UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 17, 2020
(Date of earliest event reported)
FEDNAT HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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Florida |
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000-25001 |
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65-0248866 |
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(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(I.R.S. Employer Identification No.) |
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14050 N.W. 14th
Street, Suite 180
Sunrise, FL
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33323 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area
code: (800)
293-2532
(Former Name or Former Address, if Changed Since Last
Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
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☐ |
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Common Stock |
FNHC |
Nasdaq Global Market |
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this chapter).
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
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Item 2.02. |
Results of Operations and Financial Condition. |
FedNat Holding Company (the “Company”) estimates, as of the date of
this Current Report on Form 8-K, that catastrophe losses incurred
during the quarter ended June 30, 2020 will reduce its second
quarter pre-tax income by $48.3 million, net of all recoveries,
including reinsurance. These catastrophe losses were driven by
severe weather events that occurred during the second quarter in
states in which the Company does business, including Florida, Texas
and Louisiana. More specifically, during the quarter there were
fourteen Property Claims Services (“PCS”) events, including
Tropical Storm Cristobal, plus a Florida Panhandle wildfire. Net
catastrophe losses, by state, are estimated as follows (in
millions):
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Florida |
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21.5 |
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Texas |
14.8 |
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Louisiana |
11.3 |
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Other |
0.7 |
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$ |
48.3 |
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Additionally, in the second quarter, the Company expects to
strengthen reserves for prior accident years by $7.5 million,
pre-tax, related primarily to the 2019 accident year in the Florida
homeowners line of business.
The Company continues to file for rate increases to ensure its
rates better reflect the increased costs related to claims activity
and costs of reinsurance. The Company has recently received
regulatory approvals for several rate increases, including a 7.4%
statewide-average increase on FedNat Insurance Company’s (“FNIC”)
Florida homeowners business that took effect on June 15, 2020. FNIC
has also filed for a 5.6% statewide-average Florida increase
related to the cost of catastrophe reinsurance which, if approved,
would be expected to take effect in October 2020. FNIC has also
filed for statewide-average rate increases of over 9.5% on its
homeowners business in Texas and Louisiana which, if approved,
would be expected to take effect in November 2020. Maison Insurance
Company (“MIC”) also recently filed for a 15.9% Louisiana
homeowners statewide-average rate increase which, if approved,
would be expected to take effect in November 2020. Additional rate
filings are pending in other states in which the Company does
business. The Company is currently restricting new business
throughout Florida during wind season and until our approved rates
more accurately reflect our increased claims costs.
The Company is providing certain updates to its 2020-2021
reinsurance program, which was previously described in a Form 8-K
filed with the SEC on June 1, 2020 (the "Reinsurance
8-K").
FNIC’s 2020-2021 New Non-Florida Homeowners Quota Share
Reinsurance
FNIC entered into a new quota-share treaty with Anchor Re, a
wholly-owned Arizona captive reinsurance subsidiary of SageSure LLP
(“SageSure”), the non-affiliated managing general underwriter that
writes FNIC’s non-Florida homeowners business. The treaty became
effective on July 1, 2020 and provides 50% quota-share reinsurance
protection on in-force, new and renewal business through June 30,
2021, subject to certain limitations. The treaty arrangement is
fully collateralized through Anchor Re.
This treaty supplements the existing 50% profit-sharing agreement
in place with SageSure. Thus, this treaty is not expected to have
any impact on the pre-tax operating results of the Company,
although the components of the combined ratio will be affected by
the ceding of premiums, claims and commissions. The Company expects
FNIC will receive statutory surplus relief from this new
quota-share treaty.
FNIC’s 2020-2021 Florida Homeowners Quota-Share
Reinsurance
Benefitting from our long-term trading relationship with Swiss Re,
FNIC finalized the renewal of its quota-share reinsurance program
for 2020-2021 on FNIC’s Florida homeowners book of business. The
program became effective on July 1, 2020 on an in-force, new and
renewal basis at terms generally consistent with the 2019-2020
treaty. The treaty continues to provide protection excluding named
storms, and has been initially set at 10%, which is subject to
certain limitations including, but not limited to, caps on losses
associated with non-named storm catastrophe losses.
2020-2021 Excess of Loss Reinsurance Program
As previously reported in the Reinsurance 8-K, the Company agreed
to the terms of its excess of loss reinsurance program for
2020-2021, which covers the Company’s three insurance carriers. To
supplement this program, the Company subsequently purchased
additional reinsurance protection of 71.5% of $15 million excess of
$10 million that reduces the second and third event retention for
FNIC, MIC and Monarch National Insurance Company, on a combined
basis, from $25 million to $14.3 million per event, with the
Company maintaining a co-participation. The cost of the underlying
layer was approximately $3.0 million, bringing the Company’s total
excess of loss reinsurance spend for the 2020-2021 treaty year to
$264.6 million.
_____________________________
The information in Item 2.02 of this Current Report on Form 8-K is
hereby intended to be furnished and, as provided in General
Instruction B.2 of Form 8-K, such information shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise subject to
the liabilities of that section, and it shall not be deemed
incorporated by reference in any filing under the Securities Act of
1933, as amended (the “Securities Act”), or under the Exchange Act,
whether made before or after the date hereof, except as expressly
set forth by specific reference in such filing to this Current
Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly
authorized.
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FEDNAT HOLDING COMPANY |
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Date: July 17, 2020 |
By: |
/s/ Ronald A. Jordan |
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Name: |
Ronald A. Jordan |
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Title: |
Chief Financial Officer |
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(Principal Financial Officer) |
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