A primary insurer signs an agreement under which the reinsurer must take an agreed share of every commercial property risk in a defined class. This is:

Explanation

Under a treaty the reinsurer agrees in advance to accept all business falling inside the defined class, so no risk is offered or judged individually. Facultative reinsurance is the opposite, with each risk submitted and the reinsurer free to decline it. Primary insurers buy either form to add capacity for large accounts, to smooth results, to guard against a catastrophe and to relieve pressure on surplus.