Automatic, Facultative, Facultative Obligatory Introduction

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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;
h. the total of the policy’s [select: Face Amount or Ultimate Amount] and the Face Amount already inforce and applied for on that life with all insurance companies, [insert (if desired): including any amounts to be replaced] [insert (if desired): according to information available to the Ceding Company] does not exceed the Jumbo Limit; and i. the application is on a life that has not been submitted on a facultative [insert (if applicable): or facultative-obligatory] basis to the Reinsurer or any other reinsurer within the last [insert timing] unless the reason for any prior submission was solely for capacity that may now be accommodated within the terms of this Agreement. Only a policy that has met all the above criteria shall be a “Policy” (and collectively such policies shall be referred to as “Policies”) under this Agreement. Facultative Reinsurance: If the requirements for automatic reinsurance are not met, the Ceding Company may submit any application on a plan [insert (if desired): including supplementary benefits and riders attached thereto], listed in Exhibit / Schedule ___, to the Reinsurer for its consideration on a facultative basis. The Ceding Company may apply for reinsurance on a facultative basis by sending to the Reinsurer an Application for Facultative Reinsurance. Upon application, the Ceding Company shall include all underwriting evidence that is available for risk assessment, copies of the application for insurance, medical examiners’ reports, attending physicians’ statements, inspection reports, and any other information bearing on the insurability of the risk. The Ceding Company shall also notify the Reinsurer of any outstanding underwriting requests at the time of the application. Any subsequent information received by the Ceding Company that is pertinent to the risk assessment shall be immediately transmitted to the Reinsurer. After consideration of the Application for Facultative Reinsurance and related information, the Reinsurer shall inform the Ceding Company of its underwriting decision within [insert timing]. The Ceding Company shall notify the Reinsurer in writing of its acceptance of an offer. The Reinsurer shall hold its offer open on a pending case for a maximum of [insert timing], unless otherwise specified for that offer. At the end of this period, and in the absence of written acceptance of its offer by the Ceding Company, the Reinsurer’s offer will expire. [Insert (if desired): The Ceding Company shall notify the Reinsurer in writing if, subsequent to the Reinsurer’s offer, the risk is not to be placed with the Reinsurer.]
Page 1: Reinsurance Coverage Types Module 1
Page 5 and 6: Once a risk is bound under this fac

Automatic, Facultative, Facultative Obligatory Introduction

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