Florida based primary insurer FedNat has reported a net loss of $103.1 million for 2021, compared with a loss of $78.2 million in the previous year.
The company says the larger loss in 2021 was primarily the result of higher reinsurance costs and the lack of any income tax benefits in 2021.
In 2020, FedNat recorded $33.5 million of income tax benefit related to carrying back net operating loss to prior years, but there was no such income tax benefit this year, as the company had fully exhausted its ability to carry back any net operating losses into prior years.
Catastrophe weather events and related impacts were the primary driver of losses in both years, with winter storm Uri driving $27 million of net retained losses alone.
This was partially due to gaps in FedNat’s excess-of loss reinsurance coverage stemming from the non-cascading portions of the tower following the multiple hurricanes during the second half of 2020, and due to the loss cap in the non-Florida quota-share treaty in place during 2021.
Additionally, in 2021 the company incurred $25 million of reinstatement premiums and additional back-up purchases primarily related to the impacts from the six retention catastrophe events during the 2020/2021 treaty year.
Looking only at the fourth quarter of the year, FedNat reported a net loss of $8.6 million, narrowing from a loss of $38.1 million in Q4 2020, with $8.1 million of claims from severe weather events, primarily impacting Florida, Texas and Louisiana.
It also reported $4.4 million of reserve strengthening in the quarter, and a 22.7% decrease in Florida homeowners in-force policies to approximately 160,000, reflecting its strategy to limit exposure in Florida until it feels that rates better match the increased costs of claims and reinsurance.
Gross written premiums decreased by 6.6%, to $157.3 million in the quarter, driven by the decision to refocus on Florida and runoff non-Florida books of business.
Meanwhile, ceded premiums remained relatively flat at $118.8 million, with approximately $10 million of higher quota-share ceded premium and $10 million lower catastrophe reinsurance spend, driven by purchases of supplemental coverage in 2020 to backfill gaps in coverage stemming from the non-cascading portion of our reinsurance tower, following the multiple retention catastrophe events that occurred in the second half of 2020.
This decrease to catastrophe reinsurance spend was partially offset by higher rate-on-line prices in the 2021-2022 catastrophe excess of loss reinsurance program.
“The strategic shift that FedNat announced in November to refocus on the Florida homeowners market is proceeding as planned with the orderly runoff of Maison’s insurance operations and the non-renewal and transfer of FNIC’s non-Florida business,” said FedNat CEO Michael H. Braun.
“We continue to see positive trends in our Florida homeowners business resulting from the dramatic actions we’ve taken over the past five years to shrink our Florida book and increase rates to more accurately reflect the higher costs of doing business. Our Florida book has declined by over 40% from 272,000 policies-in-force in 2017 to 160,000 at the end of 2021,” Braun continued.
In that same time period, we have increased FNIC’s rates in Florida by approximately 70%, cumulatively, restoring rate adequacy and resulting in improved attritional loss ratios in FNIC’s Florida book in the fourth quarter. With approved and continued pending rate increases in Florida rolling into our book, we continue to expect FedNat to achieve ex-catastrophe earnings improvement in 2022.”
