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A quota share is a specified number or percentage of the allotment as a whole (quota), that is prescribed to each individual entity (see Non-tariff barriers to trade).
For example, the US imposes an import quota on cars from Japan. The Japanese government may see fit to impose a quota share program to determine the amount of cars each Japanese car manufacturer may export to the US. Any extra amount that a manufacturer wishes to export must be negotiated with another manufacturer that did not or cannot maximize its share of the quota.
There are also quota share insurance programs, where the benefit and the premiums are divided proportionally amongst the insureds. For example, three companies take out a $1,000,000 fire insurance policy on a quota share basis with company A assuming 50% ($500,000), company B 30% ($300,000), and company C 20% ($200,000). If the annual premium was $6000, company A would receive $3,000, B would receive $1,800, and C would receive $1,200. Claims would be paid in the same proportion.
In reinsurance, quota share is an arrangement between a cedent and reinsurer where premiums and losses are shared proportionately.
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- This page was last modified on 7 November 2008, at 14:18.
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