U.S. primary insurer FedNat expects to pass on most of its losses from hurricane Michael to its reinsurance providers, with an estimated $275 million gross loss anticipated, but as little as $23 million expected to be retained by the firm.
It’s the first sign that hurricane Michael will result in a reasonable hit to reinsurance firms, as the low retention levels of Floridian primary insurers means more of the loss could end up with reinsurance and ILS players.
FedNat has reported hurricane Michael will impact both its FedNat Insurance Company and Monarch National Insurance Company, with FedNat writing approximately 10% of the total insured values in Bay County and Gulf County Florida, where Hurricane Michael made landfall.
As a result, the firm currently estimates that its aggregate gross loss from hurricane Michael will be roughly $275 million, according to its preliminary post landfall catastrophe model estimates.
However, net of reinsurance and including both Florida and non-Florida, FedNat believes that its losses will not exceed its first event pre-tax retention of $20 million, while Monarch National should not exceed its first event pre-tax retention of $3 million.
That means as much as $252 million of losses will fall to the firms reinsurance providers, which include some collateralised markets and ILS funds.
FedNat’s reinsurance program provides its insurers with both Florida and Non-Florida coverage amounting to roughly $1.8 billion of aggregate protection, with a maximum single event protection of almost $1.3 billion.
As a result FedNat is well-protected and in the case of hurricane Michael will pass on most of its losses to the global reinsurance market.
By contrast and reflecting the differing natures of the two recent hurricanes, FedNat said it would not tap its reinsurance for hurricane Florence.