Flexibility and growing efficiency reinforce facultative as vital part of cedants’ risk transfer strategies: Aon

Facultative reinsurance is moving from a tactical purchase to a strategic growth tool for insurers, the global CEO of facultative at Aon’s Reinsurance Solutions explains. 

Key points:
Clients using fac as strategic growth tool
Facilities bridge certainty, flexibility and growth
Digital capabilities reduce friction, drive adoption

Facultative reinsurance is becoming a more strategic part of insurers’ growth plans as they look to expand without excessive strain on their balance sheets. That’s the view of Nick Fraccalvieri, global CEO of facultative at Aon’s Reinsurance Solutions.

He says insurers can use facultative not simply to cover individual risks, but to support growth while managing the additional exposure expansion creates.

“Every time they expand, they expose their balance sheets a little bit more than is perhaps desirable,” Fraccalvieri told Baden Baden Today. “The most efficient way to grow is strategically to utilise facultative as a lever. By buying facultative capacity where appropriate, clients can continue to expand while actively managing and mitigating exposure, rather than placing additional strain on their balance sheet”

With competition across the insurance and reinsurance markets intense, and reinsurers continuing to report profitable combined ratios, Fraccalvieri said facultative capacity was plentiful and the cost of cover “quite competitive”.

Bringing fac and treaty together

Aon is encouraging clients to think about treaty and facultative strategy together as they approach the 2027 renewals rather than treat the two as separate purchasing decisions.

“By expanding beyond a single transaction approach, we develop optimal risk transfer strategies that might encompass elements of treaty, fac, insurance-linked securities and parametric. This capital flexibility to client needs can help to enable top line growth,” he said. 

This approach gives clients greater flexibility in how they deploy and protect their capital, preserve treaty capacity and selectively take on additional business without increasing aggregate exposure beyond their desired risk appetite. In effect, it creates an additional capital allocation lever, enabling clients to turn risk transfer into a tool for unlocking capacity and accelerating profitability.

Aon is also seeing growing interest in cedant facultative facilities, which allow them to secure facultative capacity at agreed terms with stable counterparty risk management in advance. Such facilities also provide flexible access to reinsurance, at clear terms and conditions and with more efficient administration.

“With facilities we can structure customised programmes, from single product and geography, to complex multi-line and global solutions,” Fraccalvieri added. “I don’t think there are many brokers that can sit down with their clients, articulate their needs and help develop a full global facility that is aligned to their particular business aims,” he noted.

Removing the friction

One obstacle to wider use remains the administrative intensity of facultative placements. “It’s very frictional, very intense in terms of management,” Fraccalvieri said.

Aon is seeking to digitise more of the placement process. From January 2027, its trading platform is expected to be able to analyse information regardless of the format in which it arrives. By mid-to-late 2027, the broker hopes the technology will further help guide brokers towards markets suited to particular products and risks.

“As we remove friction, as we make the process more efficient, the benefits will be felt by our clients, which will be even more attracted to facultative capacity as a result,” Fraccalvieri said.

“The most efficient way to grow is to strategically utilise facultative as a lever.”

Data shaping strategy

Data generated through placements is also giving Aon a broader view of clients’ portfolios, including where they are writing business, the classes involved and whether exposures are primary or excess, property or casualty.

Some clients do not collect or analyse their information at such a level, Fraccalvieri said, allowing Aon in some cases to provide a portfolio-level view they do not have themselves.

That data can also help identify market trends earlier and adjust advice as conditions change.

“The quicker we can adapt and develop and utilise these advanced tools, the quicker we can help our clients to make even better business decisions at the appropriate time,” he said.

For him, the underlying proposition comes back to growth – insurers need to continue looking for profitable growth opportunities without allowing expansion to place excessive strain on their balance sheets.

“There are two ways to do that – either expose your balance sheet to the unknown, or utilise facultative as a way to mitigate potential or realised exposures,” he said.

Nick Fraccalvieri is the global CEO of facultative at Aon’s Reinsurance Solutions. He can be reached at: nick.fraccalvieri@aon.com

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