FedNat uses up 20% of its reinsurance on Harvey & Irma

U.S. primary insurer Federated National Holding Company (FedNat) reported that it eroded roughly 20% of its $1.5 billion of per-event reinsurance cover in paying claims from hurricanes Harvey and Irma, which the capital markets and ILS funds will have supported due to the insurers use of collateralized protection.

FedNat used fully-collateralized markets in its 2017 reinsurance renewal, as the firm secured maximum single event coverage totaling approximately $1.56 billion and aggregate or multi-event cover of around $2.19 billion.

The reinsurance program has proved its worth, helping FedNat to keep its own losses very low, as the company cedes on most of its losses to its reinsurance partners.

FedNat reported that it retained $21.4 million of claims net of reinsurance from hurricane Irma and another $3.3 million from hurricane Harvey, with the firms reinsurance partners taking the rest of the load.

For hurricane Irma, FedNat’s gross claims reached $310 million, so around $290 million was claimed back from reinsurance partners, including some from the collateralized providers no doubt.

On hurricane Irma, Michael H. Braun the CEO of FedNat, explained, “Our robust reinsurance program, in which over eighty reinsurers participate, has demonstrated its strength.  Despite weathering the largest Category Five storm in the Atlantic Ocean in over a decade, which triggered hurricane warnings throughout the State of Florida, we utilized approximately 20% of our $1.5 billion per event reinsurance limit.

“Our prepaid reinstatement features operated as intended, restoring our full $1.5 billion per event limit on a highly cost-effective basis, with $1.9 billion of total remaining limit available for multiple future events.”

The insurer will also have passed on a portion of its Florida claims through its 10% quota-share reinsurance arrangement, which the firm entered into this year as well.

As a result of the reinsurance support, FedNat reported just a $5.5 million loss for the third-quarter, which is small when you consider that the state of Florida faced its largest hurricane in more than a decade.

The liberal use of reinsurance protection has enabled Florida specialists like FedNat to come out of the recent hurricanes with much smaller losses than perhaps would have been expected, as the companies allow their reinsurance providers (including the ILS market) to support their businesses with efficient risk capital.

Join us in New York in February 2018 for our next ILS conference