LONDON, December 12, 2024 – Facultative reinsurance is increasingly seen as a core element of risk management strategies; however, insurers may face significant barriers accessing capacity as supply continues to fluctuate with cyclical market forces according to the Facultative Reinsurance Report 2024 published today by WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company.
The survey conducted by WTW partner Coleman Parkes Research received 300 responses from senior decision makers within leading P&C insurance companies based in Europe, North America, Asia Pacific and Latin America. The report forms part of the significant investment WTW has made in the facultative arena and demonstrates WTWs commitment to understanding how cedants needs are changing and how WTW can meet those needs.
Results reflect a shift away from a transactional view of facultative reinsurance and a move towards using it as a tool to achieve strategic objectives and priorities, fill gaps in treaties and manage risk throughout the cycle in an increasingly complex and volatile market. 86% of respondents agreed or strongly agreed that facultative reinsurance is a key part of their strategy for managing risk, capacity, capital and appetite, suggesting cedents view it as an important enabler of success.
68% of respondents said they intended to buy more facultative reinsurance over the next two years. However, they recognized significant obstacles as supply continues to fluctuate with cyclical market forces. 56% cited limited capacity as a barrier to buying enough facultative reinsurance, indicating continuing questions over the ability and willingness of reinsurance markets to meet growing demand.
Looking at the lines of business insurers cede through facultative reinsurance, newer and more specialized risk types featured highly. Almost half (47%) said they bought facultative reinsurance for environmental impairment liability, 42% for professional indemnity and 34% for cyber. 58% named cyber insurance both as a top business opportunity and as a risk causing them the greatest concern.
In response to shifting market dynamics, insurers in North America are increasingly pursuing growth opportunities in softer market conditions, expanding lines and exploring new product areas, particularly within sectors like cyber and energy, which carry notable risk. This competitive landscape is driving demand for facultative reinsurance, especially in casualty, energy and construction related risks. The focus on maintaining strong financial ratings is also influencing buyer behavior, with insurers preferring high-rated reinsurers to uphold their financial stability.
Similar trends are evident in other regions. Asia Pacific insurers are turning to facultative solutions due to capacity constraints, while Europe and Latin America face pressures from regulatory requirements and rising natural catastrophe risks. The drive to secure adequate cover for complex placements and manage emerging risks such as cyber security and climate change is pushing insurers to rely more heavily on facultative reinsurance.
“Volatility in the global economy is impacting the insurance market, influencing everything from risk appetite and capital management to growth strategies.”
Garret Gaughan | Head of direct and facultative at WTW
Garret Gaughan, head of direct and facultative at WTW said: “Volatility in the global economy is impacting the insurance market, influencing everything from risk appetite and capital management to growth strategies. The results of our survey indicate that insurers are increasingly leveraging facultative reinsurance as a tool to manage these challenges. We are seeing facultative reinsurance increasingly used by carriers to enable expansion into new riskier product areas, for example. We found a strong correlation between the strategic objectives and greatest opportunities that respondents have identified for the next two years, which is fertile ground for new use cases for facultative reinsurance as a business enabler.”
The complete survey can be downloaded here.
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