Types of treaty reinsurance are as follows:
- Pro Rata
Pro rata is a type of reinsurance where the reinsurance shares a certain portion of the original losses and premiums of the ceding company. Pro rata is often used in property insurance, as pro rata provides protection for catastrophic events in addition to individual risk capacity.
- Quota Share
Quota share reinsurance is a type of pro rata reinsurance, whereby the ceding company is granted for indemnification with a fixed percentage of loss on each risk included in the treaty. All liabilities and premiums are shared from the first dollar. The definite or quota share is related to the fixed percentage as stated on the treaty.
- Surplus Share
Surplus share treaty refers to a type of treaty where the portion of pro rata is generated from the scale and type of risk. The ceding company has the right to decide to the amount retained on one risk. Such retention is called a “line”. Any risk that falls within this retention or line is handled totally by the primary company. If the company insures a risk greater than the retention, any amount exceeding the retention is ceded to the surplus share treaty as a multiplication to the retention. All losses between the insurer’s retention on the risk as well as the insurance’s participation are pro-rated