When the term “facultative reinsurance” is used (concerning the technique of reinsurance), it means “decision in each case”, i.e. the insurer chooses which risk to cede in reinsurance, and the reinsurer, after considering all cons and pros and correlating them with their underwriting philosophy, decides if they should accept the risk, and if so, what part of it.
Facultative reinsurance is based on the independent reinsurance contract which must contain all the necessary terms for identifying parties’ arrangements. This includes:
- Full name and address of the insurer;
- Type of reinsurance: proportional or non-proportional;
- Risk location;
- Insured interest / insured object and its unambiguous description;
- Insurance conditions: provisions, clauses, amendments, exceptions if there are such;
- Term of insurance (starting and expiry date of the insurance coverage);
- Sum insured (compensation limit according to the original insurance contract);
- Deductibles according to the original insurance policy;
- The insurer’s net retention;
- Reinsurance premium.