A recent analysis by Amwins has highlighted how the property insurance market is undergoing continuous changes, which is gradually leading to a considerable rise in the use of facultative reinsurance.
According to the firm, 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 1/1, 4/1 and 5/1 this year, were more organised than those in 2023, boosting market confidence and capacity quoting even in high-risk CAT zones.
However, looking past this, Amwins reports that there is still limited appetite for attritional business and a focus on secondary perils.
Moreover, facultative demand remains strong as it enables markets to fill gaps in their treaty programs and decrease markets’ overall net retention.
A number of occupancies have been highlighted by the organisation.
Large shared and layered accounts are under major rate pressure, with carriers that had previously withdrawn now re-entering the market and offering larger lines, including the return of the $100 million line.
As well as this, construction accounts are continuing to face pressure, but CAT sublimits, which were reduced due to capacity constraints in 2023, are now increasing.
Amwins also notes that healthcare accounts need to focus on closing gaps in business interruption and equipment costs.
In addition, the energy sector remains an outlier as it does not follow general property market trends, therefore making it important to work with brokers that specialise in this industry.
Amwins also urges public entities to focus on adequate valuation versus indexing values year over year as the industry has begun to see more focus on CAT and secondary CAT perils for entities located in a smaller geographic area.
Furthermore, Amwins notes that real estate markets are now more willing to consider construction ages and types they would not have quoted last year.
“Facultative reinsurance markets appear to be more attentive to severe convective storm losses than wholesale or retail markets. However, with unparalleled access to modeling and data, they can pivot quickly and find new fronting capacity when carriers may not be able to. This is especially key as severe convective storm losses have already surpassed $10B this year, including large losses such as the Dollar Tree warehouse in Oklahoma,” the report reads.
Shifting attention towards the peak of last year’s hard market, Amwins notes that London emphasized providing capacity to the property market in its 2024 business plan. As a result, this focus has increased competition in the facultative market, ultimately creating downward pressure on rates as Lloyd’s seeks innovative ways to book premiums.
In conclusion, Amwins advises that considering facultative reinsurance should be standard practice for every placement. But, with the influx of new capacity and players entering the space from other areas of the business, “it’s important to choose a broker with strong relationships, knowledge of how to leverage the market and creativity in structuring deals.”
