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Financial Quota Share

Definition

A form of reinsurance that enables a cedent to increase its statutory surplus by the amount of the ceding commission in the reinsured unearned premium reserve. Surplus relief arises because statutory accounting requires insurers and reinsurers to immediately charge all acquisition costs to the accounting period in which the business is written, even when the premium is unearned at the end of the period. It is referred to as prepaid acquisition costs in the unearned premium reserve, or the equity in the unearned premium reserve.

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