Nationally, even though the commercial insurance market is viewed as going through one of its inevitable soft pricing cycles, the picture is entirely different when it comes to homeowners coverage, particularly for those along the catastrophe-exposed coasts--although that might be changing as competition for inland areas heightens.

In two reports from Aon Re, the homeowners line is viewed as volatile and unprofitable. One report--"Insurance Risk Study: United States"--notes that due to the Atlantic hurricane seasons of 2004 and 2005, homeowners was the "most volatile major insurance line in the 15-year period of 1992 to 2006."

However, soaring rates for coastal homeowners is having its impact on the bottom line, according to a second Aon Re report on the national rate of return-on-equity. Based on a review of the top-five insurers in individual states, the ROE for homeowners carriers rose to 7 percent this year, up from 5.4 percent in 2006.

The year-over-year improvement in ROE, the report said, was due to "marginally more adequate homeowners insurance rates than in 2006 and an expected lower cost of reinsurance."

The most significant difference was among states prone to hurricanes and those that are not. Hurricane-prone states had an ROE of 5.4 percent, versus 8.7 percent for non-hurricane-prone states.

According to Highline Data--a subsidiary of National Underwriter--nationally the top-five homeowner insurers are State Farm, Allstate, Zurich Insurance Group (via Farmers), Nationwide and Travelers.

In an e-mail response to questions about their reports, Kenneth Selzer, executive vice president at Aon Re Global, said the market is stabilizing in non-hurricane states but remains inadequate in hurricane-prone areas.

Rate increases began in the 2001-2002 period, he noted, citing changes in modeling in the past two years that has also prompted higher premiums.

Should another major catastrophe hit, he said, "it is likely new and innovative responses will be required should one or several public entities not perform as intended," referring to state plans such as Florida's Citizens Property Insurance Corp.

However, he added, should no catastrophes occur for the rest of 2007 and into 2008, the growth in the role of state plans would "slow somewhat," creating opportunities for private carrier growth.

Because rates are subject to state regulatory oversight, insurers do not talk in terms of a national average but about individual states.

On its Web site, State Farm executives, discussing the company's performance for 2006, would almost lead one to believe that homeowners is ready for softening--at least away from the vulnerable coasts.

"When the competition began pulling back from the coastlines, they did not do so with the intention of forfeiting market share," said State Farm Chief Financial Officer Michael Tipsord. "The battle for homeowners in non-catastrophe areas has intensified."

He added that "quality homeowners business isn't going to knock on our door. We have to fight for it."

State Farm Chief Administrative Officer Jim Rutrough said the company is able to match premium to risk, which allows it to offer a number of price points to customers. He said the company would take price decreases where it made sense, and did so in 30 jurisdictions.

During a conference call discussing Allstate's third-quarter results, Tom Wilson, chairman, president and chief executive officer--whose carrier ranks second in national homeowners market share--said that to deal with increased severity exposures, his company is controlling process costs and setting price increases to reflect the increased risk. This is something, he added, that other carriers are doing "in a much less competitive market."

George Ruebenson, president of Allstate Protection, said the company's severity exposure has increased because it is writing higher-end homes, but that the carrier will take "rate [cuts or hikes] where we think it is appropriate."

Zurich CFO Dieter Wemmer, in discussing third-quarter results, said its Farmers subsidiary obtained rate increases on homeowners above the 5 percent average it received on its auto line, but increases were state specific.

Mr. Selzer said competition plays a significant role in all states. He said even if the ROE is unattractive in a particular state, "efficient marketing, pricing or underwriting plans may bring success."

"We see evidence of this today in virtually all states," he observed.

Special Reports /

Homeowners Market Might See Softening Off The Coasts

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