According to a new report from AM Best, the US homeowners insurance segment could come under pressure with 2022 results expected to be impacted by Hurricane Ian.
The hurricane, which made landfall Wednesday the 28th as a major Category 4 storm with maximum sustained winds of around 155 mph near the Cayo Costa area, is already set to cause $65 billion of economic losses in Florida as it continues its path across the state.
In the three of the last five years, the segment has generated operating profits, including a net profit of almost $2.5 billion in 2021.
In Best’s Market Segment Report, “U.S. Homeowners Line Well Capitalized but Weather Events Pose Significant Uncertainty,” AM Best states that despite above-average catastrophe activity in 2021 and challenging market conditions, the segment’s combined ratio improved by nearly four points to 103.8 in 2022.
Driving this major improvement was the growth in net premiums earned, which outpaced that of loss and LAE expenses; catastrophes remain the main driver of underwriting volatility in the line.
Maurice Thomas, senior financial analyst, AM Best, commented: “Pricing sophistication, exposure management and risk selection has benefited profitability among the top writers, and insurers have taken prudent underwriting actions and devoted significant resources to limit the impact of volatile weather patterns on results.”
Furthermore, Best states that losses from so-called secondary perils have been growing at a more-accelerated rate than losses from primary perils. As these perils have not been modeled for as long as, or as in depth as primary perils, this has caused for reinsurers to either be conservative about their capital requirements or demand higher returns, which ultimately leads to pricing increases.
Moreover, Best notes that is keeping a stable outlook on the US homeowners insurance market segment, citing strong risk-adjusted capitalization for most insurers and disciplined underwriting, as well as the greater technology use.
But, the report warns that both inflation and supply chain disruptions remain headwinds as well as the higher reinsurance pricing.
All of these issues are most apparent in Florida’s property insurance market, where four property insurers domiciled in the state, and a Louisiana-based company that wrote property business in the state, have been declared insolvent since late February 2022; now the market also will contend with a major hurricane.
“The reinsurance market has become more selective in taking on Florida exposures due to local market forces and higher exposure levels, creating an existential challenge for many of the primary carriers there that depend on reinsurance,” said David Blades, associate director, industry research and analytics, AM Best.
“At the same time, the growing number of wildfires across the United States, as well as perils such as convective storms in the Midwest, have only deepened this conservatism among reinsurers.”
