What facultative reinsurance is
Facultative reinsurance (often shortened to "fac") covers a single risk or a single policy. The ceding insurer presents the risk to one or more reinsurers, each of which is free to accept, decline or quote its own terms. Because every placement is negotiated individually, facultative cover is the most flexible form of reinsurance, and also the most labor-intensive.
The word "facultative" refers to that freedom of choice on both sides: the insurer is not obliged to offer the risk, and the reinsurer is not obliged to take it. This is the key difference from treaty reinsurance, where a whole portfolio is covered automatically.
When insurers buy facultative cover
- The risk exceeds treaty capacity. A large industrial plant, a high-rise tower or a major infrastructure project may need more limit than the insurer's treaties provide.
- The risk is excluded from the treaty. Treaties commonly exclude certain occupancies, territories or perils; fac fills those gaps.
- Protecting treaty results. Ceding a volatile or unusual risk on a facultative basis keeps it from distorting the loss experience of the treaty program.
- New or niche business. An insurer testing a new line can lean on a reinsurer's underwriting expertise risk by risk before committing to a treaty.
Pro rata and excess facultative
Facultative cover can be proportional: the reinsurer takes an agreed share of the premium and pays the same share of every loss, usually paying the cedent a ceding commission. Or it can be non-proportional (excess of loss): the reinsurer pays only the part of a loss above the insurer's retention, up to a limit, and receives a negotiated premium. Excess fac is common for casualty and high-value property risks. See proportional and non-proportional structures.
How a placement works
- The cedent prepares a submission: original policy terms, schedule of values, loss history, engineering or survey reports and the share or layer sought.
- A reinsurance intermediary or the cedent's own reinsurance team approaches reinsurers; in the London market a lead underwriter sets terms and others follow.
- Agreed terms are documented in a facultative certificate (common in the US) or a Market Reform Contract slip (the London market standard).
- Premium is paid, and claims are reported and settled under the agreed cooperation or control clauses.
The international market
In the United States, facultative capacity comes from domestic reinsurers, the US branches of global groups and specialist fac departments. Lloyd's syndicates in London are major writers of large and complex fac risks; according to Lloyd's, the market had 103 syndicates at December 31, 2025. Bermuda carriers write excess facultative on property and casualty, while large European reinsurers and regional hubs such as Singapore and Hong Kong in Asia provide capacity for energy, engineering and industrial risks across the region.
For a US cedent, the reinsurer's status matters for statutory credit: authorized, accredited, certified or reciprocal-jurisdiction reinsurers are treated differently, and collateral may be required. State rules vary, so check with your domiciliary regulator.
Advantages and drawbacks
| Advantages | Drawbacks |
|---|---|
| Tailored terms for each risk | Higher administrative cost per risk |
| Capacity for large or unusual risks | No guarantee of acceptance; placement takes time |
| Keeps treaty results stable | Pricing can be less favorable than treaty rates |
How Polis Re can help
Polis Re supports reinsurance placement: we help structure the submission, compare reinsurer security and connect you with licensed reinsurance intermediaries and authorized reinsurers. Send the risk details through the quote request form or see definitions in our glossary.