If youÃ¢â‚¬â„¢re questioning the value of your homeowners insurance or how much it costs to insure your home, you might want to take a look at theÃ‚ 2011 Homeowners ROE Outlook report from Aon Benfield Analytics.
This updated annual report reveals that homeowners insurance consumers continue to benefit from rates that do not fully reflect the annual cost of insuring a home.
The study finds that insurersÃ¢â‚¬â„¢ prospective after-tax return on equity (ROE) for homeowners insurance is 4.8 percent on average, a decrease from 6.9 percent in 2010, mainly due to forecast subdued investment returns and higher estimates of non-coastal losses.
Further, Aon Benfield estimates that investment returns will average 3.8 percent during the current annual period, a decline from the 5.0 percent returns seen in prior years. Even excluding this change, insurersÃ¢â‚¬â„¢ prospective ROE would be 6.3 percent, down from 6.9 percent in 2010, and still well below the true cost of capital.
The report does show that homeowners insurers appear to have improved their recovery of the cost of reinsurance capital in recent years. However, they could still recover a great share of the annual cost of exposing capital to retained catastrophe losses, according to Aon BenfieldÃ¢â‚¬â„¢s analysis.
A press release cites Bryon Ehrhart, chairman of Aon Benfield Analytics:
The filings we reviewed show that the annual cost of exposing insurer capital to catastrophic risk is not being fully recovered. Homeowners insurance consumers therefore continue to benefit from rates that do not fully reflect the annual cost of insuring their homes.Ã¢â‚¬
The annual report analyzes prospective returns on equity for homeowners business based on the July 2011 filings of insurers operating in the 25 largest U.S. states.