Treaty vs Facultative vs Excess of Loss Reinsurance – Treaty reinsurance is distinct from facultative reinsurance because it encompasses a comprehensive contract for a specific risk type, eliminating the need for a facultative certificate for each risk transfer.
On the contrary, facultative risk gives the reinsurer the option to accept or decline individual risks. It is a form of reinsurance that covers a single risk or a specific group of risks. This means that both the reinsurer and the cedent come to an agreement on which risks will be included in the policy. Typically, these agreements are negotiated separately for each policy.
Underwriting facultative contracts is significantly costlier than treaty reinsurance agreements. Treaty reinsurance is less transactional and has a lower chance of including risks that would have been declined by reinsurance treaties.
Excess of loss reinsurance is a type of reinsurance where the reinsurer agrees to cover losses above a certain limit for the cedent. It differs from standard insurance and other types of reinsurance, as both the cedent and reinsurer may have to share in the losses. So here is the end of Treaty vs Facultative vs Excess of Loss Reinsurance article.