TREATY AND 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. That is, the ceding company negotiates an individual reinsurance agreement for every policy it will reinsure. However, the reinsurer is not obliged to accept every or any submission.

Treaty reinsurance agreements are contracts between the primary insurer and a reinsurer where the reinsurer agrees to underwrite reinsurance for a certain class or multiple classes of business risks. The reinsurance will automatically be in place for the primary insurer when they issue a policy to an insured operating in those specified classes of business.

To the contract, a facultative reinsurance agreement is insurance obtained to cover either a single risk or a specific type of exposure. Each risk is individually underwritten. For example, if a particular insured needs insurance coverage for property values requiring limits in excess of the insurance the primary underwriter can assume, that underwriter will go out and obtain reinsurance for that risk. If the primary obtains the necessary reinsurance, the primary policy can be issued for that property.

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