Aon sees facultative reinsurance explosion as treaty round falls short

Aon expects its primary insurance clients will shift increasingly towards additional facultative reinsurance to plug holes that may be left in their treaty covers as an increasingly tight renewals season proceeds.

“As those insurers are forced to take higher retentions, they are going to look to de-risk, they just do it with different tools,” Aon President Eric Andersen told his company’s third quarter earnings call.   “They use facultative instead of treaty.”

“While the market does shift, there are levers out there for our clients” Andersen said.

The push into facultative may be stronger in the US where capacity shortfalls pinch most, Andersen said.

Primary insurers are likely to ultimately get the natural catastrophe coverage they need in Europe, while the North American market will prove “more challenging” as managing inflation and the kick-on effects of Hurricane Ian “create difficulties,” Andersen said.

Property cat has succumbed to a “crisis of confidence in underwriting,” as Andersen sees it, as the loss story has exploded from a better-known set of large events into a blossoming field of secondary perils

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