FedNat files for bankruptcy protection under Chapter 11

FedNat Holding Company, the regional insurance holding company of the Florida-focused carrier group, has now filed for bankruptcy protection alongside a number of wholly-owned subsidiaries, as its restructuring continues.

FedNat lost its Nasdaq listing recently and assigned financial and legal advisors to help it through a restructuring process.

It seems the first outcome of that is going to be a Chapter 11 bankruptcy process, that could result in a sale of its assets, or a significant restructuring, with the former seeming the more likely ending at this time.

As a reminder, FedNat secured a much-needed investment and put a restructuring plan into action around the middle of the year. While its Florida carrier was placed into liquidation.

Its Monarch carrier was acquired as part of that and the plan was to shift to a Florida-only underwriting focus and a further move was made to reinsure all of its Texas business to a cell account.

FedNat also lost its Demotech rating and has seen a wave of departures of senior staff, with the loss of its Nasdaq listing for non-compliance the most recent happening.

Now, FedNat Holding Company and some of its wholly-owned subsidiaries (FedNat Underwriters, Inc., ClaimCor, LLC, Century Risk Insurance Services, Inc., and Insure-Link, Inc.) have filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida.

The goal is to “maximize value for all stakeholders”, while evaluating strategic alternatives, whether that be a reorganisation of the insurer, or a sale of all of its assets.

FedNat said it has $6.5 million of cash on hand, enabling it to provide liquidity to support day-to-day operations during the Chapter 11 process.

FedNat said it will file customary “First Day” motions to allow it to maintain operations in the ordinary course.

Filings explains some of the challenges has faced as the company has been, “Severely impacted by, among other things, an elevated number of severe weather events giving rise to catastrophe losses (particularly losses stemming from FNHC’s non-Florida books of business), rate issues, and litigation abuse.”

The debtors have already been in discussion regarding an asset purchase agreement, saying they, “aim to be in a position to submit bid procedures relating to a sale or sales in short order.”

So, a sale of FedNat assets seems the likely outcome and given its now tarnished reputation, it’s perhaps difficult to see how the FedNat brand survives its many challenges and this Chapter 11 process.