As facultative reinsurance becomes more prevalent for insurers managing construction-related exposures, insights from WTW reveal how firms can utilize facultative placements to better manage catastrophe risks and address capacity limitations in traditional treaty markets.
In its previous global facultative reinsurance report, WTW noted that nearly 40% of participants said that they are using facultative reinsurance for construction, with usage increasing to nearly 50% among respondents in Asia-Pacific and Latin America.
WTW also found that 86% of insurers see facultative reinsurance as a strategic tool for managing risk, capital, and underwriting appetite. More than two-thirds of respondents said they plan to increase their use of facultative reinsurance over the next two years.
Increased construction activity – specially in the energy, infrastructure, and technology sectors – is driving this trend, WTW noted. In particular, the rise of artificial intelligence applications is spurring demand for data centers and the supporting power infrastructure, which is creating challenges in securing adequate treaty capacity.
As these pressures on treaty capacity grow, facultative reinsurance becomes a more attractive option. According to Aon’s recent report on the mid-year renewals, conditions in the broader reinsurance market have started to shift in favor of buyers, with the firm citing greater flexibility in terms and conditions and expanded coverage options.
WTW reported that the facultative market for construction risks remains mixed, with some regions experiencing softening trends, while others continue to see tighter capacity and stricter terms for complex or high-value projects.
Some large renewable energy and liquefied natural gas (LNG) developments are also turning to facultative markets, particularly when treaty capacity is limited. According to WTW, geopolitical conditions – especially in Europe and the Middle East – may influence the pace of construction activity, potentially increasing demand for facultative reinsurance if tensions ease and project pipelines expand.
Another recent market research by Miller suggests that over the past 18 months, new capital has entered the construction insurance space, leading to softer rates in project-related lines. This influx of capital is partly driven by insurers’ efforts to meet growth targets in the segment, which may, in turn, affect pricing dynamics and the availability of facultative capacity going forward.
Claims trends, capital constraints, and broader macroeconomic uncertainty have affected facultative capacity and pricing across the construction segment.
WTW emphasized the importance of providing detailed analytics to reinsurers when ceding risks, especially to address natural catastrophe exposures. Data insights can improve risk assessment and pricing for underwriters and help insurers position risks more effectively.
A comprehensive view of the construction schedule, built on scientific modeling and historical data, can offer a clearer assessment of probable maximum loss. WTW said that this level of detail supports stronger decision-making by facultative underwriters and may improve capacity terms for insurers.
WTW also advised insurers to engage facultative broking specialists early in the process, particularly when working on complex or high-value projects. Early involvement can help identify key terms and clauses, streamline the underwriting process, and accelerate placement timelines.
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