Past the Pricing Peak: Insights from Howden's "1.1.25 Market Report"

Howden's recently released 1.1.25 Market Report offers an in-depth examination of the evolving (re)insurance market as it transitions into a new cycle. According to the report, the industry is entering a period of recalibration after a decade of rate increases fueled by global turbulence. Howden highlights that pricing momentum alone is no longer sufficient to drive growth, emphasizing the need for structural resilience and innovative strategies to meet new challenges. 

"The dawn of a new cycle brings fresh opportunity as insurers look for new business to drive growth," said David Howden, CEO of Howden Group. "Our report is something of a wake-up call for the industry. Carriers have experienced strong growth for the best part of a decade now, but as we show today, a reliance on price alone is no longer enough to sustain that momentum."  

The first half of the 2020s has been characterized by unprecedented disruptions, including a global pandemic, escalating geopolitical conflicts, and commodity shocks. These crises, coupled with weakening global trade and high debt levels, have reshaped the risk landscape for insurers, according to Howden. Per the report, natural catastrophe losses have exceeded $100 billion annually since 2020, with events such as Hurricanes Helene and Milton further stressing the market in 2024. These cumulative pressures underscore what Howden calls a "new world (dis)order," with far-reaching implications for commerce, security, and political stability. 

A Turning Point in Pricing Trends 

The report reveals a pivotal shift in the reinsurance market, with risk-adjusted rate reductions observed across key sectors during the January 2025 renewals. Global property-catastrophe rates decreased by 8 percent, while property retrocession saw a sharper reduction of 13.5 percent, and global direct and facultative reinsurance rates fell by 12.5 percent. According to Howden, this trend reflects an increase in market capacity and a renewed focus on competition among reinsurers. As stated in the report, "Healthy supply led to risk-adjusted rate reductions for the first time this decade." 

Structural changes implemented during the hard market remain firmly in place, ensuring a more robust foundation for the industry, according to Howden. The report notes that higher attachment points for catastrophe reinsurance are likely to continue, with insurers absorbing a larger share of losses. This shift is expected to result in greater earnings volatility for insurers, a feature that Howden predicts will define 2025. 

Escalating Risks and Nonpeak Losses 

The report sheds light on the growing impact of nonpeak natural catastrophe losses, which have outpaced peak losses every year since 2021. Per Howden, this trend highlights the increasing unpredictability of climate risks. In 2024, these nonpeak losses were exacerbated by heightened storm activity and severe flooding events across Europe, Brazil, and the United States. The report underscores the need for innovative risk transfer solutions to address these challenges and close existing protection gaps. 

Howden also highlights the role of civil unrest and geopolitical instability in amplifying market risks. Rising incidences of protests, driven by political and social tensions, have added complexity to the underwriting environment. According to the report, insurers are navigating a highly interconnected risk landscape, with factors such as misinformation and cyber threats further complicating operations. 

Innovations To Sustain Growth 

As the market enters this new cycle, innovation is critical for sustaining growth. Howden emphasizes the importance of expanding coverage into new areas and developing solutions tailored to insured-specific needs. For example, the report points to the role of data transparency and strengthened relationships in fostering differentiation during the renewal process. "Finding risk transfer solutions to close protection gaps and sustain market growth will become increasingly important as rate momentum wanes," Howden states. 

Additionally, the report highlights opportunities in areas like cyber insurance, where demand continues to rise amidst evolving threats. The increased reliance on digital infrastructure has heightened exposure to cyber risks, prompting insurers to develop more advanced solutions to address these challenges. 

Regional and Sectoral Trends 

The 1.1.25 Market Report also provides detailed regional and sectoral insights. In the United States, early expectations for rate reductions in property-catastrophe renewals were largely met despite the challenges posed by Hurricane Milton. Similarly, the European market experienced rate decreases of 3 percent to 15 percent, reflecting a balance between oversupply and the need for diversification. 

Globally, the catastrophe bond market saw significant growth in 2024, with issuance volumes exceeding $12 billion. According to Howden, this trend underscores the increasing importance of alternative capital solutions in supporting the reinsurance market. The report also notes a surge in the use of insurance loss warranties, which grew by 10 percent from 2023 to 2024, driven by heightened demand for responsive, tailored coverage. 

A Broader Economic Context 

Howden's report situates these market trends within a broader economic context, highlighting the interplay between macroeconomic pressures and (re)insurance performance. Inflation, while moderating in 2024, remains a significant factor influencing claims severity and operational costs. Rising interest rates and financial market volatility have also impacted insurers' balance sheets, although higher investment yields have provided a degree of offset. 

Furthermore, Howden points to the shifting dynamics of global trade and investment as critical factors shaping the (re)insurance landscape. The report observes that higher costs of capital and increased borrowing levels are creating new challenges for insurers, particularly in developing regions. 

The Road Ahead 

Looking forward, Howden's 1.1.25 Market Report underscores the need for resilience and adaptability in the face of ongoing market evolution. As pricing momentum slows, the focus will shift to structural innovation and strategic growth opportunities. The report concludes by urging insurers to embrace the complexities of this new cycle, leveraging data, technology, and relationships to navigate an increasingly dynamic risk environment.