The U.S. homeowners insurance industry saw direct premiums written rise in the third quarter, albeit at a slower pace compared with the prior-year period, as improved profitability led to smaller rate increases.
The industry's direct premiums written increased 2.22% in the third quarter, compared with 3.57% in the year-ago period. The 2.33% direct premiums written growth rate among the top 30 homeowners insurers exceeded that of the industry, but it was still considerably slower than the 3.71% growth rate seen in the prior-year quarter.
Eight of the top 10 homeowners insurers by market share saw their direct premiums written climb year over year in the third quarter, although the pace of premium growth at Liberty Mutual Group, United Services Automobile Association and Erie Insurance Group somewhat slackened. Of the top 10 homeowners insurers by market share, only Allstate Corp. registered negative premium growth for both the quarter and first nine months of the year.
While Allstate maintained its No. 2 position, profit improvement actions that the insurer took to improve returns in Allstate brand homeowners and Encompass brand homeowners have impacted growth.
Allstate brand homeowners and Encompass brand homeowners both posted a year-over-year decline in premiums written during the third quarter, according to a Form 10-Q. The decreases in premiums written were attributed to lower policies in force, retention and new issued applications, offset by rate changes that boosted average premium.
Pricing actions that The Hartford Financial Services Group Inc. took also affected its homeowners insurance business. The insurer posted lower policy count retention for its homeowners insurance business during the third quarter, partly due to renewal written pricing increases. The insurer's direct premiums written declined by 5.04% to $300.9 million in the third quarter from $316.9 million in the prior-year quarter.
The U.S. homeowners insurance industry's direct incurred loss ratio further deteriorated in the third quarter as catastrophes hit various parts of the U.S. The industry's direct incurred loss ratio increased to 51.09%, the highest in a third quarter since 2011, from 49.04% in the year-ago period. The U.S. experienced severe thunderstorms and flooding in July, August and September that were expected to result in insured losses exceeding $1 billion, according to reports from Aon Benfield's Impact Forecasting.
Catastrophes in the third quarter affected Progressive Corp., which had acquired a controlling stake in ARX Holding Corp., the parent of American Strategic Insurance Corp. Progressive saw its direct incurred loss ratio jump to 50.02% in the third quarter from 45.24% in the prior-year quarter, while its direct premiums written declined by 3.05% to $245.8 million in the third quarter from $253.6 million in the prior-year period.
Sandler O'Neill & Partners LP analyst Paul Newsome said in a Sept. 19 note that Progressive's results have been "increasingly volatile" as its exposure to catastrophes increases with the growth of its home insurance business. However, Progressive remained unfazed by the impact of catastrophe losses in its third-quarter results. Pat Callahan, president of personal lines at Progressive, reiterated the insurer's commitment to becoming the top writer of auto and home insurance through the agency channel with the help of American Strategic Insurance offerings, according to a transcript of an Oct. 6 investor relations meeting.
Aside from Farmers Insurance Group of Cos. and USAA swapping places in the third quarter, there were no other changes in the third-quarter rankings of the top 10 homeowners insurance companies by market share compared with the year-ago ranking. State Farm Mutual Automobile Insurance Co. remained at the top spot, although its direct premiums written growth was nearly flat year over year during the third quarter at $4.90 billion. The insurer's $1.89 billion net underwriting loss in the third quarter made up a large part of its $3.89 billion net underwriting loss for the first nine months of 2016.
Although Farmers Insurance Group slid to fifth place in the ranking of the top 10 homeowners insurance companies in the third quarter, Zurich Insurance Group Ltd. Group CEO Mario Greco expressed confidence in the group's performance. Greco is optimistic that the insurer will continue to grow in the future and contribute to the results of Zurich Insurance Group, which owns the attorney in fact for Farmers Insurance Exchange.
"Now I think you heard me saying that since Farmers is performing so well this year, I haven't spent that much time on them, and just gave me the luxury of not spending too much time in discussing Farmers," Greco said during Zurich's investor day, according to an S&P Capital IQ transcript. "However, Farmers can further grow and, I would suggest, has created over the last year a growth machine that will continue producing results ... in markets which are challenging and which hopefully will stabilize and develop in a better way."
SNL offers a variety of tools to analyze underwriting performance of insurance companies. Click here for a template to review quarterly underwriting information for insurance companies.
Quarterly underwriting information by line of business is available in Parts 1 and 2 of the NAIC quarterly statements filed by U.S. insurance subsidiaries. This information is also available in the U.S. Insurance Statutory Financials database in SNLxl.