Which kind of reinsurance allows for specific terms to be outlined per transaction?

Facultative reinsurance refers to a type of reinsurance arrangement where specific terms and conditions can be negotiated for each individual risk or transaction. This type of reinsurance is advantageous for insurers seeking to manage risks that do not fit within the general terms of existing agreements.

In the case of facultative reinsurance, the ceding insurer has the option to submit risks to the reinsurer on a case-by-case basis, allowing for customized terms that account for the unique characteristics of each risk. This flexibility is particularly useful when the risks being underwritten require specialized knowledge or when they involve unusual circumstances that are not adequately covered under standard treaties.

Treaty reinsurance, in contrast, usually involves broader, pre-arranged agreements that apply to multiple policies or risks as a whole, rather than negotiating terms for each individual transaction. Pro rata reinsurance involves sharing premiums and losses between the ceding insurer and the reinsurer according to predetermined proportions but does not allow for individualized terms on a transaction basis. Comprehensive reinsurance, while not a typically recognized category in the field, would suggest a broad coverage, typically illustrating how risks are managed under a wide-reaching contract instead of allowing for specific negotiation of terms.

Thus, facultative reinsurance stands out for its ability to