Florida-based primary insurer FedNat Holding Company has announced a new deal to transfer and cancel the policies of its subsidiary, FedNat Insurance Company (FNIC), as part of its plans to downsize ahead of a challenging mid-year renewal period.
Under the terms of the arrangement, Hale Partnership Capital Management LLC will invest $15 million in another FedNat subsidiary, Monarch National Insurance Company (MNIC), which will then assume 83,000 Florida policies from FNIC, effective June 1st, 2022.
Following the investment, Hale will become the majority owner of MNIC, with FedNat holding a minority interest.
FedNat has also agreed to contribute additional capital to MNIC to further enhance its surplus position.
Once the 83,000 policies have been transferred, all FNIC’s remaining Florida policies will be cancelled effective June 29th, 2022, with all unearned premiums to be remitted to policyholders.
The company assured that FNIC currently has adequate assets on hand to refund all required unearned premiums.
Additionally, FedNat will also cancel the remaining Florida policies of another subsidiary, Maison Insurance Company (Maison), which is currently in run-off, effective June 30th.
FedNat CEO Michael Braun confirmed earlier this month that his company would seek to become “much smaller, with significantly fewer policies in force,” ahead of the mid-year renewals, due to expected difficulties in securing affordable reinsurance coverage.
The difficulties come as a result of the downgrading of FedNat’s financial stability ratings (FSR) from an ‘A’ to ‘S’ by rating agency Demotech, which means the insurers’ policies will no longer be deemed acceptable by Fannie Mae and Freddie Mac for mortgage insurance.
Commenting on its new arrangement with Hale, FedNat explained that policy servicing and claims administration with respect to the policies transferred to MNIC will continue to be performed by a FedNat subsidiary, with MNIC still expecting to obtain catastrophe excess of loss reinsurance for the 2022-2023 storm season to protect its surplus consistent with its historical reinsurance structure.
“MNIC anticipates that its reinsurance structure will provide appropriate and responsible protection against multiple catastrophic events,” FedNat confirmed.
The company also announced that for all FNIC business written in states other than Florida (Alabama, Louisiana, Mississippi, South Carolina and Texas), which is written through SageSure Insurance Managers, FNIC’s contracted third-party managing general underwriter, FNIC and SageSure intend transfer all remaining FNIC in-force policies to a SageSure insurance carrier partner.
With respect to FNIC’s Louisiana policies, it is proposed that such policies would be canceled by FNIC effective July 1, 2022, with policyholders receiving an offer of replacement coverage from a SageSure carrier partner effective upon the cancellation of their FNIC policy.