In a recent report, KBW (Keefe, Bruyette & Woods) has unveiled that homeowners’ insurance renewal rates have experienced a significant uptick in September 2023.
The estimated industry-wide renewal rate change for homeowners’ insurance policies stood at a remarkable +9.2% year-over-year (YoY) during September.
This represents a notable acceleration from August, which saw a +8.7% YoY increase, initially estimated at +8.5%.
The surge in renewal rates was led by Farmers, with a substantial +24.7% increase in September.
What’s particularly noteworthy is that all top-10 homeowners insurers, based on 2022 Direct Written Premiums (DWP), witnessed an acceleration in their September 2023 renewal rates compared to their respective rates in June 2023.
KBW’s analysis suggests that these rate increases go beyond typical inflation-driven factors, such as rising replacement values, which tend to boost premiums and offset inflation in claim costs.
Instead, the primary drivers appear to be rising reinsurance rates, which could result in increased reinsurance costs, and shifts in reinsurance attachment points.
These factors may contribute to higher volatility in homeowners insurers’ retained earnings, especially considering the challenging domestic weather experienced year-to-date.
The report anticipates that most national homeowners insurers’ increased spending on reinsurance will precede their rate increases, potentially exerting some short-term pressure on net margins.
KBW’s top picks in this evolving landscape are Outperform-rated insurer ALL and personal insurance broker GSHD. ALL is favoured for its expected improvements in personal auto underwriting margins and its multi-year reinsurance protections that could mitigate the impact of the hard catastrophe reinsurance market on its homeowners underwriting results.
On the other hand, GSHD stands to benefit from rising rates, which can boost its commission-based revenues and potentially lead to higher-margin contingent commissions as industry-wide underwriting profitability improves.
In conclusion, the homeowners insurance market is witnessing a notable surge in renewal rates, driven by various factors including concerns about climate change and anticipated increases in reinsurance costs.
These developments could have varying impacts on individual insurers, and while short-term pressure on net margins is possible, KBW remains optimistic about select industry players’ performance in this evolving landscape.
