Facultative reinsurance
Facultative reinsurance is coverage purchased for a single risk or a specific policy, negotiated individually, where the reinsurer can accept or decline each risk it is offered.
In facultative reinsurance, the ceding insurer offers one particular risk, and the reinsurer evaluates and prices it on its own merits before deciding whether to accept. The word facultative reflects that each party has the option to accept or reject the specific cession. This contrasts with treaty reinsurance, which covers a whole class of business automatically.
Facultative cover is often used for unusual, very large, or high-hazard exposures that fall outside a treaty's terms or exceed its limits. Because each risk is underwritten separately, the process is more labor intensive and can be slower, but it lets insurers obtain tailored protection for exposures that need individual attention.
For example, an insurer asked to cover a single large manufacturing plant or a one-off aviation risk might place that specific exposure facultatively while keeping the rest of its portfolio under treaty. RiskCube Re can provide facultative capacity for individual emerging or complex risks that MGAs and carriers find hard to place through standard markets.
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.