when an insurance company underwrites a new policy the policyholder pays it a premium in exchange it agrees to indemnify the policyholder up to the coverage limit the more policies that an insurer underwrites the more its liabilities will grow and at some point it will run out of capacity to underwrite any new policies 
in order to free up capacity the insurer can cede some of its liabilities to a reinsurer through a reinsurance treaty in exchange for taking on an insurer s liabilities the reinsurer receives a portion of the policy premiums a quota share treaty is a reinsurance agreement in which the insurer cedes a portion of its risks and premiums up to a maximum dollar limit losses above this limit are the insurer s responsibility though the insurer can use an excess of loss reinsurance agreement to cover losses that exceed the maximum per policy coverage some quota share treaties also include per occurrence limits that restrict the amount of losses a reinsurer is willing to share on a per occurrence basis insurers are less willing to accept this type of agreement because it can lead to a situation in which the insurer is responsible for most of the losses from a particular occurrence of a peril such as a catastrophic flood quota share treaties are a form of proportional reinsurance as they give a reinsurer a certain percentage of a policy 