Facultative Property Reinsurance: A Market in Transformation Facing Extreme Risks

Fabio Arias, Regional Product Leader of Property at AIG, analyze how Property Reinsurance in facing extreme risks in a constantly transforming market.

Sep 25, 2025 | Latest Articles

A Market at an Inflection Point

The facultative Property reinsurance market is undergoing an unprecedented inflection point. In recent years, it has become clear that the sector can no longer operate under the assumptions of stability that characterized previous decades. The increasing frequency and severity of climate-related events, economic volatility, and the growing litigation of claims have raised the exposure of insurers and reinsurers to levels that demand a profound reassessment of how risks are underwritten and managed.

According to data published in the 2024 Catastrophe Loss Report by the Insurance Information Institute (Triple-I), insured losses from natural disasters exceeded USD 100 billion in 2023, making it one of the costliest years on record. Beyond the figure, this highlights a structural shift: large-scale disasters are no longer exceptional events but recurring components in risk management.

In the Property line, these phenomena have significantly increased insurers’ exposure. Stronger hurricanes, wildfires reaching urban areas, and heat waves that trigger failures in critical infrastructure: each scenario tests the industry’s technical capacity to absorb impacts and maintain business continuity for insureds.

Climate Events and Their Impact on Property

The effect of climate change on the Property line is not only quantitative but also qualitative. In the past, catastrophic losses were isolated and predictable according to seasonality; today, climate science shows that patterns have become more erratic.

The Intergovernmental Panel on Climate Change (IPCC) warns that the frequency of extreme events—from torrential rains to prolonged droughts—will continue to increase in the coming decades. This means facultative reinsurance must anticipate not only a higher volume of claims but also new types of losses that previously were residual.

In facultative Property, extreme climate events exert pressure in multiple dimensions:

Critical infrastructure: power plants, transport networks, and heavy manufacturing suffer multi-million-dollar losses due to interruptions.
Urban environments: wildfires in California and Greece in 2023 demonstrated how events once confined to rural areas now affect entire cities.
Supply chains: damage to key facilities creates domino effects across entire productive sectors.

The Insurance Information Institute also reported that wildfires in the Northern Hemisphere generated insured losses of more than USD 10 billion in 2023, an unprecedented figure for this type of event. Exposure is no longer concentrated solely on hurricanes or earthquakes but also on phenomena once considered secondary.

The Role of Facultative Property Reinsurance

In this context, facultative Property reinsurance takes on a strategic role as a market stabilizer. Its function is not limited to risk transfer: it represents a space for technical innovation, where underwriting expertise and actuarial analysis enable the absorption of massive exposures and support the continuity of critical operations.

At AIG, facultative Property reinsurance covers catastrophic risks such as fires, hurricanes, and floods, as well as direct material damage, business interruption, and losses stemming from complex claims. This broad scope is essential for cedents to find tailored solutions, particularly in sectors with high-value assets or wide geographic dispersion.

Beyond coverage, what matters most is the technical underwriting process. The integration of advanced modeling, engineering criteria, and granular risk evaluation allows precise determination of the capacity that can be allocated and the terms under which it is offered. As a Willis Towers Watson report notes, “reinsurance cycles have shortened to 18–24 months, which requires more flexible structures and frequent reviews of exposures.”

Litigation and Volatility: Rising Non-Climate Risks

Although climate change dominates the conversation, the Property line also faces challenges stemming from the growing litigation of claims. In several jurisdictions, lawsuits for compensation after natural catastrophes have become more common, creating additional volatility in portfolios.

One example is the United States, where class actions after hurricanes have pushed insured loss costs beyond initial estimates. In Latin America, the trend is still emerging, but social and regulatory pressure points toward a future with more litigation.

In addition, inflation in construction and material costs directly affects the Property line. According to Marsh, “reconstruction costs have risen an average of 9% annually since 2021, increasing the severity of losses and reducing insurers’ room for maneuver.”

AIG: Capacity and Expertise in Facultative Property

At AIG, our facultative Property specialists combine underwriting expertise, rigorous actuarial analysis, and market insight to design customized solutions that help cedents and brokers face an environment marked by catastrophes and volatility.

Our unique value stems from our ability to handle large and complicated risks:

Detailed exposure assessments that integrate technical and historical criteria.
Consistent capacity allocation in volatile markets.
International collaboration that facilitates placements across multiple jurisdictions.
Efficient management of complex claims, supporting insurers from occurrence through resolution.

In the words of a recent AM Best report (2024), “the most resilient reinsurers are those that combine portfolio diversification with technical underwriting discipline.” That is precisely the approach that guides AIG in its facultative Property practice.

Key Recommendations for 2026

Looking ahead, the facultative Property market will face challenges that require both technical and strategic responses. Based on AIG’s experience and industry trends, we highlight four recommendations:

Adopt stricter selection criteria in Property: apply more rigorous technical filters in high-exposure sectors, prioritizing capacity sustainability.
Incorporate advanced modeling to size catastrophic risks: use tools that enable more granular assessments of hurricane, fire, and earthquake scenarios.
Design flexible placement structures: adapt contractual terms to 18–24 month cycles, maintaining adjustment capacity in volatile environments.
Rely on AIG’s technical expertise in managing complex claims: leverage the combination of local knowledge and global reach to ensure consistency and efficiency in claims resolution.

Facultative Property reinsurance is not simply a financial mechanism but a strategic instrument of resilience in an environment shaped by extreme risks and accelerated change. The combination of more severe climate events, growing litigation, and inflationary pressure demands a level of analysis and flexibility that can only be achieved through technical expertise and global vision.

At AIG, we understand that the true strength of the facultative Property market lies in anticipating the unexpected. Our mission is clear: to transform capacity into solutions that provide stability for insurers and confidence for brokers, ensuring that even in the worst scenarios, business continuity is guaranteed.