Facultative reinsurance finds a foothold in a constantly shifting property market – Amwins

Trends following those in the E&S market

Facultative reinsurance finds a foothold in a constantly shifting property market – Amwins


By Kenneth Araullo

The property insurance market is experiencing continuous changes, leading to a significant rise in the use of facultative reinsurance, according to recent insights from Amwins.

According to the brokerage, trends in facultative reinsurance are following those in the excess and surplus (E&S) market, with market softening causing brokers to reevaluate their capacity strategies.

Amwins reports that treaty renewals at the beginning of the year, in April, and in May were more organized than in 2023, boosting market confidence and capacity quoting even in high-risk CAT zones.

Despite this, there is still a limited appetite for attritional business and a focus on secondary perils. Facultative demand remains strong as it helps markets address gaps in their treaty programs and reduce overall net retention.

Several key occupancies have been highlighted by Amwins. Large shared and layered accounts are under significant rate pressure, with carriers that had previously withdrawn now re-entering the market and offering larger lines, including the return of the $100M line.

Construction accounts, meanwhile, continue to face pressure, but CAT sublimits, which were reduced due to capacity constraints in 2023, are now increasing. Amwins notes that healthcare accounts also need to focus on closing gaps in business interruption and equipment costs.

The energy sector remains an outlier, not following general property market trends, making it important to work with brokers specialized in this industry. Public entities were also urged to concentrate on adequate valuation rather than simply indexing values year over year, with a growing focus on CAT and secondary CAT perils for entities in smaller geographic areas.

Amwins also noted that real estate markets are now more willing to consider construction ages and types they would not have quoted last year.

Facultative reinsurance markets are more attentive to severe convective storm losses than wholesale or retail markets, according to the brokerage. With advanced modeling and data access, they can quickly adapt and find new fronting capacity when carriers may not be able to. This is particularly important as severe convective storm losses have already surpassed $10B this year, including significant losses like the Dollar Tree warehouse in Oklahoma.

Increased competition in the market

Amwins notes that at the peak of last year’s hard market, London emphasized providing capacity to the property market in its 2024 business plan. This focus has increased competition in the facultative market, creating downward pressure on rates as Lloyd's seeks innovative ways to book premiums.

Facultative reinsurance is essentially insurance for individual policies, offering bespoke coverage that can address gaps where treaties do not. This form of reinsurance can be beneficial by increasing line size and placement stickiness, allowing carriers to get on a program and become more competitive.

It can also reduce costs, improve policy terms and conditions, including sublimits and deductibles, and secure coverage for CAT perils that do not model favorably. Additionally, facultative reinsurance can help reduce the concentration of values by carving out high hazard areas and provide access to international markets like London and Bermuda.

Amwins advises that considering facultative reinsurance should be standard practice for every placement. However, it is important to choose a broker with strong relationships, market knowledge, and creativity in structuring deals to effectively leverage the market.

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