Canadian Underwriter

Actual U.S. homeowners’ loss ratio 10 points lower than modeled expected over past 10 years: Aon

October 16, 2017   by Canadian Underwriter

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The catastrophe loss ratio, over 10 years, was 10 points lower than the modeled expected cat loss ratio in homeowners’ insurance in the United States, Aon plc suggested in a report released Monday.

FILE – In this Sept. 13, 2017, file photo, overturned trailers and debris sit at the Sunshine Key RV Resort, in Big Pine Key, Fla. When Hurricane Irma slammed into the Lower Florida Keys, it destroyed or severely damaged nearly all of the area’s mobile homes where many of its service industry workers live. Business owners and county leaders are racing to secure temporary housing for those workers while trying to preserve the island chain’s small-town, mom-and-pop atmosphere. (AP Photo/Wilfredo Lee, File)

Aon Benfield Analytics released Monday its annual Homeowners’ ROE Outlook report, which includes a map depicting 10 years’ loss experience versus the modeled average annual catastrophe losses in each U.S. state. The actual loss experience uses data from Verisk Analytics Inc.’s Property Claim Services unit.

“While state level adjustments can be significant, the ten-year nationwide experience catastrophe loss ratio of 13 points is meaningfully lower than the modeled expected catastrophe loss ratio of 23 percent,” Aon Benfield stated of the catastrophe losses from 2007 through 2016.

When comparing actual versus modeled cat loss ratios over 10 years, Florida’s actual loss ratio was 56% less, Mississippi’s was 24% less, North Carolina’s was 21% less and Louisiana’s was 19%. States whose actual loss ratios over 10 years exceeded modelled loss ratios included Oklahoma’s (13% more), Montana’s and Nebraska’s (12% more) and Colorado’s (10% more).

The data is based in part “on industry aggregate state level statutory financial filing information along with rate filings and supporting actuarial information for the 20 top US homeowners’ insurance groups by state,” Aon Benfield noted.

In 2017, Hurricane Irma made landfall in the second week of September, causing severe flooding in Havana, Miami and Jacksonville. Hurricane Harvey made landfall Aug. 25 near Rockport, Texas, causing severe flooding in Houston. Hurricane Maria made landfall Sept. 20 in Puerto Rico, bringing a storm surge of six to nine feet and cutting electrical power to property owners. Karen Clark & Company said earlier it estimated the insured loss from Hurricane Maria was nearly US$30 billion.

In Natural Catastrophes and Man-Made Disasters in 2015, Swiss Re reported that 2015 was the 10th year in row that no major hurricane made U.S. landfall, the longest stretch since the 1860s. Adjusted for inflation to 2016 U.S. dollars, Katrina (2005), Sandy (2012) and Andrew (1992) cost the industry $80.7 billion, $30.1 billion and $27.4 billion, adjusted for inflation, Swiss Re said in Natural Catastrophes and Man-Made Disasters in 2016, released in early 2017.

Hurricane Sandy was downgraded to post-tropical storm status when it made landfall about 200 km south of New York City in late October, 2012.

“2016 ended the dearth of hurricane activity that was the boon of gulf coast carriers for nearly ten years,” Aon Benfield said in Homeowners’ ROE Outlook. “The gulf states plus Florida had 30 points of favorable results relative to expected from 2007 through 2016, and as of the time of this publication, even with Harvey and Irma, that favorable experience is more than 24 points of performance lift.”

Homeowners insurance premiums were US$91 billion in 2016, up from US$89 billion in 2015, Aon reported.

“The rate of growth has slowed from prior years and slower growth is expected in the near future with less aggressive but positive rate change in the pipeline.”

Aon noted the “prospective 2017 after-tax return-on-equity” for the U.S. homeowners’ business was 4.5 %, and 9.1% excluding Florida.

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