Automatic, Facultative, Facultative Obligatory Introduction

The primary reason for submitting business on a facultative basis is that the amount to be
reinsured exceeds the automatic binding limits of the treaty.
What is Facultative Obligatory Reinsurance?
Facultative Obligatory (fac ob) reinsurance is form of reinsurance in which a ceding
company may choose to submit a risk to the reinsurer, and the reinsurer is obligated to
accept the risk up to the reinsurer’s available retention limits, but may refuse the risk if it
exceeds their retention limit.
What could a treaty say?
Automatic Reinsurance:
On and after the Effective Date, the Ceding Company shall automatically cede to the
Reinsurer a portion of the life insurance policies, supplementary benefits and riders listed
in Exhibit / Schedule ___. The Reinsurer shall automatically accept its share of the
above-referenced policies on the basis described in Exhibit / Schedule ___, provided that:
a. the policy is issued on a plan [insert (if desired): including supplementary benefits
and riders attached thereto] listed in Exhibit / Schedule ___;
b. the insured(s), on the application date, is a legal permanent resident of the U.S.,
[insert (if desired): its Territories or Possessions] or Canada;
c. the Ceding Company [insert (if desired): and/or its affiliates] keeps its full
retention on the [select: life or lives] as described in Exhibit / Schedule ___, as of
the issue date, taking into account concurrently issued amounts and all other
inforce policies;
d. the Ceding Company underwrites the risk and issues the policy in accordance
with the Underwriting Guidelines [insert (if desired): and the policy is issued
containing the Ceding Company’s standard suicide and contestable period
provisions];
e. the risk is assessed and the policy is issued by the Ceding Company within the
issue age and substandard rating limits described in Exhibit / Schedule ___;
f. the policy is issued in a jurisdiction in which the Ceding Company is properly
licensed;
g. the total of the Reinsurer’s Percentage of the new [select: Face Amount or
Ultimate Amount] of reinsurance required and the amount already reinsured on
that life under this Agreement [insert (if applicable): and all other agreements
between the Reinsurer and the Ceding Company], does not exceed the Reinsurer’s
Percentage of the Automatic Binding Limits;