FedNat Holding Company

FedNat said first quarter results were impacted by $31 million of net catastrophe losses, while Ron Jordan specified $29.2 million of catastrophe losses, including gross losses of about $32 million offset by about $2 million of ceded losses and $1 million of claims handling revenues. The company also recorded about $2 million of net adverse reserve development tied to Hurricane Laura. Management said that excluding cat events and reserve strengthening, adjusted operating income would have been about $2.3 million, or $0.13 per share. Ron Jordan said the first quarter 2022 attritional loss ratio improved to 27.8% from 36.5% a year earlier, and excluding catastrophe losses the first-quarter combined ratio was about 118% versus 157% in the prior-year quarter. For Florida, Mike Braun said average premium per policy rose $176 sequentially and $607 year over year, and that this translated to about $83 million in more premium on 137,000 Florida policies; Florida policies in force were 152,000 at March 31, down 5% sequentially and 23% year over year. On the balance sheet, the company had $47 million of holding company liquidity, about $276 million of total investments, and about $92 million of total cash and investments at quarter-end. No formal revenue or EPS figure was given on a GAAP basis in the transcript. No forward guidance was provided in quantified form, but management said the proposed action plan, if approved, could allow a much smaller Florida-only book and a smaller reinsurance program beginning July 1, 2022.

Mike Braun framed the quarter around a major strategic reset: exiting non-Florida markets, running off Maison, and refocusing on Florida homeowners where the company says it has scale, underwriting capability, and agent relationships. He said the proposed action plan submitted to the Florida OIR could make FedNat smaller but financially stronger, with less exposure to weather frequency and less underwriting volatility. His tone was guarded and disappointed about the rating downgrade and regulatory process, but he also sounded constructive about the company’s dialogue with regulators and the possibility of a smaller, more sustainable business.

Ron Jordan focused on the financial effect of weather and reserve development, noting $29.2 million of catastrophe losses, about $10 million tied to run-off books, and about $2 million of adverse reserve development from Hurricane Laura. He highlighted that, excluding catastrophes and reserve strengthening, adjusted operating income would have been about $2.3 million, or $0.13 per share, and said the attritional loss ratio improved to 27.8% from 36.5% in the prior-year quarter. On capital and liquidity, he said surplus remained at Monarch National and Maison with RBC ratios of 300% or above, holding company liquidity was $47 million, total investments were about $276 million, and total cash and investments were about $92 million; he also said the portfolio stayed in higher-quality liquid bonds and preferreds with no common stock exposure.

Analysts pressed management for more detail on the proposed action plan, the timing of OIR feedback, and what the Florida special session might mean. Braun said he could not share much publicly, expected an update in the coming weeks rather than months, and said regulators had been receptive. On the special session, he said Florida’s property market has had major industry-wide losses and that lawmakers may focus more on litigation, social inflation, and reinsurance issues than on rate action. He also said reinsurance is effectively a fixed cost as the book shrinks, and estimated the current reinsurance program cost at about $275 million, saying it should fall materially if the restructuring is approved.