Published by Global Banking and Finance Review
Posted on December 17, 2024
By Carolyn Cohn and Noor Zainab Hussain
LONDON (Reuters) -International and domestic insurers are pushing into the U.S. market for hard-to-protect homes, charging high premiums and enjoying strong profits after some U.S. firms pulled out.
Rising losses from storms, hurricanes and wildfires in recent years have caused some insurers, such as Allstate and State Farm, to cut back cover in catastrophe-hit states like Florida and California.
This has left greater room for non-domestic players like Hiscox and Munich Re to enter the fray, industry sources say.
"We continue to provide home insurance to most existing customers in these states but are not currently offering home insurance to new customers," Allstate said in an emailed statement to Reuters.
The company is offering auto insurance to both new and existing customers in both states, it added.
State Farm declined to comment.
According to a report this month from Swiss Re, 2024 will be the fifth consecutive year that global insured losses from natural catastrophes exceed $100 billion.
Recent large U.S. hurricanes Helene and Milton have added to concern about property losses. However, the increasing regularity of extreme weather events has stoked the market for more expensive excess and surplus lines, or E&S.
Homeowners' premiums have risen by as much as 100% in the past couple of years in areas such as Los Angeles and the southeast of Florida, said Brian Bazan, a vice president at broker Hub International.
It was not unusual for premiums to rise 50% when policyholders transferred from the admitted market, though increased competition was starting to bring those rate increases down, he added.
Most properties in the U.S. are covered via so-called admitted line insurance, where premium rates have to satisfy the state insurance regulator.
But policyholders, typically when they have been refused by three admitted line insurers, often buy E&S policies to gain the cover they need.
This market has attracted players in the specialist Lloyd's of London insurance market, which focuses on complex risks.
"Where the market (terms and conditions) hardens, it has to go outside of the States and Lloyd's is often the beneficiary," said Robert Greensted, a director at S&P Global.
"The potential for profitability is obviously there, but there is additional risk."
Lloyd's had the biggest share of the overall E&S market in 2023. Recent growth in the E&S market has been driven by property insurance premiums from catastrophe-prone states, according to a report by ratings agency Fitch.
Tom King, flood line underwriter at Lloyd's insurer Hiscox, said the firm's E&S flood product could provide higher levels of rebuilding payments than conventional cover.
Munich Re was interested in growing its long-standing E&S business, said Tom Wallace, chief underwriting officer for the binding authorities business at Munich Re Specialty-North America.
"The industry is seeing the first real dislocation on the admitted front, particularly in California," he said.
States which have seen the biggest growth in E&S property business since 2018 are those facing the most risk — California, Florida and Louisiana, according to the U.S. Insurance Information Institute.
U.S. E&S homeowner premiums are likely to exceed $3 billion in 2024, up from $1.2 billion in 2018, according to reinsurance broker Guy Carpenter. A rise in premium volume reflects both increased demand and higher premium rates.
The overall combined ratio — a key measure of underwriting profitability in which a level below 100% indicates a profit — was 66% for property E&S business last year, sharply higher than 93% in 2022, the Fitch report said.
U.S. insurers are also present in this market — sometimes the same ones that pulled out of admitted lines.
"The Lloyd's markets have always been here, but the U.S. high net worth markets are now building out their own E&S operations," said Hub International's Bazan.
"They are seeing more demand as they pull out of admitted and backfill it with E&S. They can do what Lloyd's has always done, which is crafting unique solutions."
Nationwide and AIG are among major U.S. insurers to offer E&S as well as admitted property cover.
Nationwide did not respond to a request for comment, while AIG declined to comment.
(Additional reporting by Pritam Biswas; Editing by Kirsten Donovan and Alan Barona)
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