New research from WTW has revealed 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.
According to a survey conducted by WTW partner Coleman Parkes Research, which received 300 responses from senior decision makers within leading P&C insurance companies based in Europe, North America, Asia Pacific and Latin America, 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.
At the same time, 68% of respondents said they intended to buy more facultative reinsurance over the next two years. However, as per WTW, they recognised 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 specialised risk types featured highly. 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,” WTW added.
In response to shifting market dynamics, WTW observed that 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 risks.
“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 behaviour, with insurers preferring high-rated reinsurers to uphold their financial stability,” the global advisory, broking, and solutions firm explained.
WTW noted that similar trends are evident in other regions.
Garret Gaughan, head of direct and facultative at WTW, commented, “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.”
