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Consistent profitability ‘eludes’ American home insurance carriers: A.M. Best


December 3, 2013   by Canadian Underwriter


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Homeowners insurance is frequently unprofitable for United States carriers and but those who  use tools such as exposure mapping software and “more rigorous property inspections” can manage their risk exposures better, suggests a new report from credit rating provider A.M. Best Company.

Oldwick, N.J. A.M. Best announced Monday a special report, titled “Homeowners Profitability Is an Ongoing Challenge.”

“Through 2012, only four years in the past 20 produced combined ratios below 100,” A.M. Best stated. “These years benefited from fewer catastrophe events, the beginning of some price firming and the initial stages of exposure management and control. Consistent profits in homeowners continue to elude carriers.”

Since 1992, the combined ratio in U.S. homeowners “has fluctuated from a low of 89.0 in 2006 to a high of 158.4 in 1992.”

Carriers using enterprise risk management (ERM) “frequently find themselves in a better financial position than their more passive peers after a catastrophic event,” the company stated. Examples of methods include exposure mapping software.

“More rigorous property inspections take the place of simple reliance on a local agent’s anecdotal knowledge and the standard homeowner application.”

The report included a bar graph of insured natural catastrophe losses each year, back to 1992, for U.S. property and casualty carriers. It ranked the 10 largest property loss events, measured by constant 2012 dollars.

Hurricane Katrina in 2005 topped the list at US$48.7 billion (or US$41.1 billion when not adjusted for inflation). The September 11, 2001 terrorist attacks ranked second at US$24.6 billion, while Hurricane Sandy (which was downgraded to tropical storm status when it made landfall about 200 kilometres south of New York City in October, 2012) was third at US$18.8 billion.

The figures did not include floods covered by the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency.

In addition to Katrina and Sandy, an additional five of the 10 largest U.S. property loss events were hurricanes. Ranked fifth was the Northridge earthquake, 32 kilometres northwest of Los Angeles, in January 1994, with US$23.9 billion in losses. That earthquake, according to USGS, killed 57, damaged more than 40,000 buildings and collapsed bridges closed sections of four freeways.

“Companies reach for every available tool to manage through ongoing volatility in homeowners without knowing when catastrophic losses will occur,” A.M. Best stated in its special report.

“Popular risk mitigation strategies include minimizing coastal exposure through wind and hail deductibles; more restrictive terms and conditions; and specific limits for exposures such as storm surge, flood and off-premises power interruption. Companies also are examining and adjusting reinsurance programs based on their needs and capabilities.

In the report, A.M. Best ranked the top 10 U.S. homeowners multiperil carrier by direct written premiums, in both 2002 and 2012

State Farm ranked first both years, with 20.4% market share in 2012. Allstate, Farmers Insurance and Liberty Mutual were in second, third and fourth place respectively both years.


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