Homeowners Insurers Still Losing Money
NU Online News Service, March 19, 2:34 p.m. EST? A brokerage firm's study of the homeowners insurance market has found, despite substantial premium rate hikes and stricter underwriting, insurers' results still fall short of the cost of capital.
The report by Chicago-based Aon Corp. subsidiary Aon Re Worldwide said the homeowners insurance industry is estimated to have increased its rates by 8 percent since its initial May-June 2002 study. The average hike for new rate filings in the last six months was 12.5 percent, the study said.
"The returns still need improvement to fully recover the cost of capital and assure needed underwriting capacity for this essential line of insurance," said Bryon Ehrhart, president of Aon Re Services in a statement. "Insurers are still not making enough money on most homeowners policies."
Based on filings through December-January 2003, Mr. Ehrhart said that the estimated prospective return on equity for homeowners is 6 percent compared to six months ago when the expected return was 5 percent.
The cost of capital for homeowners' insurers is nearly 14 percent, double the current return, he added.
Aon Re said it is monitoring this market as it recovers from inadequate and negative returns experienced by many homeowners insurers as a result of catastrophic events over the past decade, including Hurricane Andrew, the Northridge earthquake, several major tornado hail events and the emergence of mold claims.
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