Facultative Reinsurance

Definition - What does Facultative Reinsurance mean?

Facultative reinsurance is reinsurance in which the primary insurance company and the reinsurance company negotiate reinsurance coverage on an individual basis. This means that every individual policy the primary insurance company wants reinsurance coverage for will have to be submitted individually for approval or rejection, instead of as a bundle of policies.

Insuranceopedia explains Facultative Reinsurance

Facultative reinsurance is an alternative to treaty reinsurance. With treaty reinsurance, the reinsurance company covers all risks in a certain category after a deal is negotiated. Therefore, facultative reinsurance suits primary insurance companies when they only need to reinsure a few risks. For example, a property insurance company may need reinsurance for one particularly expensive and high risk property. In this situation, facultative reinsurance would be much more convenient than treaty reinsurance.

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