Given three consecutive years of net underwriting losses in the U.S. homeowners insurance segment owing to elevated natural catastrophes that have continued in the first half of 2023, combined with other ongoing market challenges, AM Best has revised its outlook on the segment to negative from stable.
According to the new Best’s Market Segment Report, “Market Segment Outlook: US Homeowners,” insurers have already been contending with headwinds such as above-average catastrophe activity, inflationary pressures and elevated reinsurance costs. Now segment carriers are being further challenged by more-frequent secondary weather perils and higher retentions and co-participation given reinsurance pricing trends. Rising loss costs, inflation and supply chain disruptions are pressuring earnings, making it difficult to maintain rate adequacy. Consequently, some market leaders have curtailed new business in catastrophe-exposed areas.
“Going forward, homeowners carriers will find it difficult to absorb these underwriting pressures while strengthening their balance sheets. A return to underwriting profitability over the near term appears highly unlikely,” said Maurice Thomas, senior financial analyst, AM Best.
While AM Best still views overall risk-adjusted capitalization as solid for most homeowners insurers, the capital cushion of some companies, especially those in catastrophe-exposed areas, has started to erode due to the persistent underwriting losses in recent years. With companies increasing their reinsurance retention and co-participation levels because of reinsurance market conditions, catastrophe activity is having a larger negative impact on results, and in some cases, this is driving increases in overall underwriting leverage, pressuring capital assessments. While the homeowners segment continues to face various challenges, carriers need to maintain their focus on rate adequacy, technology adoption and catastrophe risk management for earnings stability going forward.
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=335750 .
A video discussion on the homeowners outlook revision with AM Best Senior Financial Analyst Maurice Thomas is available at http://www.ambest.com/v.asp?v=ambhomeowners923 .