These types of reinsurance are much more unusual, mixing elements of both Treaty and Facultative Reinsurance.
Facultative Obligatory is a type of cession where the insurer chooses the risks they wish to cede to the reinsurer, the latter not having a choice and obliged to cover. This method is therefore hazardous for the reinsurer if the insurer covers poor risks: the reinsurer would have to cover undesirable risks, which is why this reinsurance method is rare.
Cession by way of ‘fac-fac’ is similar with facultative obligatory reinsurance with one important difference: the importance of the role of the reinsurer in accepting or refusing ‘fac-fac’ reinsurance.
In case of co-reinsurance, the lead reinsurer will be the leader of all reinsurers and will be able to define the terms and conditions relating to the reinsurance contract. As such, the lead reinsurer remains free to accept or refuse the risks proposed by the insurer as part of the ‘fac-fac’ reinsurance. Its refusal or acceptance will oblige all the followers, which has consequences.
