Florida-based primary insurer FedNat Holding Company has reported that it bolstered its reserves in the fourth quarter of 2019 to reflect adverse prior year developments, as well continued claims costs stemming from assignment of benefits (AOB).
For Q4, FedNat expects to report $12.0 million (pre-tax) of adverse prior year reserve development, primarily from $8.0 million in non-core lines of business, including $5.5 million from commercial general liability and $2.5 million from automobile.
In addition, the company anticipates $4.0 million in adverse development in its core Hhmeowners line, mainly due to higher than expected loss tail trends in weather-related claims in 2018.
Reserves were strengthened by a further $5.0 million (pre-tax) in the homeowners line due to elevated water claims from AOB, which occurred prior to the introduction of new reforms of July 1, 2019.
FedNat’s gross catastrophe claims amount to $6.0 million in Q4, including $3.0 million from its Florida property business and $3.0 million from its non-Florida business.
However, the company expects to incur only $4.5 million of losses due to its 50% profit-sharing agreement with the managing general underwriter that writes FedNat Insurance Company’s non-Florida business.
Catastrophe claims consisted of Tropical Storms Olga and Nestor as well as other PCS events, which impacted Texas, Florida and other states during the fourth quarter.
“The Florida homeowners claims environment remains challenging in terms of litigation frequency and severity. As a result of these trends we have significantly strengthened our reserves at this time,” said Michael H. Braun, FedNat’s Chief Executive Officer.
“We are continuing to proactively take additional rate in Florida, and will remain vigilant in our underwriting appetite within Florida until we see the trends reverse or our rate actions catch up to the litigation trends,” he continued.
“In the near term our focus remains on expanding our presence in more profitable non-Florida markets to position our company for improved financial performance in 2020, and long-term profitability profile enhancement. Our balance sheet remains strong and will enable us to continue our commitment to prudent underwriting, and to return value to shareholders through our dividend and share repurchase programs.”
With significant rate increases anticipated in Florida, Texas and Louisiana this year, FedNat expects to generate over $25 million of incremental premium in 2020, compared to 2019, which will help it to alleviate the impact of adverse claims trends.
