U.S. primary insurance carrier group FedNat Holding Company has expanded its reinsurance tower at its renewal this year, lifting its aggregate protection to $2.25 billion and its single event cover to $1.41 billion.
A year ago, FedNat renewed aggregate catastrophe excess of loss reinsurance coverage up to $1.9 billion, with single events covered up to a cost of $1.3 billion.
Its reinsurance program was triggered by hurricanes during the 2020 season, then FedNat added additional aggregate protection earlier this year.
But then its reinsurance tower was hit again by winter storm Uri and the related freezing weather event, so the enlarged tower for the 2021 hurricane season and beyond appears a reaction to recent experience, as FedNat ensures it’s sufficiently protected going forwards.
At this latest renewal FedNat has separated its program into two reinsurance towers, in response to the growing size of its non-Florida exposures.
The first reinsurance tower includes all exposures for FedNat Florida, Maison in all states and Monarch National, with ground up first event limit covering it to approximately $982 million, after a maximum first-event retention of $10 million.
The second reinsurance tower provides ground up first event limit up to $450 million for all FedNat’s non-Florida business produced by its managing general underwriter partner SageSure, after a first-event retention of $8.25 million.
As a result, the combined $18.25 million maximum retention across the two towers is a reduction in first event retention of approximately 41%, compared to the $31 million retention in last year’s program.
The combined towers also provides FedNat and subsidiaries with an increase in aggregate catastrophe reinsurance protection of roughly $333 million compared to the previous treaty year.
FedNat has again cited challenges in Florida, with higher catastrophe reinsurance pricing set to be passed on through rate rises.
At the same time, the insurer notes it is reducing its exposures in the state, and said it is “continuing to actively manage for an overall decrease in policy count and total insured value both within and outside Florida.”
Commenting on reinsurance market conditions, FedNat explained, “The private reinsurance market continued to harden this year due to a number of factors, including the elevated number of catastrophic events impacting U.S. coastal areas in recent years. These factors have resulted in more restrictive terms for the upcoming reinsurance treaty year.”
FedNat noted a “further reduction in the availability of cascading coverage” as well as “limited open market capacity available for lower layer attachment points on an “all perils” basis.”
“As a result, a vast majority of the first layer for the Primary Tower ($20 million excess of $10 million), which includes one automatic reinstatement, covers “all perils” only through November 30, 2021, after which coverage includes only named storms such as tropical depressions, tropical storms and hurricanes, and excludes tornado or hail events,” the insurer explained.
In terms of cost, FedNat said that the entire towers came to $287.7 million, which is split as $204.3 million for the Primary Tower and $83.4 million for FNIC SageSure Tower.
It included $251.9 million for the reinsurance and another $35.8 million, within the Primary Tower, payable to the FHCF. FHCF coverage was maintained at a 90% participation rate for the season ahead.
FedNat also noted that it has bought additional protection to reduce thee SageSure towers exposure to second and subsequent loss events and said that it now expects to renew its quota share reinsurance arrangements at similar terms to previous years.
Finally, FedNat also purchased more back-up reinsurance protection to run just for the month of June, covering 50% of $70 million excess of $25 million, at an approximate cost of $2.8 million, because parts of its tower had been eroded by 2020 storm activity.