FACULTATIVE REINSURANCE AND THEIR FUNCTIONS

facultative reinsurance

Facultative reinsurance is coverage, which is purchased by the primary insurer to cover a single risk in the insurer’s business.  This type of reinsurance allows the reinsurance company, to overview an individual’s risk and ensures whether to accept or reject them. And they also focused on nature than treaty reinsurance.

By covering itself, against a single risk, reinsurance gives the insurer more protection for equity and solvency when an unusual event occurs.

FUNCTIONS OF FACULTATIVE REINSURANCE

An insurance company which enters into a reinsurance contract with Reinsurance Company, to pass their risk in exchange for a fee. That fee might be the portion of the premium that the insurer receives from the policy.

The reinsurance contract might determine whether the insurer can accept or ignore an individual risk.

Profit of the reinsurance company depends on choosing the customers. In this type of reinsurance, the ceding company and the reinsurer will create a certificate that indicates that the insurer is accepting a given risk.

The companies looking to surrender risk to a reinsurer might find that facultative reinsurance contracts are too expensive than treaty reinsurance.  This is because, treaty reinsurance covers a book of risk and that measures the relationship between ceding company and the reinsurer, as it is expected to be long – term.

 

 

 

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