The latest Homeowners’ RoE Outlook report from Aon’s Reinsurance Solutions business has forecast continued growth in U.S homeowners’ insurance premiums, but suggested that it may not be enough for the market to keep pace with the overall U.S economy.
Aon found that U.S homeowners’ direct written premiums increased from $91 billion in 2016 to $94 billion in 2017, and estimated that they could reach $96 billion in 2018 given rate activity through September.
The broker also reported that reinsurance costs were level when compared to 2017, which is noteworthy given that pricing remained constant despite heavy catastrophe losses from Hurricanes Harvey, Irma and Maria, and from record wildfire losses in California.
On average, the top 20 U.S homeowners’ insurers secured a countrywide approved rate increase of 4% during the 18 months to September 2018, with states including California, Colorado, Nevada, Rhode Island, and South Dakota hitting or exceeding 6%.
Florida insurers also achieved an average rate increase of 6% but continue to face challenges from assignment of benefits and claims adjustment cost issues that single digit rate changes are unlikely to fully mitigate, Aon said.
The countrywide average for prospective 2018 after-tax RoE for U.S homeowners’ business was 5.5%, compared to 4.5% for 2017, although 31 individual states managed to hit the target of 10% return, which is in place due to the inherent risk of the line.
Aon added that capital requirements were level when compared with 2017, but noted that changes in A.M. Best’s capital adequacy model influenced state-level RoEs and altered the balance between catastrophe and non-catastrophe capital charges.
“With prospective growth both in written premiums and ROE, on a generalized basis the homeowners line of business remains attractive to insurers,” said Greg Heerde, Head of Americas Analytics for Reinsurance Solutions.
“Overall, the line is healthy, providing expected long-term underwriting profitability, and has many segments posting exceptional performance,” he continued.
Paul Eaton, Managing Director in Analytics for Reinsurance Solutions, also commented: “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.”
