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🔍 '''Facultative reinsurance''' is a form of [[Definition:Reinsurance | reinsurance]] in which a [[Definition:Ceding company | ceding company]] negotiates coverage for a single, specific risk or [[Definition:Insurance policy | policy]] rather than ceding an entire portfolio or class of business under a blanket agreement. Each placement is individually underwritten and priced, making it the most granular and selective type of reinsurance transaction. It stands in contrast to [[Definition:Treaty reinsurance | treaty reinsurance]], where the [[Definition:Reinsurer | reinsurer]] agrees in advance to accept all risks that fall within defined parameters — facultative deals are, by definition, one-off negotiations where the reinsurer retains the right to accept or decline each submission.

⚙️ The process begins when a [[Definition:Primary insurer | primary insurer]] identifies a risk that exceeds its [[Definition:Retention | retention]] capacity or falls outside the scope of its existing treaty arrangements. The insurer's [[Definition:Underwriter | underwriter]] or [[Definition:Reinsurance broker | reinsurance broker]] prepares a detailed submission — including loss history, engineering reports, policy terms, and exposure data — and presents it to one or more facultative reinsurers. Each reinsurer independently evaluates the risk and quotes its own terms, pricing, and participation share. Once placed, the facultative [[Definition:Reinsurance certificate | certificate]] governs the relationship for that specific risk, spelling out the [[Definition:Ceding commission | ceding commission]], coverage triggers, and [[Definition:Limit of liability | limits]]. Because every deal is bespoke, facultative placements require more administrative effort than treaty arrangements, but they offer precision and flexibility that treaty structures cannot match.

💡 Facultative reinsurance plays a vital role in allowing insurers to write large or unusual risks — a massive commercial property, a high-profile [[Definition:Directors and officers liability insurance (D&O) | D&O]] account, or an emerging [[Definition:Cyber insurance | cyber]] exposure — without concentrating too much risk on their own [[Definition:Balance sheet | balance sheet]]. It also serves as a pressure valve when treaty capacity tightens during hard market cycles: insurers that might otherwise have to decline business can use facultative placements to secure the additional capacity they need. For [[Definition:Lloyd's syndicate | Lloyd's syndicates]] and specialty markets, facultative reinsurance is a daily tool, and the efficiency of its placement increasingly depends on digital platforms and [[Definition:Insurtech | insurtech]] solutions that streamline submission, quoting, and binding workflows.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Treaty reinsurance]]
* [[Definition:Ceding company]]
* [[Definition:Reinsurance broker]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Quota share reinsurance]]
* [[Definition:Retrocession]]
{{Div col end}}

Definition:Facultative reinsurance - Revision history

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