P&C fac business sees ‘high demand’ in EMEA, says Swiss Re

Demand for facultative (fac) reinsurance is “high in the EMEA region”, Laure Forgeron (pictured), head of P&C Facultative Europe, Middle East and Africa (EMEA), at Swiss Re, told Intelligent Insurer.

“We see high demand for de-risking of large accounts, and for challenging exposure, territories and industry, and increasing need for risk protection in the area of cat-heavy exposure.

“Demand for portfolio solutions on the fac facility side is also accelerating. In fac, the market has been hard for the last three years, but given the uncertainties that we are facing at the moment, we expect it will be prolonged, and even gain more momentum,” she said.

Forgeron said challenges are being created by a wide range of uncertainties in economics, geopolitics and around the impacts of climate change as there is increased frequency and severity of nat cat events. But an environment where the supply is reducing and demand is increasing creates opportunities for reinsurance in general and for the fac business.

Three elements within the bigger picture are particularly influential for fac: the external environment; the primary market; and the reinsurance treaty market.

“The external environment and the uncertainty associated with it increases the need for risk protection. The primary market has a strong impact on fac demand depending on how insurers manage their line size, appetite and how they de-risk their portfolio,” Forgeron explained.

“Finally, the reinsurance treaty business, available capacity, retention levels, and limits also influence fac demand.

“We have seen a huge rise in inflation that is affecting the insured values and has consequences for the overall risk landscape.”

Further challenges

Forgeron is keeping a very close eye on the huge rises in natural catastrophe losses, especially around secondary perils.

“What we are monitoring now is the effect of climate change. So it’s about getting the frequency and severity of events as well as the vulnerability of the different construction sites we insure right. We see all of these factors leading to a need to raise price on nat cat exposure,” she said.

Global events are also important, with Forgeron highlighting the COVID-19 pandemic and geopolitical shifts. “These issues have a direct impact on insurance but they also have a huge impact on energy shortage, supply chain disruption and the rising risk of social unrest. These are also key risks that we are monitoring.”

The casualty side is “very much linked to inflation”, she said, emphasising that within this, social inflation can be decoupled from economic inflation, as witnessed in the US.

“In EMEA we are monitoring how much this huge social inflation that we observe in the US can come into Europe through collective redress, class action, and climate change litigation, but also the climate change impact on potential liability exposure.”

It might be a complex picture but Forgeron is clear about how to tackle it.

“For us the most important thing is that we partner. The way we try to address these challenges is by collaborating with our clients and research institutes, but mainly our clients. “We bring all the risk knowledge but we learn from clients and we try to understand the drivers and what the future risk landscape will look like.”

Swiss Re’s P&C fac EMEA division is focusing on underwriting discipline by working to anticipate trends and then translating that into concrete underwriting actions.

“It’s diligence, line size management, capacity deployment, and right side appetite on the class of risk—P&C fac—and adequate risk assessment. We need to get the price right, and to get that we need to have the right risk assessment and the adequate pricing.

“The outcome we want to construct and build with our clients is the right risk product and solution for the future that can sustain for all stakeholders in the long term”, she concluded.