What is facultative reinsurance example

Example of Facultative Reinsurance Suppose a standard insurance provider issues a policy on major commercial real estate, such as a large corporate office building. The policy is written for $35 million, meaning the original insurer faces a potential $35 million in liability if the building is badly damaged.

What is a facultative reinsurance?

Facultative Reinsurance — a form of reinsurance whereby each exposure the ceding company wishes to reinsure is offered to the reinsurer and is contained in a single transaction. The submission, acceptance, and resulting agreement is required on each individual risk that the ceding company seeks to reinsure.

What is facultative reinsurance in simple words?

Facultative reinsurance is reinsurance purchased by an insurer for a single risk or a defined package of risks. Usually a one-off transaction, it occurs whenever the reinsurance company insists on performing its own underwriting for some or all the policies to be reinsured.

What are examples of reinsurance?

For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer.

What's the difference between facultative and treaty reinsurance?

While they are both forms of reinsurance, facultative considers each policy individually and generally indicates a shorter term relationship. Treaty, on the other hand, considers multiple policies of a specific class of insurance issued by an insurance company and indicates the companies will work together longer term.