FedNat shares tank further as insurer cancels policies, CFO resigns

Already trading at very low levels, FedNat Holding Co. shares plummeted even more this week as the Florida-focused insurer dropped thousands of homeowners policies and saw its CFO announce his resignation.

U.S. equities pushed into bear market territory amid concerns about the consequences of inflation and poor results by some key consumer-focused companies. The S&P 500 tumbled 3.05% to 3,901.36 for the week ending May 20, and the S&P 500 Insurance index fell 3.00% to 533.27.

FedNat subsidiaries received consent from Florida Insurance Commissioner David Altmaier early in the week to cancel more than 68,000 of homeowners policies after the companies provided financial projections that showed they would not be able to secure enough reinsurance coverage for the upcoming hurricane season.

CreditSights analyst Josh Esterov said in an interview that the Florida insurance market is in disarray as it deals with a combination of pressures that are hitting both insurers and policyholders. Inflation, elevated catastrophe activity and out-of-control litigation costs are all causing problems.

"It's negatively impacting insurers themselves because even with higher prices, it's still not profitable for them," Esterov said.

These developments come ahead of a special legislative session set to begin May 23 that may determine the fate of the property insurance market in the Sunshine State.

FedNat landed a spot among the biggest losers for the week with its stock sliding 20.22%. Two other Florida-based insurers moved in the other direction: Heritage Insurance Holdings Inc. saw its shares rise 5.30%, and United Insurance Holdings Corp.'s stock edged up 0.65%.

Two of the largest P&C insurers this week announced results from April.

The Allstate Corp. released its estimated catastrophe losses for the month, which stand at $316 million pretax. The insurer's losses included 14 events and were mainly driven by wind, hail and tornadoes in Texas and the Southeast as well as unfavorable reserve re-estimates for prior period events.

Piper Sandler analyst Paul Newsome said in a note to clients that the month was essentially a "normal April" for catastrophe losses. Despite investor excitement about rising auto insurance prices, Newsome also said he remains generally concerned about expectations for how quickly rate increases will overcome claims inflation.

Allstate's stock ended the week down 4.03%.

The Progressive Corp. also released its April results this week, which reflected a net loss of $198.3 million, or a loss of 34 cents per share, for the month, compared to net income of $316.2 million, or 54 cents per share, in April 2021.

Esterov said he felt that Progressive did "reasonably well" and appeared to be "ahead of the curve" in terms of implementing rate increases, which could be attributed in part to the company's greater proportion of policies with six-month durations instead of one year.

The insurer's combined ratio of 95.5% for April was a bit of an improvement and shows that rate increases are having the desired effect, Esterov said.

Progressive's board also renewed an authorization for the company to repurchase up to 25 million of its own common shares. The insurer's stock gained 2.94%.

In other news this week, Berkshire Hathaway Inc. revealed it took an initial stake in Markel Corp. with the purchase of 420,293 shares, which were worth roughly $620.0 million at the end of the first quarter. Markel's stock ticked up 0.58%.

Marsh & McLennan Cos. Inc. shares lost 6.31% in the same week reports revealed the company will broker insurance for the $5 billion East Africa Crude oil pipeline.