Aon Benfield, the world’s reinsurance intermediary and capital advisor, today releases its 2009 analysis of the US Homeowners insurance market, which reveals that the global financial crisis and domestic regulatory practices are creating a challenging environment for insurers in the sector.
The report highlights that while insurers’ cost of capital has increased significantly over the past year – mainly as a result of the financial markets turmoil – their prospective return on equity (ROE) in Homeowners lines has decreased from 6.5 percent to 6.1 percent.
This is despite the fact that Homeowners insurers have paid out billions of dollars in claims in recent years as a result of catastrophic events.
Competition from state funds and inhibitive local regulation mean that the private insurance industry is facing continued and increasing difficulty in meeting its clients’ needs for coverage while providing adequate returns to investors.
The findings of the Aon Benfield report are based on an annual review of rate filings and supporting actuarial information.
Bryon Ehrhart, Chief Executive Officer of Aon Benfield Analytics, said: “To recover their increasing costs of capital, US Homeowners insurers continue to struggle through the labyrinth of state rate-making laws, process delays, regulations, consumer price protections and market disruptions from lightly financed and competitive state funds. They have lost ground in the past 12 months even though they have paid out billions of dollars in catastrophe claims to policyholders in recent years.”
Aon Benfield is advising US Homeowners insurers on how to optimize their use of capital, so they can provide their clients with continued protection against catastrophe risk.
In addition to offering the most appropriate risk transfer solutions, the company analyzes insurers’ direct and retained risk in order to provide guidance on pricing and underwriting.
Steve Hofmann, Executive Managing Director of Aon Benfield, said: “A complementary service to our risk transfer capabilities is to provide clients with guidance regarding all costs of catastrophe risk – including expected losses, reinsurance, cost of capital, and assessment risk due to state-run residual markets. This information is integrated by our clients into rate filings, and also into underwriting and pricing at all levels of detail including state, territory, and individual risks.”
