facultative reinsurance

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A form of reinsurance in which the terms, conditions, and reinsurance premium are individually negotiated between the insurer and the reinsurer. There is no obligation on the reinsurer to accept the risk or on the insurer to reinsure it if it is not considered necessary. The main differences between facultative reinsurance and coinsurance is that the policyholder has no indication that reinsurance has been arranged. In coinsurance, the coinsurers and the proportion of the risk they are covering are shown on the policy schedule. Also, coinsurance involves the splitting of the premium charged to the policyholder between the coinsurers, whereas the reinsurers charge entirely separate reinsurance premiums.

Subjects: Financial Institutions and Services.

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