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APAC’s fac market poised for further growth

Apacs fac market poised for further growth
Rising rates and increased retentions continue to drive demand for better risk management solutions.

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(Re)in Summary

• APAC cedents showing increased interest in bespoke facultative reinsurance amid hard market.
• Gallagher to open new fac reinsurance hubs in Singapore and Sydney; Miller and Aon have recently made strategic moves to strengthen fac teams in APAC.
• Capacity is growing, but further support is needed for complex areas like offshore wind and nuclear risk.
• Asia Pacific Fac business often managed from London, there’s an observable shift towards local expertise.
• Large amounts of nat cat and hard-to-place risk is moving to the facultative market.

Interest in bespoke facultative reinsurance solutions will continue to grow among Asia Pacific cedents this year as hard market conditions prevail, brokers active in the region say.

“With increasing premiums and higher retentions, clients across all sectors are exploring alternative solutions, and facultative reinsurance emerges as a viable option,” says Malcolm Payton, Head of Global Fac for Gallagher.

In February, Gallagher announced that it will be establishing new facultative reinsurance hubs in Singapore and Sydney to service APAC clients, as part of a push to grow its global facultative business.

“With increasing premiums and higher retentions, clients across all sectors are exploring alternative solutions, and facultative reinsurance emerges as a viable option.”
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Malcolm Payton

Head of Global Fac at Gallagher

Geoff Lambrou, Aon’s Chief Executive Officer for Facultative Solutions in APAC, says that although capacity in the market is growing, there is a need to offer more support in “complex areas” such as offshore wind and nuclear risk.

“Whether clients accept the facultative terms is more of a commercial decision as the capacity becomes exhausted,” says Lambrou.

A lot of facultative business in APAC is still written out of London, but Payton argues that as the dynamics of the market change this is far from satisfactory.

“Our strategy involves deploying experienced brokers in key Asian hubs. Their local insight allows them to identify opportunities that can be seamlessly integrated into global markets, ensuring a comprehensive understanding of risk complexities,” says Payton.

“Whether clients accept the facultative terms is more of a commercial decision as the capacity becomes exhausted”
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Geoff Lambrou

Chief Executive Officer for APAC Facultative Solutions at Aon

Others have also spotted opportunities in APAC’s facultative reinsurance market and moved to strengthen teams.

Last year Miller appointed a new head of facultative reinsurance for APAC, Nigel Cross, with a view to growing in the area.

In 2021 Aon combined two separate facultative broking teams in APAC, so as to provide a more co-ordinated approach for its clients.

Rising retentions

One of the key reasons for growing interest in facultative reinsurance is the significant rise in retentions that has been seen over the past couple of years.

A senior APAC Director at another broker says that the biggest rise in retentions was seen during the 1:1 renewals in 2023, but even this year retentions rose as more clients caught up to the wider market trend.

Payton says that growing demands for sophisticated risk management solutions makes it all the more important to marry local expertise with easy access to London’s pool of global capital.

“In the face of evolving risks, clients require access to diverse global capacities. It’s crucial to tailor bespoke solutions that align with clients’ unique needs, underscoring the importance of understanding risk dynamics,” says Payton.

Lambrou says that Aon is currently seeing large amounts of nat cat risk transferred to the facultative market “as well as hard-to-place insurance risk ranging from cyber to stock throughput programs”.

“[Fac’s] flexibility allows for the creation of products that seamlessly integrate with existing market structures.”

Malcolm Payton

Head of Global Fac at Gallagher

Complementary solutions

Payton says that facultative solutions should be seen as complementary to treaty reinsurance, affording clients great versatility in managing their risk needs. This is where the innovation comes in.

“Facultative reinsurance isn’t intended to replace treaty reinsurance but rather to complement it. Collaboration between facultative and treaty colleagues fosters innovative solutions that cater to diverse market needs,” says Payton.

Facultative solutions are often deployed within catastrophe reinsurance treaties, so that as retention limits increase, rising levels of risk in certain areas of the business can be offset by purchasing bespoke reinsurance solutions.

“Acting as a unifying force, facultative reinsurance serves as the glue that binds disparate markets together,” says Payton. “Its flexibility allows for the creation of products that seamlessly integrate with existing market structures.”

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