Thursday, October 12, 2006 - Could Homeowners Insurance Be on the Rise; Study Says Yes

According to Aon Re’s “2006 Homeowners Return on Equity Outlook,” the projected return on equity for the homeowners insurance is 5.7 percent. A similar analysis in 2005 revealed a 9.3 percent return on equity in 2005. Many insurers seek a return of 14 percent or more.

"Homeowners insurers are in a challenging position. Rating agencies are taking an even-closer look at catastrophe risk as they assess insurers' capital adequacy, meteorologists and risk-modeling firms expect more and stronger hurricanes at least in the near term, and the increases in homeowners insurance rates that we've seen thus far aren't enough to provide insurers the opportunity to earn back their cost of capital," said Bryon Ehrhart, president and chief executive officer of Aon Re Services Inc. "Homeowners insurers must keep more capital on hand to meet industry standards than was necessary only a year ago. As a result, we at Aon Re are helping our clients to understand the new capital requirements and needed rate actions."

Aon Re's prospective return on equity is 3.5 percent for hurricane for affected states viewed as a group, 8.1 percent for the non-hurricane affected states. To reach a prospective return on equity of 14 percent, an estimated average rate increase of 43.3 percent would be required for the hurricane affected states and 11.1 percent for the non-hurricane-affected states.