Which form of reinsurance is negotiated separately for each insurance contract?

• A. Excess of loss reinsurance
• B. Automatic treaty reinsurance
• C. Quota share reinsurance
• D. Facultative reinsurance

Answer: (D)

Facultative reinsurance is arranged for each individual risk. Each insurance contract is presented to the reinsurer, who reviews the specific details, decides whether to accept the risk, and negotiates the terms, limits, and premium separately. This per-risk negotiation is what distinguishes it from treaty arrangements, which bind a reinsurer to a whole block or class of business under pre-agreed terms.

Excess of loss and quota share are typical treaty forms: excess of loss provides protection above a set attachment point for a defined layer or period, while quota share involves sharing a fixed percentage of premiums and losses for a defined portfolio. Automatic treaty reinsurance means once a treaty is in place, policies within that treaty are automatically reinsured without negotiating each one separately. Because it requires individual assessment and agreement for each risk, facultative reinsurance is the form negotiated separately for each insurance contract.