American Family Insurance Group saw the loss ratio for its homeowners business line soar to 142.0% for the second quarter after a series of storms in the Midwest, which were exacerbated by continuing inflationary pressures.
"The isolated Q2 loss ratio for the American Family Insurance group has been affected by extraordinary storm losses, especially in May and June across the Midwest, where American Family has significant market share," the company told S&P Global Market Intelligence in an email.
American Family is the second-largest writer of homeowners insurance in the region behind State Farm Mutual Automobile Insurance Co. The insurer had $2.40 billion in direct premiums written in 2021, which is about 9.4% of the market.
"The second quarter — given the geographic distribution of our exposure — is expected to be our highest loss ratio for homeowners insurance, and weather losses experienced in Minnesota and Wisconsin resulted in significantly higher losses in the quarter. Inflationary effects exacerbated the magnitude of weather and non-weather related loss activity," the company said.
The scale of the losses in the second quarter contrasts with the loss ratio of 65.2% American Family posted a year ago.
Loss ratios tick up
Industrywide direct loss ratio rose to 79.1%, a significant year-over-year increase from the 65.8% and 53.9% seen in the first quarter of 2022.
Industry leader State Farm recorded the second-lowest loss ratio among the 10 largest homeowners insurers at 66.2%, trailing only Chubb Ltd.'s best-in-group loss ratio of 52.8%.
The Allstate Corp. recorded a loss ratio of 72.6% in the period, the third lowest of the top 10 homeowner insurance providers in the U.S. Liberty Mutual Group Inc., which writes the third-most U.S. homeowners premiums, had the third-worst loss ratio of the group at 89.4%.
During Allstate's second-quarter earnings call, then-President Glenn Shapiro said homeowners insurance was not immune to inflation and increases in labor and material costs but said the company's product "has sophisticated pricing features that respond to changes in replacement values."
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A double-digit premium increase
In terms of premiums, the business line recorded $35.12 billion in direct premiums written during the second quarter, nearly $4 billion more than during the same period last year. The segment generated $27.50 billion in direct premiums in the first quarter of 2022.
Of the top 10 largest homeowners insurers in the U.S., six posted double-digit increases year over year in the second quarter. Liberty Mutual had the largest increase at 18.4%, followed by The Travelers Cos. Inc. at 15.9% and Allstate at 14.5%.
James MacPhee, an executive vice president at Liberty Mutual, said in an August earnings call that the company raised homeowners rates partially in response to the inflationary environment and rising construction costs.
"You have to expect at some point, loss trends will revert sort of to their more historic levels, perhaps with a slight uptick," MacPhee said. "But until we see that, we're full steam ahead on taking rates so that we can get ahead of these loss trends."
