Study Says Eight Insurers Command 65% Market Share in Hurricane-Prone States

July 13, 2001

A recent study by Palm Beach Gardens, Fla.-based Weiss Ratings Inc. indicated that just eight large property and casualty insurers provide homeowners coverage to residents in hurricane-prone states. Weiss Ratings, a provider of independent insurance company ratings and analyses, said that in 2000, eight carriers commanded 50.4 percent of the market in Florida, 57.5 percent in North Carolina, 62.3 percent in South Carolina, 81.4 percent in Texas, and 64.1 percent in Louisiana.

Those eight companies are State Farm, Allstate, Zurich Financial Services Group, Nationwide Group, Citigroup, USAA Group, Safeco and Liberty Mutual. The study revealed that two companies — State Farm and Allstate — controlled 39.8 percent of the total market share in the hurricane-prone states last year. They also shared market dominance in Florida by holding one-third of all policies in that state.

Weiss Ratings indicated over exposure in a hurricane-prone state portends danger for the financial health of an insurer. Already this year, $2 billion in damages were recorded in Texas and Louisiana as a result of Tropical Storm Allison, and 11 more named storms are predicted for the remainder of 2001. Last year, Zurich had the most exposure, with 36 percent of its total homeowners business in the five hurricane-prone states. Among the remaining seven insurers, the exposure ranged from 11 percent (Safeco) to 32.7 percent (USAA).

The growing concentration of the homeowners insurance market is a national phenomenon that has been progressing for many years. At year-end 2000, the same eight insurers controlled a record 58 percent of the market, compared o only 26 percent in 1965, while State Farm and Allstate have increased their market penetration even more dramatically — up from just six percent of the national market in 1965 to 33.3 percent in 2000.

The nation’s property and casualty insurers, covering more than 30 lines of business, saw profits decline 55 percent in three, from $59.1 billion in 1997 to $26.7 billion in 2000. This drop was caused by a combination of increased underwriting losses and decreased investment income, which is typically used by insurers to offset underwriting losses.

In 1997, insurers’ underwriting losses hit $875 million — their lowest point in ten years — and began climbing until they reached $27 billion in 2000. This three-year period coincides with the hardening of the underwriting cycle, which occurs as insurers raise rates in response to mounting losses.

Companies experiencing the largest decline in underwriting earnings from 1997 to 2000 are: State Farm Mutual Automobile Insurance Company (Ill.), declining $4.7 billion; State Farm Fire and Casualty Company (Ill.), declining $1.4 billion; Allstate Insurance Company (Ill.), declining $908 million; and United Services Auto Association (Texas), declining $817 million.

Among the 2,478 property and casualty insurers recently reviewed by Weiss, 107 received upgrades, while 147 were downgraded.

Weiss issues safety ratings on more than 15,000 financial institutions, including property/casualty insurers, HMOs, life and health insurers, Blue Cross Blue Shield plans, banks, and brokers. Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers, businesses, and libraries.

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