Accretive reinsurance pricing raises return outlook for insurers in U.S. homeowners business, according to Aon Benfield study

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Oct 27, 2014, 02:15 ET

SCOTTSDALE, Ariz., Oct. 27, 2014 /PRNewswire/ -- Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON), today announces the launch its 2014 Homeowners ROE Outlook report.

The report, compiled by the firm's Analytics division and updated annually, reviews industry aggregate state level statutory financial filing information along with rate filings and supporting actuarial information for the 20 top homeowners insurance groups by state.

It concludes that insurers' prospective after-tax return-on-equity (ROE) for homeowners insurance is 7.9 percent on a countrywide average (2013: 4.6 percent), and 11.8 percent excluding Florida (2013: 8.0 percent). A small reduction in expected yields on insurers' invested policyholder funds prevented the estimated ROE from breaching the 8.0 percent threshold.

Drivers of estimated ROE improvement over the previous period include continued positive activity in primary rates, a decline in the estimated catastrophe loss ratio resulting from updates to the vendor catastrophe models used in the study, and a reduction in the cost of reinsurance capital available to primary insurers.

The study reveals that over the past 18 months positive rate momentum was maintained, as insurers' approved rate changes in U.S. homeowners lines averaged an increase of above 7.0 percent, compared to the 7.7 percent seen in the prior period.

Greg Heerde, Head of Aon Benfield Analytics Americas, said: "In our latest study, we see trends emerging that support a positive profit outlook in the homeowners line of business, and we are working to ensure that this trend continues. Aon Benfield Analytics has developed tools to assist our insurer clients to generate a granular analysis of their exposures in rate filings, and account for the associated cost of reinsurance capital, enabling them to provide highly detailed cases for rate adjustments to state regulators."

Industry premium change from 2010 to 2013 showed strong growth for the Homeowners line – Midwest and Tornado Alley states achieving the largest premium increases with many exceeding 20 percent. Only one state, Hawaii, experienced an overall premium decrease over the three year interval.

Parr Schoolman, Aon Benfield Global Risk and Capital Strategy Team Leader, said: "Given the current market dynamics, we view the overall outlook for the U.S. homeowners line of business to be encouraging. Positive rate momentum was maintained in the period under review, and when viewed alongside positive factors such as a general reduction in the cost of reinsurance for primary insurers, the expected ROE for insurers in this line of business continues to improve. While rate activity is still required in some states, the number of states at or near rate adequacy is expanding."

To view the full 2014 Aon Benfield Homeowners ROE Outlook report, please follow the link below:

http://bit.ly/1z8Hngq

About Aon Benfield

Aon Benfield, a division of Aon plc (NYSE: AON), is the world's leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world's markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals' expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com.

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