Facultative Reinsurance

What Does Facultative Reinsurance Mean?

Facultative reinsurance is a type of reinsurance in which the primary insurance company and the reinsurance company negotiate coverage on a case-by-case basis. This means that each individual policy for which the primary insurer seeks reinsurance coverage must be submitted separately for approval or rejection, rather than as a bundle of policies.

Insuranceopedia Explains Facultative Reinsurance

Facultative reinsurance serves as an alternative to treaty reinsurance. In treaty reinsurance, the reinsurance company agrees to cover all risks within a specific category following a negotiated deal. As a result, facultative reinsurance is more suitable for primary insurance companies that only need to reinsure a limited number of specific risks. For example, a property insurance company may require reinsurance for a particularly expensive and high-risk property. In such cases, facultative reinsurance would be much more convenient than treaty reinsurance.