Page 23 - Reinsurance Management IC85

The Insurance Times

The principle involved is that the reinsurer follows
the fortunes of the direct insurer. All treaties make
provision for the periodical rendering of treaty accounts
and for settlement of balances due from and to the
reinsurer. All insurance treaties are regarded as
confidential by both parties.

Q. Explain the operation of a Quota Share
treaty.

In a Quota Share treaty, the ceding company cedes a
fixed proportion of all business in a class to the
reinsurer. For example, a new company may decide
for fire insurance its net retention at Rs. 1,00,000
maximum and the maximum sum insured on a risk
not to exceed Rs. 10,00,000.

The company may arrange a first quota share treaty,
with retention of 10% for own account upto Rs.
1,00,000 and cede the balance 90% upto a limit of
Rs,9,00,000 to the reinsurers. For sums insured
exceeding Rs, 10,00,000 the ceding company will
have to make a facultative reinsurance arrangement
for the excess value. In the above example, the

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