FedNat Holding Company has provided an update on the activities of its Strategic Review Committee (SRc), which was formed last year by the company’s Board of Directors.
The committee was created to review the company’s business plan, capital deployment, geographic footprint and long-term strategy to identify strategic alternatives in an effort to create enhanced value for the company’s stakeholders, in particular its shareholders.
The SRC is composed of three of FedNat’s independent directors and has Piper Sandler & Co. as its financial advisor.
Bruce Simberg, FedNat’s Chairman of the Board and Chairman of the SRC, said: “Since the creation of the SRC last year, it has met at least weekly with our financial and legal advisors to identify and, if possible, implement strategic transactions.
“Unfortunately, just as we were beginning our work, 2021 continued 2020’s string of catastrophe losses with an unusually high number of severe weather events, including Winter Storm Uri and several severe convective storms.
“These added to the significant financial challenges already facing the company at the end of 2020 – requiring us to raise two rounds of capital totalling approximately $36 million – and frankly in some ways delaying the SRC’s work.
“While our advisors and the SRC have engaged in discussions with numerous potential counterparties, the effects of 2021’s weather understandably caused some to pause.
“However, as today’s announcement by Demotech confirming our A-Exceptional rating illustrates, we believe that we currently possess financial stability related to maintaining positive surplus as regards policyholders, sufficient liquidity of invested assets, an acceptable level of financial leverage, as well as reasonable loss and loss adjustment expense reserves (L&LAE) and updated product pricing.
“We are indeed grateful that Demotech showed the keen interest and diligence required to understand and appreciate the current status of our business. We look forward to the potential favourable progress that we expect to result from the improvements that we have made in our business model over the last year that are not reflected in our current operating results.”
Simberg continued, “We nevertheless understand that we have a big job to do – in order to maintain that rating, we must continue to demonstrate progress in our business plan and our ability to raise capital as needed. We also continue to explore potential transformative strategic transactions that not only could ensure our ability to honour and defend meritorious policyholder claims when due but also provide value to our shareholders.
“Our objective, assuming that we receive one or more proposals that merit consideration by us and our shareholders, would be to engage such party or parties to attempt to reach an agreement that could be in place by the end of 2021. Meanwhile, we will continue with our ongoing initiatives to raise rates, reduce our policy counts until rates are adequate, and maintain access to capital sources.
“We recently have entered into a strategic advisory arrangement with one of our significant shareholders, Steven A. Hale. We invited Steve to attend the SRC and Board meetings and he played a key role in our recent meetings with Demotech.”
Hale added: “I appreciate the company’s invitation as well as the opportunity to work with the company, its advisors, and the SRC. My interests are certainly aligned with those of the SRC – to bring the best long-term value to shareholders.
“During the last few weeks while I have worked with the SRC, I have been impressed with the progress to date and available paths forward, and admire their diligence, dedication and hard work. I am pleased to be a part of these endeavours through both advice and capital, as needed, and look forward to continuing efforts with the SRC.”
