Fac reinsurance ‘might be moving away from a hard market’, says UIB’s Barrington

“It appears that the facultative reinsurance might be moving away from a hard market, but there are a number of global events that could happen between September and January which could heavily influence where the market is heading,” UIB CEO Shaun Barrington commented at RVS Monte Carlo 2024.

With one of the biggest costs of acquisition for the facultative market being treaty reinsurance, if it continues to follow this trajectory, the treaty market will feel pressured to follow any softening in the facultative side, Barrington added.

He said: “I think the treaty side seems to still be holding out with more discipline and it’ll be interesting to see where it goes. At the same time, I think that if or when the fac side softens, there will be pressure from the fac writers onto the treaty, because they’ll want to pass on some of the reduction in premium.”

Normally the softening of the market is driven by profit in the business and new capacity in the market, but there have not been a huge amount of new entries to the market, the CEO also noted.

This time, according to Barrington, the softening of the market could be driven by profitability in the sector, as carriers’ combined ratios in the last couple of years have shown positive results.

He continued: “There will just be an ability to cut back on rate from within the profit margins. It will be interesting to see how that changes based on interest rates. We’ve got a dynamic at the moment where we’ve had a hard market with high interest rates.

“They had been low for such a long time for many years, a small spike in the 2010s late 2000s, but really they’ve been low for a long time. Now that they’re a bit higher across the globe, as those start to come down, and they have started to come down in the US and Europe, it will have an effect on capacity in the market.

“It will be interesting to see whether that then drives further softening, new capacity, there’s all sorts of dynamics that can move around as interest rates come down.”

But things can change very quickly, Barrington noted, as the industry is not even halfway through the US cat season and any global event could change the dynamic or become the driver for 1.1 season.

“We’ve known about the effects of climate change for a long time now, but in the last couple of years, we’ve seen a really significant shift in how often perils like convective storms, or tornadoes and hail in the US for example, happen. All this has also created a very different risk profile,” he stated

“We have a huge global increase in solar panel farms for instance. They can very easily be damaged by hail. Situations like this have been manageable in a harder market, but I think this will become an interesting play if the market conditions change. If the market starts to soften, then topics such as disciplined underwriting in an uncertain world will be a very popular one in 2025,” Barrington concluded.

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