U.S. Homeowners’ Premiums Grow Despite Insurers’ Decreasing Return on Equity: Aon Benfield

When this year’s results are tallied, direct U.S. homeowners’ insurance premiums will have continued to grow, despite a decreasing return on equity for insurers.

According to Aon Benfield’s annual Homeowners’ ROE Outlook report, homeowners’ premiums increased from $89 billion in 2015, to $91 billion in 2016, and are expected to reach $93 billion in 2017.

The top 20 U.S. homeowners’ insurers secured an average countrywide rate increase of three percent during the 18 months to August 2017, with the highest average rate increase of seven percent realized in Texas and North Carolina, the study says.

Florida insurers achieved an average rate increase of five percent during the period, which Aon Benfield analysts say may not be sufficient for insurers there to achieve a desirable ROE going forward.

Overall, slower premium growth is expected in the near future with more modest rate changes in the pipeline. However, the report adds, the flood insurance market may provide insurers with opportunities to gain new growth.

According to the report, prospective 2017 after-tax return-on-equity (ROE) for U.S. homeowners’ business is 4.5 percent on a countrywide average. That is down from 6.7 percent in 2016.

Excluding Florida, the projected 2017 ROE is 9.1 percent and when all coastal states are excluded, the ROE rises to 12.2 percent with market share largely dominated by big-name national and super regional brands, according to the report.

The report identifies challenges to the ROE projections to include a slowdown in insurers’ rate increases against a backdrop of loss and expense inflation, and an increased A.M. Best capital charge resulting from insurers’ premium and exposure growth – which is currently being offset by reduced reinsurance costs.

“Given the year-on-year increase in premiums, U.S. homeowners’ insurance can be considered a growth engine within the industry,” said Greg Heerde, head of Americas Analytics for Aon Benfield. “However, we continue to monitor this line business carefully, as it is difficult to say at this stage whether insurers’ approved rate increases will be sufficient to match their loss and expense inflationary pressures of the future.”

Parr Schoolman, head of Aon Benfield’s Risk and Capital Strategy team, said the firm is using advanced data and analytics and continuing to “develop tools and services that provide clients with insight, at a granular level, into which homeowners’ risks are most likely to be profitable and are in alignment with their overall capital strategy.”

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. The report includes a map showing prospective ROE by state.