A recently released global professional firm report is forecasting continued growth in direct homeowners’ insurance premiums for 2017 despite a decreasing return on equity (ROE) for insurers.
The Aon Benfield Homeowners’ ROE Outlook reports that American homeowners’ premiums increased from $89 billion in 2015 to $91 billion in 2016 and are expected to reach $93 billion in 2017.
“Given the year-on-year increase in premiums, homeowners’ insurance can be considered a growth engine within the industry,” Parr Schoolman, head of Aon Benfield’s Risk and Capital Strategy team, said. “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. Using advanced data and analytics, we are 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 study noted the top 20 homeowners’ insurers secured an average countrywide rate increase of 3 percent during the 18 months to August 2017, with the highest average rate increase of 7 percent being achieved in the states of Texas and North Carolina. Florida insurers achieved an average rate increase of 5 percent during the same period – likely insufficient to maintain current ROE levels, given the increased costs facing the state’s carriers from benefits and claims adjustments.
Officials attribute challenges to the ROE projections to a slowdown in insurers’ rate increases against a backdrop of loss and expense inflation, combined with an increased A.M. Best capital charge resulting from insurers’ premium and exposure growth.