AM Best: Migration to Cat-Prone States Fueled Record HO Underwriting Losses in 2023

The U.S. homeowners insurance segment suffered a $15.2 billion underwriting loss in 2023, more than double the loss seen in the previous year and the line’s worst underwriting results since at least 2000, according to a new AM Best report.

The next highest was $14.8 billion in losses in 2011.

The Best’s Market Segment Report, “Migration to CAT-Prone Areas Adds to US Homeowners Insurers’ Performance Volatility,” states the 2023 loss was also the worst this century.

To explain the rise in underwriting losses, AM Best highlighted population migration into areas where weather-related events are increasingly more frequent.

According to the U.S. census, six states — California, Florida, Georgia, North Carolina, Texas and Washington — accounted for 53% of the country’s population growth between 2010 and 2020; all six states are prone to severe weather-related events.

“The U.S. population overall grew 7.4% between 2010-2020 but rose 10.2% in the South and 9.2% in the West during the period,” said David Blades, associate director, Industry Research and Analytics, AM Best. “Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms or even wildfires.”

On a direct basis, insurers writing homeowner’s coverage in the New England region recorded an average combined ratio of 79.3 for the 10-year period ending with 2023, the report found, compared with combined ratios above breakeven in the Pacific, Southwestern and Rocky Mountain regions.

The South Atlantic region, which includes Florida, and the Southern region, which includes the Gulf Coast states, posted combined ratios over 92 during this timeframe, AM Best analysts added.

“A growing population means an even larger rise in real property development and thus in insured values,” said Christopher Graham, senior industry analyst, AM Best. “Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”

In 2023, the direct combined ratio in 17 states surpassed the breakeven threshold of 100.

Since 2017, the combined ratio has been in double digits every year except 2019 and 2021, the report added.

Consistently in the single digits before 2017, analysts say the increase is evidence of the impact of climate risks and population migration has had on the homeowners segment’s results.

“Higher loss costs have been further complicated by restrictive regulatory environments in several large, catastrophe-prone states,” the authors of the report state.

Insurers must decide whether to de-emphasize writing in or exiting certain markets over rate adequacy concerns.

Hampering primary carriers is the tightening capacity of the reinsurance market , the result of the homeowners segment’s unfavorable underwriting results.

AM Best believes loss ratios will remain pressured for these carriers, and that a return to underwriting profitability for the segment over the near term is unlikely.