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Analysts highlight uncertainty around FedNat’s Maison deal & off-cycle renewal

19th June 2019 - Author: Luke Gallin

Analysts at JMP remain confident in the prospects of FedNat Holding Company, but have said that some uncertainty exists around the company’s “slightly off-cycle” reinsurance renewal and the potential delay of its acquisition of Maison Insurance, the homeowners insurance operations of 1347 Property Insurance Holdings.

FedNat HoldingJMP met with FedNat management recently, concluding that while it does not see the potential for a meaningful downturn in the firm’s stock, it’s likely that the market needs to get more clarity on certain things before stocks can trend upwards in a meaningful way.

Following the announcement of the acquisition in February of this year, FedNat’s stock is down significantly, and currently, it remains unclear if the deal will close by June 30th as planned, with regulatory approval still needed from the Louisiana Department of Insurance.

“With FedNat having optionality around the closing of the Maison deal, being able to delay it to December if it is not approved by regulators by June 30, we think that the market having clarity on the timing is necessary in assessing potential share performance over the next six months,” explains JMP.

The Maison deal is part of FedNat’s plans to expand outside of Florida, and the deal is set to increase its top line by 17%, with much of the focus on Louisiana, Texas, and to a lesser extent, Florida.

As well as uncertainty around the closing of the Maison acquisition, FedNat is still to complete its reinsurance renewal, and JMP notes that its off-cycle July 1st renewal should see modestly increased pricing.

As opposed to its peers, which renewed on June 1st, FedNat’s reinsurance renewal remains in the market. JMP says that reinsurance rates increased by a manageable amount for most companies at the June 1st renewals, and while FedNat’s price change “should be in the general vicinity of its peers”, there remains uncertainty around how an off-cycle renewal will influence the outcome of its reinsurance programme.

Furthermore, analysts highlight that it’s unclear what impact the potential delayed Maison closing will have on projected reinsurance expense savings from the deal. FedNat management reportedly said that it expects to save around $5 million a year on the combined reinsurance purchase.

“Our understanding is that FedNat has released its firm order terms and is currently working to secure capacity to complete the program,” says JMP.

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