Automatic proportional reinsurance shares part of both premiums and losses according to fixed percentages once the treaty is in force, without separate placement for each underlying policy.
How It Works
In quota share-style structures, the ceding insurer and reinsurer agree on fixed percentages (for example, 30/70). The reinsurer receives an equal proportion of premium and pays the same proportion of losses and claims handling costs as specified.
Underwriting and Accounting
Because underwriting volume moves automatically with the treaty, this structure gives reinsurers broad portfolio exposure and the ceding company predictable load sharing. It requires close underwriting rules to keep catastrophe exposure, large deductions, and adverse selection manageable.
Claims Processing
Claims are ceded on a treaty basis using claim reports and schedule instructions. Disputes often involve expense recoverables, loss sharing basis, and exclusions that apply before proportional sharing starts.
Practical Example
If a cedant has an automatic quota share treaty at 40% and writes $1,000,000 in premium on a line of business, the reinsurer’s share is generally about $400,000, while claim payments for valid covered losses are also split 40/60 according to treaty terms.