Reinsurance capacity crunch threatens growth in financial risks sector, says Howden Re

James Loggie, Managing Director of Howden Re Financial Risks, emphasises a critical need for growth in the reinsurance market to match rising demand. Despite the stability and strong performance of the financial risks sector post-pandemic, the reinsurance market faces urgent pressure to expand.

In a recent interview with Reinsurance News around the annual meeting of the reinsurance industry in Monte Carlo, Loggie discussed navigating financial risks in a dynamic marketplace.

Providing an overview of the current market’s impact on financial risks, Loggie explained that “the results from traditional trade credit did not decline as many feared during the pandemic. Instead, ceding companies and their reinsurers saw record results with historically low loss ratios.”

Although these loss ratios are now trending back to their average levels, the overall performance remains robust.

When discussing the structured credit and political risk segments, he highlighted their continued success: “This segment has continued to enjoy excellent loss ratios and significant growth, with most new entrants in the past two years specialising in these areas.”

Top underwriters in these products have consistently delivered loss ratios below 20%, demonstrating their strength in the market, explained Loggie.

In the US Surety market, which faced difficulties in recent years, especially from the energy sector, there has been notable recovery. With “rates and retentions beginning to moderate,” Loggie noted, adding that credit classes have again proven their resilience during economic downturns.

“Now more than ever, reinsurers recognise the ability of these classes to make them profitable returns over economic cycles and to provide important diversification to their P&C businesses,” he said.

Despite these positives, he pointed out that a significant challenge persists on the reinsurance side, particularly regarding capacity. He explained, “We are a small market of around 25-30 active reinsurers in the class and we urgently need this to scale to support the growth being seen in the underlying insurance market, emanating from new carriers, MGAs, or expansion of the products being offered.”

As demands from ceding companies increase, especially for their largest exposures, expanding capacity in the reinsurance market is becoming increasingly crucial.

He identified capacity as the most pressing challenge currently facing the reinsurance market for the financial risks sector. Loggie commented, “Capacity is the key issue. There’s a growing demand from ceding companies, particularly for their largest exposures.”

With no more than 30 active reinsurers in the financial risks space, this limited capacity is creating significant pressure.

“We need to see growth in this area to keep up with the expanding insurance market.” said Loggie.

The market’s ability to scale is essential to supporting the increasing demands from ceding companies, especially as the insurance market continues to expand.

He further explained that many clients are currently focused on expanding into new territories or growing their existing businesses. “Our team has extensive experience working with sophisticated clients and start-ups in assessing new geographies and products, making sure there is excellent knowledge and reinsurance support prior to executing such strategies,” said the MD.

Another area of strategic importance is the rapid growth of Managing General Agents (MGAs). Loggie emphasised that Howden Re offers “deep knowledge and experience in both binder level placements and reinsurance support,” which is crucial as MGAs continue to expand.

For new market entrants, he highlighted Howden Re’s role in developing market appetite for both new insurers and reinsurers in credit lines. This includes supporting insurers as they explore credit classes, providing advice on potential outcomes, and structuring reinsurance programmes.

“Similarly for reinsurers, Howden Re is currently working with several reinsurers, providing consolidated and useful publicly available market data, as well as business plan advice supporting their entry into credit lines,” Loggie told Reinsurance News.

He went on to highlight that what sets his team apart is their commitment to service excellence for a select group of clients. He explained, “Our edge really comes from our focus on service excellence to an exclusive client base; we do not chase every account across the globe.”

This allows Howden Re to provide clients with top-tier expertise and experience from their global broking team, and Loggie emphasised that they invest significant time in “listening and understanding their nuanced needs” to help clients achieve their specific goals.

Innovation and analytics are also central to Howden Re’s approach: “We developed and placed the first funds withheld quota share structure in our market,” a move that has been transformative for their clients. This level of dedication has established Howden Re as the preferred broker for new market entrants, with the majority of new placements last year being handled by their team, according to Loggie.

Looking ahead to the 2025 reinsurance renewals, Loggie stressed that there will be a strong push from ceding companies for improved terms, given the robust results seen in the market.

He added, “The largest ceding companies are cognisant of the excellent terms already being achieved and recognise the importance of capacity.”

As a result, many companies will likely focus on maintaining and enhancing coverage for their most significant exposures.

However, Loggie highlights the challenges ahead. He noted that they are facing “headwinds like economic and geopolitical uncertainty,” along with a shortage of capacity in the reinsurance market.

“The underlying insurance business is outpacing the growth of the reinsurance market, which is complicating new placements during renewals,” concluded Loggie.

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