Following two years of elevated catastrophe losses, a significant decline in activity during 2019 has helped to boost the homeowners insurance segment, according to AM Best.
Analysts noted that the re/insurance industry more broadly has had some respite from catastrophe losses in 2019 despite threats from numerous storms, as well as major wildfires in California.
Many re/insurers have responded to this potential for a ‘new normal’ trend in perils such as wildfire by re-evaluating their underwriting strategies and enhancing reinsurance programs, while limiting concentrations of exposures.
Enhance data analytics on some perils, including cat models and risk scoring, can also help companies better manage this risk, AM Best explained.
For the homeowners segment specifically, the rating agency also believes that the market has been positioned for continued success due to underwriting actions taken by management teams.
These include enhanced pricing segmentation, rate increases to match risks, and overall improved exposure and concentration management.
Homeowners claims have increased considerably in recent years, partly due to non-weather-related water damage claims.
Efforts to promote the use of in-home, tech-enabled water detection tools may prove effective in limiting losses, but analysts still have some concerns about how such devices would be distributed and factored into pricing.
AM Best further noted that the personal lines segment has been helped by a long-term trend of favourable reinsurance pricing leading into the catastrophe events of 2017 and 2018.
Many companies in this segment have developed comprehensive vertical and horizontal structures that limited the impact of both severity and frequency of events.
Although the abundance of capacity had delayed the upward tide in reinsurance pricing, analysts are now seeing more demand from reinsurers in terms of price increases and tighter terms and conditions, as they look to limit their own concentrations.
Rising reinsurance costs have the potential to pressure operating performance as well as balance sheet strength, should reduced levels of reinsurance protection result in higher net probable maximum losses.
