Underwriting discipline, capital efficiency and a strategic approach to reinsurance are key for insurers to enjoy stronger returns as the market cycle shifts, according to Howden Re.

The broker has analysed three financial years’ (2023 to 2025) performance by 42 European insurers to reveal common factors for success, and finds the strongest groups achieved an average return on equity of about 22%, compared with a peer median of 9%.

The top insurers also operated with lower solvency ratios, averaging 186% against a peer median of 216%.

But good underwriting is twice as important in making strong returns as capital structure is, the broker says.

The quarter of insurers with the best combined operating ratios generated average underwriting returns of 17%, compared with just 4% among the weakest.

“Top performers need both strong underwriting and capital-efficient frameworks,” said Howden Re general insurance practice lead, capital and risk analytics Julien Masselot.

The research also highlights differences in how efficiently insurers use capital.

The capital-light, high-return group held about €28 of capital for every €100 of gross written premium. Capital-intensive insurers generating weaker returns held about €86 – three times as much capital for about a quarter of the return.

Howden Re says insurers should treat reinsurance as a tool for managing capital, retaining risks that generate attractive returns and transferring volatility that consumes capital without sufficient reward.

With reinsurance capacity returning and prices easing, insurers have greater flexibility to align their protection with their capital plans and return objectives, it notes.

But the opportunity may be short-lived.

“When conditions change, insurers that review their structure deliberately tend to move ahead of those that renew on autopilot,” Mr Masselot said.

The starting point is understanding how much capital each risk consumes, whether that risk generates sufficient returns and how the balance sheet performs under stress, Howden Re’s research report says.