- Facultative reinsurance involves the reinsurance of large or hazardous risks on an individual basis. Its’ use is much less common than is treaty reinsurance as it is more cumbersome to arrange.
- The placing of facultative reinsurance is much like the placing of the primary insurance with an insurer. The direct insurer offers the risk to the reinsurer, who then has the option of accepting or declining the risk, creating uncertainty and sometimes resulting in delays.
- Facultative reinsurance tends to be used only where other forms of reinsurance (treaty reinsurance) have been exhausted, where the risk is outside the terms of other reinsurance arrangements or where the risk is unusual or particularly high hazard.
