FedNat triggers reinsurance program with hurricane Laura losses

FedNat Holding Company, the U.S. primary insurance carrier group, said that its reinsurance counterparties will be bearing a share of its losses associated with recent hurricane Laura.

The insurer also said that it has purchased another reinsurance cover in September, providing extended second-event protection.

FedNat said that both its FedNat Insurance Company and Maison Insurance Company subsidiaries were affected by hurricane Laura, given they operate in Louisiana and Texas, the region Laura impacted.

Having renewed its reinsurance program that offers combined coverage for the FedNat group of carriers in July, FedNat is well-protected against a hurricane the size of Laura.

While not giving an estimate for the hurricane, losses suffered by the company from the storm are set to exceed the retention for its reinsurance program, FedNat said, as it estimates they well exceed the $25 million single event reinsurance retention level.

FedNat expects to retain roughly $19 million of the losses from hurricane Laura, after accounting for a quota-share treaty in place with a reinsurance entity under the same ownership umbrella as SageSure Insurance Managers LLC, which is the managing general underwriter for FNIC’s non-Florida business.

The company said that it expects to incur the full $6 million co-participation related to its reinstatement premium protection, reduced to $5 million, after the quota-share. As a result, FedNat expects the total initial pre-tax impact to it from hurricane Laura will be an estimated $24 million.

Thanks to the reinstatement provisions FedNat will still have $616 million of reinsurance limit available to it for an event outside Florida or around $1.3 billion available for an event in Florida.

With a first-event under the reinsurance now having occurred outside of Florida, FedNat’s retention for a second-event would be reduced to roughly $2 million. FedNat’s Florida retention remains at $25 million for the next event, as hurricane Laura did not impact the state.

The insurer also purchased additional second-event reinsurance coverage in September, as it looked to bolster its protection.

FedNat secured an additional $39.2 million of reinsurance limit at a rough cost of $11.2 million, taking its estimated total reinsurance spend for this treaty year from around $265 million to $276 million.

The new reinsurance contract covers second events (excluding hurricane Laura), across the remainder of the current treaty year, excluding any disturbances that were active in the Atlantic Ocean as of September 3rd 2020.