What is facultative reinsurance best described as?

Facultative reinsurance is best described as a type of reinsurance coverage that is arranged for specific individual risks rather than automatically covering a portfolio of policies. In this context, it applies to situations where a primary insurer seeks to transfer a portion of the risk associated with a particular exposure, often when that risk exceeds certain limits. This arrangement allows the reinsurer to evaluate each risk individually and decide whether to accept it or not, providing flexibility in underwriting.

This option underscores the nature of facultative reinsurance as it specifically addresses particular risks that may arise from large or unusual underwriting scenarios, ensuring that the primary insurer has additional protection against significant losses. This is particularly useful for covering large single risks or when dealing with atypical situations that exceed the insurer’s retained limit.