US homeowners looking to boost profits as weather-related losses & inflation take toll, Moody’s

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US homeowners insurers are raising premiums and tightening policies to help offset weakening profitability from weather-related losses, as well as exposure to catastrophe-prone areas and inflation, according to a Moody’s report.

Moody'sFirstly, it is important to note that the the profitability of the US homeowners lines has been volatile over the past several years with insurers reporting combined ratios above 100% since 2020.

Throughout the past decade, the average combined ratio for the industry sat at 101.3%, which means that insurers paid out more in claims than they received in premiums.

Focusing attention on 2023, US property & casualty (P&C) insurers reported almost $58 billion of losses from severe convective storms, which was well above the 10-year average, as it surpassed the prior record in 2020.

In addition, looking back at 2022, Hurricane Ian caused an estimated $52.5 billion of insured losses, according to re/insurance broker Aon.

Moody’s also notes that claims are rising for homeowners insurers because of growing insured exposures in catastrophe-prone areas, rising construction costs, social inflation and higher reinsurance costs.

Therefore, as insurers are looking to improve profitability, they are raising rates and taking other underwriting actions, Moody’s adds.

Moreover, Moody’s notes that the rising costs of construction materials and labor as well as changes in claims settlement practices and litigation are driving up claims costs.

It is important to highlight, that since homeowners insurance policies are typically renewed annually and often subject to regulatory approvals for rate increases, there is a considerable lag between when claims costs rise and when insurers can adjust their pricing.

As well as this, weather-related losses have been more frequent and severe in recent years, however, concerns are not limited to just primary perils such as hurricanes, but also secondary or non-peak perils, such as severe convective storms, including hail, straight-line wind, and tornadoes.

Lastly, Moody’s states that throughout the last two years reinsurers have also raised rates significantly, and tightened terms and conditions. As reinsurers have reduced their catastrophe exposures and curtailed aggregate covers, primary insurers have retained more catastrophe risk since 2020.

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