FedNat Holding Company has reported a net loss of $19.4 million for Q1 2021, compared to a net income of $2.1 million for the prior year period.
The net loss was primarily the result of Winter Storm Uri, which caused heavy residential damage in Texas, primarily associated with freezing temperatures causing widespread instances of burst water pipes.
It also reported an unprofitable combined ratio of 189.0%, which was an 83.7% increase from Q1 2020.
FedNat also reported $174.2 million of gross written premiums, compared to $173.0 million for the year prior.
Michael Braun, FedNat’s Chief Executive Officer, commented: “Our first quarter results were impacted by higher-than-expected catastrophe losses primarily from Winter Storm Uri which caused heavy residential damage in Texas in February. I want to thank our dedicated staff for continuing to demonstrate FedNat’s commitment to providing our policyholders and partner agents with the highest quality service in their time of need.”
“This winter storm was the sixth severe weather event to impact FedNat since July 1, which has resulted in challenging times for the company financially. To meet these challenges, FedNat took action to conserve liquidity at the holding company and maintain appropriate capital positions at our insurance companies.
“FedNat recently completed two capital raising transactions which raised gross proceeds of $38 million and purchased additional reinsurance coverage to help provide more protection and statutory surplus relief for our insurance companies.
“We continue to execute on our initiatives to improve the profitability of our homeowners business and build long-term value, including implementation of rate increases in both our Florida and non-Florida markets and reducing our Florida book of business until rates are more adequate.
“Based on the in-force book as of the fourth quarter of 2020, these rate increases would contribute over $90 million in incremental gross earned premium in 2021 and over $230 million of cumulative incremental premium in 2021 and 2022, as compared to 2020, when fully earned out in the first quarter of 2022. However, these multiple rate increases afford us the opportunity to hold our total in-force premiums flat while reducing our total policy counts and total insured values.”
“Insurance legislation was recently passed in Florida and now awaits the governor’s signature. We are hopeful that this legislation will slow the persistently increasing cost of operating in Florida; however, we will remain cautious until we see evidence of potential benefits over the second half of 2021.
“In addition, as a result of our continued exposure management efforts to reduce our property exposures, we expect a reduction in the total spend on our catastrophe reinsurance program beginning July 1, 2021 due to our smaller portfolio of business.
“While we recognise there is pressure on reinsurance pricing, particularly on the working layers of our program, our lower anticipated total reinsurance spend beginning July 1 is a direct result of our smaller book of business, along with the cost of our recent subsequent purchases being fully recognised by June 30.”
