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HMRC internal manual

General Insurance Manual

From
HM Revenue & Customs
Updated
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Reinsurance and other forms of risk transfer: types of reinsurance: proportional reinsurance: quota share reinsurance example

A direct insurer writes the following contracts:

Policy Sum Insured
£   Premium (100%)    
         
  1 25,000   200
  2 50,000   300
  3 100,000   500

Under a 30% Quota Share reinsurance contract the following sums would be reinsured on each contract:

Policy Sum Insured
£ Premium (100%) Sum reinsured
£ Premium to Quota Share        
           
  1 25,000 200 7,500 60
  2 50,000 300 15,000 90
  3 100,000 500 30,000 150

A claim of £12,000 on policy 1 would result in the reinsurer paying £3,600 (30% of £12,000).

A claim of £35,000 on policy 2 would result in the reinsurer paying £10,500 (30% of £35,000).

A claim of £60,000 on policy 3 would result in the reinsurer paying £18,000 (30% of £60,000).