Best’s Market Segment Report: US Homeowners Insurance Segment Suffers Worst Underwriting Year of Century; Population Shifts to CAT-Prone Areas Adds to Volatility

With the U.S. homeowner’s insurance segment experiencing its worst underwriting results since at least 2000, a new AM Best report notes that a factor in the insured loss increase is population migration into areas where weather-related events are occurring more frequently.

The Best’s Market Segment Report, “Migration to CAT-Prone Areas Adds to US Homeowners Insurers’ Performance Volatility,” states that the segment suffered a $15.2 billion underwriting loss in 2023, more than double the losses seen in the previous year. The 2023 loss was also the worst this century, with $14.8 billion in losses in 2011 the next highest.

Urbanization and rising populations have become particularly problematic in regions susceptible to natural perils, the report states. According to the U.S. census, California, Florida, Georgia, North Carolina, Texas and Washington accounted for 53% of the country’s population growth between 2010 and 2020; all six states are prone to severe weather-related events.

“The U.S. population overall grew 7.4% between 2010-2020 but rose 10.2% in the South and 9.2% in the West during the period,” said David Blades, associate director, Industry Research and Analytics, AM Best. “Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms or even wildfires.”

The report states that on a direct basis, insurers writing homeowner’s coverage in the New England region recorded an average combined ratio of 79.3 for the 10-year period ending with 2023, compared with combined ratios above breakeven in the Pacific, Southwestern and Rocky Mountain regions. The South Atlantic region, which includes Florida, and the Southern region, which includes the Gulf Coast states, posted combined ratios over 92 during this timeframe.

“A growing population means an even larger rise in real property development and thus in insured values,” said Christopher Graham, senior industry analyst, AM Best. “Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”

The direct combined ratio in 17 states in 2023 surpassed the breakeven threshold of 100. Since 2017, this number has been in double digits every year except 2019 and 2021. Before 2017, the count had consistently been in the single digits. According to the report, this increase is more evidence of the impact that climate risks and population migration has had on the homeowners segment’s results.

Higher loss costs have been further complicated by restrictive regulatory environments in several large, catastrophe-prone states. Insurers, in general, now face an increasingly more common strategic choice of whether to de-emphasize writing in or exiting certain markets over rate adequacy concerns. Capacity tightening in the reinsurance market, stemming from the homeowners segment’s unfavorable underwriting results, also continues to hamper primary carriers. Consequently, AM Best believes loss ratios will remain pressured for these carriers, and that a return to underwriting profitability for the segment over the near term is unlikely.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=344852.

A video discussion about this report also is available at http://www.ambest.com/v.asp?v=ambhomeowners724&AltSrc=182 .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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