US homeowners’ insurance premiums projected to grow
US homeowners’ direct written premiums increased from $91 billion in 2016, to $94 billion in 2017, and could reach $96 billion in 2018 given rate activity through September, according to Aon’s Reinsurance Solutions’ annual Homeowners’ ROE Outlook report.
The report forecasts continued growth in US homeowners’ insurance premiums for 2018 with an increasing ROE for insurers. It notes that, while continued growth is certainly welcome, the question remains whether current projections will be enough to keep pace with the overall US economy.
The study highlights that the top 20 US homeowners’ insurers secured an average countrywide approved rate increase of 4 percent during the 18 months to September 2018, with some states exceeding 6 percent.
Florida insurers achieved an average rate increase of 6 percent during the period but continue to face challenges from assignment of benefits and claims adjustment cost issues that single digit rate changes are unlikely to reduce.
According to the report, prospective 2018 after-tax ROE for US homeowners’ business was 5.5 percent on a countrywide average (2017: 4.5 percent). While the countrywide 5.5 percent continues to be shy of a target 10 percent return given the inherent risk of the line, 31 individual states made the 10 percent hurdle.
Reinsurance costs were shown to be level when compared to 2017, which is noteworthy given that the industry held pricing constant despite a series of catastrophes during the period, including hurricanes Harvey, Irma, Maria, and record wildfire losses in California.
Capital requirements were also shown to be level compared to 2017, but changes in AM Best’s capital adequacy model implemented in this year’s study altered the balance between catastrophe and non-catastrophe capital charges and influenced the state-level ROEs by up to +/-400bps.
Greg Heerde, head of Americas Analytics for Reinsurance Solutions, said: “With prospective growth both in written premiums and ROE, on a generalised basis the homeowners’ line of business remains attractive to insurers.
“Overall, the line is healthy, providing expected long-term underwriting profitability, and has many segments posting exceptional performance.”
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