Insurers Eye Greater Use of Facultative Reinsurance by 2025

Facultative reinsurance is emerging as a crucial element in insurers’ risk management playbooks. A recent WTW report reveals that around 90% of senior insurance decision-makers concur it’s vital for handling risk, capacity, capital, and risk appetite. The WTW’s Facultative Reinsurance Report 2024, based on a survey of 300 senior decision-makers from P&C insurers across multiple regions, shows that while 68% plan to boost facultative reinsurance use in two years, over half (56%) cite capacity limitations as a major roadblock.

Specialized risks are fueling the demand. Environmental impairment liability, professional indemnity, and cyber risks are among the top areas where facultative reinsurance is being deployed. Cyber insurance, in particular, stands out as both a prime business opportunity and a significant concern for 58% of participants. Regionally, North America is using it to exploit softer markets and expand into new terrains like cyber and energy risks. Asia Pacific insurers seek to overcome capacity constraints, while European and Latin American insurers focus on regulatory needs and natural catastrophe risks.

WTW’s Garret Gaughan points out that economic volatility is altering insurers’ strategies. They are increasingly relying on facultative reinsurance to manage risks, handle capital better, and venture into higher-risk product zones. There’s a clear link between insurers’ strategic aims and their use of facultative reinsurance to counter emerging threats such as cyber security and climate change.

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