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FedNat CEO sees reinsurance rate increases as “extremely manageable”

18th May 2020 - Author: Luke Gallin

Mike Braun, the Chief Executive Officer (CEO) of FedNat Holding Company (FedNat), has said that while the firm expects reinsurance pricing to increase, movements are anticipated to be “extremely manageable” for the insurer.

FedNat HoldingSpeaking during the company’s first-quarter 2020 earnings call, CEO Braun discussed FedNat’s 2020-2021 reinsurance renewal amid an expectation of rate increases across the reinsurance industry.

“We are currently working to finalize our reinsurance program for the 2020-2021 program year and are pleased with the level of participation and the quality of our reinsurance partners.

“While we expect reinsurance pricing to increase, we remain proactive in our actions to ensure profitability through timely rate increases in Florida and non-Florida markets to offset these increased costs,” said Braun.

In early March, FedNat’s Braun revealed that the insurer had seen significant reinsurance rate increases in 2019 following the impacts of prior year hurricanes. At this time, the CEO said that while it remained uncertain where reinsurance pricing would go through the year, he was confident that FedNat is well equipped regardless.

During the firm’s most recent earnings call, Braun underlined the reinsurance pricing pressure that has been evident for the last two years, driven by a high level of catastrophe events and subsequent losses, a decline in the availability of retrocessional coverage, and other macro situations.

“So, last year we did have a big rate increase. And, I think that was appropriate last year, and we were able to pass that through in our rate filing to the policyholders,” continued Braun.

“We’ve got the majority of our cat program in place. We’re finishing it out in the coming days or the coming weeks, we have ample time. We have a full panel of 75+ reinsurers. And, the renewal is going well.

“But let’s be clear, there’s pressure on pricing. And I think what you’re seeing is the pricing that dipped two years ago in 2018 was not sustainable for our reinsurance partners. And we respect that. And we appreciate that. And we want a trading relationship that’s profitable for both parties.

“So, there’s pressure on them. The pricing is ticking up. But, I think it’s extremely manageable, with what we face.”

As noted by Braun, approximately 32% of FedNat’s premium does go to reinsurance spend.

“We have a healthy relationship with our partners. We’ve paid out $1.5 billion in cat claims over the last three, four years. These folks need to have a return on their investment in their trading relationship. So, the renewal is going smooth,” said Braun.

Clearly, the reinsurance industry is facing numerous challenges from the impacts of the COVID-19 pandemic on both the asset and underwriting side of the balance sheet. However, the structural forces that were in place prior to the outbreak remain and there’s an overall expectation of some meaningful rate increases at the upcoming mid-year reinsurance renewals.

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