Poor performance of US homeowners line of business continues: Aon

The prospective return on equity (ROE) for diversified homeowners insurance carriers has decreased by 100 basis points to 5 percent in the past 12 months, despite the significant rate increases that were achieved by carriers in 2023/2024.

That is the finding of broker Aon’s “Homeowners Return on Equity Outlook—October 2024” report, which analyses state and aggregate statutory filing data to estimate the prospective ROE for US homeowners business.

The report reveals that more than half the US states under review produced negative ROEs for homeowners carriers, with nearly all states producing a carrier ROE below the 10 percent cost of capital hurdle after investment gains. It is therefore unlikely that many insurers reported positive pre-tax income for writing US homeowners policies.

“Policyholders and insurance carriers need to consider tools for loss mitigation.”

Aon said these dynamics highlight the continued poor underwriting profit results over the past decade across the US homeowners line of business, resulting from increased insured losses from secondary perils such as severe convective storms (SCS); the lower than previously expected lifespan of asphalt shingle roofs and their poor wind performance in windstorms including SCS events; and deductible increases not keeping pace with total insurable value increases, leading to greater net exposures for carriers. The lack of consistent returns could deter the commitment of new capital to homeowners business.

The Aon study suggests that, at prospective 2024 rates and before income taxes, homeowners insurers keep about one cent of profit for every premium dollar they earn. That direct profit must be shared between the primary carrier, reinsurance partners, and the US Treasury.

Paul Eaton, head of US Actuarial of Aon’s Strategy and Technology Group, said: “The headline ROE numbers fail to illustrate the wide range of outcomes realised by insurers offering homeowners policies, and we expect insurers will earn meagre ROEs insufficient to support the underlying risk. 

“Our data show that policyholders and insurance carriers need to consider tools for loss mitigation and reduction for the line to find a long-term profitable equilibrium.”

For more news from the American Property Casualty Insurance Association (APCIA) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.