Category: Reinsurance structures · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-05
Proportional reinsurance is a form of reinsurance in which the cedant and reinsurer share each underlying risk in defined proportions: the reinsurer receives the same percentage of premium as it accepts of losses. The principal forms are quota share and surplus.
Category: Reinsurance structures Also known as: pro rata reinsurance, share reinsurance Related concepts: quota share, surplus treaty, non-proportional reinsurance
Under proportional reinsurance the reinsurer assumes a fixed proportion of every risk falling within the treaty scope: the same proportion of original premium, the same proportion of any loss, and a corresponding share of original commission, original taxes and any returns or refunds. The cedant typically receives a ceding commission to compensate for acquisition cost and overheads.
The two main forms are quota share (a fixed percentage of every risk) and surplus (the reinsurer takes only that part of each risk exceeding the cedant’s retention — a ‘surplus’ line). Variants include variable quota share, where the cession rate varies by sub-class or by reference to other parameters.
Proportional reinsurance contracts are governed by general principles of English contract law and by the duty of fair presentation under the Insurance Act 2015 [1]. The Market Reform Contract is the standard wording. Solvency II treats proportional reinsurance as risk-mitigation in the calculation of the SCR, reducing the cedant’s net underwriting risk capital charge in proportion to the cession [2].
Proportional reinsurance is the historic backbone of the global reinsurance system and remains widely used in commercial and personal lines insurance. The cedant cedes a defined share of every risk it writes, paying ceded premium and recovering ceded losses on a quarterly bordereau. The reinsurer pays ceding commission to offset the cedant’s acquisition costs and may pay profit commission if the treaty performs well.
Proportional reinsurance is well suited to providing capacity (allowing the cedant to write a larger line than its capital would otherwise permit) and capital relief (reducing the cedant’s Solvency II SCR). It is less efficient than non-proportional reinsurance for catastrophe protection — for that purpose catastrophe XL is the principal tool.
An illustrative example: a UK motor insurer cedes 30 per cent of its motor portfolio under a quota share treaty. On a policy with £1m of premium and a £500,000 loss, the reinsurer receives £300,000 of premium (less commission) and pays £150,000 of loss. The cedant retains £700,000 of premium and £350,000 of loss net of cession.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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