FedNat buys more reinsurance cover for Hurricane Laura losses

US insurer FedNat Holding Company has secured an additional $39.2 million of reinsurance limit at an approximate cost of $11.2 million, to pay claims resulting from Hurricane Laura, which is likely to exceed its single-event reinsurance retention of $25 million.

FedNat will bear approximately $19 million of this retention, after reflecting the impact of the quota-share treaty in place with a reinsurance entity under the same ownership umbrella as SageSure Insurance Managers, the managing general underwriter for FedNat's non-Florida business.

The company expects to incur the full $6 million co-participation related to the reinstatement premium protection, which will be reduced to $5 million, after the SageSure quota-share offset.

As such, the total initial pre-tax impact to the company from Hurricane Laura is estimated to be $24 million.

Hurricane Laura made landfall near Cameron, Louisiana, on August 27, 2020 as a Category 4 hurricane impacting both Louisiana and eastern Texas.

FedNat writes homeowners insurance in Louisiana and Texas through its subsidiaries FedNat Insurance Company (FNIC) and Maison Insurance Company (MIC).

The company purchased reinstatement premium protection within its reinsurance program that will replace any reinsurance limit utilised by Hurricane Laura so that it has the same core single-event coverage available for a subsequent event.

As such, FedNat has $616 million of limit available for an event outside Florida or approximately $1.3 billion available for an event in Florida.

The insurer previously purchased second event reinsurance coverage for FNIC’s non-Florida book of business which reduces FNIC’s non-Florida retention to approximately $2 million for a second hurricane event, 50 percent of which would be borne by SageSure.

Because Hurricane Laura did not impact Florida, if a future event were to impact the state of Florida the company’s retention would be limited to $25 million, which would decrease to approximately $10 million if a second or third future event were to impact Florida during the current treaty year, which ends on June 30, 2021.

On September 3, 2020, FedNat secured an additional $39.2 million of reinsurance limit at an approximate cost of $11.2 million, which increases its estimated total reinsurance spend for this treaty year from approximately $265 million to $276 million.

The newly secured additional limit will be available for a second event (excluding Hurricane Laura), should one occur, during the remainder of the current treaty year.