The majority of U.S. homeowners insurance rate filings approved by regulators still do not adequately recognize the cost of capital needed to protect policyholders in the case of a large catastrophic event, according to an annual review by Aon Benfield Analytics.

The study finds that at current rates the 2010 estimate of expected return on equity (ROE) for insurers writing U.S. homeowners business is 6.9 percent, compared to 6.1 percent in 2009.

However, for insurers to attain an ROE of 14 percent homeowners rates countrywide would need to increase by 19.9 percent. A number of states, such as those prone to hurricanes, would require far higher rate increases.

For example, Florida would require an average rate increase in the homeowners line of business of 79.4 percent for insurers to achieve an ROE of 14 percent, according to Aon Benfield’s analysis.

A press release cites Steve Mildenhall, CEO of Aon Benfield Analytics:

In many cases, we find that approved rates in the U.S. regulatory system do not recognize the need to hold capital to fund for the possibility of catastrophic loss. Rates that are solely based on average annual losses do not provide the necessary incentive for insurers to put such capital at risk.†

Aon Benfield’s Annual Homeowners ROE Outlook is based on more than 100 insurer rate filings from the 25 largest U.S. states.

Check out I.I.I. facts and states on homeowners insurance.