Facultative reinsurance offers bespoke cover for emerging risks such as crypto

“Facultative reinsurance is where solutions for new and emerging risks first come to life.” said Eduardo Hussey, head of facultative Latin America at Aon’s Reinsurance Solutions, who stressed its critical role in providing flexible solutions for emerging risks.

“The key is how we react to demand through facultative (fac) solutions, anticipating needs and responding quickly.”

Hussey explained that although some capital providers were focusing more on Latin America, adjustments for 2025 would be based on closely monitored trends.

“The Latin American market is in transition. 2024 was a good year for our clients and reinsurers overall, despite individual events and claims.” 

Extreme events such as 2023’s Hurricane Otis’s rapid intensification in Mexico and severe floods in Brazil last year highlight the unpredictability accompanying climate change.

“New climate change impacts continue to emerge. This is not just a regional but a global issue. The lesson is clear: we must stay ahead of these evolving risks and help our clients to navigate volatility and build resilience,” Hussey emphasised.

Seeking better insights

Fac offers insurers the flexibility to secure additional capacity for high-catastrophe exposures, addressing coverage gaps in underinsured regions.

Aon believes its investment in data and analytics (D&A) is a critical advantage in enhancing risk assessment. It has united such capabilities across its Risk Capital structure, and brings broader expertise to transactions through units such as Aon Securities and its Strategy and Technology Group (STG).

“Reinsurers and insurers have long relied on catastrophe modelling and actuarial analysis, but today, we are expanding our D&A capabilities beyond just insurance companies. 

“Large multinational Insureds operating in Latin America now seek better insights into their risk profiles, accumulations and loss scenarios. 

“We provide broader, data-driven insights across industries to help shape better decisions and bring clarity and confidence to risk analysis," Hussey added.

This shift is particularly relevant as industries seek precise risk insights beyond traditional insurance purchases. 

Capacity, cyber and crypto

Facultative placements offer the necessary flexibility to cater to bespoke needs.

Capacity in Latin America has remained stable, with some capital shifting into the region due to global market pressures. 

“We expect 2025 to be a stable year in terms of capacity. However, capital flows into Latin America may increase as other regions face heightened risk perceptions. 

“Pricing trends in Latin America tend to follow global patterns, albeit with a slight delay. 

Some softening is anticipated in 2025, but this will vary by territory, product line and individual loss experience,” Hussey forecasts.

Facultative solutions are particularly valuable for complex risks and high-cat exposures, and demand for facultative placements continues to outpace treaty reinsurance, reinforcing its importance.

“Crypto is another developing area, with financial institutions and new markets seeking bespoke facultative solutions.”

Parametric solutions are gaining traction among governments and companies seeking protection against catastrophe-driven economic losses, as Hussey explained.

“While parametric solutions have been around for years – especially in agriculture – they are now expanding into industrial applications, such as energy companies dependent on rainfall for hydroelectric power.”

Financial lines such as cyber risk and crypto-related exposures are also generating new demand for facultative solutions.

“Cyber risk is evolving rapidly. Facultative placements are increasingly being used to cover cyber exclusions in property and casualty policies, and eventually these risks will be integrated into treaties. 

“Crypto is another developing area, with financial institutions and new markets seeking bespoke facultative solutions,” Hussey added.

The secret of specialisation

Aon's facultative reinsurance division in Latin America has more than 250 specialists across 10 distinct product lines, including property, financial, oil & gas, power, construction, life & health, marine, aviation, agribusiness and surety, which enables swift responses to market needs.

“Clients value our emphasis in specialization at local, regional and global levels, which allows us to help them respond quickly to the emerging risks they face. 

“Facultative reinsurance is all about being the first to provide solutions for new and evolving risks,” Hussey stated.

Aon is also investing heavily in technology to drive digital transformation through API integrations with reinsurers, real-time data analytics and process automation.

“We are streamlining data flows to eliminate redundant manual inputs, making the reinsurance placement process more efficient. 

“Clients will benefit from real-time analytics, faster decision-making and bespoke facultative solutions tailored to their evolving needs,” Hussey highlighted.

As the Latin American reinsurance market continues to evolve, facultative reinsurance will remain a cornerstone of innovation and flexibility. The team at Aon is committed to driving the market forward, leveraging specialisation, data and technology to meet insurers' and corporates' dynamic demands.

Hussey believes the coming year promises further collaboration and strategic evolution for the fac market. 

“Our role is to ensure that our clients are always one step ahead – ready for whatever comes next,” he concluded.

Eduardo Hussey is the head of facultative and specialties Latin America at Aon’s Reinsurance Solutions. He can be reached at edward.hussey@aon.com.

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