As the U.S. homeowner’s insurance segment experiences its worst underwriting results since at least 2000, rating agency AM Best has cited the continued shift in population towards catastrophe prone regions of the US, as being a key driver towards this.
The segment suffered a $15.2 billion underwriting loss in 2023, which was more than double the losses seen in the previous year.
The agency explained that the 2023 loss was also the worst this century, with $14.8 billion in losses from 2011 being the next highest.
It’s no secret, that urbanisation and rising populations have become problematic in regions susceptible to natural perils.
According to the U.S. census, California, Florida, Georgia, North Carolina, Texas and Washington accounted for 53% of the country’s population growth between 2010 and 2020; and all six of these states are prone to severe weather-related events.
David Blades, associate director, Industry Research and Analytics, AM Best, commented: “The U.S. population overall grew 7.4% between 2010-2020 but rose 10.2% in the South and 9.2% in the West during the period. Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms or even wildfires.”
AM Best’s report also notes that on a direct basis, insurers writing homeowner’s coverage across the New England region recorded an average combined ratio of 79.3% for the 10-year period ending with 2023, compared with combined ratios above breakeven in the Pacific, Southwestern and Rocky Mountain regions.
At the same time, across the South Atlantic region, which includes Florida, and the Southern region, which also includes the Gulf Coast states, posted combined ratios over 92% during this specific timeframe.
Christopher Graham, senior industry analyst, AM Best, said: “A growing population means an even larger rise in real property development and thus in insured values. Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”
Furthermore, AM Best said that the direct combined ratio for homeowners insurance in 17 U.S. states in 2023 surpassed the breakeven threshold of 100.
Since 2017, the number of states recording underwriting losses has been in double digits every year except 2019 and 2021. Prior to 2017, the count had consistently been in the single digits, the agency explained.
Adding: “this increase is more evidence of the impact that climate risks and population migration has had on the homeowners segment’s results.”
AM Best also said that loss ratios are likely to remain pressured for these carriers, and that a return to underwriting profitability for the segment over the near term is unlikely.
