the insurer and reinsurer, in contrast to facultative reinsurance which deals with individual policies.
The word "quota" comes from the Latin word "quotus", meaning "of what number", which in turn comes from the word "quot", meaning "how many". "Share" derives from the Old English word "scearu", meaning a portion or division. In combination, "quota share" refers to a proportional portion or division, often used in the insurance industry to describe a type of reinsurance agreement where multiple insurers share the premiums and losses of a policy in a predefined proportion.
