Dear friend,

When I started Fac magazine almost two years ago I did so because I thought I saw a gap in the market — all the magazines out there tended to be about treaty reinsurance.

And since I used to be mostly a direct and Fac broker myself, I thought it would be fun to reconnect with my old haunts in the weird and wonderful end of the (re)insurance firmament.

Also there would be no shortage of things to write about — pure facultative reinsurance and all the other wonderful grey area stuff that could be described as global specialty business, which could range from helicopters to prize indemnity and fine arts to product recall.

The timing was also perfect in that many of the major treaty brokers were heavily promoting their newly founded or re-branded facultative departments and there was change in the air.

Ten years ago, when a major wave of consolidation was hitting the global primary insurance industry, it looked like the end was nigh for traditional Fac purchases.

I mean what would a firm with the financial strength of an AIG or a Zurich need to buy facultative reinsurance for? As cedants got bigger and bigger, it looked like Fac spend would wither away as retentions rose and underwriting expertise was leveraged globally.

But it didn’t turn out that way, did it? As cedants got bigger and richer, they had more resources to spend analysing their books of business —and lo and behold — they started to realise that a little well-targeted fac spend could go an awful long way when compared to the blunt instrument that a treaty often entails.

Also as smaller cedants were picked off one by one, traditional treaty reinsurers found themselves more and more shut off from old business flows, so they became more open to facultative offerings, especially as they were more treaty-like and professionally packaged.

When I started I used to wonder if this story had legs, or whether it was just a clever marketing ploy.

But two years on and it’s plain to see that this trend will continue to develop — especially as we enter the era of capital market convergence.

What is an ILW if not the ultimate Fac purchase? And as more off-the-shelf ILW and tradable Cat options products come onto the market, out of our industry, it is facultative players who are likely to the quickest to adopt apply a trader’s mindset and do the business.

This is because Fac players do so many more transactions than their treaty cousins. Anyone who can go out and get you a five over five and work hard for their brokerage is likely to be a better options trader than a technical underwriter who does less than 100 deals a year.

So this Fac revolution is real and it’s happening on multiple fronts

You used to buy Fac because the risk you were handling was either too big or too weird. These days that’s not even half the story. Long live the revolution!