Aon’s Reinsurance Solutions business today launches its annual Homeowners’ ROE Outlook report, which forecasts continued growth in US homeowners’ insurance premiums for 2018 with an increasing return on equity for insurers.
The report reveals that US homeowners’ direct written premiums increased from USD91 billion in 2016, to USD94 billion in 2017, and could reach USD96 billion in 2018 given rate activity through September. 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 four percent during the 18 months to September 2018, with states including California, Colorado, Nevada, Rhode Island, and South Dakota hitting or exceeding six percent.Meanwhile, Florida insurers also achieved an average rate increase of six 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 full mitigate.
According to the report, prospective 2018 after-tax return-on-equity (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 A.M. 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 generalized 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.”
Paul Eaton, Managing Director in Analytics for Reinsurance Solutions, added: “It is worth noting that homeowners’ business is proving to be attractive to start-ups and insurtech players, which are collectively utilising both ‘full stack’ insurer and MGA or partnership models. We believe that the combined effect of these entrants drives increased sophistication in the underwriting of this business line.”
Developed by Reinsurance Solution’s Analytics team and updated annually, the Homeowners’ ROE Outlook report provides a comprehensive analysis of the US homeowners’ insurance sector, based on industry aggregate state level statutory financial filing information along with rate filings and supporting actuarial information for the 20 top US homeowners’ insurance groups by state.
To view the 2018 Homeowners’ ROE Outlook report, please click on the flowing link: http://bit.ly/2018-homeowners-roe-outlook.
