Fitch Sees ‘Modest’ Homeowners Insurance Underwriting Loss for 2020

February 19, 2021

The homeowners insurance industry is poised to shift to a modest underwriting loss for 2020, reports Fitch Ratings, citing losses from natural catastrophes and managing operations amid the global pandemic.

However, barring another overly severe catastrophe season in 2021, the segment is likely to post underwriting gains as “market fundamentals remain stable, with pricing momentum expected to support future performance.”

Fitch says the line should see underwriting and expense improvement in 2021, with performance continuing to hinge on catastrophe loss experience.

Catastrophes took a toll in 2020. Broker Aon estimates insured catastrophe losses in the U.S. doubled to $73 billion in 2020 from $36 billion a year earlier. The hurricane season was an active one, with six hurricanes making U.S. landfall. Hurricane Laura alone generated an estimated $10 billion in insured losses. The California wildfires (estimated $9 billion) and the Midwest Derecho (estimated $8 billion) added to total insured losses.

Carriers generally continue to achieve modest rate increases, with substantial increases in loss affected markets such as Florida.

However, with the exception of Florida, overall capital levels for the industry remain very strong, Fitch said.

Several insurers — including State Farm and Hartford —were affected by one-time large subrogation recoveries from California utility PG&E tied to wildfire losses in 2017-18.

Homeowners’ catastrophe losses reported by eight publicly traded insurers rose by 45% in 2020, adding 24 points to the group’s segment loss ratio. However, the aggregate calendar year combined ratio was virtually unchanged at 92% due largely to 4.5 points of favorable prior year reserve development in 2020, according to Fitch.

The ratings firm noted that larger underwriters tend to have an advantage in managing catastrophe exposures and gaining efficiency from technology investments.

Ahead in the near term, Fitch said homeowners’ insurers will be watching which changes in workplace and travel practices are “more long lasting and may affect property risk exposures.”

Source: Fitch Ratings

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