Insurers have been told proper capital management will be at the heart of the strategies that will  create the winners in an ever more complex risk environment.

Broker Howden Re has published a report in which it examined how the market, globally, is changing in-depth. It set out in to create a local-market European focused snapshot to give an initial indication of who is best positioned for the new cycle, and why.

The report, Breaking the glass, Howden Re explained: “The insurers pulling ahead in the new market cycle are not the ones with the biggest capital buffers. 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 high-level analysis of relative performance across different insurance models created a basis to build in-depth insights to help individual clients through the new cycle but has also revealed common denominators that characterise success as businesses position for these new market conditions.

The analysis spanned three financial years from 2023 – 2025 and covered listed groups, mutuals, cooperatives and public sector insurers across the Nordics, Germany, Benelux, and Southern and Central and Eastern Europe. It compared four measures (return on equity, combined ratio, solvency ratio and risk intensity), and the same pattern appeared in every combination. Returns start with underwriting, but they are multiplied or diluted by how much capital sits behind it, and with reinsurance now buyer friendly, insurers have an unusually good opportunity to get that balance right.

The report stated: “When we looked across the sample group to understand how insurers are positioned for the next market cycle; we saw two common traits that tend to limit performance:

“Capital Hoarding: Many insurers have built large capital buffers through the hard market and the inflation years. In the benchmarking sample, a quarter of insurers hold a lot of capital and earn low returns with solvency ratios above 300% on average and return on equity of around 4%. Part of that buffer is prudence, of course, but some of it is capital earning less than it costs to hold.

“Overlooking the asset side: Reinsurance discussions tend to focus on underwriting risk. Yet for many insurers, market risk from their investments is one of the largest parts of the capital requirement. Some of the strongest performers hedge their market exposure, so their capital backs the underwriting risk they choose to keep.”

“When conditions change, insurers that review their structure deliberately tend to move ahead of those that renew on autopilot. The window to do so is usually short – and arguably this is that window.” Explained Julien Masselot, General Insurance Practice Lead, Capital and Risk Analytics, Howden.

The report explained: “The best performers treat reinsurance as a capital tool, not only as protection. 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.

“In practice it means three things.

“1. Keep the risk where they have an edge in pricing, data or distribution, and pass on the volatility where they do not. The strongest group holds capital equal to around 28% of premium, against a peer median of around 49%, while still producing the best underwriting results.

“2. Review the structure actively against the capital plan and the return target, not just against last year’s programme.

“3. Hold enough capital, not as much as possible. The strongest group runs at around 186% solvency, comfortable but below the peer median, and appears to manage towards a target range. Capital above that range is either returned to owners or put to work in lines where the underwriting margin justifies it. It is not left on the balance sheet as general comfort.”