Federated National Leaving Auto Insurance Business

Dec. 22--The Sunrise-based parent of Federated National Insurance -- a top 5 Florida property and casualty insurer -- announced plans to drop its auto insurance line next year and to sell $25 million in debt to finance purchase of a majority stake in Monarch National Insurance Co. from its equity partners.

The stock purchase will give Federated National Holding Co. 100 percent stake in Monarch, a company it co-founded with a 42 percent stake in 2014 to write "standard" homeowner policies that Federated doesn't write as a "preferred" insurer.

At the time it announced Monarch's launch, Federated said it wrote only 12 percent of submissions it received from more than 3,500 agents and that Monarch would enable it to provide those agents with more options, according to a July 2014 report in the trade publication Insurance Journal.

Monarch had 8,161 policies at the end of September, but a majority -- 4,773 -- were in Broward, Palm Beach and Miami-Dade counties, according to data collected by the Florida Office of Insurance Regulation. The data shows that Monarch and Federated are among a few companies that have been expanding market share in the tricounty region over the past two years.

Federated National reported 269,218 policies statewide as of Sept. 30. Of those, 67,972 were in the tricounty region. A year earlier, the company had 271,461 policies statewide and 65,561 in the tricounty region.

Federated National is licensed to sell homeowner and auto insurance in Florida, Alabama, Louisiana, Georgia, Texas and South Carolina.

Under terms of the agreement announced this week, Federated National will pay $12.3 million for the 42 percent stake in Monarch held by Crosswinds Investor Monarch LP and $4.4 million for the 15.2 percent stake held by Transatlantic Reinsurance Co. Another $5 million will be used to pay off debt, repurchase shares of the company's common stock and for other purposes, the company said.

Federated National's share value has gained 7.8 percent -- to $15.90 -- since the company announced the developments in a statement filed with the Securities and Exchange Commission on Dec. 19.

For Federated National, dropping its auto insurance line -- a process it expects to finish by the fourth quarter of 2018 -- will complete its years-long transition away from its original business model. The company incorporated in 1991 focusing on personal auto insurance and only began selling homeowner insurance in 2000, two years after its initial public stock offering.

In 2002, the company reported writing $52.6 million in auto premium and $10.5 million in combined homeowner and mobile home premium.

In 2016, Federated reported $477.5 million in combined gross premium, of which $69.5 million -- about 15 percent -- was auto insurance, according to the company's annual report to investors. Its personal auto insurance line is "nonstandard" coverage primarily sold to customers unable to to obtain standard coverage because of their driving record, age, vehicle type or other factors, the report states.

In a news release announcing the decision, Federated National CEO Michael H. Braun was quoted as saying: "Our decision to withdraw from the auto business allows us to focus resources and capital on new or existing business opportunities. With the go-forward benefit of our August 1, 2017 rate increase for our Florida homeowners' book, the company is well-positioned to drive improved operating results in 2018."

In June, Florida insurance regulators approved an average 10 percent rate increase for a majority of the company's homeowner insurance customers in the state.

[email protected], 954-356-4071, twitter: twitter.com/ronhurtibise

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