FedNat recovers $200m+ from reinsurance for Q2 cats & loss creep

U.S. primary insurance carrier group FedNat Holding Company benefited from its robust reinsurance arrangements during the second-quarter of 2021, with its executives revealing that upwards of $200 million has been recovered against recent and prior year catastrophe losses.

First the latest quarter catastrophe loss events, which FedNat said cost it $23.5 million of claims, net of reinsurance recoveries and fee income.

These second-quarter 2021 catastrophe losses came from 15 separate events, primarily convective storm and hail events impacting Texas, Florida and Louisiana, the insurer reported this week.

But during the FedNat Holding Company earnings call this week, CFO Ron Jordan explained that the insurers reinsurance partners provided significant support.

“Aggregate gross losses from these events are estimated to be approximately $90 million. These gross losses were reduced by recoveries of approximately $62 million, consisting of $55 million related to reinsurance treaties, excess-of-loss reinsurance treaties, and $7 million under quota share treaties,” Jordan said during the earnings call.

FedNat had also made recoveries from its reinsurance partners during the first-quarter of 2021, largely for the impacts of winter storm Uri and the polar vortex freeze.

During Q2, FedNat also recognised $5m of net loss creep related to winter storm Uri, suggesting some of the gross amount may also have flowed to its reinsurers, particularly quota share partners.

FedNat was also hit by reinsurance expense increases in Q2, as the company responded to heavy catastrophe losses of 2020 and the first-quarter of 2021, which had eroded some of its tower.

As we explained recently, FedNat reduced its retention on the back of this, when renewing its reinsurance towers in June.

But reinsurance coverage from the prior year has also continued to pay dividends for FedNat, as the company reported relatively significant loss creep related to catastrophe events from 2020.

FedNat’s CFO Ron Jordan explained that reserve developments booked in Q2 covered loss creep from Q1 and also from the 2020 hurricane season.

“In the second quarter, we increased ultimate loss estimates by $162 million across numerous catastrophe retention events, including the 5 named storms from the second half of 2020,” Jordan said.

But he added that, “Approximately 90% of the increase was covered by related catastrophe reinsurance coverages. After all recoveries and offsets, including estimated catastrophe claims handling fees, the net impact on our second quarter 2021 earnings was approximately $5 million.”

So with $62 million of reinsurance recoveries for the second-quarter 2021 catastrophe events, plus recovering around 90% of the $162 million of loss creep from its reinsurers as well, it seems FedNat has recovered in excess of $200 million, perhaps as much as almost $208 million, from its catastrophe reinsurance program in recent months.