March 19, 2003 by Canadian Underwriter
Rate increases are not enough to help a struggling U.S. homeowners’ insurance market, says a new report by Aon Re Worldwide.
Although the industry has increased rates by 7.8% since last May/June, and tightened underwriting, homeowners’ insurance stills falls short of the cost of capital. The average rate increase over the last six months is 12.5%, the study adds.
“The returns still need improvement to fully recover the cost of capital and assure needed underwriting capacity for this essential line of insurance,” says Bryon Ehrhart, president of Aon Re Services. “Insurers are still not making enough money on most homeowners’ policies.”
Estimated return on equity based on December 2002-January 2003 filings is 5.9%, but the cost of capital is 14%.
They study is an ongoing effort by Aon to track the recovery of an industry hard hit by events such as Hurricane Andrew and the Northridge Earthquake, as well as emerging mold claims. It includes rate filings from the top five insurers in states accounting for 80% of the population.