An insurance company protects both individual and corporate entities against losses arising from named perils. A reinsurance company protects the insurance company against either a specific large loss or against a series of smaller losses that could impact the financial strength of the insurance company.
Facultative Reinsurance is where a specific risk is shared with a panel of reinsurers. It is not unusual for insurance companies to accept such a risk. Treaty reinsurance refers to when a reinsurer agrees to accept a share of an entire portfolio of risk. Both types of reinsurance can be placed on a proportional or non proportional basis,����
A reinsurance company can also look to use both treaty and facultative reinsurance to protect its own portfolio of risk. This is called retrocession.