FedNat lowers hurricane Matthew loss, so reinsurance takes less

U.S. primary insurance firm Federated National Insurance (FedNat) has revealed a decrease in its loss from hurricane Matthew, compared to its initial estimate, meaning that reinsurance capital has taken a smaller share than it had first assumed.

Initially, FedNat had estimated aggregate gross liabilities from hurricane Matthew of $77.5 million. At the time of that announcement the insurer believed that it could pass on a significant proportion of those losses to its reinsurance panel, which includes some fully collateralized arrangements.

However in the insurers results announced FedNat has announced its gross hurricane Matthew loss at $47 million across Florida and South Carolina, and after using its reinsurance cover only expects to retain net loss of $21.4 million.

The retained loss consists of its $18.45 million excess-of-loss property catastrophe reinsurance program retention, and $2.3 million due to a reversal of the profit-sharing balance on its 10% Florida-only property quota share reinsurance, which had previously been recognised as income at the insurer.

The Florida only quota-share reinsurance arrangement takes 10% of losses from the ground-up, so it’s safe to assume that reinsurers on this layer took a share of FedNat’s losses as well, but it does not reduce the retained level of loss on the excess-of-loss contract it seems.

The outcome is that reinsurers took less of the loss than had been expected initially, a scenario that has likely played out in many insurers programs as the final claims tally from hurricane Matthew came in below initial expectations.

Reported hurricane Matthew claims stood at $1.182 billion in early March, according to the Florida regulator.