FedNat plans to become “much smaller”, shift to Florida-only: CEO

Under pressure U.S. primary insurance carrier group FedNat has revealed that its plan of action it sent the Florida Office of Insurance Regulation (FOIR) involves the company shrinking considerably and reverting to a Florida only carrier, in order to be able to buy sufficient reinsurance.

As we previously reported, FedNat admitted a substantial doubt over its ability to continue as a going concern, with a potential fall into receivership or failure to secure reinsurance seen as issues that could be fatal for the insurer.

That came after rating agency Demotech downgraded FedNat’s vital ‘A’ rating and replaced it with a Financial Stability Rating (FSR) of ‘S’ (Substantial), which may no longer prove a sufficient measure of credit worthiness for insuring mortgaged properties in the state of Florida.

In announcing its first-quarter 2022 results yesterday, in which it revealed a net loss of $31.3 million and still elevated catastrophe claims, while premiums shrank on the back of non-renewals and run-off activities for Non-Florida states, the company also gave some clarity on its go-forward plan.

The plan involves shrinking considerably, raising capital, and shifting to a Florida-only focus, in the hope of right-sizing the business and recovering a rating again.

Michael H. Braun, FedNat’s Chief Executive Officer, commented, “We continued to make progress during the first quarter in our Florida homeowners business resulting from our strategic actions over the past five years to right size our Florida book and increase rates to more accurately reflect the higher costs of doing business.

“The Company also continued to make progress in the first quarter on our strategy to exit non-Florida markets and refocus on our historical market in Florida, a transition we believe would result in a financially stronger company, with less volatility, that would be rightsized to our current capital and surplus position.

“However, as we have disclosed in recent SEC filings, in April the Demotech rating of FedNat National Insurance Company (FNIC) was downgraded, which we believe will adversely impact our ability to obtain excess-of-loss reinsurance for coverage beginning July 1, 2022 and would place the Company in non-compliance with the regulations of the Florida Office of Insurance Regulation (OIR).

“FedNat has submitted a proposed action plan to the OIR which, if approved by them and regulators in other impacted states, would be expected to result in the Company becoming much smaller, with significantly fewer policies in force, and potentially result in additional capital coming into the holding company or into our insurance carriers.

“If approved, the proposed action plan would be expected to enable the Company to obtain excess-of-loss reinsurance on a smaller, Florida-only book of business. Our action plan is currently being reviewed by the OIR and we will provide an update on the outcome of their review when available.”

The shift to a Florida only writer suggests FedNat has some confidence that the property insurance marketplace there will be reformed, at least to a degree, else this could be seen as a rather risky strategy without any fix to the litigation crisis.

It will be interesting to see what appetite investors have for injecting capital into the company and what appetite reinsurance market’s have for backing it, if the plan is successful.

The state of Florida’s insurance market will be a significant influence on FedNat’s ability to move forwards, it seems. As absent major changes it is hard to think investor appetite will be particularly strong to back its plan, hence the special legislative session later this month may be a critical juncture in FedNat’s future plans as well.

Read our coverage of Florida’s property insurance crisis below:

Florida – “The theatre is on fire,” FHCF change won’t solve it: RenRe CEO.

Swiss Re not optimistic on Florida reinsurance pricing: CFO Dacey.

To ensure progress in Florida reinsurers could pull capacity: Assured Research.

Full placement of Florida reinsurance programs to be challenging: AM Best.

Florida Governor sets property insurance special session for end of May.

“Cause for concern” as AOB & litigated claims rise in Florida: CaseGlide CEO.

FedNat downgraded, posing another threat to Florida’s insurance ecosystem.

Ida insolvencies continue, as Florida runs out of road: ALIRT.

Florida property insurance market “in collapse”, special session uncertain.

Florida renewal “one of the toughest in recent memory” – JMP Securities.

Policy growth means more cat bonds & reinsurance for Florida Citizens.

Florida Citizens seeks higher rate increases at upcoming hearing.

Lighthouse the first to lose Demotech rating, as Ida losses weigh.

AIG’s Lexington pulls-back in Florida, raising questions on E&S market.

AM Best cites Florida market challenges as it downgrades Florida Farm Bureau.

Demotech calls for Florida market reform with rating downgrades likely.

Florida Citizens targets “the best deal we can get” on risk transfer: Montero.

Florida insurers’ litigation exposure still of concern: CaseGlide CEO Todd.

No quick fix as Florida property insurance reforms fail to pass.

Another one bites the dust – Florida’s insurance failures continue.

Florida P&C claims litigation concerning, as cases soar: CaseGlide CEO Todd.

Florida P&C rate filings show reinsurance firming needs to continue.

Assignment of benefit (AOB) claims rising for Florida P&C insurers.