Who dares wins: innovation in an era of hard market softening

Following the rate hardening phase that began in 2022-23, the reinsurance market now faces a period of ‘hard market softening’, in which rates, while easing, remain elevated amid structurally higher risk premia. Crucially, this shift is occurring from a position of historical pricing strength, leaving ample pockets of profitability for those prepared to innovate and underwrite selectively.

Key points:
Hard market softening – new phase
Innovation will be key for reinsurers
Capital levels high but cautions

That is according to a new report by Howden Re called ‘Who dares wins: Innovation in an era of hard market softening’. This concludes that those who combine market insight with technical execution, portfolio diversification and innovative structures will be best placed to succeed in this next phase of the cycle.

It also notes that carrier profitability has improved under these conditions, with returns broadly exceeding costs of capital. Cedents nevertheless remain more exposed to nat cat losses retaining 62% of all modelled nat cat exposure at January 1, 2025. Nevertheless, the Los Angeles wildfires in January marked the largest single loss borne by reinsurers since 2011, underscoring a tightly balanced market.

The 2020s have simultaneously been defined by turbulence and interconnected crises, from the lingering effects of Covid-19 to geopolitical conflict, cyberattacks, political violence and natural catastrophe activity, the report noted. These pressures, combined with inflation and higher interest rates, have reshaped profitability dynamics and present challenges for new capital deployment.

Since 2022, approximately $35 billion of new capital has entered the sector, equal to around 7% of total dedicated reinsurance capital compared with 15-17% in prior cycles. Inflows are heavily concentrated in insurance-linked securities, while start-ups have been rare, reflecting investor caution and a preference for disciplined deployment.

Casualty lines continue to face pressure from litigation and social inflation, particularly in US general, commercial auto and reinsurance liability, although offsets in workers’ compensation and medical malpractice have enabled carriers to report net calendar year reserve redundancies. This reserving cycle is now longer and shallower than the liability crisis of the early 2000s.

But those who innovate and adapt will thrive, the report argues. It concludes that the reinsurance cycle has evolved, but from a position of historic opportunity. Capital levels have recovered since the impairments of 2022, yet capacity remains cautious and concentrated. To remain resilient, cedents must expand their toolkit beyond traditional programmes to include aggregate covers, parametric triggers, multi-line structures and capital markets instruments tailored to address emerging sources of volatility. Concentration management, supported by improved analytics, is now indispensable as model limitations persist.

David Flandro, head of industry analysis and strategic advisory, said: “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. 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, 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.”

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