hi everyone this is prasad parthiman today i'm going to take a training on facultative reinsurance in our last training video we have covered about 3t reinsurance which is nothing but reinsurance coverage for a class of risk which means say if i have a home owner's policy like if i have identified these are the different risk that i am going to give coverage then what happens is the insurance company which is nothing but the seeding company gets into a contract with the reinsurance company and they have a coverage treaty reinsurance so that for that entire one year any new home owners policy that i issue the reinsurance company will give required coverage when it comes to faculty with you it's little bit unique say that i'm having a commercial property insurance right and i have my building i have my properties that are covered under commercial property there could be some unique coverages under commercial property like equipment breakdown right like no if you are having bigger machines for your company if something happens to your mission it breaks down or you need some unique coverages to your bigger machines like boiler machines then it's very kind of risky to give required coverages then what happens is this insurance company wants reinsurance only for that particular coverage like in this case equipment and boiler insurance right so what they do is they go and market or they go and kind of know shop around in the entire insurance market this is what we call this facultative so instead of handling a class of risk the entire book of business they take a specific risk which they cannot ensure for so many reasons one thing is like they may not have required infrastructure or they think that this coverage is very risky for us to ensure so they go to multiple insurance reinsurance company to get required coverages and the difference between facultative and treaty is in treaty it's always a long term contract but whereas facultative is like one off thing a transactional based so as a result the premiums are always more for faculty tube so this is what is mean by faculty one of like no it's a risk based faculty is risk-based whereas 3t is a overall book of business a class of risk when it comes to category again faculty is divided into proportional and non-proportional so when i say proportional again we have quota share and surplus so the way quota share works is like every premium that i get every dollar i get i equally share with my insurance reinsurance company say if i get a premium of 100 the overall coverage that i have to give is 500k so the way we work is we take 50 as an insurance company premium and i give the remaining 50 premium to the reinsurance company when there is a loss the same thing happens i share the loss of 250k and the reinsurance company shares the loss of 50k that is what we call it as quota share whereas the surplus the way it works is there is a surplus point which is decided by the agreement say in this example the premium is thousand dollar and the coverage that we are going to give to the customers are 1 million and the surplus is 200k which means until 200k the insurance company have to take ownership and after that the remaining 800k has to be splitted proportionally again 400 should go to the insurance company and the 400 will be or held by the reinsurance company the premium the remaining 800 premium will be equally split now when it comes to non-proportional we have same thing excess of loss so as i told you in this example the premium i got from my customer is thousand dollar and the coverage that i have to provide to him is one million now the excess of loss limit defined is 600 k which means anything excess after 600k will be covered by the reinsurance company and the reason why we say it is non-proportional is that remaining 400k coverage that is provided by the reinsurance company the premium has to be negotiated it's not like okay for 400k let me share no for 40 or something so whatever the remaining coverage that is given by the re-insurance company the premium is not proportional like no and the insurance company and the reinsurer have to negotiate and come up with the actual premium that is what we call it as non-proportional both the premium and coverage split is not not not done in a proportional way i hope you like my training videos if you like my training videos please do subscribe to my youtube channel have a great day bye