Optional reinsurance
With purely facultative reinsurance , the parties involved can freely decide whether to transfer or accept risks. The primary insurance company can choose whether, to what extent and to which reinsurance company it assigns an assumed risk. The reinsurance company can decide whether to accept the risk offered, whether it is only prepared to take on parts of it, or whether it rejects the risk entirely. An individual negotiation process always precedes an agreement.
disadvantage
Purely facultative reinsurance has the disadvantage that it takes up a lot of time and administrative effort due to the individual negotiations. In addition, the primary insurer cannot rely on the availability of reinsurance protection from the outset. He must therefore either seek suitable reinsurance protection before the final confirmation of cover is given to the policyholder, which can have a disruptive effect on customer relationships. Or he exposes himself to the risk of having to bear risks alone, temporarily or permanently, which, under mixed aspects, do not fit into his own insurance portfolio or even exceed his own underwriting capacity.
advantages
The main advantage of facultative reinsurance results from its voluntary nature. Both direct insurers and reinsurers can decide on the transfer and acceptance of risks as well as the individual contract content in accordance with their own risk policy. However, there is a danger for the RV that he is only ever offered a certain, ultimately unfavorable selection of risks.