FedNat gets $15m Hale investment in Monarch. Monarch gets cat reinsurance
Florida-focused property insurance company FedNat Holding Company has announced the completion of the previously announced $15 million investment into its Monarch National Insurance Company subsidiary by investor Steve Hale’s Hale Partnership, as well as the securing of catastrophe reinsurance by Monarch
In addition, the previously announced assumption of the majority of the FedNat group’s Florida insurance policies by Monarch has also been completed.
FedNat has been going through a restructuring plan, downsizing and refocusing its business onto the Florida property insurance market, as it seeks to return to a sustainable shape so that it can secure its necessary reinsurance and recover its rating.
Demotech had downgraded FedNat Insurance Company, after which the carrier group announced the restructuring plan and said that an investment into Monarch was coming.
FedNat then said that funds managed by Hale Partnership Capital Management LLC, a North Carolina based investment adviser, would inject $15 million of capital into Monarch, after which FedNat would also contribute additional capital to Monarch, to further enhance its surplus position.
That investment is now completed and the Steve Hale investment operation now becomes the minority owner of Monarch, while FedNat continues to have a minority stake in the insurer.
FedNat said today that the Florida Office of Insurance Regulation (FLOIR) approved the assumption of roughly 78,000 policies effective June 1st 2022 by Monarch National Insurance Company (Monarch), from FedNat Insurance Company (FNIC).
The result of this is that Monarch’s policy count has now risen to approximately 83,000 policies.
The policy assumption was timed to occur simultaneously with the closing of the $15 million investment in Monarch by funds managed by Hale Partnership Capital Management LLC.
FedNat Underwriters will continue to perform policy servicing and claims administration for the now Monarch assumed policies.
While all of FedNat Insurance Company’s other Florida policies were cancelled, effective June 29th 2022 and its non-Florida policies have been cancelled, expired or assumed.
In addition, the Florida policies of Maison Insurance Company (Maison), which is still in run off, were cancelled effective June 29th 2022, and most of Maison’s non-Florida policies have been cancelled or expired, except around 7,650 Texas policies that will expire over the next nine months.
Michael H. Braun, FedNat’s Chief Executive Officer, commented, “FedNat has materially exited non-Florida markets and expects to complete our transition in coming months as we continue to refocus solely on our historical market in Florida, which we believe will result in a financially stronger company, with less volatility, that will be rightsized to our current capital and surplus position.”
Steve Hale aadded, “My firm and investment partners are delighted to invest $15 million into Monarch and facilitate the support of approximately 83,000 Florida policyholders. I look forward to exploring more opportunities for investment within the Florida insurance market.”
Now, onto the reinsurance renewal and we’re told that has been particularly challenging for FedNat to arrange for the now Monarch-assumed Florida insurance book.
FedNat said today that, “Monarch obtained catastrophe excess of loss reinsurance for the 2022-2023 storm season, protecting policyholders and Monarch’s surplus consistent with its historical reinsurance structure.
“Monarch anticipates that its reinsurance structure will provide appropriate and responsible protection against multiple catastrophic events.”
We’re told this reinsurance placement was a challenging tower to fill for FedNat / Monarch, given the hard reinsurance market and reinsurers reduced appetites for historically loss-affected Florida books of business.
In our conversations with reinsurance market sources who saw this placement, we’re told the 1-in-100 year risk in the tower still came in around a double-digit rate-on-line (RoL), perhaps as high as 15%, sources said.
We’re also told that FedNat / Monarch has likely taken advantage of the new Reinsurance to Assist Policyholders program (RAP) which sits below the FHCF layer, to help it fill out the necessary catastrophe reinsurance tower.
But rates-on-line (RoL) for layers just above that were particularly high, we understand.
The Monarch reinsurance tower will be a good deal smaller than FedNat’s placement of last year, and this is reflected in a lower retention, which we’re told was likely finalised in the single-digit millions.
With reinsurance nor procured for Monarch, the next step will be going through its rating assessment from Demotech, which the insurer and part-owner FedNat will now be hoping is a formality, given the capital injection and catastrophe excess of loss reinsurance now in place.