U.S. Homeowners Insurers’ Premiums Growing But Return on Equity Down: Aon

October 26, 2016

The U.S. homeowners insurance market is on track for continued growth in direct premiums for 2016 despite a decreasing return on equity for insurers. U.S. homeowners premium is set to surpass $90 billion for the first time, according to an annual Aon Benfield study.

Global intermediary Aon Benfield’s annual Homeowners ROE Outlook report reveals that U.S. homeowners premiums increased from $74 billion in 2011 to $89 billion in 2015, and will rise to a projected $91 billion for 2016 given prospective rate activity.

The study shows that homeowners insurers secured an average rate increase of 2.0 percent during the 18 months to August 2016, with rate decreases experienced in the states of Florida, Arizona, Indiana, Ohio, Alabama and Alaska.

The prospective after-tax return-on-equity (ROE) for U.S. homeowners business was 6.7 percent on a countrywide average (in 2015, it was 8.6 percent), and 10.9 percent excluding the state of Florida (in 2015, it was 12.6 percent). ROEs are expected to exceed 10 percent in 34 states – enabling carriers to cover their cost of capital – compared to 36 states in 2015, according to the report.

The report sees insurers achieving a combined ratio under 100 in 46 states representing more than 70 percent of industry premium.

A continued decrease in reinsurance pricing has offered insurers the opportunity to more extensively utilize traditional and non-traditional reinsurance in their capital strategies and pursue growth opportunities in this highly competitive sector, according to the report.

Also moves by auto insurers with their analytics into the homeowners market is bringing additional competitive pressure, which is reflected in the declining ROE estimate and growing investments in data and analytics, the authors note.

However, lower investment yields, higher expenses and an increase in the catastrophe loss ratio resulting from updates to catastrophe models are causing insurers to place a greater emphasis on underwriting performance and more effective pricing, claims management, marketing and risk selection.

“Our study reveals that at prospective 2017 rates, homeowners insurance provides accretive returns in the majority of states, and opportunities exist for insurers to pursue profitable growth in the line,” said Greg Heerde, head of Americas Analytics for Aon Benfield.

The Homeowners ROE Outlook report is based on industry aggregate state level statutory financial filing information along with rate filings and supporting actuarial information for the 20 top U.S. homeowners insurance groups by state.

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