This is similar to a surplus treaty except that the ceding office must reinsure such proportion of every risk as stated in the treaty. It cannot "retain all" of any risk, no matter how small the sum insured. With surplus treaty business, there may be a temptation for the direct underwriter to accept poorer class business and keep a low retention and/or to keep very high retentions on good risks.

Quota share treaties are used where:
(a) a company has not been long in a particular market and its underwriting experience is unknown and yet it requires substantial reinsurance protection;
(b) a company's surplus treaty claims experience has been poor and this may be the only form of reinsurance cover available to it; and
(c) it is seen as a means of saving costs by way of earning higher commission rates than on surplus treaties and cutting the administrative time on making retention decisions.

Under both surplus and quota share treaties, it is usual for the reinsurers to be unaware of the individual risks which they are insuring. The treaties are "blind treaties" and the ceding office prepares an account periodically showing the proportion of premiums due to the reinsurers and the proportion of claims due from them.

Facultative
This is the earliest form of reinsurance cover, but is still used (a) where treaty capacity has been filled, (b) where the risk is outwith the terms of the treaty, and (c) for unusual risks. Each risk is reinsured separately and each party is completely free to decide whether to reinsure or not and whether to accept the reinsurance or not. The reinsurer has freedom of choice of how much of the risk to insure and at what commission rate. The ceding office must make a full disclosure of the material facts
of the case (see Chapter Eight) and these facts would include the level 0f the ceding company's net retention and the rate of premium.

Facultative reinsurance is relatively expensive to purchase because 0f the increased costs of administration and the fact that the risks offered for facultative cover are likely to be heavier by way of extra hazard and/or will be of higher value. The main advantage of treaty business is that the ceding office can give immediate cover to the public, knowing that they have reinsurance cover from the moment they make a decision regarding the amount of their retention. Immediate decisions cannot be given, however, where the ceding office has to seek facultative cover.

Non-participating, non-proportional or excess reinsurance
 In these forms of cover the ceding office and the reinsurers do not share each loss in fixed proportions, and may not share some losses at all. The ceding office will underwrite its retention as a form of first loss insurance, i.e. it will bear all losses up to a certain figure, and the reinsurers will deal with the balance of any loss above this figure, with usually an upper limit.

Excess of loss reinsurance This is written on an individual risk basis, whereby the ceding office will pay for the entire first layer of each claim, say £50,000, and the reinsurers will pay the balance up to perhaps £250,000. If the direct or ceding office expects to incur losses above this level, it will require second layer or excess of loss cover from, perhaps, £250,000 to  £500,000.

If a claim was intimated for £300,000, the direct office would pay the figure and recover £200,000 from the first reinsurers and £50,000 fro the second, leaving it with a net liability equal to its retention of £50,OO0. This form of cover can be arranged on a treaty basis, or facultatively as for proportional reinsurance. The amount of retention will vary according to the financial resources of the ceding office, the type of peril, e.g. fire or liability, and the nature of the risk being underwritten.And we can see more articles directory related to REINSURANCE.

Catastrophe excess of loss Even assuming that responsible underwriting has been undertaken respect of proportional or non-proportional reinsurance arrangement for individual risks, there could still be an accumulation of net claims arising out of the one event whereby the financial stability of the company, at least for that year, could be threatened. Flood, storm, and earthquake are just three examples of perils which could create claim under many policies over a wide area and the total amount of the net retention under each of the policies affected could come to a substantial figure. 
A company may arrange excess of loss cover for amounts exceeding £100,000 or £250,000, for example, of their total net liability arising out of the one event. Sometimes they retain a percentage, say 10 per cent, of each layer of reinsurance as an incentive to cautious underwriting