FedNat bolsters reinsurance, adds Swiss Re quota share on Florida business

FedNat Holding Company, the U.S. primary insurance carrier group, has bolstered its reinsurance program for the 2020-2021 season, adding coverage to reduce its second and third event retentions, plus a non-Florida quota share and a Florida specific quota share with Swiss Re.

FedNat had secured a catastrophe excess of loss reinsurance program covering it on aggregate to $1.9 billion, with single events covered up to a cost of $1.3 billion, at the June renewals.

At the time the insurer said that it would also look to renew quota share reinsurance covers at the July renewals, on terms expected to be similar to the prior year.

Now, FedNat has revealed the range of additional covers secured at July 1st, adding another reinsurance contract providing coverage of 71.5% of $15 million, excess $10 million, to reduce the second and third event retention for its FedNat Insurance Company (FNIC), Maison Insurance Company and Monarch National Insurance Company subsidiaries, on a combined basis.

That new additional layer takes those retentions down from $25 million to $14.3 million per event, with FedNat maintaining a co-participation.

The new layer cost the insurer roughly $3 million, $3.0 million, taking its total excess of loss reinsurance spend for the 2020-2021 treaty year to $264.6 million.

FedNat has also secured a 50% quota-share reinsurance arrangement on in-force, new and renewal business through June 30th 2021, with Anchor Re, an Arizona captive reinsurance subsidiary of SageSure LLP.

SageSure is a managing general underwriter that writes FNIC’s non-Florida homeowners business and this treaty has been fully collateralised through Anchor Re.

This quota share treaty supplements an existing 50% profit share arrangement that was in place between FedNat and SageSure. It’s likely a more efficient use of capital for both sides.

In addition to these reinsurance program enhancements, FedNat also said that thanks to its long-term trading relationship with Swiss Re the insurer has finalised a quota share on its Florida business written by FNIC.

This quota share reinsurance arrangement with Swiss Re excludes named storms, and has been initially set at 10%, subject to certain limitations including, but not limited to, caps on losses associated with non-named storm catastrophe losses.

FedNat said that this quota share arrangement with Swiss Re came into effect on July 1st and was renewed on terms “generally consistent” with the prior year.

Yesterday, FedNat reported elevated catastrophe losses from second-quarter severe weather events, which it expects to cost it $48.3 million pre-tax and after reinsurance recoveries made.