In a quota share reinsurance agreement, what is the basis for claims payment among insurers?

In a quota share reinsurance agreement, the claims payment among insurers is based on a percentage of risk. This type of reinsurance involves a proportional agreement where the reinsurer agrees to take on a specified percentage of the risks written by the ceding insurer. Consequently, when a claim arises, the reinsurer pays its share of the claim in accordance with the predetermined percentage of the risk that it has assumed.

This structure helps both the primary insurer and the reinsurer manage their exposures more effectively, as they share both the premiums and the losses in proportion to their agreed-upon percentage. Essentially, quota share reinsurance allows for risk sharing and mutual support between insurance entities, which can enhance the stability of both parties in the face of claims.