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Cat losses dent FedNat’s Q3 net income; Delta to trigger agg reinsurance

19th October 2020 - Author: Luke Gallin

FedNat Holding Company estimates that catastrophe weather losses incurred in the third-quarter of 2020 will reduce its net income for the period by approximately $29 million, primarily driven by the impacts of Hurricanes Laura and Sally.

FedNat HoldingThe $29 million total is after-tax and net of all recoveries, including reinsurance. Alongside losses from Laura and Sally in the period, FedNat notes that other Q3 events included Hurricanes Hanna and Isaias, although these two storms only resulted in minor losses for the firm.

Pre-tax, catastrophe weather losses in Q3 amounted to $44.9 million for FedNat, of which $25.7 million is attributable to Florida, $16.6 million Louisiana, and $2.6 million to other regions.

As well as the Q3 impact from catastrophe events, FedNat has also provided an update on the impact of Hurricane Delta, which hit many of the same areas as Laura did just six weeks prior.

FedNat expects that its initial aggregate gross losses from Delta will exceed its single-event aggregate reinsurance retention of $25 million. Overall, the company expects its total net impact from the storm to be reduced by between $10 million to $15 million, pre-tax, owing to additional underlying catastrophe reinsurance protection secured on FedNat Insurance Company’s (FNIC) non-Florida business and the 50% quota-share reinsurance treaty in place on the book written by SageSure.

RMS

It’s clear that without the reinsurance recoveries made by FedNat the firm’s third-quarter income would have taken a more significant hit from recent catastrophe events, while reinsurance is also expected to dampen the total impact from Hurricane Delta as well.

Alongside its catastrophe loss expectations, FedNat has also revealed that effective October 1st, 2020, FNIC has increased the cession percentage on its quote-share reinsurance programme for the 2020-2021 year. This increase from 10% to 20% is on an in-force, new and renewal basis, and relates to its Florida homeowners book of business.

Furthermore, explains the firm, it currently intends to explore additional quote-share reinsurance treaties in the coming months.

Finally, FedNat has said that it continues to push for rate increases on its homeowners business to ensure its rates better reflect the increased cost related to claims activity, and the heightened cost of reinsurance protection.

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