Glossary

Facultative reinsurance

Reinsurance negotiated for one specific risk or policy rather than a whole book of business, usually because the risk is large or unusual.

Also called: facultative, fac, fac reinsurance, facultative certificate

Facultative reinsurance is protection an insurer buys from a reinsurer for one individual policy or risk. The reinsurer underwrites that risk on its own merits and may accept it, decline it or counter on terms. That freedom to choose gives the word its name. It is the opposite of treaty reinsurance, where the reinsurer agrees in advance to take a defined share of an entire class of business.

An underwriter turns to fac when a risk is bigger than the treaty will absorb, falls into a class the treaty excludes, or concentrates too much exposure in one location. Fac comes in two forms: proportional, where the reinsurer takes a percentage of the premium and the loss, and excess of loss, where it pays above a retention. The terms sit in a facultative certificate tied to that one policy.

Say a carrier writes a manufacturing plant with a $60 million property limit, and its treaty covers only the first $25 million of any one risk (a hypothetical). It places the remaining $35 million with facultative reinsurers and shares the premium with them. The insured's policy does not change, and the insured has no contract with the reinsurer. For buyers, the practical effect is time: a large, hard-to-place account can wait on fac approval, so submit early. See the guide on treaty vs facultative reinsurance: how insurers share risk, and the cedent entry for the insurer's side.

Last reviewed October 10, 2026

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Related terms

Treaty reinsurance A reinsurance contract that automatically covers a defined portfolio of an insurer's policies, instead of reinsuring one risk at a time. Reinsurance Insurance an insurer buys from a reinsurer to transfer part of its risk, add capacity and protect its capital from large or accumulated losses. Cedent The insurer that passes part of its risk and premium to a reinsurer, and stays liable to its own policyholders for the whole. Retrocession Reinsurance bought by a reinsurer to pass part of the risk it has assumed to other reinsurers or investors, usually to manage peak catastrophe exposure. Fronting An arrangement where a licensed insurer issues the policy but passes most or all of the risk to a captive or reinsurer, for a fee.

Related guides

How Lloyd's of London works: syndicates, brokers and what it means for you Lloyd's is a marketplace of syndicates, not one insurer. How it works, who backs a policy, its 2025 results and ratings, and how U.S. firms buy Lloyd's cover. Treaty vs facultative reinsurance: how insurers share risk Treaty reinsurance covers a whole book automatically; facultative covers one risk by negotiation. How each works, a worked split, and what it means for buyers. What is reinsurance, and why it affects your business premium Reinsurance is insurance for insurers. How treaty and facultative cover work, how it limits what your carrier will write, and how it shows up in your renewal.