Quota-Share Reinsurance or Proportional Care Reinsurance
Quota-Share Reinsurance is when the writing company cedes a proportion of their risk on a pre-defined class of business to an unaffiliated reinsurer. For example, a health plan may choose to cede off a percentage of their risk for their participation in only their state’s exchange program. The health plan would cede to the reinsurer the agreed upon percentage and in return the reinsurer agrees to cover that same percentage of overall claims on this block of business. By doing so, the health plan is protected from adverse underwriting results by minimizing the total risk retained and also reduces their needed Risk Based Capital by the percent ceded to the reinsurer. Of course, the health plan would be ceding off profits to the reinsurer should the business run well, thus the opportunity cost for managing the capital and surplus position.
There are times when the reinsurer will include other risk mitigating factors in a reinsurance agreement which provide some cushion for the reinsurer. In return the health plan would be allowed to retain a greater part of profits or losses, but still receive credit for the premium ceded which reduces the needed Risk Based Capital. This type of program is often referred to as capital motivated reinsurance.
To learn more about quote share reinsurance services at Dubraski & Associates, contact us.