What is facultative reinsurance?

Facultative reinsurance is indeed characterized by assessing each risk individually. This type of reinsurance is used when an insurer decides to transfer certain risks to a reinsurer on a case-by-case basis rather than as part of a blanket agreement. The primary insurance company evaluates the specifics of each risk, such as its nature, potential loss size, and other relevant factors, before deciding whether to seek reinsurance for that particular risk.

This individual assessment allows for tailored reinsurance solutions that fit unique risks rather than applying a one-size-fits-all approach. It provides insurers the flexibility to choose which risks they want to reinsure depending on their capacity and willingness to absorb certain exposures.

In contrast, options that suggest comprehensive coverage or broad agreements misrepresent the individual nature of facultative reinsurance. It also differs from the idea of mandatory acceptance, as facultative agreements do not require the reinsurer to accept every risk presented by the insurer; rather, each submission is subject to negotiation and individual review.