Howden blurs lines, sets up capacity vehicle, taps third-party capital

Howden Group, the insurance and reinsurance group with both broking and underwriting at its heart, continues to blur lines, with its latest initiative being the establishment of a capacity vehicle that has third-party capital backing from an investor and will channel reinsurance underwriting capital to its DUAL MGA group.

Howden Group announced that the new capacity vehicle will provide $84 million of funding to support the underwriting of Tamesis DUAL Ltd, (Tamesis) the reinsurance and retro focused division of DUAL Group, the world’s largest international MGA.

Howden said that the additional capacity has been in place since January 1st 2021 and that it was provided by Howden Group itself alongside an unnamed third-party investor.

No details have been given on the structure used to channel the underwriting capacity funds to MGA DUAL.

It’s assumed Tamesis DUAL will still need to leverage its security fronting partners to deploy this capacity, with the new capital acting as support for those existing relationships.

What’s interesting here is how Howden is blurring the lines within insurance and reinsurance, as a Group with a broking and underwriting focus, now also willing to put its own capital behind its underwriting, alongside capital raised from a third-party investor.

Which demonstrates alignment and skin-in-the-game, of course, but also how the evolution of the global reinsurance market is tearing down barriers and blurring lines between broker and underwriter.

Of course, this blurring of lines is already well-established at the world’s largest broking groups, who regularly establish facilities backed by capital they have secured, set up their own MGA’s, or even support (sometimes drive) the set-up and capital raising of specific underwriting initiatives, seen perhaps most significantly in the collateralized retrocession space in recent years.

In an insurance and reinsurance market where what increasingly matters most is bringing risk and capital together as effectively and efficiently as possible, it’s natural brokers (or groups with a significant broking focus, like Howden) increasingly funnel capital to underwriting opportunities more and more directly.

Howden, in already having all the pieces to establish this type of capacity vehicle, in both insurance and reinsurance broking, plus underwriting through an MGA, as well as its recently launched Howden Capital Markets unit, is ploughing ahead with bringing new capital to market in the most efficient manner possible, raising it and putting it directly behind its underwriters.

It will be interesting to see if Howden grows this capacity vehicle over time and whether it looks to introduce more third-party investor capital behind its Group underwriting activities.

David Howden, CEO, Howden Group Holdings commented on the news, “This deal represents our first underwriting capital commitment in support of DUAL and I’m delighted to welcome a third party investor to sit alongside the group for this transaction. We will join Tamesis’ existing partners and enhance their already excellent position in the reinsurance market.”

Richard Clapham, CEO, DUAL Group, added, “It’s fantastic that Tamesis are to be the first to benefit from this new capital, which is testimony to their underwriting acumen and their exemplary track record in underwriting retrocessional Excess of Loss. This new binder, supporting this class, gives Tamesis increased capacity in an area which is seeing significantly improved pricing.”

Howden also said, “The transaction represents what we can now do for our clients when we harness together deep expertise from across the Group – in this instance Howden Reinsurance, Howden Capital Markets, Tamesis, and DUAL – with the strength of our balance sheet. It demonstrates not only our ability to structure innovative underwriting capital solutions but also to bring in the highest quality third parties to support them.

“Our investment in talent, as demonstrated by our recent appointment of Paul Kneafsey in his role as Group Capital Underwriting Director, is also crucial as we begin to deploy this capital, starting with supporting Tamesis’ 2021 growth plans. Our ambition is to consistently show the value we bring beyond the transaction itself, as a true differentiator and as a client champion.”

It’s understood Howden is developing a strategy that could see it raising more capital to back its MGA activities, as the Group looks to ways to enhance the efficiency of their underwriting capital and reduce reliance on major market capacity players.