Amwins Re Provides Key Insights on the Shifting Facultative Reinsurance Market

The facultative reinsurance casualty market is experiencing a state of transition, according to an update from Amwins Re. Increased capacity from new insurers and managing general agents (MGAs) in the excess and surplus (E&S) space is driving confidence in the direct market. Furthermore, better organized treaty renewals on key dates—January 1, April 1, and May 1—have resulted in increased competition for large facultative placements in less distressed areas of the market. At the same time, difficult-to-place accounts, such as those in the construction industry in New York, also face heightened demand for facultative reinsurance.

Social inflation continues to impact the casualty market with rising litigation and frequent aberration verdicts exceeding $10 million contributing to this trend, Amwins Re said. The update cites the Institute for Legal Reform, noting that the median aberration verdict increased by 27.5 percent between 2010 and 2019. Additionally, third-party litigation funding complicates the landscape further, leading to capacity reductions on individual accounts. In general, Amwins Re said research suggests that social inflation may cause losses to escalate faster than general inflation by 2 percent to 3 percent annually, causing reinsurers to maintain or slightly increase rates.

The update noted that several industries are impacted by these market dynamics. In the transportation sector, auto liability rates for primary accounts are rising, with excess layers also starting to firm up. This trend is driven by concerns over frequency and large loss trends, notably in tractor fleets and large commercial schedules, driving insurers to turn to facultative reinsurance to mitigate their net line exposure. Similarly, workers compensation has seen an increase in claims, leading insurers to revisit facultative reinsurance as a strategy to manage and offset risks.