Facultative reinsurance has become a critical part of insurers’ risk management strategies, though access to capacity remains a challenge due to cyclical market forces. The Facultative Reinsurance Report 2024, released by WTW, highlights these trends.
WTW, a global advisory, broking, and solutions firm, commissioned the report to understand how insurers’ needs are evolving and how WTW can meet them.
The survey, conducted by Coleman Parkes Research, involved 300 senior decision-makers from P&C insurers across Europe, North America, Asia Pacific, and Latin America. The findings underscore a shift from a transactional view of facultative reinsurance to its use as a strategic tool.
Insurers increasingly utilize facultative reinsurance to achieve priorities, bridge treaty gaps, and manage risks in volatile markets. Notably, 86% of respondents agreed it plays a key role in managing risk, capacity, capital, and appetite.
Demand for facultative reinsurance is on the rise. About 68% of respondents plan to increase their purchases over the next two years, but barriers persist. Limited capacity remains a concern, with 56% of participants citing it as a major obstacle, raising questions about whether reinsurance markets can meet this growing demand.
Insurers are also using facultative reinsurance for newer and specialized risks. Environmental impairment liability (47%), professional indemnity (42%), and cyber risks (34%) are among the most commonly ceded lines.
Cyber insurance stands out, with 58% of respondents naming it both a top opportunity and a significant concern.
Regional dynamics further illustrate the trends. North American insurers are expanding in softer market conditions, focusing on lines like cyber and energy, which carry heightened risks. Casualty, energy, and construction-related risks are driving facultative reinsurance demand. Financial stability remains crucial, prompting insurers to favor high-rated reinsurers.
Asia Pacific insurers face capacity constraints, turning to facultative reinsurance for solutions. Meanwhile, European and Latin American insurers grapple with regulatory pressures and rising natural catastrophe risks. Facultative reinsurance is increasingly essential for complex placements and emerging risks like cyber security and climate change.
Economic volatility is reshaping the insurance market, influencing risk appetite, capital management, and growth strategies.
Garret Gaughan, head of direct and facultative at WTW
Garret Gaughan noted: “ Insurers are turning to facultative reinsurance to manage these challenges and enable expansion into riskier product areas. Our survey highlights the alignment between strategic objectives and opportunities, paving the way for innovative uses of facultative reinsurance.”
