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. companies pulled out.
Increasing losses from storms, hurricanes and wildfires in recent years have led some insurers, such as Allstate and State Farm, to scale back coverage in catastrophe-hit states like Florida and California.
This has left more room for foreign players such as Hiscox and Munich Re to enter the fray, industry sources say. Allstate did not respond to a request for comment, while State Farm declined to comment.
According to a report from Swiss Re this month, 2024 will be the fifth consecutive year in which global insured losses from natural disasters exceed $100 billion.
The recent major U.S. hurricanes Helene and Milton have increased concerns about property loss. However, the increasing frequency of extreme weather events has fueled the market for higher-priced surplus and redundant lines, or E&S.
Homeowner premiums have risen as much as 100% in recent years in areas like Los Angeles and southeast Florida, said Brian Bazan, vice president at broker Hub International.
It was not unusual for premiums to rise by 50% when policyholders switched from the admitted market, although increased competition was beginning to reduce these rate increases, he added.
Most properties in the United States are covered by so-called “authorized line insurance,” where premium rates must comply with state insurance regulators.
But policyholders, typically when denied by three approved line insurers, often purchase E&S policies to get the coverage they need.
This market has attracted players in the Lloyd’s of London specialist insurance market, which focuses on complex risks.
“Where the market (terms and conditions) hardens, it has to go outside the United States and Lloyd’s is often the beneficiary,” said Robert Greensted, managing director at S&P Global.
“The potential for profitability is obviously there, but there is additional risk.”
Lloyd’s had the largest share of the total 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 from ratings agency Fitch.
Tom King, flood risk underwriter at Lloyd’s insurer Hiscox, said the company’s E&S flood product could provide higher levels of reconstruction payments than conventional cover.
Munich Re was interested in expanding its long-standing E&S business, said Tom Wallace, chief underwriting officer for the binding authorities division at Munich Re Specialty-North America.
“The industry is seeing the first real disruption on the recognized front, especially in California,” he said.
According to the U.S. Insurance Information Institute, the states that have experienced the greatest growth in the E&S real estate sector since 2018 are most at risk: California, Florida and Louisiana.
According to reinsurance broker Guy Carpenter, U.S. homeowner premiums are likely to exceed $3 billion by 2024, up from $1.2 billion in 2018. An increase in premium volume reflects both increased demand and higher premium rates.
The overall combined ratio – a key measure of insurance company profitability where a level below 100% indicates profit – was 66% for the real estate E&S business last year, up sharply from 93% in 2022, Fitch said -report.
American insurers are also present in this market – sometimes the same insurers that withdrew from the authorized lines.
“Lloyd’s markets have always been there, but the high-net-worth US markets are now building their own E&S businesses,” Hub International’s Bazan said.
“They are seeing more demand as they withdraw from admissions and supplement it with E&S. They can do what Lloyd’s has always done, which is come up with unique solutions.”
Nationwide and AIG are among the major U.S. insurers that offer both E&S and permitted property coverage.
Nationwide did not respond to a request for comment, while AIG declined to comment.
(Additional reporting by Pritam Biswas; Editing by Kirsten Donovan)
