Definition of Facultative reinsurance:
Facultative reinsurance is coverage purchased by a primary insurer to cover a single risk or a block of risks held in the primary insurer's book of business. Facultative reinsurance is one of the two types of reinsurance, with the other type being treaty reinsurance. Facultative reinsurance is considered to be more of a one-off transactional deal, while treaty reinsurance is more of a long-term arrangement.
Situation where the principal (original) insurer determines what level of risk it should maintain on any one policy, and offers to share the remaining risk with another insurer for a premium. See also treaty reinsurance.
An insurance company that enters into a reinsurance contract with a reinsurance company, also known as a ceding company, does so in order to pass off some of their risk in exchange for a fee. This fee may be a portion of the premium the insurer receives for a policy. The primary insurer that cedes risk to the reinsurer has the option of ceding specific risks or a block of risks. Reinsurance contract types determine whether the reinsurer is able to accept or reject an individual risk, or if the reinsurer must accept all risks.
How to use Facultative reinsurance in a sentence?
- By covering itself against a single or block of risks, reinsurance gives the insurer more security for its equity and solvency and more stability when unusual or major events occur.
- Facultative reinsurance is coverage purchased by a primary insurer to cover a single risk or a block of risks held in the primary insurer's book of business.
- Facultative reinsurance allows the reinsurance company to review individual risks and determine whether to accept or reject them and so are more focused in nature than treaty reinsurance.
Meaning of Facultative reinsurance & Facultative reinsurance Definition