Guide

Quota share versus surplus: the operations difference

Both are proportional. A fixed percentage of every subject risk is not the same job as a retention line that cedes more as the risk gets larger.

Quota share and surplus are both proportional. That sentence is where textbooks stop and operations start. A fixed percentage of every subject risk is not the same job as a retention line that cedes more as the risk gets larger. The bordereau columns you need, the exceptions you will see, and the fights you will have at the loss are different.

This page is a child of treaty reinsurance. Use that hub for excess of loss, wordings, and the wider operating system. Use what is quota share reinsurance? for the one-paragraph definition. Use what is the difference between quota share and excess of loss? when someone has conflated share with attachment. This guide is quota share versus surplus only: same family, different ops.

Facultative leftovers and thrown-out risks belong on the facultative hub, not hidden in a surplus total. The file side is the bordereaux automation guide. Wording fields that both structures still need — class, territory, commission basis — sit in treaty wording extraction.

Quota share as an operations problem

Quota share is a fixed percentage of premium and of loss on subject business, usually against a ceding commission. In a 30 percent quota share, 30 percent of the subject book is meant to move, on the definitions in the wording, not on the definitions in last quarter's spreadsheet header.

The legal idea is simple. The ops failures are specific.

The bordereau includes a class the treaty excludes. The file is booked anyway because the total looked close to last quarter. The ceding commission in the accounts uses a rate from the placing email, not the rate in the wording, and nobody can show the clause. Profit commission is calculated on a loss ratio that used a different earned premium basis than the contract. Currency is mixed without a rate as-at. A special acceptance sits in a mailbox and never reaches the bordereau filter.

Quota share does not fail because someone forgot the meaning of 30 percent. It fails because 30 percent of the wrong rows is a different treaty.

What the wording must yield, with spans:

• The share, as a percentage, and whether it applies to premium, loss, and expenses on the same basis.
• Subject business: class, occupancy, territory, and any per-risk cap inside the quota share.
• Commission: ceding commission rate, sliding scale if any, profit commission formula and denominator.
• Period, inception, and year-of-account rules.
• Special-acceptance procedure, if the contract has one.

What every premium row must yield, with cells:

• A reference you can join to claims.
• Class and territory you can test against those spans.
• Gross and ceded amounts that implied-share back to the cited percentage, or a stated share column that matches.
• Named insured when occupancy is how you exclude. ACME Construction Ltd, acme.example, on a construction occupancy row is an exception if the treaty excludes construction. It is not "close enough" because the share still looks like 30 percent on the total.

Claims rows follow the same share. A quota-share recovery that uses a different percentage than the premium cession is a conflict. Do not "true up" in silence.

Year of account is the quiet failure. Premium written in December and reported in January is this treaty or next, according to the wording. If the inbound file mixes years without a column you can cite, stop. Do not split rows by the email timestamp.

Special acceptances are quota-share ops, not folklore. A risk outside class or occupancy is declined, accepted in writing, or it leaks into the bordereau and becomes a silent extra. The acceptance is a document. It needs a span, a period, and a join to the policy reference.

Surplus as an operations problem

Surplus is still proportional, but participation varies by risk size. The cedent's line is a retention. Capacity above that line cedes, in lines, up to the surplus limit. Small risks cede little or nothing. Large risks cede more. The legal idea is flexible capacity. The ops idea is that every risk now needs a cited sum insured and a cited line, or the cession is a guess.

A surplus bordereau that omits the underlying limit cannot be checked against surplus capacity. Flag it. Do not impute a line from the average of the file. Do not assume this quarter's "SI" column is last quarter's "TIV" column.

If the cedent reports a risk above the surplus limit, that is an exception: facultative leftover, error, or special acceptance. It is not a rounding item. Throw-outs become facultative packs. See how to build a facultative submission pack for that file. Do not keep the overflow inside the surplus total to make utilisation look smooth.

Line definition has to come from the wording. Some surplus treaties define the line as a currency amount. Some define it as a percentage of a maximum. Some change the line by occupancy. If the extracted line and the bordereau implied line disagree, you have a conflict. Show both. Accountants should not invent a third line.

What the wording must yield, with spans:

• The retention line, in the units the contract uses.
• The number of lines, or the surplus limit, and any occupancy or class variation.
• Subject business and exclusions, same as quota share, because surplus is not a licence to ignore class.
• Commission basis, which may still be a ceding commission, and may still slide.

What every premium row must yield, with cells:

• Sum insured or original limit, in a column you can cite.
• The cedent retention or surplus cession, stated or implied from amounts that you can reverse to the line.
• Class, territory, period, reference, named insured — the same identity fields as quota share.
• A flag or a join when the risk was special-accepted or written facultative for the overflow.

A worked row, fictional only. ACME Construction Ltd, acme.example, sum insured USD 47,100,000 on a surplus treaty whose line is USD 5,000,000 with a stated maximum of four lines. If the sheet cedes as if six lines exist, that is an exception, not a clever use of capacity. If the slip on a related facultative leftover still says TIV USD 42,000,000, that is a placing conflict on the leftover, not a reason to average the surplus cession. Two files. Two jobs.

Surplus also collides with facultative when a risk is thrown out of the treaty and offered as a pack. The treaty exception list should cite the surplus wording. The facultative pack should not be asked to explain the treaty.

Where they fail differently

Both structures fail when class, territory, year, and commission basis are unsourced. The difference is the extra degree of freedom.

Quota share extra failure: the share is applied to the wrong population. The percentage looks right. The book is wrong. Totals still foot. That is why a footed quota-share file can still be a fight. You need row-level tests, not a total that is 30 percent of something.

Surplus extra failure: the line cannot be recomputed. Without sum insured, you cannot tell whether the cession is one line or five. Averages hide the large risk that exceeded capacity. A missing SI column is a gap on every row, not a single chase for a header.

Commission fights look similar and are not. On quota share, sliding scale and profit commission are usually on the whole subject book. On surplus, the ceded percentage changes by risk, so a commission rate applied to a blended premium can be right in total and wrong on the risks that used more lines. If the wording applies commission to ceded premium, you still need the per-risk cession to be right first.

Claims follow the structure. Quota-share claims should mirror the same share as premium for that risk and year. Surplus claims should mirror the surplus cession that was actually written, which you can only know if the premium bordereau stored the line. If you only stored a blended share for the quarter, every large loss becomes an archaeology project.

How to choose the ops test, not the slide

Do not choose quota share versus surplus from a diagram of "capital relief versus flexible capacity" and then staff them as the same spreadsheet job. Staff them as different templates.

If the contract is quota share, the mystery-shop is: excluded occupancy row still in the file, covering-email total disagrees with the sheet, share implied by ceded over gross does not match the clause. The system should emit a class exception, a total conflict, and a share conflict. Completing the file as 30 percent of the emailed total has failed.

If the contract is surplus, the mystery-shop is: missing sum insured on several rows, one row above the surplus limit, line in the wording as a currency amount. The system should emit SI gaps, a capacity exception, and a cited line. Imputing SI from the file average has failed.

Neither test needs a win-rate table. Neither test needs a customer logo. Humans still decide special acceptances and facultative throw-outs. Software lists the rows it can point at, and the rest.

Keep the hubs honest. This page does not replace treaty reinsurance. It exists so quota share and surplus stop being treated as one proportional blob. If your pain is attachment and hours, you are in excess of loss and you want the wording guide, not this comparison.