Florida Insurance Stock: Federated National Holding


Small cap Florida insurance stock Federated National Holding (NASDAQ: FNHC) has taken a hit with shares down around 20% over the past week on predictions that Hurricane Irma would hit Florida albeit shares rose 14.22% on Friday when it became clear that it would not be as catastrophic as feared:

Regional insurers like Federated National Holding arevulnerable to losses in Florida aslarge national carriers retreated from the state in last decadeafter a spate of damaging hurricanes. Nevertheless, some of these Florida insurance players have highlighted the absence of larger carriers as a competitive advantage for their businesses.


Small cap Federated National Holding is authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners multi-peril (homeowners), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states like Texas, Georgia, Alabama, Louisiana and South Carolina. The Company also serves as managing general agent for its joint venture, Monarch National Insurance Company. The Company markets and distributes its own and third-party insurers products and other services through a network of independent agentsalong witha select number of general agents for the same purpose.


With Hurricane Irma bearing down on Florida, Federated National Holding had to reschedule its annual shareholders meeting with the press release also stating:

The Company has two insurance subsidiaries, Federated National Insurance Company (Federated National), which is a wholly owned subsidiary, and Monarch National Insurance Company (Monarch National), of which we own 42.4%, both write homeowners insurance in Florida.

Federated National and Monarch National purchase reinsurance to reimburse them for elevated single-event property losses under their respective homeowners insurance policies. This reinsurance affords protection to our policyholders and shareholders in the event of one or more catastrophic events such as a Hurricane Irma. Each company purchases its own separate reinsurance program. Federated Nationals reinsurance program covers both Florida and Non-Florida exposures and all private layers of protection have prepaid automatic reinstatement protection, which affords Federated National additional coverage for subsequent events. The combination of private and FHCF reinsurance treaties will afford Federated National approximately $2.19billion of aggregate coverage with a maximum single event coverage totaling approximately $1.56 billion, exclusive of retentions. Federated Nationals single event pre-tax retention for a catastrophic event in Florida is $18 mil lion. In addition, Federated National purchases separate Non-Florida excess of loss reinsurance treaties that could decrease our pre-tax retention from $18 million to as low as $6.5 million when we have both Florida and Non-Florida losses in the same event.


Similarly, Monarch Nationals reinsurance program covers Florida exposures and all private layers of protection have prepaid automatic reinstatement protection which affords Monarch National additional coverage for subsequent events. The combination of private and FHCF reinsurance treaties will afford Monarch National approximately $109.8 million of aggregate coverage with a maximum single event coverage totaling approximately $68.9 million, exclusive of retentions. Monarch Nationals single event pre-tax retention for a catastrophic event in Florida is $3.4 million. All Federated National and Monarch National private treaties are with reinsurers that currently have an AM Best or Standard & Poors rating of A- or better, or have fully collateralized their maximum potential obligations in dedicated trusts.


Over theverylong term, Federated National Holding is still below two previous highs: