Facultative covers specific individual, generally high-value or hazardous risks, such as a hospital, that would not be accepted under a treaty.
With facultative reinsurance, the reinsurer must underwrite the individual “risk,” say a hospital, just as a primary company would, looking at all aspects of the operation and the hospital’s attitude to and record on safety. In addition, the reinsurer would also consider the attitude and management of the primary insurer seeking reinsurance coverage. This type of reinsurance is called facultative because the reinsurer has the power or “faculty” to accept or reject all or a part of any policy offered to it in contrast to treaty reinsurance, under which it must accept all applicable policies once the agreement is signed.
Types of Facultative Reinsurance
- Pro Rata
The ceding company and reinsured share premium and losses on specific risks in proportion to an agreed percentage
- Excess of Loss
Excess of loss facultative placements require an analysis of potential severity of losses. The ceding company selects a loss level compatible with net and treaty guidelines and uses this as its retention. The facultative reinsurer provides a limit of reinsurance in excess of this retention.
- Facultative Casualty Reinsurance
- General Liability
- Personal/Commercial Automobile
- Workers’ Compensation and/or Employer’s Liability
- Excess Liability
- Facultative Property Reinsurance
Property lines of business are numerous and varied. They can fall into any one of the following categories
- Standard Lines
- Technical Risks
- Excess and Surplus Lines