Competitive conditions reinforce facultative as vital part of reinsurance strategy: Aon

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

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 putting excessive strain on their balance sheets. That’s the view of Nick Fraccalvieri, global head of facultative at Aon’s Reinsurance Solutions.

He says insurers can use fac not simply to cover individual risks, but as a way to support growth while managing the additional exposure that expansion creates.

“Every time they do that [expand], they expose the balance sheet a little bit more than is perhaps desirable,” Fraccalvieri told Monte Carlo Today.

“The best way to grow efficiently is by buying facultative and utilising it as a lever to continue to grow and mitigate exposures, and not to overload the company’s balance sheet.”

With competition across the insurance and reinsurance markets intense and reinsurers continuing to report profitable combined ratios, Fraccalvieri said fac 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 renewals rather than treating the two as separate purchasing decisions.

Fraccalvieri said clients preparing for 2027 renewals could set their treaty strategy knowing that facultative capacity was available to manage certain exposures separately.

“Aon is in a great position to help our clients consider all forms of capital, and so we can work with them beyond just a single transaction to develop an optimal risk transfer strategy that aims to respond with flexibility to all their needs and become an enabler of top line growth,” he said. 

“Those who view risk transfer in this way will be thinking how to utilise facultative in connection with treaty, and also with insurance-linked securities and parametric solutions.” he added. 

The approach allows insurers to consider where individual risks could be removed from the treaty programme and handled facultatively, or via another form of capital, giving them another lever as they decide how to deploy their capital and pursue growth. 

Aon is also seeing growing interest in cedent facultative facilities that allow cedants to secure facultative capacity and agree terms and counterparties in advance to provide flexible access to cover, rather than renegotiating new transactions throughout the year. 

Such facilities can allow clients to “crystallise the counterparty”, keep the same reinsurer throughout the year and gain greater control over what they buy, Fraccalvieri said.

To help promote this risk transfer strategy, Aon recently launched an insight series focused on the value facilities bring to insurers, which was shared with over 25,000 clients and resulted in more than 17,000 subscribers.

“With facilities we can structure bespoke solutions, from single product and geography, to complex multi-line and global solutions.,” he added. 

Fraccalvieri said that Aon’s scale, analytics, and global relationships and insights are key in driving the development of innovative solutions, pointing to the 1,000+ colleagues Aon has working on facultative across more than 40 offices globally, who help with the intermediation of upwards of $6 billion in fac premium.

“I don’t think there are many brokers that can sit down with their clients and articulate a full global facility that is aligned to their particular needs,” 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 ingest client 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 it more efficient, the benefits will be felt by our clients, who will be even more attracted to facultative capacity as a result,” he said.

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 in the same way, 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, the quicker we can advise our clients to do the right thing at the right time,” he said.

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

“There are two ways to do that – either you expose your balance sheet into the unknown, or you utilise facultative as a way to mitigate that exposure, 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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