Which describes a quota share reinsurance arrangement?

• A. The primary and reinsurer pay claims in proportion to the risk each insures
• B. The reinsurer pays all claims until a cap is reached
• C. The primary insurer retains nothing
• D. The insured pays a separate fee

Answer: (A)

Quota share reinsurance is a proportional arrangement where the reinsurer takes a fixed percentage of both premiums and losses for the covered policies. Because the risk is shared in a set ratio, the reinsurer pays the same percentage of claims as the percentage of risk they assume, while the primary insurer retains the rest. This is why describing the claims as being paid in proportion to the risk each insures is the best fit.

The other descriptions point to different concepts. A setup where the reinsurer pays all claims until a cap sounds like a non-proportional excess of loss arrangement, not quota share. Saying the primary insurer retains nothing would imply complete cession with no retention, which isn’t how quota share typically operates. The idea that the insured pays a separate fee isn’t a standard feature of quota share reinsurance and doesn’t reflect how reinsurance agreements are structured.