WTW reveals facultative reinsurance now a key tool for challenged insurers 

A report from WTW has found that insurers increasingly rely on facultative reinsurance for strategic risk management, but capacity remains an issue. 

Facultative reinsurance is becoming an essential part of insurers’ risk management strategies, according to WTW’s Facultative Reinsurance Report 2024. However, accessing sufficient capacity remains a significant challenge, as supply continues to fluctuate in response to market cycles. 

Facultative reinsurance is coverage negotiated on a case-by-case basis. It allows insurers to transfer specific, individual risks to a reinsurer, often for complex or high-value exposures outside treaty agreements. 

The survey, conducted with 300 senior decision-makers at leading property and casualty (P&C) insurers across Europe, North America, Asia Pacific, and Latin America, reveals a shift in how insurers view facultative reinsurance. Instead of seeing it as a one-off transactional tool, insurers are now using it strategically to manage risks, fill coverage gaps, and address market volatility. 

Key findings 

The report reveals that 86% of insurers see facultative reinsurance as critical for managing risk, capacity, and capital. Demand is also expected to rise, with 68% of respondents planning to purchase more facultative reinsurance over the next two years.  

Despite this, many insurers face significant obstacles. Over half of the respondents (56%) pointed to limited capacity as a major barrier, raising concerns about the ability of reinsurers to meet increasing demand. 

Global volatility drives interest in facultative 

At a time when climate change, geopolitical instability and evolving cyber risks were named as the top three risks globally by AXA, it is harder than ever for insurers to be certain of the scale of risks and potential losses on their books. 

Garret Gaughan, head of direct and facultative at WTW, explained, “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.” 

Gaughan explained that carriers are also using facultative reinsurance to expand into riskier product areas: “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.” 

In North America, insurers are using facultative reinsurance to expand into riskier areas like cyber and energy. In Asia Pacific, capacity constraints are driving the demand for facultative solutions. Meanwhile, in Europe and Latin America, stricter regulations and rising natural catastrophe risks are pushing insurers to rely more heavily on this type of reinsurance. Across all regions, insurers favour high-rated reinsurers to protect their financial stability. 

Image: Mike Stezycki on Unsplash 

Josie Geistfeld Josie is an editor for Claims Media. She welcomes feedback, comments, and opinion at josie.geistfeld@barkerbrooks.co.uk