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FedNat falls to $73m loss, reports on Uri exposure

3rd March 2021 - Author: Matt Sheehan

Florida based primary insurer FedNat has reported a net loss of $73.0 million for 2020 due to elevated catastrophe losses, high reinsurance costs and the adverse claims environment in Florida.

FedNat HoldingFor the Q4 period, FedNat reported a net loss of $32.9 million and an operating loss of $26.9 million.

This included $31 million of catastrophe losses that the company warned ahead of back in February, mainly driven by Hurricanes Delta, Zeta and Eta.

Total revenue in Q4 decreased $23.8 million, or 21.8%, to $85.2 million, compared with $109.0 million for the same period in the previous year.

FedNat said the decrease was driven by lower net premiums earned as increases in ceded premiums outpaced the growth in gross premiums earned, partially offset by higher investment gains.

At the same time, gross written premiums increased $18.3 million, or 12.2%, to $168.4 million in the quarter, compared with $150.1 million previously.

Additionally, FedNat revealed that it expects to incur claims in excess of its aggregate reinsurance retention for Winter Storm Uri in February, which is approximately $23 million for this event. Combined with a co-participation within its reinsurance tower of $18 million in excess of $61 million, FedNat estimates its total exposure to Uri at $41 million, pre-tax.

Uri has caused widespread damage and disruption across southern US states, including heavy residential damage in Texas as freezing temperatures have burst water pipes and caused other structural issues.

FedNat also has an 80% quota-share reinsurance treaty in place with Anchor Re that will limit FedNat’s ability to cede losses from Uri, or subsequent storms.

Without these limitations, FedNat would expect to recover $25 million of Uri losses from Anchor Re. Depending on the profitability of the business ceded into the treaty over the remainder of its term, the company may be able to recover a portion of these losses, though not necessarily in the same period in which Uri occurred.

“FedNat’s fourth quarter and full year 2020 results reflect the unprecedented impact of a record number of severe weather events, with 30 named storms including 12 named storms that made landfall in the US,” said Michael H. Braun, FedNat’s Chief Executive Officer

“In the face of these challenges, FedNat’s management team took action at year end to maintain appropriate capital positions at our insurance companies, while conserving liquidity at the holding company. These actions included purchasing additional reinsurance coverage to help provide more protection and statutory surplus relief for our insurance companies. As a result, we ended 2020 with RBC ratios in excess of 300% at our insurance companies and $59 million in liquidity at the holding company,” Braun continued.

“We have continued our initiatives to improve the profitability of our homeowners business and build long-term value, including shrinking our book of business in Florida until rates more accurately reflect our increased costs of doing business as well as implementing multiple rate increases in both our Florida and non-Florida markets. These rate increases are expected to contribute over $90 million in incremental gross earned premium in 2021 and over $230 million of cumulative incremental premium in 2021 and 2022 when fully earned out in the first quarter of 2022.”

Last month, FedNat also provided an update on its new reinsurance arrangements, which include a new Aggregate Excess of Loss program on its Maison book of business, effective January 1, 2021.

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