U.S. primary insurance carrier group, FedNat Holding Company, has responded to its recent downgrade and has agreed, along with its subsidiary carriers, to provide the Florida Office of Insurance Regulation (FOIR) with a viable plan moving forwards.
On Monday, Demotech removed FedNat’s vital ‘A’ rating and replaced it with a Financial Stability Rating (FSR) of ‘S’ (Substantial), which may no longer prove a sufficient measure of credit worthiness for insuring mortgaged properties in the state of Florida.
In response, the company has entered into a consent order with the FOIR, under which FedNat and its wholly owned insurance carriers have agreed to file by April 29th, 2022, a plan to demonstrate its ability to both secure and maintain a FSR acceptable to the secondary mortgage market.
Additionally, FedNat and the carriers will detail plans to acquire sufficient reinsurance protection as of the July 1st, 2022, renewal, and support its existing business through the security of additional capital, as well as address its non-Florida losses and policies.
Also, FedNat’s plan may include measures to reduce its book, notably the potential acceleration of the exit of non-Florida states as well as exploring a reduction in its existing Florida policies, or a combination of both.
As noted by FedNat, the downgrade from Demotech could cause its products to be unacceptable to mortgage lenders and also prevent agents from selling and servicing the firm’s offerings, as well as negatively impact its ability to procure reinsurance coverage.
“As a result of these and other factors, the Company currently anticipates that it will report in its Annual Report on Form 10-K for the year ended December 31, 2021 the Company’s determination that there is substantial doubt regarding its ability to continue as a going concern under generally accepted accounting principles,” explains FedNat.
FedNat is a catastrophe exposed property insurance specialist that has felt significant pain over the last fives years. Hurricanes in the State of Florida and along the Gulf Coast, as well as severe impacts from adverse weather and convective storms, have all taken their toll on the company, resulting in losses in the last two years.