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Best’s Market Segment Report: U.S. Homeowners Segment Well Capitalized but Weather Events Pose Significant Uncertainty

OLDWICK, N.J.–()–The U.S. homeowners insurance segment has generated operating profits in three of the last five years, including net profit of almost $2.5 billion in 2021. However, according to a new AM Best report, the segment could come under pressure, with 2022 results to be impacted by Hurricane Ian.

In its Best’s Market Segment Report, “U.S. Homeowners Line Well Capitalized but Weather Events Pose Significant Uncertainty,” AM Best states that despite above-average catastrophe activity in 2021 and challenging market conditions, the segment’s combined ratio improved by nearly four points to 103.8 in 2022. Driving the improvement was growth in net premiums earned, which outpaced that of loss and LAE expenses; catastrophes remain the main driver of underwriting volatility in the line.

“Pricing sophistication, exposure management and risk selection has benefited profitability among the top writers, and insurers have taken prudent underwriting actions and devoted significant resources to limit the impact of volatile weather patterns on results,” said Maurice Thomas, senior financial analyst, AM Best.

The report notes that losses from so-called secondary perils have been growing at a more-accelerated rate than losses from primary perils. These perils have not been modeled for as long as or as in depth as primary perils; therefore, reinsurers have either been conservative about their capital requirements or demanded higher returns, leading to pricing increases. Before Hurricane Ian, the costliest 2022 event, at $2.2 billion in damage, was a tornado outbreak across the Southern United States in April.

AM Best is keeping a stable outlook on the U.S. homeowners insurance market segment, citing strong risk-adjusted capitalization for most insurers and disciplined underwriting, as well as the greater technology use. However, the report states that inflation and supply chain disruptions remain headwinds, as does the higher reinsurance pricing. All of these issues are most apparent in Florida’s property insurance market, where four property insurers domiciled in the state, and a Louisiana-based company that wrote property business in the state, have been declared insolvent since late February 2022; now the market also will contend with a major hurricane.

“The reinsurance market has become more selective in taking on Florida exposures due to local market forces and higher exposure levels, creating an existential challenge for many of the primary carriers there that depend on reinsurance,” said David Blades, associate director, industry research and analytics, AM Best. “At the same time, the growing number of wildfires across the United States, as well as perils such as convective storms in the Midwest, have only deepened this conservatism among reinsurers.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=324437.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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