US homeowners premiums grow, but rate hikes slow: Aon
US homeowners insurance premiums are forecast to continue to grow in 2019 with an increasing return on equity for insurers, according to Aon’s Reinsurance Solutions business’s annual Homeowners Return on Equity (ROE) Outlook report.
The report reveals that US homeowners direct written premiums had increased from $71 billion in 2010, to $98 billion in 2018, and are projected to reach $102 billion in 2019, given prospective rate activity. Rate increases have slowed in recent years, with 2019’s prospective rate changes indicating marginal increases, and even decreases, in some states through September.
The study highlights that US homeowners insurers secured an average countrywide approved rate increase of 3 percent during the 18 months to September 2019, compared to 4 percent in the prior year period. Rate changes in California showed continued positive momentum with a joint highest increase of 7 percent, along with Washington and Georgia.
Florida achieved a rate increase of 3 percent, and it remains to be seen if this will be sufficient now that the Florida legislature has attempted to address challenges from assignment of benefits and claims adjustment cost issues.
According to the report, for carriers with national footprints, and a resulting diversification benefit, prospective 2019 after-tax ROE for US homeowners business was 6.5 percent on a countrywide average. While this figure was lower than the target 10 percent return, 24 individual states made the 10 percent hurdle.
Meanwhile, 39 states post a modelled combined ratio below 100 percent amid ROE headwinds from wildfire risk and increases in the modelled risk perspective for that peril.
This year’s study pushes beyond the total industry aggregate view of past iterations to present two strategies at opposite ends of the competitive spectrum: first, that of the massive national multiline carriers whose primary competitive advantage is scale; and second, the monoline specialist that can focus on depth of expertise with a single product in a single market. The report provides thorough comparative analyses of the two groups.
Greg Heerde, head of Americas Analytics for Reinsurance Solutions, said: “Hurricanes and wildfires caused significant losses for US insurers in 2017 and 2018. While the homeowners sector has remained robust, ripples are still being felt through the insurance, reinsurance, and capital markets as underwriters and capital providers re-evaluate their true risk levels.”
