Underwriting discipline and capital efficiency separating top insurers: Howden Re

Insurers combining strong underwriting with efficient capital management are outperforming peers as the reinsurance market enters a more competitive cycle, according to Howden Re.

Its report, “The Era of Deliberate Insurance”, timed for the Baden-Baden Reinsurance Meeting 2026, examines European non-life insurers across three financial years, from 2023 to 2025.

The reinsurance broker compares their return on equity, combined ratios, solvency ratios and risk intensity.

“The insurers pulling ahead in the new market cycle are not the ones with the biggest capital buffers,” the report said.

“They are the ones that underwrite well, keep only the risk they are paid for, and hold enough capital rather than as much as possible.”

The strongest performers generated average returns on equity of 22.3%, with combined ratios of 89.6% and solvency ratios of 186%.

This compared with peer medians of 8.9%, 94.8% and 212%, respectively.

At the other end, weaker performers averaged returns of 4.7%, combined ratios of 100.2% and solvency ratios of 333%.

Underwriting comes first

The analysis found underwriting performance was approximately twice as important as capital structure in explaining returns.

“The quarter of insurers with the best combined ratios average around 17% return on equity; the quarter with the weakest average around 4%,” the report stated.

“Strong underwriting alone does not get an insurer a route to the top. The leaders’ capital efficiency amplifies a good underwriting and investment result; it does not create one.”

Among high-return insurers, capital-light businesses averaged around 20% ROE compared with 13% for capital-heavy peers, despite similar combined ratios.

The report also identified substantial differences in capital allocation.

“The capital-light, high-return group holds about €28 of capital for every €100 of premium. The capital-intensive, low-return group holds about €86: three times as much capital, for about a quarter of the return.”

Reinsurance as a capital tool

Howden Re argued that softer reinsurance pricing creates opportunities for insurers to reconsider retention levels and capital requirements.

“The best performers treat reinsurance as a capital tool, not only as protection,” the report said.

“They ask not just what could hurt them, but which risks earn a good return and which consume capital without reward, and they move systematically towards the structure that suits them.”

Alex Roth, head of alternative solutions at Howden Re International, said insurers needed to consider underwriting, investments and capital together.

“Insurers that look at reinsurance, investments and capital as one picture, rather than three separate conversations, are the ones best placed for the next phase of the cycle.”