Aon Study Reports Homeowners ROE Still Improving but at Slower Rate

Aon (www.aon.com) announced the results of Aon Re Worldwide’s second follow-up study of return on capital in the U.S. Homeowners insurance marketplace.

The results of the study reportedly reveal further improvement in expected return, although the rate of improvement has slowed. The Homeowners insurance line continues to produce a prospective return on equity (ROE) that is substantially less than its cost of capital.

The findings of the update indicate that the Homeowners insurance industry is estimated to have increased its rates by 4.8 percent in the first half of 2003, vs. 7.8 percent in the prior six months. The average increase for new rate filings in the last six months was 11.1 percent, vs. 12.5 percent in the prior six months.

Based on filings through June/July 2003, the estimated prospective ROE for Homeowners lines is 6.3 percent compared to six months ago when the expected return was 5.9 percent. A year ago the expected return was 4.8 percent. This update for the first time includes rate filing information for the state of Texas, and takes into consideration rate reductions recently ordered in that state.

This study by Aon Re is the third in a series to provide an update on the economic status of the market given the history of inadequate or negative returns experienced by many Homeowners insurance providers, and the challenges faced by companies in order to continue to provide this coverage. The study provides a prospective look taking into consideration changes that have been filed, and is adaptable to assess prospective return on capital for individual companies. The study shows that the outlook for Homeowners insurers is improving, but further actions to improve underwriting results and management of capital are needed.

The analysis involved with this study includes the rate filings of the top five Homeowners insurers in each state for the states that represent 80 percent of the U.S. population. Aon plans to continue annual updates of the study hereafter.