Innovation vital amid market softening, says Howden Re

Howden Re has released its pre Monte Carlo RVS 2025 report, “Who dares wins: Innovation in an era of hard market softening”, warning that the reinsurance cycle is entering a new phase.

“This is a market in which both cedents and reinsurers can win if they dare,” the reinsurance broker’s paper concluded.

“Reinsurers can do so by deploying capacity selectively; cedents have scope to regain some of the coverage relinquished during the hardest recent renewals.

“Collaboration and innovation will be central to capturing the opportunity and sustaining resilience in the next phase,” the broker added.

Structural shifts and persistent losses

Rates eased at the January and mid-year 2025 renewals but remain well above the troughs of the last decade, the broker emphasised.

Howden Re highlighted that “the reinsurance market stands at a pivotal juncture, having crested the wave of the hardening phase that began in earnest in 2022–2023.”

It warned that top-line expansion can no longer rely solely on price.

“Top-line expansion cannot rely solely on pricing momentum; underwriters must leverage expertise to navigate volatility, whilst sustaining profitability. Who dares wins reflects this reality: in an era of heightened uncertainty, only those who innovate and adapt will thrive,” said Howden Re.

Loss activity remains elevated, the broker noted.

The firm observed that “annually recurring natural catastrophe losses exceeding $100bn since 2020 have, understandably, prompted caution across the re/insurance industry; absorbing these claims has constrained capacity and eroded margins for many.”

This year’s Los Angeles wildfires, projected to cost more than $40bn, have already marked the largest single loss borne by reinsurers since 2011.

“The Palisades wildfire marked the largest single loss borne by reinsurers since 2011, underscoring that the market remains in a tight balance and any acceleration in major loss activity could curtail further softening,” the report said.

Casualty lines remain under pressure.

“Nuclear verdicts, or awards exceeding $10m, dipped during COVID-19, but resurged, fuelling ongoing deficiencies in general and commercial auto liability in the US,” the report observed.

Howden Re added that “workers’ compensation has been redundant for nearly a decade; medical malpractice loss ratios are improving; short-tail lines provide important buffers”.

Innovation and diversification

Despite volatility, Howden Re sees ample scope for value creation in the reinsurance market.

“The reinsurance cycle has turned, but from a summit of unique opportunity. Risk premia have shifted structurally, secondary perils are no longer secondary, casualty is challenging, yet economic profit remains achievable. For those who dare to innovate and select risks wisely, this market can sustain growth, bridge coverage voids and fortify economic resilience in an uncertain world.”

Opportunities are emerging in cyber, renewables, parametric products, MGAs and expansion into emerging markets.

Concentration management is becoming indispensable, with the firm stressing that “concentration management, informed by improved analytics, is becoming an indispensable complement to conventional modelling, particularly where model limitations persist.”

The report also notes that renewal outcomes are now increasingly determined by data quality and transparency. “Renewal outcomes are increasingly shaped by data-quality, transparency and engagement across structure and coverage, rather than by price alone,” it said.

Call for bold action

“We know from history that the current ‘hard market softening’ phase can be profitable for underwriters who innovate as risk selection comes to the fore,” said David Flandro, head of industry analysis and strategic advisory, Howden Re.

“This is achieved through superior business intelligence, diversification across geographies and perils, and superior technical execution. As return hurdles rise and rates moderate, economic value will be achieved by those who dare to win.”

Tim Ronda, CEO of Howden Re, added: “Howden Re empowers clients by combining deep reinsurance expertise with capital markets access, strategic advisory and our global MGA platform.

“This breadth allows us to deliver solutions that go beyond traditional broking – enabling clients to unlock new sources of capital and create long-term value. In a market where innovation and precision matter more than ever, our role is to stand alongside clients in pursuing resilience and market leadership.”