Media Releases

U.S. Homeowners rates fail to recognize full cost of capital
Approved rate filings do not reflect true risk profile according to Aon Benfield study

Chicago, 10/25/2010 – Aon Benfield, the world’s premier reinsurance intermediary and capital advisor, today announces the launch of its annual study of prospective return on equity (ROE) for U.S. Homeowners insurance lines, based on more than 100 insurer rate filings from the 25 largest U.S. states. 

Compiled by the firm’s Analytics division, the 2010 estimate of expected return on capital for insurers writing U.S. Homeowners business is 6.9 percent, compared to 6.1 percent in 2009.  However, the study notes that the majority of rate filings approved by the U.S. regulator still do not adequately recognize the cost of capital necessary to protect policyholders in the case of a large catastrophic event. 

Steve Mildenhall, CEO of Aon Benfield Analytics, said: “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.” 

The U. S. regulatory system lags behind many other developed economies in recognizing catastrophe related capital requirements.  In a separate recent global report on insurance company capital standards entitled, Evolving Criteria – Keeping Pace With Rating Agency, ERM and Regulatory Developments, Aon Benfield noted that the U. S. Risk Based Capital standard is the only regulatory solvency model within a significant global insurance market, apart from China, that does not include a specific catastrophe risk charge.

The Homeowners study notes that insurers are increasingly including the cost of catastrophe related capital requirements in actuarial rate indications.  Rating agencies commonly include catastrophe risk in their capital adequacy standards, which encourages firms to recognize this cost in their ratemaking. 

Capital requirements for the study’s ROE calculations are based on Aon Benfield Analytics’ estimate of the capital necessary to earn an A.M. Best “A” rating inclusive of catastrophe risk.  The study also recognizes the benefit to capital requirements of catastrophe reinsurance protection such as that placed by Aon Benfield for its clients.

Aon Benfield is the world’s leading provider of access to capital for insurance companies.  Its scope of services includes expert advice regarding use of capital through its Aon Benfield Analytics division.  Such analytic solutions include evaluation of capital requirements, review of line of business and geographic underwriting strategies, cost allocation and risk underwriting assistance, and other related services.


About Aon Benfield
As a recognized leader in treaty, facultative and capital markets, Aon Benfield is redefining the role of the reinsurance intermediary and capital advisor. Through our notable expertise and industry-leading proprietary tools and products, we help our clients to redefine success. Aon Benfield offers unbiased capital advice and customized access to reinsurance and capital markets. As a trusted advocate, we provide local reach to the world’s markets, an investment in innovative analytics, including catastrophe management, actuarial, and rating agency advisory, and the right professionals to advise clients in making the optimal capital choice for their business. With an international network of more than 80 offices in 50 countries, our worldwide client base is able to access a broad portfolio of integrated capital solutions and services. Learn more at

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David Bogg
Aon Benfield
t: +44 (0)20 7522 4016

Andrew Wragg
Aon Benfield
t: +44 (0)20 7522 8183

Alexandra Lewis
Aon Benfield
t: +44 (0)20 7882 0541  

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