Facultative Reinsurance
Reinsurance placed on an individual risk or policy, negotiated separately for each submission; the reinsurer may accept or decline each risk offered.
FAQs
- When is facultative reinsurance required instead of treaty reinsurance?
- Facultative is required when a risk exceeds the capacity or scope of the carrier's treaty program — for example, when a single risk's limits exceed the treaty's per-risk maximum, or when the risk class is specifically excluded from treaty coverage.
- How long does it take to place facultative reinsurance?
- Placement timelines vary from hours (for standard risks with established reinsurer relationships) to several weeks (for complex or large risks requiring extensive underwriting review). Digital facultative platforms are reducing placement times for more standardized submissions.
- Can a carrier place both treaty and facultative on the same risk?
- Yes. The treaty covers losses up to its per-risk maximum, and facultative covers losses above that level. The two programs work in layers, and the ceding carrier retains its defined net position after both programs respond.
Related Terms
Treaty Reinsurance
A reinsurance arrangement covering an entire portfolio of risks automatically under agreed terms, without submission of individual risks for acceptance.
Probable Maximum Loss
The estimated maximum loss likely to occur from a single event given the normal functioning of protective features such as sprinklers and fire departments.
Underwriting Authority Level
The maximum limit of coverage, premium volume, or risk characteristics that an underwriter or agent is authorized to bind without senior approval.
Risk Appetite Statement
A formal document articulating the types, volumes, and characteristics of risk a carrier or MGA is willing to write, used to guide underwriting decisions.