The U.S. homeowner’s insurance market experiencing its worst underwriting results since at least 2000, according to AM Best report.
Analysts notes that a factor in the insured loss increase is population migration into areas where weather-related events are occurring more frequently.
The homeowner’s insurance segment faced a $15.2 bn underwriting loss in 2023, more than double the previous year’s losses. This loss was the worst this century, with 2011 being the next highest at $14.8 bn.
Urbanization and rising populations have exacerbated problems in regions prone to natural disasters.
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. These states are all vulnerable to severe weather events.
The U.S. population grew 7.4% from 2010 to 2020, with increases of 10.2% in the South and 9.2% in the West. These trends show a movement towards areas more susceptible to hurricanes, severe storms, and wildfires.
Insurers in New England writing homeowner’s coverage recorded an average combined ratio of 79.3 over the 10-year period ending in 2023
David Blades, associate director of Industry Research and Analytics at AM Best
In contrast, the Pacific, Southwestern, and Rocky Mountain regions had combined ratios above breakeven. The South Atlantic region, including Florida, and the Southern region, including the Gulf Coast states, posted combined ratios over 92.
Christopher Graham, senior industry analyst at AM Best, highlighted that population growth leads to more property development and higher insured values. Construction in disaster-prone areas increases flood and wildfire risks due to human activity and utility companies.
In 2023, 17 states had a direct combined ratio surpassing the breakeven threshold of 100.
Since 2017, this number has been in double digits every year except 2019 and 2021, reflecting the impact of climate risks and population migration on homeowners’ insurance results.
Higher loss costs are further complicated by restrictive regulations in several large, catastrophe-prone states. Insurers face strategic choices about writing in or exiting certain markets due to rate adequacy concerns.
Capacity tightening in the reinsurance market, driven by unfavorable underwriting results, also hampers primary carriers. AM Best believes loss ratios will remain high, and a return to underwriting profitability for the segment in the near term is unlikely.
