Calling in the SWAT team

When the catastrophe market was heading towards a capacity crunch last year, Howden Tiger innovated to find the capital its clients desperately needed. Jarad Madea explains how its specially formed cat SWAT team overcame the crisis.

When Hurricane Ian made landfall in the US as a Category 4 storm on 28 September last year, with sustained winds of 150mph, it caused an estimated $113bn of economic damage. Even for an area as familiar with hurricanes as the Caribbean and US south coast, this was a significant disaster and it quickly became clear this was the tipping point in a growing supply/demand imbalance in the global cat reinsurance market.

By mid-2022, increasing numbers of reinsurers and investors were pulling away from the property cat space. The sector had become too volatile, with the unpredictability of inflation, interest rates and – yes – climate change compounding risk. Simultaneously, growing demand was worsening this imbalance and this was even before the $113bn Hurricane Ian hit.

As many reinsurers were shying away from their primary purpose – to absorb volatility shocks for primary carriers – we knew we had to do something.

We knew we had to form our own cat capacity SWAT team.

Calling in back-up

Standing for Special Weapons and Tactics, SWAT teams are best-of-the-best agents that support law enforcement in extraordinary situations. Our clients were severely concerned about capacity availability for the first time in decades, and a special problem calls for a special response.

This unit gathered expertise from throughout the organisation, and across many geographies, with the simple goal of finding much-needed capital. We enthusiastically searched for new capital, leveraging our relationships with institutional investors, while helping our insurance clients to optimise their portfolios and minimise the amount of reinsurance coverage they needed.

Everyone at Howden Tiger was thinking creatively about how to generate new sources of supply while mitigating the demand as best possible.

This led us to come up with innovative solutions. A good example of this was assisting Ariel Re in raising $270mn of new capital to support the underwriting of its Lloyd’s platform, Syndicate 1910. This transaction was completed through Lloyd’s London Bridge 2 platform, which acts as a transformer vehicle to allow ILS and third-party investors to back syndicates. In addition, we assisted Ark Insurance Holdings Limited in raising $250mn of capital through its Outrigger Re Ltd special purpose insurer. In addition to these two specific transactions, our SWAT team explored and assisted clients with numerous other alternative structures, including raising capital for fronting carriers, reciprocal exchanges, cat bonds, captives, additional sidecars and more.

Standing guard

Though we have seen the market stabilise somewhat and the capacity gap become nuanced, uncertainty is still very much around us. While the suppliers of capital always have plenty of alternative opportunities to invest in, our discussions with investors have been more positive this year than last, and we believe that for the right sponsor along with the right opportunity and structure, capital is available in this space. Some investors are still not convinced of the market dynamics and will need to wait and see how the next six to 12 months play out before re-entering the space. However, prices appear to be stable at new higher levels offering attractive returns, which gives comfort to investors.

Our SWAT team has found hundreds of millions of dollars of new capacity through various structures to support our clients. The capacity crunch is still lingering and we remain in the midst of the 2023 hurricane season so we will continue to provide the back-up, effort and creativity our clients need.

Jarad Madea is CEO of Howden Tiger Capital Markets & Advisory