Category: Reinsurance fundamentals · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-05
Facultative reinsurance is the reinsurance of a single, individually identified risk that is separately underwritten and accepted by the reinsurer. Each party retains the right (‘faculty’) to accept or decline the cession of the particular risk — by contrast with treaty reinsurance, which obliges both parties to cede and accept all risks within the treaty scope.
Category: Reinsurance fundamentals Also known as: fac, facultative Related concepts: treaty reinsurance, reinsurance treaty, auto facultative
Facultative reinsurance is used to cede a single risk — typically because the risk falls outside the cedant’s treaty scope, exceeds the treaty limits, or is sufficiently large or unusual that the cedant or reinsurer prefers to underwrite it separately. Examples include very large industrial property risks, complex construction projects, energy installations, aviation hulls, marine cargoes and high-limit professional indemnity placements.
The facultative reinsurance broker presents the individual risk to a panel of reinsurers (typically supported by detailed underwriting information — survey reports, valuations, occupancy details, claims experience, location). Each reinsurer quotes its own terms; the broker assembles the placement (typically lead followed by following lines).
A facultative reinsurance contract is governed by general principles of English contract law and, in the case of marine, aviation and transit risks, by the Marine Insurance Act 1906. The duty of fair presentation under the Insurance Act 2015 applies with particular force to facultative placement because the reinsurer is underwriting a single, identified risk based on the disclosures of the cedant.
The Market Reform Contract is the standard wording for London market facultative placement, with class-specific clauses attached.
Facultative reinsurance is placed risk by risk. For each placement the cedant (or its facultative broker) prepares a submission, presents the risk to reinsurers and negotiates terms. The placement may be by open market (each reinsurer underwriting and signing its line) or by facultative obligatory (semi-automatic cession within agreed parameters).
Facultative business is generally more expensive than treaty cession because the reinsurer bears the cost of individual underwriting. It is also the slower and more administratively intensive form of reinsurance. Cedants will normally place as much as possible through treaty, supplementing with facultative for risks outside scope or above treaty capacity.
For Apex clients, large UK commercial risks (industrial property over £50m sum insured, complex construction projects, energy and large fleet risks) are frequently placed with facultative reinsurance support behind the lead underwriter.
An illustrative example: a UK insurer offers a £20m line on a £100m industrial property risk. Its surplus treaty provides £8m of capacity above its £2m retention. The £10m balance is placed by facultative reinsurance with two Lloyd’s syndicates and a continental reinsurer, each taking a separate line on bespoke terms.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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