David Howden warns reinsurers on irrelevance danger following the radical 2023-24 cat loss shift

Howden Group CEO and co-founder David Howden has warned the dramatic shift in cat loss burden away from global reinsurers to its clients which began in 2023 may result in the sector losing its relevance.

In a keynote speech at The Insurer’s Pre-Monte Carlo Forum, Howden outlined the critical implications of the shift in loss burden, largely in relation to secondary perils, that took place at 1.1.23 as reinsurers raised their retentions.

He said that between 2001 and 2022 reinsurers shouldered on average 46 percent of the insured nat cat risk, but that this figure fell sharply last year.

“The relevance of reinsurance reduced dramatically. Reinsurance is taking about 10 percent less of cat exposure in the last couple of years than it's taken in the whole of the previous 25 years. Most of those second perils are [now] in the balance sheets of insurance companies, not in the balance sheets of reinsurance companies”, said Howden.

The high-profile broking executive noted that the shift was particularly felt because of the unusual loss experience last year, where secondary perils such as hail and flood made up most of the $100bn+ global insured cat losses last year.

The Howden CEO also pointed towards challenges posed by the climate, turbulent geopolitical conflicts, and political uncertainty caused by the numerous elections this year. But striking a more positive note, he said he remains confident that the industry can work together through effective collaboration and innovation to meet today’s and tomorrow’s challenges.

Howden said: “I know we need capital, and I know we've done wrong in the past and we've burnt capital. I'm not saying anywhere at all that we should go back to the bad old days. But we have got to work out how now we adjust to make sure that we provide clients with the assurances they need to grow their business.”

He also warned that the positive results experienced in 2023 and H1 2024 must not become a cause of complacency.

“We need to all get together as a market and do something different. Not sit there saying, ‘Wow, I've got a fantastic loss ratio. I'm doing really well. I'm just gonna sit and hope nothing's gonna happen.’”

He continued: “We are the great enabler. Nothing is built, nothing moves, nothing buys without insurance. And that's really true. We've got to think about how we enable the global economies to face the challenge they have. Where's our role in that?”

Howden said very few areas in the industry would forecast a lack of product demand. One such avenue Howden said the insurance industry must capitalise on is the climate transition.

He pointed towards research his firm conducted with BCG which found that over half of the $19trn already committed to financing the climate transition through to 2030 will require additional insurance coverage.

“What we need to work out is how we can supply this at the right price, making profit, doing it sensibly. But that's a great position to be in. So let’s listen and deliver on that.”

Also speaking at the event was Ian Beaton, founding CEO of Lloyd’s Bermuda (re)insurer Ark Underwriting. Acknowledging the strong underwriting results of 2023 and H1 2024, he warned reinsurers not to become complacent amidst the expected growing pricing pressures that are likely to take place ahead of the 1.1 renewals this autumn.

“Just because you had one good year, it doesn't mean you can go and blow it,” he told the audience of more than 300 executives.