Facultative reinsurance is emerging as a vital strategic tool for risk management, but insurers face challenges in securing adequate capacity amidst market volatility, according to the “Facultative Reinsurance Report 2024” published by WTW.
The report, which draws insights from a survey conducted by Coleman Parkes Research, explores the evolving role of facultative reinsurance within the insurance sector. The survey gathered input from 300 senior decision-makers at property and casualty (P&C) insurers spanning Europe, North America, Asia Pacific, and Latin America.
Key findings reveal that 86% of respondents agreed or strongly agreed that facultative reinsurance is integral to their strategies for managing risk, capacity, capital, and appetite. Furthermore, 68% of those surveyed plan to increase their use of facultative reinsurance over the next two years. However, 56% identified limited capacity as a significant obstacle, raising concerns about the market’s ability to keep pace with growing demand.
Addressing Risks with Facultative Reinsurance
The survey also examined the types of risks insurers address through facultative reinsurance. Environmental impairment liability was cited in 47% of placements, professional indemnity in 42%, and cyber insurance in 34%.
Cyber insurance emerged as a particularly high priority, with 58% of respondents recognizing it as both a business opportunity and a key risk. This underscores its growing significance in the evolving risk landscape.
Market conditions and strategic approaches vary significantly across regions, shaping how insurers deploy facultative reinsurance. In North America, insurers are capitalizing on softer market conditions to expand into emerging product areas, such as cyber and energy. These initiatives are designed to balance risk management with growth opportunities while ensuring strong financial ratings through partnerships with highly rated reinsurers.
In Asia Pacific, capacity constraints are prompting insurers to increasingly rely on facultative solutions to address their needs. Meanwhile, insurers in Europe and Latin America face regulatory pressures and heightened exposure to natural catastrophe risks. These factors are driving demand for facultative reinsurance to manage complex placements and address emerging threats like climate change and cyber security.
Garret Gaughan, head of direct and facultative at WTW, highlighted the transformative impact of economic volatility on the insurance industry. According to Gaughan, this volatility is reshaping insurers’ risk appetites, capital strategies, and growth plans. He emphasized the growing alignment between strategic objectives and innovative applications of facultative reinsurance as a means to support business growth.
As the reinsurance market evolves, facultative solutions are increasingly recognized as a cornerstone for managing emerging risks, navigating regulatory complexities, and achieving strategic objectives in a dynamic global landscape.
