There are many different types of reinsurance. Current market conditions have created uncertainty and market chaos in the reinsurance community. Reinsurance buyers are looking for solutions to rising prices.
It is important for buyers to look at alternatives. Reinsurance, generally, breaks down into two types of coverage. Excess of Loss (XOL) and Proportional or Quota Share reinsurance. Both types of reinsurance provide tools to protect your balance sheet but recent pricing increases for XOL make this coverage less cost-effective to purchase, especially for smaller insurance companies.
Our organization advocates for Quota Share Reinsurance as a better tool for small companies to protect their balance sheet. Quota Share is a type of reinsurance where the reinsured and reinsurer share the insurance liability as well as the cost of premium and losses. These are great options for companies who need more coverage but are having trouble finding a reinsurance solution.
Because the reinsurer is underwriting a portfolio from multiple companies, they have more scale and are not forced to purchase expensive XOL coverage at low retentions. This behind-the-scenes scale allows the smaller insurance company to obtain reinsurance without the overwhelming cost burden of XOL.
Quota share can be a viable solution to protect your balance sheet and purchase reinsurance more efficiently.