So, there it is. We may not have a hard market in direct and facultative (D&F) (re)insurance, but – as the participants in this year’s roundtable will tell you in the following pages – that firming of rates seen through 2018 and into 2019 is expected to continue well into next year, and quite possibly beyond.
That fac is experiencing a resurgence doesn’t appear to be in doubt. What might be unclear to external observers is whether this is just a blip, however. A response to a few years of heavy cat and attritional losses, a poor underlying rating environment, the realisation that taking risks net can be a costly game, and the drastic re-underwriting of property D&F portfolios in the Lloyd’s and company markets.
Whether or not the insurance cycle is dead is still a contentious issue, although some appear to think it is now beyond dispute. However, anecdotally speaking, fac market stalwarts have long argued that the cycle in the fac market is longer and slower to respond than the primary market. Certainly, the participants at this year’s roundtable believe that the fac market cycle is very much in evidence.
“For us the cycle is not dead,” says Munich Re’s Beatrix Hartinger. While it may not be “as global as it was in the past”, she argues, it is still there – albeit driven by different factors and with rating changes more geography- and occupancy-specific.
What seems crystal clear from this year’s discussion, however, is that carriers, brokers and buyers all agree that the way clients buy fac is changing.
Spot fac, while not consigned to history, is less prevalent, whereas portfolio fac is increasing as cedants look to de-risk their portfolios and/or seek support for their underwriting strategy.
Fac facilities have earned a bit of a bad name in recent years, with the accusation that some broker facilities were simply being used as dumping grounds for poor-quality risks.
However, reputable, strategically focused fac facilities seem to be more popular than ever and it’s not just brokers pushing them.
Both Munich Re’s Hartinger and Swiss Re’s Laure Forgeron praised their ability to make fac underwriting more efficient as well as driving opportunities, particularly in the SME market.
Buyers appear to like them too, and this is perhaps where the relationship side of the fac market comes to the fore.
As Axis ceded re head Anne Kelly notes: “From a buyer perspective, if you’re structuring something on a facility or a fac auto-type basis, there’s comfort for both sides.”
I suspect that spot fac will still have its place and, as always, cedants will refrain from alluding to it, while still recognising its value.
But the real takeaway here is that fac’s place in the reinsurance toolbox is well and truly re-affirmed.
Vive le fac!
To view the Monte Carlo roundtable supplement, please click here.