FedNat adds aggregate cover to $1.9bn renewal, cites more restrictive terms

U.S. primary insurance carrier group FedNat Holding Company has successfully secured around $1.9 billion of reinsurance protection for its subsidiaries, but cited hardening rates and “more restrictive” terms from markets at the renewals.

FedNat has again purchased slightly more protection, taking its catastrophe excess of loss reinsurance coverage up to $1.9 billion, with single events covered up to a cost of $1.3 billion.

But with the Florida reinsurance market having hardened, FedNat noted that reinsurers were also not willing to be as relaxed on terms and the insurer has had to relinquish some of its cascading coverage and has added more aggregate reinsurance instead.

In addition, FedNat noted that the cost of its reinsurance, in terms of percentage of premiums in-force, has risen slightly to 36% of ceded premiums, up 3 points from last years 33%.

As ever, we would expect many of the largest insurance-linked securities (ILS) fund managers to have played an important role in providing FedNat its reinsurance protection for 2020, with some collateralising their limits and others being fronted or rated.

The program covers FedNat Insurance Company, Maison Insurance Company and Monarch National Insurance Company, providing up to roughly $1.3 billion of single-event protection in excess of up to a $31 million retention for catastrophic losses, including hurricanes.

In total, reinsurance program coverage is now at $1.9 billion, including the aggregate cover.

All of this came at an approximate total cost of $261.6 million, FedNat explained, subject to adjustments based on actual exposure or premium of policies over the coming months.

FedNat will retain 100% of the first $25 million retention, as well as an additional $6 million through a roughly 8.6% co-participation on the next $70 million of limit above that.

The program will provide $1.3 billion in aggregate private reinsurance for coverage in all states FedNat operates in, with $650 million limited to any one event and a further $650 million of reinsurance provided by the Florida Hurricane Catastrophe Fund that is both per-occurrence and aggregate.

FedNat certainly felt the more challenging reinsurance renewal environment this year it seems.

The company explained, “The private reinsurance market continued to harden this year due to a number of factors, including issues unique to the U.S. coastal catastrophe reinsurance marketplace generally and the Florida market specifically. These factors result in more restrictive terms by some of our individual reinsurers.

“The change in terms from the prior year’s program includes some portion of the program having a single aggregate retention for our carriers taken as a whole, versus each carrier’s own individual retention, plus some portions of the program not “cascading”, which could create less broad coverage on events, if any, beyond two large events.”

FedNat also added $16 million of second event coverage for outside of Florida, which takes its non-Florida retention down to $18 million for the first event, and just $2 million for the second.

The company also said it intends to renew its Florida-specific quota-share reinsurance program for 2020-2021 to be effective on July 1st 2020 and hopes terms will be roughly the same as the prior year.

It seems FedNat did not have the easiest time at its reinsurance renewal, but still came away without paying too much more. But the changes in terms and reduction in cascading coverage could leave the insurer more exposed, in certain scenarios it seems.