____________ is the reinsurance of part or all of (the insurance provided by) a single policy, with separate negotiation for each cession.

Question

Options

• Apro rata treaty
• BFacultative
• Caggregate placement
• DNone of the above

• A
  12% (5)
• B
  81% (35)
• C
  5% (2)
• D
  2% (1)

Explanation

Facultative reinsurance (B) is correct because it refers to the reinsurance of an individual policy on a case-by-case basis - the cedant and reinsurer separately negotiate each cession, and the reinsurer has the option (faculty) to accept or decline each risk.

• A (Pro rata treaty) is wrong because treaties are pre-arranged agreements covering entire portfolios or classes of business automatically, without individual negotiation per policy.
• C (Aggregate placement) is wrong because aggregate arrangements deal with cumulative losses over a period, not individual policy cessions negotiated separately.
• D (None of the above) is therefore wrong since B is the precise definition.

Memory tip: Think of "facultative" as having faculty (choice/option) - both the cedant and reinsurer choose whether to offer and accept each individual policy, one at a time.

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