Fla. homeowners rates have 'changed materially' as FedNat exits other states

A hardening homeowners market and devastating catastrophes across the southern U.S. were among the reasons FedNat Holding Co. is refocusing its business on Florida and moving out of its other out-of-state markets.

CEO Michael Braun during a conference call to discuss third-quarter results said the market in the Sunshine State is changing and rates are becoming more aligned with the relative risk.

"I think [assignment of benefits] reform has taken a small bite of the apple, and I think SB 76 has taken a small bite of the apple," Braun said. "But the truth is rates have really changed materially to reflect these increased costs."

FedNat on Nov. 8 announced it will initiate a runoff of the insurance operations of subsidiary Maison Insurance Co., which will file withdrawal-related documentation with regulators in Louisiana, Florida and Texas, and start nonrenewing policies in those states in 2022.

Braun said the expansion strategy to write insurance outside of Florida, which started in 2013 and accelerated in 2019, was "well intended" as the insurer was facing challenges in the Florida homeowners market. But in the end, the acquisition of Maison Insurance and the expansion of the non-Florida book of FedNat Insurance Co. were "poorly timed" because of catastrophe events in Texas and Louisiana.

"The impact of these catastrophic weather losses put a strain on FedNat's capital position, and further action was necessary," Braun said.

The company reported a third-quarter net loss of $24.8 million, or a loss of $1.42 per share, compared with a net loss of $20.7 million or a loss of $1.51 per share in the third quarter of 2020. FedNat logged third-quarter catastrophe losses of roughly $20 million, net of all reinsurance recoveries and affiliated fees, which were driven by Hurricane Ida and other events affecting Louisiana, Florida and Texas.

The concentration on the Florida market comes after Braun insisted for years that FedNat would neither write nor grow its business until rates reflected the cost of doing business in the state, including "attritional losses, weather events, and higher reinsurance costs." Braun said the company has reduced its policies-in-force from 272,000 in 2017 to 168,000 as of the end of the third quarter.

FedNat's costs have gone up 70%, said Braun, necessitating higher rates. The CEO added that he hopes additional reforms from the state will bring costs down for policyholders.