After two decades of poor financial results, the homeowners line is finally in the “sweet spot,” according to a new study by Conning Research and Consulting Inc.
The Conning Research study, “Homeowners Insurance: The ‘Curse’ Is Reversed Until 2008,” predicts a ratio of 104.5 percent in 2004 despite some of the worst catastrophe losses on record. The outlook is bright for 2005-2007, due to a favorable underwriting environment and a surge in insurer sophistication.
“From 1980 to 2002, the homeowners line found a way to lose money almost every year, often with new causes emerging just as older causes appeared to be solved,” said Bruce Hale, analyst at Conning Research & Consulting. “Insurers brought many of these problems upon themselves. While some remedial actions began in the mid-1990s, the rewards only became noticeable in the profitable 2003 results.”
However, the Conning study predicts an end to the recovery by 2008, since some of the current favorable factors are temporary opportunities. The turnaround will then be replaced by the old, margin-squeezing business cycle, according to the study.
“While the homeowners recovery is impressive, it appears that, overall, the line will revert to traditional market cycle dynamics,” said Stephan Christiansen, research director at Conning Research & Consulting. “Yet by analyzing those same dynamics, effectively managed market leaders can succeed in avoiding the pitfalls and ensuring their long-term returns.”