Under which method is re-insurance arranged for specific high-risk situations?

The method that is arranged for specific high-risk situations is facultative reinsurance. This approach allows insurers to seek reinsurance on a case-by-case basis for particular risks or policies that they consider too risky to retain entirely. When a cedent (the primary insurer) identifies a specific policy or risk that exceeds their comfort level, they can negotiate facultative reinsurance directly with a reinsurer.

Facultative reinsurance is particularly useful in situations where an insurer is dealing with unique, high-value, or high-risk policies that may not be covered under standard treaty arrangements. In treaty reinsurance, the reinsurer agrees to cover a defined set of risks over a specific period without the need for the ceding insurer to negotiate on each policy individually. As such, treaty arrangements are generally broader and not specifically focused on high-risk situations.

In contrast, proportional and non-proportional refer to the way risks, premiums, and losses are shared between the ceding insurer and the reinsurer. Proportional reinsurance involves splitting premiums and losses according to a predetermined ratio, while non-proportional reinsurance provides coverage once losses exceed a certain amount but doesn't specifically target individual high-risk scenarios as facultative does. Thus, facultative reinsurance is distinctly structured to