Natural Disasters And Inflation Result In Losses For Insurers In 2022

Mortgage News May 17, 2023

It is highly probable that there will be an increase in homeowners’ insurance rates in the future. This is because Fitch Ratings has discovered that U.S. homeowners’ insurance is on track to incur a statutory underwriting loss in 2022 due to insurers’ ongoing struggle with above-average catastrophe losses and uncertainty resulting from persistently high inflation and macroeconomic volatility.

Fitch predicts that in most areas, significant rate hikes will lead to robust premium growth in 2023, resulting in improved segment performance. However, uncertainties regarding catastrophes and the severity of claims may hinder the immediate achievement of underwriting profit. Fitch expects that the property/casualty industry will report a statutory underwriting loss for homeowners in the current year, with a projected segment combined ratio of 105%. The segment combined ratio has surpassed 100% in five of the past six years.

The stability of performance remains dependent on catastrophic events: major insurance companies can gain advantages from their ability to handle catastrophic exposures and risk aggregations, as well as their ability to leverage technology investments for increased efficiency.

Fitch has stated that Aon’s latest catastrophe report indicates that insured catastrophe losses in the United States have surpassed historical averages, amounting to $99 billion in 2022. This marks the third consecutive year in which losses have exceeded $90 billion. Fitch noted that insured losses resulting from Hurricane Ian may account for around half of all 2022 catastrophe losses. Other U.S. events that resulted in insured losses exceeding $1 billion in 2022 include multiple inland storms, wildfires, and drought in western states.

Fitch stated that due to the more delicate economic environment, insurers specializing in homeowners’ policies will have to refocus their attention on several areas, including insuring properties at their accurate value under distinct housing and construction market conditions, incorporating inflation and labor market constraints in pricing and claims estimation, and utilizing information technology to enhance operating efficiency and improve the customer experience during application and claims processes.

Fitch also noted that ongoing underwriting changes and premium rate increases have placed the homeowners’ insurance market in a position for continuous revenue growth in 2023, and the possibility of approaching a break-even underwriting result, assuming there are no additional abnormally high catastrophe losses. Segment net written premiums for 2022 amounted to $114 billion, reflecting a 10% increase from the previous year. High single-digit growth in premiums is expected to persist through 2023.

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