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FedNat agrees terms of cat reinsurance renewal, cites hardening market

2nd June 2020 - Author: Luke Gallin

FedNat Holding Company (FedNat) has announced the terms of the renewal of its 2020-2021 catastrophe reinsurance program, securing $1.3 billion of single-event reinsurance coverage and aggregate coverage of up to $1.9 billion.

FedNat HoldingThe aggregate reinsurance limit of $1.9 billion represents a slight increase on the previous year, while the single-event cover, which is in excess of up to a $31 million retention for catastrophic losses, including hurricanes, is also higher.

The program covers FedNat and its wholly owned subsidiaries, FedNat Insurance Company, Maison Insurance Company, and Monarch National Insurance Company.

FedNat’s 2020-2021 catastrophe excess of loss reinsurance program sees the firm retain 100% of the first $25 million retention plus up to an additional $6 million in retention by retaining a roughly 8.6% co-participation of the next $70 million of limit after the first $25 million.

The insurer explains that the 2020-2021 program includes up to roughly $1.3 billion in aggregate private reinsurance for coverage in all states in which it operates, of which up to $650 million is limited to any one event, plus a further $650 million of reinsurance provided by the Florida Hurricane Catastrophe Fund (FHCF).

Combined, the private and FHCF reinsurance arrangements will afford the carriers up to $1.9 billion of aggregate reinsurance protection within Florida and $1.3 billion in states outside of Florida, with a maximum single event coverage totalling up to roughly $1.3 billion within Florida and approximately $650 million outside Florida, exclusive of retentions.

FedNat secured its reinsurance renewal for a total estimated cost of $261.6 million, which includes around $217.3 million of private reinsurance and approximately $44.3 million payable to the FHCF.

The program is larger than the previous year, and combined with the fact reinsurance rates are trending higher, it’s not surprising to see the cost of FedNat’s program increase year-on-year. Speaking during the firm’s Q1 earnings call, the company’s CEO Mike Braun said that reinsurance movements are anticipated to be “extremely manageable” for the insurer.

In its securities filing, FedNat highlights the continued hardening of the reinsurance market, which resulted in more restrictive terms by some of its reinsurers.

According to FedNat, the changes includes “some portion of the program having a single aggregate retention for our carriers taken as a whole, versus each carrier’s own individual retention, plus some portions of the program not “cascading”, which could create less broad coverage on events, if any, beyond two large events.”

In addition, FedNat says that it has received formal approval and will be instituting an upcoming statewide homeowners rate increase in Florida of 7.4%, effective June 15th, 2020, on both new and renewal business and, has also received formal approval for an upcoming statewide dwelling fire rate increase of 14.9% in Florida to be effective July 15th, 2020 on both new and renewal business.

“Furthermore, FNIC currently intends to make a filing on its homeowners book of business with the Florida OIR, our largest book of business in our largest state, for a rate increase of approximately 5.6% of additional rate to pass through this year’s increased reinsurance expense,” explains FedNat. “The Company also currently intends to make additional rate filings on all lines of business in all states as appropriate to pass along their portion of the shared reinsurance Program and its increased cost.”

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