Sidecars and data centres key opportunity areas for HCMA in 2027: CEO Madea

As the collateralized reinsurance sidecar market continues to expand, and momentum builds around the data centre build-out, Jarad Madea, Chief Executive Officer of Howden Capital Markets & Advisory (HCMA) told Artemis that those are key areas where HCMA sees future opportunities as the industry begins to head into 2027.

Speaking to Artemis during the reinsurance conference season, Madea discussed how HCMA plans to work more directly with institutional investors looking to deploy capital into casualty sidecars, as well as what he believes are the most exciting opportunities for investors in the reinsurance market today.

In regard to reinsurance, Madea says there is a breadth of opportunity in the market, and says “it is a very interesting time in reinsurance and insurance, particularly for end-investors who maybe haven’t participated in the space as much.”

“Just as one anecdote, three to five years ago, there were two investors and true end-investors here in Monte Carlo. This year, I think there are probably 20 true end-investors at least, and I’m sure there are others that I haven’t seen or spoken to,” Madea said.

To illustrate, Madea mentioned that a recent HCMA capital markets dinner brought together about 15 investors and 15 clients to help match capital directly with risk.

“The point is that there is a lot of interest in the space from end-investors who are looking for creative ways to invest in insurance,” Madea said.

“The most exciting part is the interest level and the amount of money that is out there globally, and the interest in participating directly in the risk of the insurance space. It’s also about being able to innovate around different structures and deals that can match what they’re looking for with what our clients are looking for in different ways” the CEO continued.

“That’s what’s exciting. And then, on the risk side, it’s about what’s of interest to those investors. It continues to be about finding incremental areas to generate risk-adjusted returns and the diversification that our industry brings to those investors, outside of their other core investment themes.”

Madea also underscored how there has been an influx of attractive returns recorded over the last several years, both on the balance sheet for insurers, reinsurers and for investors, whether that being catastrophe bond investors, property sidecar investors, or whole-account casualty sidecar-type transactions.

“Those returns are structured to be very attractive. Obviously, it will take time to see how they play out, but I think the most exciting thing is the creativity that the space is offering to allow those investors to structure and generate the risk-adjusted returns that they need across the spectrum,” Madea said.

Turning back to sidecars, Madea emphasised that expanding these structures across different platforms and geographies will be a central focus for HCMA in 2027.

“Casualty sidecars or whole-account casualty sidecars, and that could be through Lloyd’s, through fronting companies, Bermuda balance sheets, or US primary balance sheets. So, broadening that with different types of structures, and then also geographies, whether it’s US risk, global risk or European risk, I think that’s going to be a big focus of ours,” Madea explained.

“The other focus on that is not only helping our clients with it, but also on helping and advising investors. Last year, there was one of these transactions where we advised the investor side, similar to our M&A advisory, in which we’re either advising a buyer or a seller, and often advising on both sides in different deals,” the CEO continued.

“Similarly, we’d like to be able to help investors evaluate these transactions as an advisor on their side as well, in deals that are for clients we’re not already involved with. We don’t have every single client, obviously, but we can advise investors in those transactions. There’s a lot for us to do in that space in many different roles.”

Data centres are another major area of focus HCMA heading into 2027, as well as finding ways to expand alternative capital more across Europe and outside the United States, according to Madea

“Regarding data centres. I would love for us to be able to find and work on solutions to bring capacity there as well. And then, just globally, how do we continue to expand this alternative capital more in Europe and outside of the US and into broader areas as well? I think that’s going to be an opportunity and a focus for us.

In recent months, there has been a lot of noise across the industry regarding the rapid data centre build-out. However, few conversations appear to focus on how ILS investors can tap into this growth.

This gap leads Madea to believe that the sector offers a strong opportunity for the ILS industry, though he notes that no finalised solutions exist yet.

While acknowledging the risks involved, the CEO stresses that the insurance market can play a crucial role in guiding development and hopes the industry finds ways for alternative capital to participate too.

“I hope we can find ways for alternative capital to participate. Obviously, there’s a tremendous amount of money there to help solve this issue. I don’t think there’s going to be anything that gets solved without traditional insurers and reinsurers, though. I don’t think there’s anybody that’s going to solve it on their own, with just capital. You need to do it in conjunction with traditional insurers and reinsurers as part of the ecosystem,” Madea explained.

He continued: “Then it’s about managing and solving for some of the aggregation risk. How do you do that? It’s a way to broaden the portfolio geographically, a way to broaden the risk. More importantly, maybe there are incremental risks that come out of data centres and AI that can broaden the portfolio of risks and make it a little more diversified.”

“How do you structure that aggregation risk, particularly in those concentrations, so it’s not so capital-heavy in terms of what needs to be collateralised from the ILS market? That will be difficult to do and still get the returns that would be needed to support that capital, while having the ultimate customer pay something appropriate,” Madea concluded.

Read all of our interviews with ILS market and reinsurance sector professionals here.