Insurers plan increased use of facultative reinsurance by 2025

Yet, over half of decision makers identified capacity as a major obstacle.

About nine in ten senior insurance decision-makers agree that facultative reinsurance is a key strategy for managing risk, capacity, capital, and risk appetite, according to a recent WTW report.

Facultative reinsurance is becoming a critical component of insurers' risk management strategies, but fluctuating supply and capacity constraints remain significant challenges, according to the Facultative Reinsurance Report 2024 published by WTW. 

The report is based on a survey of 300 senior decision-makers from property and casualty (P&C) insurance companies across Europe, North America, Asia Pacific, and Latin America, conducted by Coleman Parkes Research.  

A majority (68%) indicated plans to increase their use of facultative reinsurance in the next two years. 

However, 56% identified limited capacity as a major obstacle, reflecting concerns about the reinsurance market's ability to meet rising demand.  

Specialized risks are driving the demand for facultative reinsurance, with 47% of respondents using it for environmental impairment liability, 42% for professional indemnity, and 34% for cyber risks. 

Cyber insurance, in particular, was named by 58% of participants as both a top business opportunity and a significant concern, reflecting its growing importance and associated challenges.  

In North America, insurers are leveraging facultative reinsurance to capitalize on softer market conditions and expand into new areas, such as cyber and energy risks. 

Similar trends are seen globally, with Asia Pacific insurers relying on facultative solutions to address capacity constraints and European and Latin American insurers focusing on regulatory requirements and natural catastrophe risks.  

WTW’s head of Direct and Facultative, Garret Gaughan, noted that economic volatility is reshaping insurers' strategies, driving them to use facultative reinsurance to manage risk, support capital management, and enable expansion into higher-risk product areas. 

According to Gaughan, there is a strong correlation between insurers' strategic objectives and their reliance on facultative reinsurance to address emerging risks such as cyber security and climate change.