Florida based primary insurer FedNat has estimated that catastrophe weather losses incurred during the fourth quarter of 2020 will reduce its net income by $31.1 million, pre-tax.
Losses were driven primarily by Hurricanes Delta, Zeta and Eta, which together impacted parts of Louisiana, Florida, Texas and Alabama.
Louisana made up the largest proportion of losses at $18.2 million, while Florida accounted for $11.1 million and Alabama and Texas together made up $1.8 million.
On an after-tax basis, FedNat’s Q4 cat losses are estimated at $23.0 million, net of reinsurance recoveries.
The company also expects to strengthen its loss reserves on FedNat Insurance Company’s (FNIC) discontinued commercial general liability (CGL) book of business by $16.5 million, or approximately $12.2 million after-tax.
In addition, FedNat provided an update on its reinsurance arrangements, which include a new Aggregate Excess of Loss program on its Maison book of business, effective January 1, 2021.
This new program provides coverage, excluding named storms, of 65% of $15 million excess of $10 million with an $850,000 occurrence deductible and a $4.15 million occurrence limit at an approximate annual cost of $2.3 million.
Next, FedNat confirmed that it had secured an agreement with Anchor Re to increase FNIC’s cession percentage from 50% to 80% on its non-Florida homeowners book of business. This treaty is effective from December 10, 2020, and includes limits on the loss ratio and overall net loss that Anchor Re can realize during the treaty year.
Effective October 1, 2020, with the agreement of Swiss Re, FNIC also increased its cession percentage on its existing quota-share treaty from 10% to 20%. This treaty excludes named storms and includes a cap on non-named storm catastrophe losses.
Furthermore, effective November 15, 2020, FNIC entered into a new 10% quota-share reinsurance treaty through November 15, 2021 on its Florida homeowners book. This treaty excludes all catastrophe losses and provides coverage only on attritional losses.
And finally, effective December 31, 2020, FNIC secured a new 10% quota-share reinsurance treaty through December 31, 2021 on its Florida homeowners book. This treaty excludes named storms, but otherwise contains no caps with respect to non-named storm catastrophe losses.
As a result of these three actions, FedNat now has 40% quota-share coverage in place through June 30, 2021, at which point 20% of this coverage will be up for renewal.
To reflect the increased costs of claims and reinsurance last year, FedNat continues to seek rate increases on its homeowners business, and is currently restricting new business throughout Florida until rates are in line with higher costs.
The company currently expects that rate increases will generate over $90 million of incremental gross earned premium in 2021, as compared to 2020, which will help to offset the impact of adverse claims trends and reinsurance costs.
Ultimately, when fully earned in the first quarter of 2022, it is estimated these increases will have contributed over $230 million of cumulative incremental premium in 2021 and 2022, and $140 million of incremental premium annually thereafter, as compared to 2020, based on the current book of business.