U.S. homeowners’ insurance is poised to post a statutory underwriting loss for 2022 reported results, as insurers continue to face above-average catastrophe losses and claims cost uncertainty from persistently high inflation and heightened macroeconomic volatility, Fitch Ratings says. However, further material rate increases in most jurisdictions support strong premium growth in 2023, with segment results likely to improve going forward.
Nonetheless, uncertainty related to catastrophe experience and claims severity patterns may inhibit a near-term return to an underwriting profit. We anticipate the property/casualty industry will post a statutory underwriting loss in homeowners for the year, with a segment combined ratio projected at 105%. The segment combined ratio exceeded 100% for five of the last six years.
Volatility in performance continues to hinge on catastrophe loss experience; larger underwriters benefit from capabilities in managing catastrophe exposures and risk aggregations, and garnering efficiency from technology investments.
Aon’s recent catastrophe report estimates insured catastrophe losses in the U.S. exceeded historical averages at $99 billion in 2022, the third consecutive year that losses exceeded $90 billion. Insured losses from Hurricane Ian may ultimately represent approximately half of all 2022 catastrophe losses. Additional U.S. events with insured losses in excess of $1 billion in 2022 include multiple inland storms, and wildfire and drought in western states.
Given the more fragile economic environment homeowners’ writers will need to renew focus on several areas including: insuring properties to value under unique housing and construction market conditions, factoring inflation and tight labor market conditions in pricing and claims estimation and utilizing information technology to boost operating efficiency and customer experience in the application and claims process.
Ongoing underwriting changes and premium rate increases position the homeowners’ market for continued revenue growth in 2023 and a return to approaching a break-even underwriting result, barring further unusually high catastrophe losses. Segment net written premiums increased by approximately 10% in 2022 to $114 billion. High single-digit premium growth is likely to continue through 2023.
Questions remain as to the effectiveness of recent legislative and regulatory changes in the Florida homeowners’ market to temper claims trends and improve the underwriting environment. Homeowners underwriting losses for the industry show that 2022 losses are tempered by a substantial portion of Ian losses borne by Florida state sponsored entities and global property reinsurers. Still, individual carrier results are materially influenced by geographic mix relative to the location of recent weather events, and more limited Florida market participation versus other states.
Compiling statutory results of the largest homeowners’ writers reveals that State Farm Group retains a strong lead in market share with 20% of industry premiums followed by Allstate with approximately 10%. While these two underwriters experienced sharp increases in personal auto losses in 2022, homeowners’ results were relatively favorable as Allstate reported a GAAP segment combined ratio of 94% for the year. State Farm reported a 3% underwriting margin in its homeowners and commercial multi-peril business combined.
Statutory homeowners’ combined ratios by company will be available shortly in insurance expense exhibit (IEE) data. The segment incurred loss ratio for 2022 increased by 1.6 points from the prior year to 68%. Among the top 10 homeowners’ writers, Chubb reported the lowest loss ratio for the year at 56% followed by State Farm (62%). Erie Insurance, Nationwide and USAA each reported a loss ratio of 75% or higher.