FedNat Holding Company (NASDAQ: FNHC) Investor Update December 4, 2018
SAFE HARBOR STATEMENT Safe harbor statement under the Private Securities Litigation Reform Act of 1995: Statements that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for losses and loss adjustment expense; claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our potential failure to meet minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and Exchange Commission In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. 2
FEDNAT CORPORATE PROFILE Overview: • Leader in coastal Florida homeowners market • High quality book of business with proven underwriting excellence • Strong, large partner agent network and brand recognition • Allstate and GEICO agency relationships • Experienced leadership team (FNIC) is a homeowners’ insurer Key Metrics*: predominantly in Florida • Cash and Investments: $500M+ with controlled expansion in • Book Value Per Common Share: $17.45 AL, LA, SC and TX. • Agency Partnerships: 2,500+ • Gross Written Premiums for 3Q18: $130M+ • Florida OIR Market Share**: 4.8% • Demotech Financial Stability Rating: A * As of September 30, 2018, unless otherwise noted ** Market data as of June 30, 2018 (Source: Florida OIR) 3
LONG-TERM TRACK RECORD OF BOOK VALUE GROWTH $25.00 BVPS CAGR 13.7% $20.00 $17.45 2011 – Q318 $16.52 $16.29 $16.01 $13.91 $15.00 $9.79 $10.00 $8.26 $7.32 $5.00 $0.00 * ** 2011 2012 2013 2014 2015 2016 2017 Q3 2018 * Impacted by Hurricane Matthew ** Impacted by Hurricane Irma Source: Company Filings and SNL Financial 4 Note: Based on GAAP financial information
STRATEGIC EXECUTION DRIVING FORWARD EARNINGS MOMENTUM • Delivering improving ex-cat underwriting profitability in core Florida Homeowners book • Selectively growing organically in neighboring coastal states , now ~15% of in-force policies • Benefitting from effective exposure management resulting in reduced hurricane exposure and reinsurance costs • Mitigating AOB headwind through improved underwriting and claims management as well as implementation of Florida rate increases • Exiting unprofitable non-core lines (auto and commercial general liability) • Improving operating efficiency and reducing expenses while investing in technology 5
GROWING THROUGH INDUSTRY HEADWINDS Hurricane Hurricane Hurricane 30.00% $500,000 Matthew Irma Michael (Q4) 20+% ROE $450,000 25.52% Onset of AOB Goal in 25.00% $400,000 Cat-Free Years $399,535 $391,662 $350,000 Return on Equity % 18.82% 20.00% Revenue (Thousands) $300,000 $307,525 15.14% 15.00% $250,000 13.48% $243,471 $200,000 $198,616 10.00% $150,000 $118,922 $100,000 5.00% 3.74% $50,000 0.46% 0.00% $0 2013 2014 2015 2016 2017 2018 YTD * Return on Equity % Revenue * Revenue and ROE amounts are annualized from Q3 YTD actuals for comparison purposes. 6
EFFECTIVE CAPITAL MANAGEMENT $17.45 350,000 $18.00 $16.89 $16.65 $16.36 $16.29 $15.98 $16.00 49,251 44,377 $14.00 44,353 44,328 250,000 4,919 4,925 $12.00 $10.00 150,000 $8.00 235,661 227,459 225,070 222,936 $6.00 215,028 208,080 $4.00 50,000 $2.00 $0.00 -10,180 -12,593 -14,868 -20,911 -22,010 -22,008 -50,000 -$2.00 Q217 Q317* Q417 Q118** Q218 Q318 Accumulated Share Repurchases & Dividends Shareholders' Equity Total Debt BVPS $10M share repurchase program authorized March 2017; Additional $10M program authorized December 2017 * Impacted by Hurricane Irma 7 ** Acquired the non-controlling interest in Monarch National during 1Q18
LEADER IN DYNAMIC FLORIDA HOMEOWNERS MARKET
LEADING POSITION IN FRAGMENTED FLORIDA MARKET Market dominated by “specialists”, with limited national P&C carrier presence 2018 Q1 FL HO FL HO Mkt Share Rank Insurer DWP ($ mm) (%) 1 Universal Insurance 969 10.3 • Nation’s third largest state with 20 million people 2 Citizens Property Insurance 773 8.2 3 FedNat Insurance 453 4.8 • Projected to grow to 26 million by 2030 4 Heritage Insurance 421 4.5 5 Security First Insurance 400 4.3 Homeowner’s Choice • $9.4 billion Homeowners growing insurance market with 6 329 3.5 Insurance strong home construction market throughout the state 7 First Protective Insurance 313 3.3 8 American Integrity 305 3.3 • Highly fragmented market with national players comprising St. John’s Insurance 9 281 3.0 10 United Property Insurance 277 2.9 less than 20%, none with higher market share than FedNat 11 United Services Auto 237 2.5 12 Florida Peninsula 233 2.5 • FedNat’s focus is on high quality, well -mitigated homes 13 Tower Hill Prime Insurance 226 2.4 People’s Trust Insurance 14 225 2.4 (built after 1994) – we have ~20% of homes in this class 15 Federal Insurance 171 1.8 statewide 16 ASI Preferred 168 1.8 17 AIG Property Casualty 153 1.6 18 Olympus Insurance 146 1.6 • With Citizens policies reduced by ~two-thirds since 2011, 19 Safepoint Insurance 138 1.5 carriers pursuing geographic expansion and new products 20 Tower Hill Signature 126 1.4 21 USAA Casualty 114 1.2 22 Privilege Underwriters 108 1.2 23 Gulfstream P&C Insurance 104 1.1 24 American Traditions 104 1.1 25 Auto Club Insurance 102 1.1 Others 2,521 26.8 Total $9,397 100.0 Source: Florida Office of insurance Regulation data as of June 30, 2018 9
STRONG, PROFITABLE FLORIDA BOOK FNIC Homeowners Florida Market Share FNIC Total Insured Value and Policies In-Force Premiums in Force and % Market Share Premiums/Policies In -Force at Quarter End 140 300 273 272 271 271 269 264 256 270 $473.9 500 $471.9 6.00% % of Florida HO Market Share $468.9 $470.0 $466.1 $467.3 $464.0 247 $461.5 $452.9 120 240 240 $105 $103 $102 $100 5.00% $98 $96 400 100 $93 210 $89 $86 PIF (Thousands) TIV (Billions) 4.00% 180 80 300 271 272 273 271 269 264 256 247 150 240 3.00% 60 120 200 2.00% 90 40 60 100 1.00% 20 30 0 0.00% 0 0 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Premiums In-Force ($in Mill) Policies In-Force (# in Thousands) Total Insured Value Policies In Force Disciplined underwriting driving increased profitability on flat premiums 10
MANAGING HURRICANES IRMA AND MICHAEL Two 1-in-10 year storm events in 13-month window Hurricane Irma Hurricane Michael September 2017 October 2018 • At the time, strongest hurricane to make • Strongest hurricane on record to hit the US landfall in over a decade Florida Panhandle • Estimated gross losses at $634M with a • Estimated gross losses at $275M with a $21M retention $23M retention • 38K+ claims received, over 96% closed • 5K+ claims received, over 76% closed • $17M in claims handling revenue and • FNIC writes ~10% of the TIV in Bay and brokerage income Gulf Country • Recovered 80% of our net retention, • Storm-related income expected to be resulting in a ($3M) after-tax net impact lower than Irma (low frequency, high from the storm severity event) 11
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