Financial Troubles Ahead for Homeowners Insurers, Warns AM Best

AM Best, a leading insurance company rating agency, revised its market outlook for the U.S. homeowners insurance segment to negative from stable in a new report, warning of financial troubles ahead for companies operating in this market.

Negative outlook powered by hurricanes, wildfire, and disaster losses

The negative outlook reflects “ongoing challenges that have dampened results in recent years,” according to the report. Key factors cited include:

Elevated catastrophe losses from hurricanes, wildfires and other disasters

Rising claims costs due to inflationary pressures

Supply chain disruptions making it difficult for insurers to maintain rate adequacy

Reinsurance market conditions remaining stringent, with price hikes and tighter terms

AM Best pointed to hurricane Idalia, which recently made landfall in Florida, as an example of mounting catastrophe loss volatility. While insured losses from Idalia are estimated at $3-5 billion – far below last year’s hurricane Ian – the storm adds to insurers’ weather-related claims burdens.

The challenge of achieving rate adequacy

The report states that “maintaining rate adequacy remains a significant challenge” for homeowners’ insurers, even as many push through rate increases to keep pace with inflation and reinsurance costs. Some major insurers, according to the report, have limited new policies in catastrophe-prone states like California and Florida due to the risks.

Capital positions solid ‘for now’

AM Best believes the capital position of most homeowner insurers remains solid for now. However, “the capital cushion of some companies, especially those in cat-exposed areas, has started to erode,” the report says.

AM Best sees a “difficult road ahead” for homeowner insurers

Insurers are responding by accelerating their adoption of technology and improving catastrophe risk management. But AM Best sees a difficult road ahead, concluding in its revised outlook that “a return to underwriting profitability over the near term appears highly unlikely.”

Complimentary copy of the report

Non-subscribers to AM Best’s research can register at this site for a complimentary copy of the Homeowner insurance segment report: Market Segment Report: Market Segment Outlook – US Homeowners. Once registered, a reader can also view a summary video explaining the report on AM Best TV.