What characterizes facultative reinsurance?

Facultative reinsurance is characterized by individual agreements that are negotiated for specific risks or policies rather than applied automatically to a wide range of policies. This type of reinsurance allows insurers to transfer risk for particular, defined exposures, giving them flexibility to assess and accept risks on a case-by-case basis. Each agreement in facultative reinsurance is tailored to the individual policy, making it distinct from treaty reinsurance, which applies more broadly to a portfolio of policies. This allows the reinsurer to underwrite specific risks based on their merits and enhances the ability to manage exposure associated with high-risk or unusual policies.