“Catastrophes and an increase in non-weather water losses drove losses in 2017.
Not surprisingly, homeowners insurers are well-capitalized. They were able to absorb these losses. They were helped by a number of factors.
There's been favorable reinsurance pricing, terms, and conditions. That's really driven by an abundance of capacity right now in the reinsurance market. Traditional reinsurers are very well-capitalized.
There's also been inflows of alternative capital that have maintained that favorable pricing for homeowners insurers. There's also been improvements in underwriting analytics that have really helped homeowners insurers with their risk selection in recent years.
These factors are what led to the strong underwriting results prior to this year for the previous four years, which was one of the best stretches we've seen over the past quarter century.
They've invested in new systems. That's really driven down their expenses. We've seen a drop in the expense ratio over the past five years.
Also, although independent agents are still the main distribution channel, commission and brokerage expenses have been declining in terms of the ratio as insurers have aligned agent compensation with performance metrics.
These factors are what drive our favorable view of long-term operating performance for homeowners insurers.
That along with strong risk-adjusted capitalization and various risk management initiatives are what drives A.M. Best's stable outlook for homeowners insurers.”