Which of the following best describes facultative reinsurance?

Facultative reinsurance is best described as a process that pertains to individual risks on a case-by-case basis. This type of reinsurance allows a primary insurer to seek reinsurance for specific risks rather than all of its policies under a blanket agreement. In this arrangement, the reinsurer reviews individual risks and decides whether to accept or decline the coverage for that specific risk.

This method provides flexibility for insurers, enabling them to obtain additional coverage for high-risk policies without committing to larger, more comprehensive agreements. It is particularly useful for unique or unusually large risks that do not fit into the standard reinsurance treaty. Consequently, it allows the reinsurer to assess the specific circumstances of each risk, which can lead to more tailored underwriting practices.

In contrast, other options refer to broader concepts. For example, transferring risks in bulk typically describes treaty reinsurance, while sharing losses among multiple insurers does not emphasize the individual assessment aspect inherent to facultative reinsurance. Thus, the focus on examining specific risks is what defines facultative reinsurance.