Homeowners’ insurance continues to show strong overall growth,says Aon Benfield in its latest annual "HomeownersROE Outlook report," even though return on equity for insurerscontinues to decrease.

The report, released today by the reinsurance intermediaryand capital advisor of London-based Aon plc, found that U.S.homeowners' premiums increased from $74 billion in 2011 to $89billion in 2015.

The report also projects that homeowners' premiums will rise to$91 billion for 2016, based on prospective rate activity.

Homeowners’ insurers were able to obtain an average rateincrease of 2 percent during the 18 months to August 2016,according to the study, but they faced rate decreases in Florida,Arizona, Indiana, Ohio, Alabama and Alaska.

The prospective after-tax return on equity for U.S. homeowners'business was shown to be 6.7 percent on a nationwide average, and10.9 percent, excluding the state of Florida. By comparison, thenationwide average return on equity for 2015 was 8.6 percent, and12.6 percent, excluding Florida. For 2016, Aon Benfield expectsreturn on equity to exceed 10 percent in 34 U.S.states — which would make it possible for carriers tocover their cost of capital — compared to 36 states in2015.

Another “bright spot,” the report says, is the continuedcontraction of reinsurance pricing. The line is capital intensiveto write because of natural catastrophe exposures, howeverreinsurance capital — both traditional and nontraditional— is available at what the report calls “aggressive” pricing,providing carriers with flexibility in managing growth.

Increased competition and fewer home buyers

The overall picture for insurers is complicated, primarilybecause there are few meaningful alternatives to help improveoverall underwriting profitability.

The negative effects of lower investment yields, higher expensesand an increase in the catastrophe loss ratio resulting fromupdates to vendor catastrophe models are causing insurers to placea greater emphasis on underwriting performance and the developmentof effective strategies in pricing, claims management, marketingand risk selection, the report says.

The report also notes that the level of sophistication inpricing, claims management, marketing and risk selection forhomeowners’ insuranceis increasing rapidly. In addition, the autoinsurance specialists who are making inroads into the traditionalhomeowners' insurance market are using their highly developed dataanalytics expertise to evaluate and price risk.

As a result, competition is increasing for profitablehomeowners’ business while the number of home buyers is decreasing.

Greg Heerde, head of Americas analytics for Aon Benfield, said,“Our study reveals that at prospective 2017 rates, homeowners’insurance provides accretive returns in the majority of states, andopportunities exist for insurers to pursue profitable growth in theline.”

Parr Schoolman, head of Aon Benfield’s risk and capital strategyteam, added, “We are continuing to develop tools and services tohelp provide clients insight, at a granular level, into whichhomeowners’ risks are most likely to be profitable.”