U.S. Home Insurance Market Shifts Towards International Insurers

By Carolyn Cohn and Noor Zainab Hussain
LONDON (Reuters) – International and domestic insurers are venturing into the U.S. market for high-risk homes, imposing steep premiums and reaping substantial profits following the exit of some U.S. firms.

Recent increases in losses from storms, hurricanes, and wildfires have prompted insurers like Allstate and State Farm to reduce coverage in disaster-stricken states such as Florida and California.

This change has paved the way for international players like Hiscox and Munich Re to enter the market. Allstate did not respond for comment, while State Farm declined to address the issue.

A report from Swiss Re indicates that for 2024, it will be the fifth consecutive year where global insured losses from natural disasters surpass $100 billion.

Recent significant hurricanes, Helene and Milton, have heightened concerns over property losses. The growing frequency of severe weather has fueled demand for excess and surplus lines (E&S).

Homeowners’ premiums in areas like Los Angeles and Southeast Florida have increased by up to 100% over the past couple of years, according to Brian Bazan, a vice president at Hub International. It's common for premiums to rise by 50% when policyholders switch from admitted market plans, although increased competition is starting to moderate these hikes.

In the U.S., most properties fall under admitted line insurance, where premium rates must meet state regulation. However, policyholders often turn to E&S policies after being declined by three admitted insurers to secure necessary coverage.

This sector has attracted interest from the specialized Lloyd's of London market, focusing on complex risks. Robert Greensted of S&P Global noted that where market conditions tighten, companies look beyond U.S. boundaries, with Lloyd's benefitting significantly.

The profitability potential in this market is evident, but it carries additional risks. Lloyd's dominated the E&S market in 2023, with recent market growth driven by premiums in catastrophe-prone states, according to Fitch ratings agency.

Tom King, a flood line underwriter at Hiscox, stated that their E&S flood products can offer greater rebuilding payments compared to traditional coverage.

Munich Re aims to expand its established E&S business, with Tom Wallace, its chief underwriting officer, indicating a notable dislocation in admitted markets, especially in California.

States showing the most growth in E&S property business since 2018 include California, Florida, and Louisiana, as per the U.S. Insurance Information Institute.

U.S. E&S homeowners' premiums are expected to surpass $3 billion in 2024, a rise from $1.2 billion in 2018, reflecting increased demand and elevated premium rates.

The overall combined ratio, a key profitability measure where less than 100% indicates profit, stood at 66% for property E&S business last year, significantly improving from 93% in 2022, according to Fitch.

U.S. insurers are also part of this market, including some that had previously exited admitted lines. Bazan from Hub International noted that while Lloyd's markets have always been present, U.S. high-net-worth markets are now developing their own E&S operations.

As they exit admitted markets, these insurers are filling the gap with E&S, creating customized solutions akin to those offered by Lloyd's. Nationwide and AIG are among the major U.S. insurers providing both E&S and admitted property coverage, though both declined to comment.