Florida based primary insurer FedNat is expecting to tap into its reinsurance coverage to pay claims resulting from Hurricane Laura, which are likely to exceed its single-event retention of $25 million.
FedNat will bear approximately $19 million of this retention, after accounting for the quota-share treaty that it has in place with a reinsurer under the same ownership umbrella as SageSure Insurance Managers, which is the managing general underwriter for FedNat Insurance Company’s (FNIC) non-Florida business.
The company expects to incur the full $6 million co-participation related to its reinstatement premium protection, which will be reduced to $5 million, after the SageSure quota-share offset.
As such, the total initial pre-tax impact to FedNat from Hurricane Laura is estimated to be $24 million
Laura made landfall near Cameron, Louisiana, on August 27th as a Category 4 storm impacting both Louisiana and eastern Texas.
RMS estimates that the onshore industry loss is likely to be between $9 billion and $13 billion, while AIR Worldwide is more conservative at $4 billion to $8 billion, and KCC arrived at a figure of $9 billion.
FedNat writes homeowners insurance in Louisiana and Texas through its subsidiaries, FNIC and Maison Insurance Company (MIC).
The company’s reinsurance program, renewed at July 1, includes reinstatement premium protection that will replace any reinsurance limit utilised by Hurricane Laura, meaning FedNat will have the same core single-event coverage available for any subsequent events this year.
As such, FedNat still has $616 million of limit available for an event outside Florida or approximately $1.3 billion available for an event in Florida.
The insurer previously purchased second event reinsurance coverage for FNIC’s non-Florida book of business which reduces FNIC’s non-Florida retention to approximately $2 million for a second hurricane event, 50% of which would be borne by SageSure.
Because Hurricane Laura did not impact Florida, if a future event were to impact this state then FedNat’s retention would be limited to $25 million, which would decrease to approximately $10 million if a second or third future event were to occur during the current treaty year.
Furthermore, on September 3rd, FedNat secured an additional $39.2 million of reinsurance limit at a cost of $11.2 million, thereby increasing its estimated total reinsurance spend for this treaty year from $265 million to $276 million.
This newly secured additional limit will be available for a second event (excluding Hurricane Laura), should one occur, during the remainder of the current treaty year.
