After two decades of measuring and reporting on the health of the homeowners line, it has never hit our 10% ROE benchmark hurdle (based on a prospective actuarial basis). The homeowners line continues to face challenging headwinds that require unique strategies to attain a reasonable ROE. In our latest Homeowners Return On Equity Outlook we review some of the key headwinds and tailwinds that insurers will need to account for in the upcoming year.
1 The prospective ROE for the national carriers fell to 5.4 percent from last year’s reported 5.7 percent, driven by macroeconomic forces and increased reinsurance costs, but offset by material improvements in rate action.
2 Industry premiums grew to $119 billion in 2021 with a projected $123 billion for 2022 given prospective rate activity; further growth in the underlying exposure could push 2022 premiums to $130 billion.
3 Positive rate momentum hit 6 percent for all U.S. carriers, which is up from last year’s reported 5 percent, indicating a continued strong push to take rate.
4 In the short term inflation is creating pressure on both profitability and capital as the market value of insurers' invested assets continues to decrease as central banks increase interest rates, while climate change, population shifts and regulatory trends will continue to strain the homeowners line over the longer term.