Homeowners insurance falls short

October 7, 2002

Study says despite rate and underwriting actions, this market still not earning its cost of capital

Inman News Features

The homeowners insurance industry, despite recent rate and underwriting actions, is not returning its cost of capital, according to a study released by Aon Re Worldwide.

The study's purpose was to quantify the economic status of the market given the considerable rate increases and other underwriting changes that have occurred recently, according to Aon.

The personal lines insurance industry's cost of capital generally ranges from 11 percent to 13 percent, but the homeowners line after considering rate and underwriting actions filed through May/June returned only 4.8 percent on capital, according to the study.

The study showed that homeowners' insurers have made substantial progress from the lowest point in the current homeowners insurance crisis, but concluded that further homeowner rate increases or other underwriting actions may need to be taken by insurers to fully recover the cost of capital.

The study included a review of the rate filings of the top five homeowner's insurers in each state for the states that represent 80 percent of the U.S. population. Aon plans semi-annual updates of the study until this market stabilizes.

Aon Corp. (NYSE: AOC) is a holding company that is comprised of a family of insurance brokerage, consulting and insurance underwriting subsidiaries. Aon does not write homeowners insurance.

Copyright: Inman News Service

Contact ALTA at 202-296-3671 or [email protected].