10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________________TO _______________________

Commission File number 000-25001

 FedNat Holding Company

(Exact name of registrant as specified in its charter)

Florida	65-0248866
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)
14050 N.W. 14th Street, Suite 180, Sunrise, FL	33323
(Address of principal executive offices)	(Zip Code)

800-293-2532

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	FNHC	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ   No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes þ   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨	Accelerated Filer	þ	Non-accelerated Filer ¨	Smaller reporting company	☐
				Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐   No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 1, 2020, the registrant had 13,673,319 shares of common stock outstanding.

FEDNAT HOLDING COMPANY

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION		PAGE
ITEM 1	Financial Statements	3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	40
ITEM 4	Controls and Procedures	41
PART II: OTHER INFORMATION
ITEM 1	Legal Proceedings	42
ITEM 1A	Risk Factors	42
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	42
ITEM 3	Defaults upon Senior Securities	43
ITEM 4	Mine Safety Disclosures	43
ITEM 5	Other Information	43
ITEM 6	Exhibits	44
SIGNATURES		45

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PART I: FINANCIAL INFORMATION

Item 1.  Financial Statements

FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

໿

	March 31,		December 31,
	2020		2019
ASSETS
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $534,551 and $512,645, respectively)	$	542,835	$	526,265
Debt securities, held-to-maturity, at amortized cost, net of allowance of $2 and $0, respectively	4,271		4,337
Equity securities, at fair value	17,324		20,039
Total investments	564,430		550,641
Cash and cash equivalents	123,190		133,361
Prepaid reinsurance premiums	89,465		145,659
Premiums receivable, net of allowance of $189 and $159, respectively	38,337		41,422
Reinsurance recoverable, net of allowance of $53 and $0, respectively	261,150		209,615
Deferred acquisition costs and value of business acquired, net	57,715		56,136
Current and deferred income taxes, net	2,358		2,552
Goodwill	10,997		10,997
Other assets	29,456		28,633
Total assets	$	1,177,098	$	1,179,016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Loss and loss adjustment expense reserves	$	375,675	$	324,362
Unearned premiums	358,258		360,870
Reinsurance payable	63,051		102,467
Long-term debt, net of deferred financing costs of $1,438 and $1,478, respectively	98,562		98,522
Deferred revenue	6,770		6,856
Other liabilities	35,608		37,246
Total liabilities	937,924		930,323
Commitments and contingencies (see Note 11)
Shareholders' Equity
Preferred stock, $0.01 par value: 1,000,000 shares authorized	—		—
Common stock, $0.01 par value: 25,000,000 shares authorized; 13,949,971 and 14,414,821 issued and outstanding, respectively	139		144
Additional paid-in capital	168,130		167,677
Accumulated other comprehensive income (loss)	6,253		10,281
Retained earnings	64,652		70,591
Total shareholders’ equity	239,174		248,693
Total liabilities and shareholders' equity	$	1,177,098	$	1,179,016

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

໿

	Three Months Ended
	March 31,
	2020		2019
Revenues:
Net premiums earned	$	105,910	$	88,784
Net investment income	3,892		3,710
Net realized and unrealized investment gains (losses)	(2,825)		2,301
Direct written policy fees	3,466		2,391
Other income	5,256		4,011
Total revenues	115,699		101,197
Costs and expenses:
Losses and loss adjustment expenses	68,930		66,839
Commissions and other underwriting expenses	36,355		28,234
General and administrative expenses	6,245		6,311
Interest expense	1,915		5,051
Total costs and expenses	113,445		106,435
Income (loss) before income taxes	2,254		(5,238)
Income tax expense (benefit)	121		(1,373)
Net income (loss)	$	2,133	$	(3,865)
Net Income (Loss) Per Common Share
Basic	$	0.15	$	(0.30)
Diluted	$	0.15	$	(0.30)
Weighted Average Number of Shares of Common Stock Outstanding
Basic	14,249		12,795
Diluted	14,312		12,795
Dividends Declared Per Common Share	$	0.09	$	0.08

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

໿

	Three Months Ended
	March 31,
	2020		2019
Net income (loss)	$	2,133	$	(3,865)
Change in net unrealized gains (losses) on investments, available-for-sale, net of tax	(4,028)		6,888
Comprehensive income (loss)	$	(1,895)	$	3,023

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

໿

								Accumulated
			Common Stock			Additional		Other				Total
	Preferred		Issued			Paid-in		Comprehensive		Retained		Shareholders'
	Stock		Shares	Amount		Capital		Income (Loss)		Earnings		Equity
Balance as of January 1, 2020	$	—	14,414,821	$	144	$	167,677	$	10,281	$	70,591	$	248,693
Cumulative effect of new accounting standards	—		—	—		—		—		(25)		(25)
Net income (loss)	—		—	—		—		—		2,133		2,133
Other comprehensive income (loss)	—		—	—		—		(4,028)		—		(4,028)
Dividends declared	—		—	—		—		—		(1,302)		(1,302)
Shares issued under share-based compensation plans	—		58,733	—		—		—		—		—
Repurchases of common stock	—		(523,583)	(5)		—		—		(6,745)		(6,750)
Share-based compensation	—		—	—		453		—		—		453
Balance as of March 31, 2020	$	—	13,949,971	$	139	$	168,130	$	6,253	$	64,652	$	239,174

								Accumulated
			Common Stock			Additional		Other				Total
	Preferred		Issued			Paid-in		Comprehensive		Retained		Shareholders'
	Stock		Shares	Amount		Capital		Income (Loss)		Earnings		Equity
Balance as of January 1, 2019	$	—	12,784,444	$	128	$	141,128	$	(3,750)	$	77,753	$	215,259
Net income (loss)	—		—	—		—		—		(3,865)		(3,865)
Other comprehensive income (loss)	—		—	—		—		6,888		—		6,888
Dividends declared	—		—	—		—		—		(1,041)		(1,041)
Shares issued under share-based compensation plans	—		51,957	—		—		—		—		—
Share-based compensation	—		—	—		675		—		—		675
Balance as of March 31, 2019	$	—	12,836,401	$	128	$	141,803	$	3,138	$	72,847	$	217,916

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

໿

	Three Months Ended
	March 31,
	2020		2019
Cash flow from operating activities:
Net income (loss)	$	2,133	$	(3,865)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized and unrealized investment (gains) losses	2,825		(2,301)
Loss (gain) on early extinguishment of debt	—		3,575
Amortization of investment premium or discount, net	400		197
Depreciation and amortization	465		355
Share-based compensation	453		675
Changes in operating assets and liabilities:
Prepaid reinsurance premiums	56,194		38,719
Premiums receivable, net	3,085		7,107
Reinsurance recoverable, net	(51,567)		(90,498)
Deferred acquisition costs and value of business acquired, net	(1,579)		(796)
Income taxes, net	1,510		(1,146)
Deferred revenue	(86)		(18)
Loss and loss adjustment expense reserves	51,313		77,894
Unearned premiums	(2,612)		(6,132)
Reinsurance payable	(39,416)		(32,200)
Other	(1,745)		1,639
Net cash provided by (used in) operating activities	21,373		(6,795)
Cash flow from investing activities:
Proceeds from sales of equity securities	2,056		1,506
Proceeds from sales of debt securities	103,118		49,174
Purchases of equity securities	(3,428)		(2,188)
Purchases of debt securities	(134,971)		(62,741)
Maturities and redemptions of debt securities	10,850		8,271
Purchases of property and equipment	(1,224)		(486)
Net cash provided by (used in) investing activities	(23,599)		(6,464)
Cash flow from financing activities:
Proceeds from issuance of long-term debt, net of issuance costs	—		98,464
Payment of long-term debt and prepayment penalties	—		(48,000)
Purchases of FedNat Holding Company common stock	(6,643)		—
Dividends paid	(1,302)		(1,039)
Net cash provided by (used in) financing activities	(7,945)		49,425
Net increase (decrease) in cash and cash equivalents	(10,171)		36,166
Cash and cash equivalents at beginning-of-period	133,361		64,423
Cash and cash equivalents at end-of-period	$	123,190	$	100,589

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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FEDNAT HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

(Continued)

໿

	Three Months Ended
	March 31,
	2020		2019
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for interest	$	3,750	$	902
Cash paid (received) during the period for income taxes	$	(811)	$	(277)
Significant non-cash investing and financing transactions:
Right-of-use asset	$	(7,938)	$	(8,103)
Lease liability	$	7,938	$	8,103

The accompanying notes are an integral part of the unaudited consolidated financial statements.

-8-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2020

1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Organization

FedNat Holding Company (“FNHC,” the “Company,” “we,” “us,” or “our”) is a regional insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents.  We, through our wholly owned subsidiaries, are authorized to underwrite and/or place homeowners multi-peril (“homeowners”), federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.

FedNat Insurance Company (“FNIC”), our largest wholly owned insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance by the state’s insurance departments, in Florida, Louisiana, Texas, Georgia, South Carolina, Alabama and Mississippi.

Maison Insurance Company ("MIC"), an insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance as well as wind/hail-only exposures by the state's insurance departments in Louisiana, Texas and Florida.

Monarch National Insurance Company (“MNIC”), an insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance in Florida.

Material Distribution Relationships

Ivantage Select Agency, Inc.

The Company is a party to an insurance agency master agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which the Company has been authorized by ISA to appoint Allstate agents to offer our FNIC homeowners insurance products to consumers in Florida. As a percentage of the total homeowners premiums we underwrote, 20.5% and 22.8% were from Allstate’s network of Florida agents, for the three months ended March 31, 2020 and 2019, respectively.

SageSure Insurance Managers, LLC

The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) to facilitate growth in our FNIC homeowners business outside of Florida.  As a percentage of the total homeowners premiums, 24.2% and 19.6% of the Company’s premiums were underwritten by SageSure, for the three months ended March 31, 2020 and 2019, respectively. As part of our partnership with SageSure, we entered into a profit share agreement, whereby we share 50% of net profits of this line of business, as calculated per the terms of the agreement, subject to certain limitations. The profit share cost is reflected in commissions and underwriting expenses on our consolidated statement of operations.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  The consolidated financial statements include the accounts of FNHC and its wholly-owned subsidiaries and all entities in which the Company has a controlling financial interest and any variable interest entity (“VIE”) of which the Company is the primary beneficiary. The Company’s management believes the consolidated financial statements reflect all material adjustments, including normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows of the Company for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company identifies a VIE as an entity that does not have sufficient equity to finance its own activities without additional financial support or where the equity investors lack certain characteristics of a controlling financial interest.  The Company assesses its contractual, ownership or other interests in a VIE to determine if the Company’s interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  The Company performs an ongoing qualitative assessment of its variable interests in a VIE to determine whether the Company has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the assets and liabilities of the VIE in its consolidated financial statements.

-9-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Our significant accounting policies were described in Note 2 of our 2019 Form 10-K. Other than the changes noted in "Recently Issued Accounting Pronouncements, Adopted" below, there have been no significant changes in our significant accounting policies for the three months ended March 31, 2020.

Accounting Estimates and Assumptions

The Company prepares the accompanying consolidated financial statements in accordance with GAAP, which requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may materially differ from those estimates.

Similar to other property and casualty insurers, the Company’s liability for loss and loss adjustment expenses ("LAE") reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, the Company believes that the liability and LAE reserve is adequate. The Company reviews and evaluates its estimates and assumptions regularly and makes adjustments, reflected in current operations, as necessary, on an ongoing basis.

Recently Issued Accounting Pronouncements, Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment ("OTTI") model. The update also requires enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The Company adopted the guidance effective January 1, 2020, by reflecting a cumulative effect adjustment of less than $0.1 million, after-tax, which decreased retained earnings, held-to-maturity debt securities and reinsurance recoverable.

Refer to Note 7 for additional information regarding allowances for credit loss.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the guidance effective January 1, 2020, which did not have any impact on the Company’s consolidated financial condition or results of operations.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In January 2020, the FASB issued ASU 2020-1, Accounting for Equity Securities and Equity Investments, which clarifies the interaction between accounting standards related to equity securities (Topic 321), equity method investments (Topic 323), and certain derivatives (Topic 815). The update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The update is effective for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is in the early stage of evaluating the impact that the update will have on the Company’s consolidated financial position or results of operations.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

3. ACQUISITIONS

On December 2, 2019, the Company completed its acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. ("PIH"). Specifically, the Company purchased from PIH all of the outstanding equity of MIC, Maison Managers, Inc., and ClaimCor LLC (collectively, the "Maison Companies"). The Maison Companies provide multi-peril and wind/hail only coverage to personal residential dwellings and manufactured/mobile homes in Louisiana, Texas and Florida. The acquisition enables us to increase geographic diversification of our book of business outside Florida and generate additional business with operating synergies and general and administrative expense savings.

Revenues and net income of the business acquired were $15.4 million and $1.7 million, respectively for the three months ended March 31, 2020.

The following unaudited pro forma condensed consolidated statements of operations of the Company assume that the acquisition of the Maison Companies was completed on January 1, 2019:

	Three
	Months
	Ended
	March 31, 2019
	(In thousands)
Revenue	$	118,621
Net income (loss)	(3,395)

Pro forma adjustments include the revenue and net income (loss) of the Maison Companies for each period as well as estimates for amortization of identifiable intangible assets acquired and fair value adjustments associated with investments, VOBA (different than deferred acquisition costs) and reinsurance recoverable. Other pro forma adjustments include the incremental increase to interest expense attributable to financing the acquisition and the impact of reflecting acquisition and integration costs earlier in 2019.

For more information regarding our acquisition, refer to Note 3 of our 2019 Form 10-K.

4. FAIR VALUE

Fair Value Disclosures of Financial Instruments

The Company accounts for financial instruments at fair value or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information.  All assets and liabilities that are recorded at fair value are classified and disclosed in one of the following three categories:

•Level 1 - Quoted market prices (unadjusted) for identical assets or liabilities in active markets is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis, or observable inputs.

•Level 2 - Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques using observable market data.  Significant other observable that can be corroborated by observable market data; and

•Level 3 - Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

The Company’s financial instruments measured at fair value on a recurring basis and the level of the fair value hierarchy of inputs used consisted of the following:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	66,033	$	130,330	$	—	$	196,363
Obligations of states and political subdivisions	—		22,298		—		22,298
Corporate securities	—		293,730		—		293,730
International securities	—		30,444		—		30,444
Debt securities, at fair value	66,033		476,802		—		542,835
Equity securities, at fair value	13,720		3,604		—		17,324
Total investments, at fair value	$	79,753	$	480,406	$	—	$	560,159

໿

	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	83,764	$	110,429	$	—	$	194,193
Obligations of states and political subdivisions	—		24,020		—		24,020
Corporate securities	—		278,302		—		278,302
International securities	—		29,750		—		29,750
Debt securities, at fair value	83,764		442,501		—		526,265
Equity securities, at fair value	17,361		2,678		—		20,039
Total investments, at fair value	$	101,125	$	445,179	$	—	$	546,304

Held-to-maturity debt securities reported on the consolidated balance sheets at amortized cost and disclosed at fair value below (and in Note 5) and the level of fair value hierarchy of inputs used consisted of the following:

	Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2020	$	3,439	$	822	$	—	$	4,261
December 31, 2019	3,453		878		—		4,331

We measure the fair value of our securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the security, and we consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is based on a market approach that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. We review the third-party pricing methodologies on a quarterly basis and validate the fair value prices to a separate independent data service and ensure there are no material differences. Additionally, market indicators, industry and economic events are monitored.

-12-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

A summary of the significant valuation techniques and market inputs for each financial instrument carried at fair value includes the following:

•United States Government Obligations and Authorities - In determining the fair value for United States government securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for United States government securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

•Obligations of States and Political Subdivisions - In determining the fair value for state and municipal securities, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

•Corporate and International Securities - In determining the fair value for corporate securities the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.

•Equity Securities - In determining the fair value for equity securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for equity securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

We did not have securities trading in less liquid or illiquid markets with limited or no pricing information, therefore we did not use unobservable inputs to measure fair value as of March 31, 2020 and December 31, 2019. Additionally, we did not have any assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2020 or December 31, 2019, and we noted no significant changes in our valuation methodologies between those periods.

There were no changes to the Company’s valuation methodology and the Company is not aware of any events or circumstances that would have a significant adverse effect on the carrying value of its assets and liabilities measured at fair value as of March 31, 2020 and December 31, 2019. There were no transfers between the fair value hierarchy levels during the three months ended March 31, 2020 and 2019.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

5. INVESTMENTS

Unrealized Gains and Losses

The difference between amortized cost or cost and estimated fair value and gross unrealized gains and losses, by major investment category, consisted of the following:

໿

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	187,452	$	8,924	$	13	$	196,363
Obligations of states and political subdivisions	21,935		400		37		22,298
Corporate	293,927		5,745		5,942		293,730
International	31,237		324		1,117		30,444
	534,551		15,393		7,109		542,835
Debt securities - held-to-maturity:
United States government obligations and authorities	3,555		53		65		3,543
Corporate	671		7		6		672
International	45		1		—		46
	4,271		61		71		4,261
Total investments, excluding equity securities	$	538,822	$	15,454	$	7,180	$	547,096

໿

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	191,546	$	3,073	$	426	$	194,193
Obligations of states and political subdivisions	23,748		294		22		24,020
Corporate	268,182		10,252		132		278,302
International	29,169		593		12		29,750
	512,645		14,212		592		526,265
Debt securities - held-to-maturity:
United States government obligations and authorities	3,585		12		39		3,558
Corporate	697		20		—		717
International	55		1		—		56
	4,337		33		39		4,331
Total investments, excluding equity securities	$	516,982	$	14,245	$	631	$	530,596

-14-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Net Realized and Unrealized Gains and Losses

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method.

Net realized and unrealized gains (losses) recognized in earnings, by major investment category, consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross realized and unrealized gains:
Debt securities	$	1,386	$	317
Equity securities	319		2,830
Total gross realized and unrealized gains	1,705		3,147
Gross realized and unrealized losses:
Debt securities	(148)		(400)
Equity securities	(4,382)		(446)
Total gross realized and unrealized losses	(4,530)		(846)
Net realized and unrealized gains (losses) on investments	$	(2,825)	$	2,301

The above line item, net realized and unrealized gains (losses) on investments, includes the following equity securities gains (losses) recognized in earnings:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net realized and unrealized gains (losses)	$	(4,063)	$	2,384
Less:
Net realized and unrealized gains (losses) on securities sold	(635)		326
Net realized and unrealized gains (losses) recognized during the period still held as of the end-of-period	$	(3,428)	$	2,058

-15-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Contractual Maturity

Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.

Amortized cost and estimated fair value of debt securities, by contractual maturity, consisted of the following:

໿

	March 31, 2020
	Amortized
	Cost		Fair Value
Securities with Maturity Dates	(In thousands)
Debt securities, available-for-sale:
One year or less	$	33,374	$	33,413
Over one through five years	170,802		171,418
Over five through ten years	158,874		161,147
Over ten years	171,501		176,857
	534,551		542,835
Debt securities, held-to-maturity:
One year or less	285		286
Over one through five years	3,846		3,833
Over five through ten years	39		39
Over ten years	101		103
	4,271		4,261
Total	$	538,822	$	547,096

Net Investment Income

Net investment income consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Interest income	$	3,822	$	3,657
Dividends income	70		53
Net investment income	$	3,892	$	3,710

-16-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Aging of Gross Unrealized Losses

Gross unrealized losses and related fair values for debt securities, grouped by duration of time in a continuous unrealized loss position, consisted of the following:

໿

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	810	$	1	$	268	$	12	$	1,078	$	13
Obligations of states and political subdivisions	5,544		37		—		—		5,544		37
Corporate	117,591		5,754		—		188		117,591		5,942
International	13,330		1,079		132		38		13,462		1,117
	137,275		6,871		400		238		137,675		7,109
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,222		65		2,222		65
Corporate	235		6		—		—		235		6
International	—		—		—		—		—		—
	235		6		2,222		65		2,457		71
Total investments, excluding equity securities	$	137,510	$	6,877	$	2,622	$	303	$	140,132	$	7,180

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	49,833	$	409	$	2,218	$	17	$	52,051	$	426
Obligations of states and political subdivisions	6,810		22		—		—		6,810		22
Corporate	15,872		94		7,694		38		23,566		132
International	3,856		10		179		2		4,035		12
	76,371		535		10,091		57		86,462		592
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,287		39		2,287		39
Corporate	—		—		—		—		—		—
International	—		—		—		—		—		—
	—		—		2,287		39		2,287		39
Total investments, excluding equity securities	$	76,371	$	535	$	12,378	$	96	$	88,749	$	631

-17-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

As of March 31, 2020, the Company held a total of 522 debt securities that were in an unrealized loss position, of which 15 securities were in an unrealized loss position continuously for 12 months or more. As of December 31, 2019, the Company held a total of 203 debt securities that were in an unrealized loss position, of which 24 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these securities consisted primarily of losses related to corporate securities.

Collateral Deposits

Cash and cash equivalents and investments, the majority of which were debt securities, with fair values of $9.5 million and $11.2 million, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations as of March 31, 2020 and December 31, 2019, respectively.

6. REINSURANCE

Overview

Reinsurance is used to mitigate the exposure to losses, manage capacity and protect capital resources. The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota-share basis in order to limit the Company’s loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, the Company remains primarily liable to its policyholders.

The Company is selective in choosing reinsurers and considers numerous factors, the most important of which is the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation.  In an effort to minimize the Company’s exposure to the insolvency of a reinsurer, the Company evaluates the acceptability and review the financial condition of the reinsurer at least annually with the assistance of the Company’s reinsurance broker.

Significant Reinsurance Contracts

2018-2019 Excess of Loss Reinsurance Programs

With the February 21, 2018 acquisition of the minority interests of MNIC, the Company combined both FNIC and MNIC under a single program allowing the Company to capitalize on efficiencies and scale. FNIC and MNIC’s combined 2018-2019 reinsurance program cost $148.8 million. This amount included $102.7 million for the private reinsurance for the Company’s exposure, including prepaid automatic premium reinstatement protection, along with $46.1 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords FNIC and MNIC $1.8 billion of aggregate coverage with a maximum single event coverage totaling $1.3 billion, exclusive of retentions. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2018 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $20.0 million, up slightly from the 2017-2018 reinsurance program and MNIC’s single event pre-tax retention for a catastrophic event is $3.0 million, down slightly from the 2017-2018 reinsurance program.

The combined FNIC and MNIC private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective July 1, 2018 and all private layers have prepaid automatic reinstatement protection, which afforded the Company additional coverage for subsequent events. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all layers attach after $20.0 million in losses for FNIC and after $3.0 million in losses for MNIC. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted. Given market conditions, FNIC has elected not to purchase any multiple year protection and terminated the second year of the $89.0 million of multiple year protection that FNIC purchased in 2017 on a two-year basis. FNIC also had $156.0 million of multiple year protection that expired on June 30, 2018. The overall reinsurance programs are with reinsurers that currently have an A.M. Best or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

FNIC’s non-Florida excess of loss reinsurance treaties afforded us an additional $23.0 million of aggregate coverage with first event coverage totaling $5.0 million and second event coverage totaling $18.0 million, with the incremental $13.0 million of second event coverage applying to hurricane losses only. The end result is a non-Florida retention of $15.0 million for the first event and $2.0 million for the second event though these retentions are reduced to $7.5 million and $1.0 million after taking into account the profit-sharing agreement that FNIC has with the nonaffiliated managing general underwriter that writes FNIC non-Florida property

-18-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

business. FNIC’s non-Florida reinsurance program cost included $2.0 million for this private reinsurance, including prepaid automatic premium reinstatement protection.

2019-2020 Catastrophe Excess of Loss Reinsurance Program

Given the December 2, 2019 acquisition of the Maison Companies, the Company and PIH agreed to combine FNIC, MNIC, and MIC under a single reinsurance program allowing the carriers to capitalize on efficiencies, spread of risk and scale.

The combined reinsurance treaties provide approximately $1.3 billion of single-event reinsurance coverage in excess of a $27 million retention for catastrophic losses on the first event (and $15 million on the second and third events), including hurricanes, and aggregate coverage of $1.9 billion, at an approximate total cost of $224.3 million.

The combined FNIC, MIC and MNIC private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective July 1, 2019 and all private layers have prepaid automatic reinstatement protection, which affords the carriers additional coverage for subsequent events. This private market excess of loss treaty structure breaks coverage into layers, with a cascading feature such that substantially all layers attach after $20 million in losses for FNIC, $2 million in losses for MNIC and $5 million in losses for MIC. For FNIC and MNIC, the second and third event attaches at $10 million per event, on a combined basis. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted. The overall reinsurance program is with reinsurers that currently have an A.M. Best Company or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts. 

As indicated above, FNIC, MIC and MNIC's combined 2019-2020 reinsurance program is estimated to cost $224.3 million. This amount includes approximately $178.9 million for private reinsurance for the carriers’ exposure described above, including prepaid automatic premium reinstatement protection, along with approximately $45.9 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords FNIC, MNIC, and MIC approximately $1.9 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.3 billion, exclusive of retentions. Each carrier will pay directly its allocated portion of the aggregate reinsurance ceded premium cost. The allocation methodology by which FNIC, MNIC, and MIC determines their share of the premium and distribution of reinsurance recoveries under the combined reinsurance tower is based on catastrophe loss modeling of the separate books of business. Each carrier shares the combined program cost in proportion to its contribution to the total expected loss in each reinsurance layer. Each carrier's reinsurance recoveries will be based on that carrier's contributing share of a given event's total loss. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2019 hurricane season, and MIC increased its FHCF participation to 90%.

FNIC’s non-Florida excess of loss reinsurance treaty affords us an additional $18 million of coverage for a second event, which applies to hurricane losses only. The result is a non-Florida retention of $20 million for FNIC for the first event and $2 million for the second event, although these retentions are reduced to $10 million and $1 million after taking into account the profit-sharing agreement that FNIC has with the non-affiliated managing general underwriter that writes FNIC’s non-Florida property business. FNIC’s non-Florida reinsurance program cost for the above specific coverage approximates $1.8 million for this private reinsurance.

The insurance carriers’ cost and amounts of reinsurance are based on current analysis of exposure to catastrophic risk. The data is subjected to exposure level analysis at various dates through December 31, 2019. This analysis of the carriers’ exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in retentions, limits and reinsurance premiums in total, and by carrier, as a result of increases or decreases in the carriers’ exposure levels.

Quota-Share Reinsurance Programs

FNIC's reinsurance programs also include quota-share treaties. One such treaty for 30% became effective July 1, 2014, and another for 10% became effective on July 1, 2015 with each running for two years. The combined treaties provided up to a 40% quota-share reinsurance on covered losses for the homeowners’ property and liability insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.

On July 1, 2016, the 30% quota-share treaty expired on a cut-off basis, which means as of that date the Company retained an incremental 30% of its unearned premiums and losses. On July 1, 2017, the 10% quota-share treaty expired on a cut-off basis, which means as of that date we retained an incremental 10% of the underlying unearned premiums and losses. The reinsurers remain liable for the paid losses occurring during the terms of the treaties, until each treaty is commuted.

-19-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

On July 1, 2017, FNIC bound a 10% quota-share on its Florida homeowners book of business, which excluded named storms, subject to certain limitations. This treaty is not subject to accounting as a retrospectively rated contract. This treaty expired on July 1, 2018 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded was returned to FNIC.

On July 1, 2018, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was initially set at a 2%, cession and is subject to certain limitations. In addition, this quota-share allowed FNIC to prospectively increase or decrease the cession percentage up to three times during the term of the agreement. Effective October 1, 2018, FNIC elected to increase the cession percentage from 2% to 10% on an in-force, new and renewal basis.

The treaty expired on July 1, 2019 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded was returned to FNIC.

On July 1, 2019, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was set at a 10% cession and is subject to certain limitations. In addition, this quota-share allows FNIC the flexibility to prospectively increase or decrease the cession percentage up to three times during the term of the agreement.

The Company’s private passenger automobile quota-share treaties are programs which became effective at different points in the year and cover auto policies across several states.

Associated Trust Agreements

Certain reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled less than $0.1 million as of March 31, 2020 and December 31, 2019.

Reinsurance Recoverable, Net

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverable. Reinsurance recoverable, net consisted of the following:

໿

	March 31,		December 31,
	2020		2019
	(In thousands)
Reinsurance recoverable on paid losses	$	48,544	$	45,186
Reinsurance recoverable on unpaid losses	212,606		164,429
Reinsurance recoverable, net	$	261,150	$	209,615

As of March 31, 2020, and December 31, 2019, the Company had reinsurance recoverable of $210.5 million and $163.7 million, respectively as a result of Hurricanes Michael and Irma. All reinsurers in our excess-of-loss reinsurance programs have an A.M. Best or Standard & Poor’s rating of “A-“ or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

-20-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Net Premiums Written and Net Premiums Earned

Net premiums written and net premiums earned consisted of the following:

໿

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net Premiums Written
Direct	$	172,962	$	132,233
Ceded	(13,766)		(11,793)
	$	159,196	$	120,440
Net Premiums Earned
Direct	$	175,574	$	138,367
Ceded	(69,664)		(49,583)
	$	105,910	$	88,784

7. ALLOWANCES FOR CREDIT LOSS

Overview

There is significant risk and judgment involved in determining estimates of our allowances for credit loss, which reduce the amortized cost of an asset to produce an estimate of the net amount that will be collected over the asset's contractual life. Longer time horizons generally present more uncertainty in expected cash flow. We evaluate the expected credit loss of assets on an individual basis, except in cases where assets collectively share similar risk characteristics where we pool them together. We evaluate and estimate our allowances for credit loss by considering reasonable, relevant and supportable available information.

Activity in the allowances for credit loss, by asset line item on the consolidated balance sheet, is summarized as follows:

	Debt
	Securities,				Reinsurance
	Held-to-		Premiums		Recoverable,
	Maturity		Receivable		Net		Total
	(In thousands)
Balance as of December 31, 2019	$	—	$	159	$	—	$	159
Cumulative effect of new accounting standard (1)	1		—		32		33
Credit loss expense (recovery) (2)	1		30		21		52
Balance as of March 31, 2020	$	2	$	189	$	53	$	244

(1)Refer to Note 2 above for information about our adoption of ASU 2016-13 on January 1, 2020.

(2)Reflected in commissions and other underwriting expenses on the consolidated statements of comprehensive income (loss).

Accrued investment income is included in other assets on the consolidated balance sheet. We immediately write-off accrued investment income if it becomes uncollectible, therefore we do not measure or record an allowance for credit losses.

-21-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Investments

Our investment policy is established by the Board of Directors’ Investment Committee and is reviewed on a regular basis. This policy currently limits investment in non-investment-grade debt securities (including high-yield bonds), and limits total investments in preferred stock, common stock and mortgage notes receivable. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.

Our investment portfolio has inherent risks because it contains volatility associated with market pricing and interest rate sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates or credit worthiness. The effects of market volatility, declining economic conditions, such as a U.S. or global economic slowdown, whether due to COVID-19, or other factors, could adversely impact the credit quality of securities in our portfolio and may have unforeseen consequences on the liquidity and financial stability of the issuers of securities we hold.

Our debt securities portfolio includes securities that:

•Are explicitly guaranteed by a sovereign entity that can print its own currency;

•The currency is routinely held by central banks, used in international commerce and commonly viewed as a reserve currency; and

•Have experienced a consistent high credit rating by rating agencies and a long history with no credit losses.

We believe if these governments were to technically default it is reasonable to assume an expectation of immaterial losses, even in the current strained market conditions. Refer to Note 5 above for the balances of these sovereign debt securities, which are reported in the following investment categories:

•United States government obligations and authorities;

•Obligations of states and political subdivisions; and

•International.

For our debt securities, available-for-sale, the fact that a security’s fair value is below its amortized cost is not a decisive indicator of credit loss. In many cases, a security’s fair value may decline due to factors that are unrelated to the issuer’s ability to pay. For this reason, we consider the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, with a special emphasis on securities downgraded below investment grade. A comparison is made between the present value of expected future cash flows for a security and its amortized cost. If the present value of future expected cash flows is less than amortized cost, a credit loss is presumed to exist and an allowance for credit losses is established. Management may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost. As a result of this review, management concluded that there were no credit-related impairments of our available-for-sale securities as of January 1, 2020, and March 31, 2020. Management does not intend to sell available-for-sale securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.

Our equity investments are measured at fair value through net income (loss), therefore they do not require an allowance for credit loss.

We measure and record our valuation allowances for credit losses on our held-to-maturity corporate securities assets by multiplying the probability the asset would default within a given timeframe (“PD”) by the percentage of the asset not expected to be collected upon default, or loss given default (“LGD”), and multiplying that percentage by the amortized cost of the asset. We use market observable data for our PD and LGD assumptions.

-22-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Premiums Receivable

We do have collectability risk, but our homeowners policy terms are one year or less and our policyholders are dispersed throughout the southeast United States, although the majority of our policyholders are located in Florida.

We write-off premiums receivable if the individual policy becomes uncollectible. Because collectively our premiums receivable share similar risk characteristics, we pool them to measure our valuation allowance for credit losses using an aging method approach. This method applies historical loss rates to levels of delinquency for our policy terms that are one year or less. Based upon historical collectability, adjusted for current and future economic conditions, we have measured and recorded our valuation allowances for premiums receivable.

The aging of our premiums receivable and associated allowance for credit loss as of March 31, 2020 was as follows:

			Days Past Due
	Current		1-29		30-59		60-89		90 plus		0	Total
			(In thousands)
Amortized cost	$	35,822	$	2,507	$	29	$	9	$	159		$	38,526
Allowance for credit loss	—		(26)		(1)		(3)		(159)			(189)
Net	$	35,822	$	2,481	$	28	$	6	$	—		$	38,337

Reinsurance Recoverable

Refer to Note 6 above for details of our efforts to minimize our exposure to losses from a reinsurer’s inability to pay.

We measure and record our valuation allowances for credit losses on our reinsurance recoverables asset by multiplying the PD by the LGD and multiplying the result by the amortized cost of the asset. We use market observable data for our PD and LGD assumptions, and in cases where we are unable to observe LGD, we assume it is 100%.

-23-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

8. LOSS AND LOSS ADJUSTMENT RESERVES

The liability for loss and LAE reserves is determined on an individual-case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and incurred but not reported ("IBNR").

Activity in the liability for loss and LAE reserves is summarized as follows:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross reserves, beginning-of-period	$	324,362	$	296,230
Less: reinsurance recoverable (1)	(164,429)		(166,396)
Net reserves, beginning-of-period	159,933		129,834
Incurred loss, net of reinsurance, related to:
Current year	69,365		67,048
Prior year loss development (redundancy) (2)	(117)		721
Ceded losses subject to offsetting experience account adjustments (3)	(295)		(930)
Prior years	(412)		(209)
Amortization of acquisition fair value adjustment	(23)		—
Total incurred loss and LAE, net of reinsurance	68,930		66,839
Paid loss, net of reinsurance, related to:
Current year	13,371		14,868
Prior years	52,423		41,974
Total paid loss and LAE, net of reinsurance	65,794		56,842
Net reserves, end-of-period	163,069		139,831
Plus: reinsurance recoverable (1)	212,606		234,293
Gross reserves, end-of-period	$	375,675	$	374,124

(1)Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

(2)Reflects loss development from prior accident years impacting pre-tax net income. Excludes losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment.

(3)Reflects losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment, such that there is no impact on pre-tax net income (loss).

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple interpretations. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

During the three months ended March 31, 2020, the Company experienced $0.1 million of favorable loss and LAE reserve development on prior accident years, which consists of redundancy in the homeowners line of business as a result of lower LAE expenses associated primarily with Hurricane Irma, mostly offset by adverse development in its commercial general liability line of business.

During the three months ended March 31, 2019, the Company experienced $0.7 million of favorable loss and LAE reserve redundancy in accident year 2017. The redundancy was the result of lower LAE expenses associated primarily with Hurricane Irma.

-24-

FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

As previously disclosed, the Company entered into 30% and 10% retrospectively-rated Florida-only property quota-share treaties, which ended on July 1, 2016 and 2017, respectively.  These agreements included a profit share (experience account) provision, under which the Company will receive ceded premium adjustments at the end of the treaty to the extent there is a positive balance in the experience account.  This experience account is based on paid losses rather than incurred losses.  Due to the retrospectively-rated nature of this treaty, when the experience account is positive we cede losses under these treaties as the claims are paid with an equal and offsetting adjustment to ceded premiums (in recognition of the related change to the experience account receivable), with no impact on net income.  Conversely, when the experience account is negative, the Company cedes losses on an incurred basis with no offsetting adjustment to ceded premiums, which impacts net income. Loss development can be either favorable or unfavorable regardless of whether the experience account is in a positive or negative position.

9. LONG-TERM DEBT

Refer to Note 8 of our 2019 Form 10-K for information regarding our long-term debt.

10. INCOME TAXES

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act,” was signed into law on March 27, 2020. The CARES Act contains several relief provisions for corporations and lifts certain deduction limitations originally imposed by the Tax Cut and Jobs Act. The CARES Act, among other things, includes temporary changes regarding the prior and future utilization of net operating losses (“NOL”), temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes and the creation of certain refundable employee retention credits. The Company has been evaluating the various provisions of the CARES Act. As described below, the Company did utilize the NOL provision in the first quarter of 2020.

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. The effective income tax rate was 5.4% and 26.2% for the three months ended March 31, 2020 and 2019, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction, and executive compensation as well as NOL carrybacks from the impact of the CARES Act.

The Company had an uncertain tax position of $0.4 million as of March 31, 2020 and December 31, 2019. The Company does not have a valuation allowance on its deferred income tax asset as of March 31, 2020 and December 31, 2019.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense (benefit) in the consolidated statements of operations and statements of comprehensive income (loss). For the three months ended March 31, 2020 and 2019, the Company recognized no benefit related to an uncertain tax position and our associated accrued interest and penalties was less than $0.1 million.

11. COMMITMENTS AND CONTINGENCIES

Litigation and Legal Proceedings

In the ordinary course of business, the Company is involved in various legal proceedings, specifically claims litigation.  The Company’s insurance subsidiaries participate in most of these proceedings by either defending third-party claims brought against insureds or litigating first-party coverage claims.  The Company accounts for such activity through the establishment of loss and LAE reserves. The Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to the Company’s consolidated financial statements. The Company is also occasionally involved in other legal and regulatory proceedings, some of which may assert claims for substantial amounts, making the Company party to individual actions in which extra contractual damages, punitive damages or penalties, such as claims alleging bad faith in the handling of insurance claims, are sought.

The Company reviews the outstanding matters, if any, on a quarterly basis. The Company accrues for estimated losses and contingent obligations in the consolidated financial statements if and when the obligation or potential loss from any litigation, legal proceeding or claim is considered probable and the amount of the potential exposure is reasonably estimable. The Company records such probable and estimable losses, through the establishment of legal expense reserves. As events evolve, facts concerning litigation

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

and contingencies become known and as additional information becomes available, the Company’s management reassesses its potential liabilities related to pending claims and litigation and may revise its previous estimates and make appropriate adjustment to the financial statements. Estimates that require judgment are subject to change and are based on management’s assessment, including the advice of legal counsel, the expected outcome of litigation and legal proceedings or other dispute resolution proceedings or the expected resolution of contingencies. The Company’s management believes that the Company’s accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on the Company’s consolidated financial statements.

Assessment Related Activity

The Company operates in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Property Insurance Association of Louisiana (“PIAL”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Underwriters Association (“AIUA”). As a direct premium writer, we are required to participate in certain insurer solvency associations under the applicable laws in the states in which we do business.

In connection with its automobile line of business, which is currently winding down, FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan, which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. There were no material assessments by the JUA Plan as of December 31, 2019. Future assessments by the JUA and the JUA Plan are indeterminable at this time.

Leases

The Company is committed under various operating lease agreements for office space.

The right-of-use asset is reflected in other assets and the lease liability is reflected in other liabilities on our consolidated balance sheets. Lease expense, net of sublease income is reflected in general and administrative expenses on our consolidated statements of operations.

Additional information related to our operating lease agreement for office space consisted of the following:

	March 31,
	2020
	(In thousands)
Right-of-use asset	$	7,938
Accrued rent	(216)
Right-of-use asset, net	$	7,722
Lease liability	$	7,938
Weighted average discount rate	4.70		%
Weighted average remaining years of lease term	8.4

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Lease expense	$	280	$	260
Sublease income	(155)		—
Lease expense, net	$	125	$	260
Net cash provided by (used in) operating activities	$	(89)	$	(137)

The interest rates implicit in our leases were not known, therefore the weighted-average discount rate above was determined by what FedNat would have had to pay to borrow the lease payments in a similar economic environment that existed at inception of our leases while considering our general credit and the theoretical collateral of the office space. In the event of a change to lease term, the Company would re-evaluate all inputs and assumptions, including the discount rate.

12. SHAREHOLDERS' EQUITY

Common Stock Repurchases

The Company may repurchase shares in open market transactions in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.

In December 2019, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $10.0 million of its outstanding shares of common stock from January 1, 2020 through December 31, 2020. In March 2020, the Company’s Board of Directors authorized an additional $10.0 million increase to the share repurchase program. This increased authorization will allow the Company to purchase up to $20 million of shares outstanding through December 31, 2020. During the three months ended March 31, 2020, the Company repurchased 523,583 shares of its common stock at a total cost of $6.8 million, which is an average price per share of $12.89. As of March 31, 2020, the remaining availability for future repurchases of our common stock under this program was $13.2 million. As of the filing of this report, the remaining availability of our common stock under this program was $10.0 million.

Securities Offerings

In June 2018, the Company filed with the Securities and Exchange Commission (“SEC”) on Form S-3, a shelf registration statement enabling the Company to offer and sell, from time to time, up to an aggregate of $150.0 million of securities. No securities have been offered or sold under this registration statement.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

Share-Based Compensation Expense

Share-based compensation arrangements include the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Restricted stock	$	353	$	494
Performance stock	100		181
Total share-based compensation expense	$	453	$	675
Recognized tax benefit	$	111	$	171
Intrinsic value of options exercised	2		—
Fair value of restricted stock vested	1,032		927

The intrinsic value of options exercised represents the difference between the stock option exercise price and the weighted average closing stock price of FNHC common stock on the exercise dates, as reported on the NASDAQ Global Market.

Stock Option Awards

A summary of the Company’s stock option activity includes the following:

໿

	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2020	38,850	$	3.80
Granted	—	—
Exercised	(100)	3.30
Cancelled	—	—
Outstanding at March 31, 2020	38,750	$	3.81

Restricted Stock Awards

The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by the Company’s directors, executives and other key employees. For all RSA awards, excluding grants based on total relative shareholder return ("TSR"), the accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis for service awards and over successive one-year requisite service periods for performance-based awards. Our expense for our performance awards depends on achievement of specified results; therefore, the ultimate expense can range from 0% to 250% of target. Our TSR-based cliff vesting awards contain performance criteria which are tied to the achievement of certain market conditions. The TSR grant date fair value was determined using a Monte Carlo simulation and, unlike the performance condition awards, the expense is not reversed if the performance condition is not met. This value is recognized as expense over the requisite service period using the straight-line recognition method.

During the three months ended March 31, 2020 and 2019, the Board of Directors granted 210,272 and 140,156 RSAs, respectively, vesting over three or five years, to the Company’s directors, executives and other key employees.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

RSA activity includes the following:

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020	255,345	$	17.82
Granted	210,272	11.82
Vested	(58,633)	17.59
Cancelled	(15,990)	18.24
Outstanding at March 31, 2020	390,994	$	14.62

The weighted average grant date fair value is measured using the closing price of FNHC common stock on the grant date, as reported on the NASDAQ Global Market.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) associated with debt securities - available-for-sale consisted of the following:

໿

	Three Months Ended March 31,
	2020						2019
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(In thousands)
Accumulated other comprehensive income (loss), beginning-of-period	$	13,621	$	(3,340)	$	10,281	$	(5,023)	$	1,273	$	(3,750)
Other comprehensive income (loss) before reclassification	(4,098)		1,004		(3,094)		11,528		(2,922)		8,606
Reclassification adjustment for realized losses (gains) included in net income	(1,238)		304		(934)		(2,301)		583		(1,718)
	(5,336)		1,308		(4,028)		9,227		(2,339)		6,888
Accumulated other comprehensive income (loss), end-of-period	$	8,285	$	(2,032)	$	6,253	$	4,204	$	(1,066)	$	3,138

13. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period, including vested restricted stock awards during the period. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options and unvested restricted stock awards.  Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed exercise of common stock options and the vesting of RSAs using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive.

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

March 31, 2020

The following table presents the calculation of basic and diluted EPS:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands, except per share data)
Net income (loss) attributable to FedNat Holding Company shareholders	$	2,133	$	(3,865)
Weighted average number of common shares outstanding - basic	14,249		12,795
Net income (loss) per common share - basic	$	0.15	$	(0.30)
Weighted average number of common shares outstanding - basic	14,249		12,795
Dilutive effect of stock compensation plans	63		—
Weighted average number of common shares outstanding - diluted	14,312		12,795
Net income (loss) per common share - diluted	$	0.15	$	(0.30)
Dividends per share	$	0.09	$	0.08

Dividends Declared

In February 2020, our Board of Directors declared a $0.09 per common share dividend, payable in March 2020, to shareholders of record on February 14, 2020, amounting to $1.3 million.

In April 2020, our Board of Directors declared a $0.09 per common share dividend, payable in June 2020, to shareholders of record on May 15, 2020, amounting to $1.3 million.

14. SUBSEQUENT EVENTS

Dividends Declared

Refer to Note 13 above for information related to our dividend declared in April 2020.

Severe Weather Events

In the month of April 2020, five catastrophe events were cataloged by Property Claim Services in the states in which the Company writes property business. These events consisted of hail and wind related storms in the states of Texas, Louisiana, Florida and other states. As of the date of this report, we have 1,417 reported claims and $15.2 million gross incurred losses across all of our states that we do business in and across all three insurance carriers for these five severe weather events. Additionally, $6.3 million of the total $15.2 million gross incurred losses are from FNIC’s non-Florida business, which will be subject to a 50% profit-sharing arrangement with the non-affiliated managing general underwriter that writes this business.

Due to the recency of these events, the Company has not yet produced an estimate on the full financial impact of these severe weather events. An elevated level of severe weather events is not uncommon in the southeast United States during the second quarter.

The Company’s catastrophic reinsurance protection in place through June 30, 2020 provides coverage on each event if covered gross losses thereon exceed $20 million for FNIC’s Florida and/or non-Florida business. The retention amounts are $5 million and $3 million for MIC and MNIC’s businesses, respectively.

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General information about FedNat Holding Company can be found at www.FedNat.com; however, the information that can be accessed through our website is not part of our report. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to the Securities and Exchange Act of 1934 available free of charge on our website, as soon as reasonably practicable after they are electronically filed with the SEC.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q (the “Form 10-Q”). In addition, please refer to our audited consolidated financial statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

Unless the context requires otherwise, as used in the remainder of this Form 10-Q, the terms “FNHC,” “Company,” “we,” “us” and “our” refer to FedNat Holding Company and its consolidated subsidiaries.

Below, in addition to providing consolidated revenues and net income (loss), we also provide adjusted operating revenues and adjusted operating income (loss) because we believe these performance measures that are not United States of America generally accepted accounting principles ("GAAP") measures allow for a better understanding of the underlying trend in our business, as the excluded items are not necessarily indicative of our operating fundamentals or performance.

Non-GAAP measures do not replace the most directly comparable GAAP measures and we have included a detailed reconciliation thereof in "Results of Operations" below.

We exclude the after-tax (using our prevailing income tax rate) effects of the following items from GAAP net income (loss) to arrive at adjusted operating income (loss):

•Net realized and unrealized gains (losses), including, but not limited to, gains (losses) associated with investments and early extinguishment of debt;

•Acquisition/integration and other costs and the amortization of specifically identifiable intangibles (other than value of business acquired);

•Impairment of intangibles;

•Income (loss) from initial adoption of new regulations and accounting guidance; and

•Income (loss) from discontinued operations.

We also exclude the pre-tax effect of the first bullet above from GAAP revenues to arrive at adjusted operating revenues.

Forward-Looking Statements

This Form 10-Q or the documents that are incorporated by reference into this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “forecast,” “guidance,” “indicate,” “intend,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “will,” “would,” “will be,” “will continue” or the negative thereof or other variations thereon or comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Management cautions that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assume that such statements will be realized, or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our 2019 Form 10-K, and discussed from time to time in our other reports filed with the Securities and Exchange Commission (“SEC”), including this Form 10-Q.

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Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included or incorporated by reference into this Form 10-Q are made only as of the date hereof. We do not undertake and specifically disclaim any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

GENERAL

FedNat Holding Company (“FNHC,” the “Company,” “we,” “us,” or “our”) is a regional insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents. We, through our wholly owned subsidiaries, are authorized to underwrite, and/or place homeowners multi-peril (“homeowners”), federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.

FedNat Insurance Company (“FNIC”), our largest wholly-owned insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance by the state insurance departments in Florida, Louisiana, Texas, South Carolina, Alabama, Georgia and Mississippi.

Maison Insurance Company ("MIC"), an insurance subsidiary that we acquired on December 2, 2019 (see "Maison Acquisition" below for more information), is licensed as an admitted carrier to write homeowners property and casualty insurance as well as wind/hail only exposures by the state insurance departments in Louisiana, Texas and Florida.

Monarch National Insurance Company (“MNIC”), an insurance subsidiary, is licensed to write homeowners property and casualty insurance in Florida.

Through our wholly-owned subsidiary, FedNat Underwriters, Inc. (“FNU”), we serve as managing general agent for FNIC and MNIC. Maison Managers, Inc. ("MMI"), a wholly-owned subsidiary, serves as the managing general agent for MIC. ClaimCor, LLC ("ClaimCor"), a wholly-owned subsidiary, is a claims solutions company that processes Maison's claims.

Material Distribution Relationships

We are a party to an insurance agency master agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we have been authorized by ISA to appoint Allstate agents to offer our FNIC homeowners insurance products to consumers in Florida.

We are a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) in which they underwrite our FNIC homeowners business outside of Florida. 

Overview of Insurance Lines of Business

Homeowners Property and Casualty Insurance

FNIC, MIC and MNIC underwrite homeowners insurance in Florida and FNIC also underwrites insurance in Alabama, Texas, Louisiana, South Carolina and Mississippi and MIC in Louisiana and Texas. Homeowners insurance generally protects an owner of real and personal property against covered causes of loss to that property. As of March 31, 2020, the total homeowners policies in-force was 380,000, of which 240,000 were in Florida and 140,000 were outside of Florida. As of December 31, 2019, the total homeowners policies in-force was 374,000, of which 241,000 were in Florida and 133,000 were outside of Florida.

Florida

Our homeowners insurance products provide maximum dwelling coverage of approximately $3.6 million, with the aggregate maximum policy limit being approximately $6.3 million. We currently offer dwelling coverage “A” up to $4.0 million with an aggregate total insured value of $6.5 million. We continually review and update these limits. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims.

Premium rates charged to our homeowners insurance policyholders are continually evaluated to assure that they meet the expectation that they are actuarially sound and produce a reasonable level of profit (neither excessive, inadequate or discriminatory). Premium rates in Florida and other states are regulated and approved by the respective states’ office of insurance regulation.  We continuously monitor and seek appropriate adjustment to our rates in order to remain competitive and profitable.

Through MIC, we have assumed Florida policies through the state-run insurer Citizens Property Insurance Corporation ("Citizens").

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Non-Florida

Our non-Florida FNIC homeowners insurance products, produced through our partnership with SageSure, provide maximum dwelling coverage “A” up to $1.8 million, with the aggregate maximum policy limit being approximately $3.6 million. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims. 

As part of our partnership with SageSure, we entered into a profit share agreement, whereby we share 50% of net profits of this line of business, as calculated per the terms of the agreement, subject to certain limitations. The profit share cost is reflected in commissions and other underwriting expenses on our consolidated statements of operations.

Our MIC non-Florida insurance products include homeowners insurance, manufactured home insurance and dwelling fire insurance. MIC writes both full peril property policies as well as wind/hail only exposures.

Other Insurance Lines of Business

FNIC writes flood insurance through the National Flood Insurance Program (“NFIP”). We write the policy for the NFIP, which assumes 100% of the flood risk while we retain a commission for our service. FNIC offers this line of business in Florida, Louisiana, Texas, Alabama, South Carolina and Mississippi. FNIC plans to file an admitted flood endorsement as an alternative to the NFIP program. MIC writes flood insurance through a partnership with Bintech who assumes 100% of the risk, in Louisiana only.

See the discussion in Item 1: “Business” in our 2019 Form 10-K, for additional information with respect to our business.

Regulation

All insurance companies must file quarterly and annual statements with certain regulatory agencies and are subject to regular and special examinations by those agencies. We may be the subject of additional special examinations or analysis. These examinations or analysis may result in one or more corrective orders being issued by the Florida OIR or Louisiana Department of Insurance ("LDI"). The Florida OIR has completed its regularly scheduled statutory examination of FNIC for the five years ended December 31, 2015, of MNIC for the period of March 17, 2015 (inception) through December 31, 2015 and of MNIC for the year ended December 31, 2016. The LDI has completed its regularly scheduled statutory examination of MIC for the three years ended December 31, 2014. There were no material findings by the Florida OIR or LDI in connection with these examinations.

COVID-19 Impact

To slow and limit the COVID-19 outbreak and protect individuals and the health care systems worldwide, local and Federal governments have taken containment actions, including travel restrictions, testing, contact tracing and lockdowns. Companies have required working from home and in many cases laid off employees. These factors among others have caused global financial markets to experience extreme volatility and disruptions to capital and credit markets. In advance of government mandates, we implemented procedures to help reduce the spread of the outbreak, including having most of our employees work remotely, that are intended to prioritize the safety and health of our employees. In addition, we remained focused on the needs of our insureds and independent agents and fulfilling regulatory requirements and guidelines. During the first quarter of 2020, we did not see a material impact of COVID-19 to our operations, financial condition and results. We cannot at this time determine the comprehensive effect of the outbreak for the remainder of 2020. We currently believe, however, that we have limited, if any, exposure to the pandemic based on our product offerings and contractual coverages, although possible actions that our regulators or other governmental or judicial entities may take may materially adversely impact our coverages in both a retrospective and go-forward manner. We continue our focus on maintaining the safety, security and health of all our stakeholders, including policyholders, employees, partner agents, vendors and shareholders, and monitoring the impacts of the pandemic on our operations, financial condition and results. Based on the Company's already existing business continuity plan, which we have implemented to address local catastrophes events, and based on our financial condition and anticipated operating cash flows, we currently expect to continue to meet our working capital and operating expenditure requirements, even if there is further economic downturn from the pandemic.

Please refer to “Part II, Item 1A., Risk Factors” for more information.

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RESULTS OF OPERATIONS

Operating Results Overview - Three Months Ended March 31, 2020 Compared with Three Months Ended March 31, 2019

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein and in our 2019 Form 10-K.

The following table sets forth results of operations for the periods presented:

	Three Months Ended
	March 31,
	2020			% Change		2019
	(Dollars in thousands)
Revenues:
Gross premiums written	$	172,962		30.8	%	$	132,233
Gross premiums earned	175,574			26.9	%	138,367
Ceded premiums	(69,664)			40.5	%	(49,583)
Net premiums earned	105,910			19.3	%	88,784
Net investment income	3,892			4.9	%	3,710
Net realized and unrealized investment gains (losses)	(2,825)			(222.8)	%	2,301
Direct written policy fees	3,466			45.0	%	2,391
Other income	5,256			31.0	%	4,011
Total revenues	115,699			14.3	%	101,197
Costs and expenses:
Losses and loss adjustment expenses	68,930			3.1	%	66,839
Commissions and other underwriting expenses	36,355			28.8	%	28,234
General and administrative expenses	6,245			(1.0)	%	6,311
Interest expense	1,915			(62.1)	%	5,051
Total costs and expenses	113,445			6.6	%	106,435
Income (loss) before income taxes	2,254			(143.0)	%	(5,238)
Income tax expense (benefit)	121			(108.8)	%	(1,373)
Net income (loss)	$	2,133		(155.2)	%	$	(3,865)
Ratios to net premiums earned:
Net loss ratio	65.1		%			75.3		%
Net expense ratio	40.2		%			38.9		%
Combined ratio	105.3		%			114.2		%

(1)Net loss ratio is calculated as losses and loss adjustment expenses divided by net premiums earned.

(2)Net expense ratio is calculated as all operating expenses less interest expense divided by net premiums earned.

(3)Combined ratio is calculated as the sum of losses and loss adjustment expenses and all operating expenses less interest expense divided by net premiums earned.

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The following table sets forth a reconciliation of GAAP to non-GAAP measures:

	Three Months Ended
	2020			2019
	(Dollars in thousands)
Revenue
Total revenues	$	115,699		$	101,197
Less:
Net realized and unrealized investment gains (losses)	(2,825)			2,301
Adjusted operating revenues	$	118,524		$	98,896
Net Income (Loss)
Net income (loss)	$	2,133		$	(3,865)
Less:
Net realized and unrealized investment gains (losses)	(2,132)			1,718
Acquisition and other costs	(27)			(520)
Amortization of identifiable intangibles	(28)			—
Gain (loss) on early extinguishment of debt	—			(2,669)
Adjusted operating income (loss)	$	4,320		$	(2,394)
Income tax rate assumed for reconciling items above	24.52		%	25.35		%

Revenue

Total revenue increased $14.5 million or 14.3%, to $115.7 million for the three months ended March 31, 2020, compared with $101.2 million for the three months ended March 31, 2019. The increase was driven by net premiums growth, including the effect of the acquisition of Maison, partially offset by net investment losses, all of which are discussed below.

Gross Premiums Written

The following table sets forth the gross premiums written for the periods presented:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross premiums written:
Homeowners Florida	$	111,547	$	103,963
Homeowners non-Florida	57,942		25,320
Federal flood	3,660		3,004
Non-core	(187)		(54)
Total gross premiums written	$	172,962	$	132,233

Gross premiums written increased $40.8 million, or 30.8%, to $173.0 million in the quarter compared with $132.2 million for the same three-month period last year. Gross premiums written increased due to organic non-Florida growth, and $17.6 million from Maison, 96% of which was non-Florida. Our organic non-Florida business continues to show exceptional growth year over year, especially in the state of Texas, which has allowed us to leverage our infrastructure and diversify insurance risk. Overall, Homeowners grew 31.1%.

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Gross Premiums Earned

The following table sets forth the gross premiums earned for the periods presented:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross premiums earned:
Homeowners Florida	$	116,100	$	112,672
Homeowners non-Florida	55,525		21,170
Federal flood	4,136		3,467
Non-core	(187)		1,058
Total gross premiums earned	$	175,574	$	138,367

Gross premiums earned increased $37.2 million, or 26.9%, to $175.6 million for the three months ended March 31, 2020, as compared to $138.4 million for the three months ended March 31, 2019. The higher gross premiums earned was primarily driven by continued non-Florida growth, including $19.8 million from the acquisition of Maison.

Ceded Premiums Earned

Ceded premiums earned increased $20.1 million, or 40.5%, to $69.7 million in the quarter, compared to $49.6 million in the same three-month period last year. The increase was driven by higher gross earned premiums, including Maison, as well as an increase in our excess of loss reinsurance spend.

Net Investment Income

Net investment income increased $0.2 million, or 4.9%, to $3.9 million during the three months ended March 31, 2020, as compared to $3.7 million during the three months ended March 31, 2019. The increase was primarily due to fixed income portfolio growth from the Maison acquisition.

Net realized and Unrealized Investment Gains (Losses)

Net realized and unrealized investment gains (losses) decreased $5.1 million, to $(2.8) million for the three months ended March 31, 2020, compared to $2.3 million in the prior year period. We recognized $(3.3) million and $2.3 million in unrealized investment gains (losses) for equity securities during these respective periods. The unrealized losses for the current year was due to market volatility and declining economic conditions resulting from COVID-19.

Direct Written Policy Fees

Direct written policy fees increased $1.1 million, or 45.0%, to $3.5 million for the three months ended March 31, 2020, compared with $2.4 million for the three months ended March 31, 2019. The increase is primarily driven by the fees associated with Maison’s premiums and, to a lesser extent, organic non-Florida growth.

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Other Income

Other income included the following for the periods presented:

໿

	Three Months Ended
	March 31,
	2020		% Change		2019
	(Dollars in thousands)
Other income:
Commission income	$	785	71.4	%	$	458
Brokerage	4,037		28.8	%	3,134
Financing and other revenue	434		3.6	%	419
Total other income	$	5,256	31.0	%	$	4,011

The increase in other income was primarily driven by higher brokerage revenue. The brokerage revenue increase is the result of higher excess of loss reinsurance spend from the reinsurance programs in place during the first quarter of 2020 as compared to the first quarter of 2019.

Expenses

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses (“LAE”) increased $2.1 million, or 3.1%, to $68.9 million for the three months ended March 31, 2020, compared with $66.8 million for the same three-month period last year. The net loss ratio decreased 10.2 percentage points, to 65.1% in the current quarter, as compared to 75.3% in the first quarter of 2019. The lower loss ratio was primarily the result of lower weather-related net losses when comparing the periods, as 2020 included $10.4 million, net of reinsurance (of which, $3.5 million were from FNIC's non-Florida losses, which are subject to a 50% profit-sharing agreement) and 2019 included $19.0 million from the Brevard County, Florida hail storm. Additionally, higher gross premiums earned volume drove approximately $10.0 million of higher losses as compared to 2019.

Commissions and Other Underwriting Expenses

The following table sets forth the commissions and other underwriting expenses for the periods presented:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Commissions and other underwriting expenses:
Homeowners Florida	$	13,827	$	13,222
All others	11,618		5,267
Ceding commissions	(2,899)		(2,784)
Total commissions	22,546		15,705
Fees	1,114		679
Salaries and wages	3,598		3,322
Other underwriting expenses	9,097		8,528
Total commissions and other underwriting expenses	$	36,355	$	28,234

Commissions and other underwriting expenses increased $8.2 million, or 28.8%, to $36.4 million for the three months ended March 31, 2020, compared with $28.2 million for the three months ended March 31, 2019. The increase was driven by higher non-Florida acquisition related costs as a result of premium growth. As noted above, we have a 50% profit-sharing agreement with our managing general underwriter on FNIC's non-Florida business, therefore profitable growth in this business resulted in the increase in other underwriting expenses. This increase was partially offset by higher non-Florida incurred losses from severe weather events

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(as previously discussed in the Losses and Loss Adjustment Expenses section) in the first quarter of 2020, resulting in a $1.8 million reduction of expenses.

The net expense ratio increased 1.3 percentage points to 40.2% in the first quarter of 2020, as compared to 38.9% in the first quarter of 2019 primarily due to higher catastrophe reinsurance costs reducing net earned premium. Refer to the discussion above for more information.

General and Administrative Expenses

General and administrative expenses decreased $0.1 million by 1.0% to $6.2 million for the three months ended March 31, 2020 compared to $6.3 million in the first quarter of 2019. The decrease was the result of lower professional fees and other costs as compared to the prior year.

Interest Expense

Interest expense decreased $3.2 million to $1.9 million for the three months ended March 31, 2020, compared with $5.1 million in the prior year period, which included $3.6 million of prepayment fees, including the write-off of remaining debt issuance costs. This decline was partially offset by the fact that our March 2019 debt offering was only outstanding for a portion of the first quarter of 2019.

Income Taxes

Income taxes (benefits) increased $1.5 million, to $0.1 million for the three months ended March 31, 2020, compared to $(1.4) million for the three months ended March 31, 2019. The increase in income tax expense is predominantly the result of higher income during the current quarter as compared to the first quarter of 2019. The increase was partially offset by the fact during the third quarter of 2019 the State of Florida announced a reduction in its state income tax rate from 5.5% to 4.5%, effective January 1, 2019. This new tax rate will be in place until at least December 31, 2021.

Severe Weather Events Experienced in April 2020

The Company’s strategy over the past few years has been, and continues to be, to write more property insurance business beyond its home state of Florida. This strategy exposes the company to more active weather losses primarily during the second quarter of each year as a result of tornado and hail activity that is more prevalent during the second quarter in multiple states in which we operate including Texas, Louisiana, South Carolina, Alabama and Mississippi.

Refer to Note 14 of the notes to our Consolidated Financial Statements for information regarding of severe weather events the Company experienced in the month of April 2020.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of funds are gross written premiums, investment income, commission income and fee income.  Our primary uses of funds are the payment of claims, catastrophe and other reinsurance premiums and operating expenses. As of March 31, 2020, the Company held $564.4 million in investments. Cash and cash equivalents decreased $10.2 million, to $123.2 million as of March 31, 2020, compared with $133.4 million as of December 31, 2019. Total shareholders’ equity decreased $9.5 million, to $239.2 million as of March 31, 2020, compared with $248.7 million as of December 31, 2019 due primarily to repurchases of common stock and unrealized losses on our bond portfolio, partially offset by net income.

Historically, we have met our liquidity requirements primarily through cash generated from operations. On March 5, 2019, the Company closed on an offering of $100 million of Senior Unsecured Notes due 2029, which bear interest at the annual rate of 7.5%. The net proceeds of the offering were in part used to redeem all $45 million of the Company's Senior Unsecured Fixed Rate Notes due 2022 and the Company's Senior Notes due 2027. Additionally, the remaining cash from the offering was used to purchase the Maison Companies and for other general corporate purposes, including repurchases of shares of our common stock and managing the capital needs of our subsidiaries. Refer to Notes 3 and 8 of the notes to our Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of the 2019 Form 10-K, for additional information regarding the 2029 Notes as well as the acquisition of the Maison Companies.

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Among other things, the 2029 Notes contain customary covenants that limit the Company's ability to enter into certain operational and financial transactions, including, but not limited to incurring additional debt above certain thresholds. The Company's actual debt to capital ratio as of March 31, 2020 was approximately 29%.

Statutory Capital and Surplus of our Insurance Subsidiaries

As described more fully in Part I, Item 1. Business, Regulation of our 2019 Form 10-K, the Company’s insurance operations are subject to the laws and regulations of the states in which we operate.  The Florida OIR and their regulatory counterparts in other states utilize the National Association of Insurance Commissions (“NAIC”) risk-based capital (“RBC”) requirements, and the resulting RBC ratio, as a key metric in the exercise of their regulatory oversight.  The RBC ratio is a measure of the sufficiency of an insurer’s statutory capital and surplus.  In addition, the RBC ratio is used by insurance industry ratings services in the determination of the financial strength ratings (i.e., claims paying ability) they assign to insurance companies.  As of March 31, 2020 and December 31, 2019, FNIC’s statutory surplus, which includes MNIC was $134.1 million and $141.8 million, respectively. As of March 31, 2020 and December 31, 2019, MIC’s statutory surplus was $52.5 million and $50.7 million, respectively.

Based upon the 2019 statutory financial statements for FNIC, MIC and MNIC, statutory surplus exceeded the regulatory action levels established by the NAIC’s RBC requirements.

Based on RBC requirements, the extent of regulatory intervention and action increases as the ratio of an insurer’s statutory surplus to its ACL, as calculated under the NAIC’s requirements, decreases.  The first action level, the Company Action Level, requires an insurer to submit a plan of corrective actions to the insurance regulators if statutory surplus falls below 200.0% of the ACL amount.  The second action level, the Regulatory Action Level, requires an insurer to submit a plan containing corrective actions and permits the insurance regulators to perform an examination or other analysis and issue a corrective order if statutory surplus falls below 150.0% of the ACL amount. The third action level, ACL, allows the regulators to rehabilitate or liquidate an insurer in addition to the aforementioned actions if statutory surplus falls below the ACL amount. The fourth action level is the Mandatory Control Level, which requires the regulators to rehabilitate or liquidate the insurer if statutory surplus falls below 70.0% of the ACL amount. FNIC, MNIC and MIC had ratios of statutory surplus to its ACL of 323.9%, 1,128.7% and 305.7%, respectively, as of December 31, 2019.

Cash Flows Discussion

We currently believe that existing cash and investment balances, when combined with anticipated cash flows and the proceeds of our debt offering as described above, will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future. Please see "COVID-19 Impact" above for a discussion of the potential impact of the COVID-19 pandemic on us. We currently believe the combined balances will be sufficient to meet our ongoing operating requirements and anticipated cash needs, and satisfy the covenants in our senior notes. Future growth strategies may require additional external financing and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us on favorable terms, or at all, or that any such financing would not negatively impact our results of operations. We expect to continue declaring and paying dividends at comparable levels, subject to our future liquidity needs and reserve requirements.

Subject to our compliance with capital requirements as described above, we may consider various opportunities to deploy our capital, including repurchases of our common stock if such repurchases represent a more favorable use of available capital.

Operating Activities

Net cash provided by operating activities increased to $21.4 million in the three months ended March 31, 2020 compared to net cash used of $6.8 million in the same period in 2019. This increase reflects higher net premiums collected, partially offset by higher expenses paid, including those related to commissions and underwriting expenses and losses and loss adjustment expenses, in the first three months of 2020 as compared to the corresponding period in 2019. 

Investing Activities

Net cash used in investing activities of $23.6 million in the three months ended March 31, 2020 reflected purchases of debt and equity investment securities of $138.4 million, partially offset by sales, maturities and redemptions of our debt and equity investment securities of $116.0 million. Net cash used in investing activities of $6.5 million in the three months ended March 31, 2019 reflected purchases of debt and equity investment securities of $64.9 million, partly offset by sales, maturities and redemptions of our debt and equity investment securities of $59.0 million.

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Financing Activities

Net cash used in financing activities for the three months ended March 31, 2020 of $7.9 million primarily reflects repurchases of FedNat Holding Company common stock of $6.6 million and dividends paid of $1.3 million. Net cash provided by financing activities of $49.4 million for the three months ended March 31, 2019 primarily reflects issuance of long-term debt, net of issuance costs, of $98.5 million, partly offset by payment of long-term debt of $48.0 million.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the inflationary effect on the cost of paying losses and LAE.

Insurance premiums are established before we know the amount of losses and LAE and the extent to which inflation may affect such expenses. Consequently, we attempt to anticipate the future impact of inflation when establishing rate levels. While we attempt to charge adequate premiums, we may be limited in raising premium levels for competitive and regulatory reasons. Inflation may also affect the market value of our investment portfolio and the investment rate of return. Any future economic changes that result in prolonged and increasing levels of inflation could cause increases in the dollar amount of incurred losses and LAE and thereby materially adversely affect future liability requirements.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), which requires us to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may materially differ from those estimates.

We believe our most critical accounting estimates inherent in the preparation of our financial statements are: (i) fair value measurements of our investments; (ii) accounting for investments; (iii) premium and unearned premium calculation; (iv) reinsurance contracts; (v) the amount and recoverability of deferred acquisition costs and value of business acquired; (vi) goodwill and other intangible assets; (vii) reserve for loss and losses adjustment expenses; and (viii) income taxes. The accounting estimates require the use of assumptions about certain matters that are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our financial condition, results of operations, and cash flows would be affected.

There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2020.  Refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our 2019 Form 10-K for a more complete description of our critical accounting estimates. 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Our investment objective is to maximize total rate of return after federal income taxes while maintaining liquidity and minimizing risk. Our current investment policy limits investment in non-investment-grade debt securities (including high-yield bonds), and limits total investments in preferred stock, common stock and mortgage notes receivable. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common equity securities and real estate mortgages.

Our investment policy is established by the Board of Directors' Investment Committee and is reviewed on a regular basis. Pursuant to this investment policy, as of March 31, 2020, approximately 97% of investments were in debt securities and cash and cash equivalents, which are considered to be either held-until-maturity or available-for-sale, based upon our estimates of required liquidity. Approximately 99% of the debt securities are considered available-for-sale and are marked to market. We may in the future consider additional debt securities to be held-to-maturity securities, which are carried at amortized cost. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.

There have been no material changes to the Company’s exposures to market risks since December 31, 2019. Please refer to the 2019 Form 10-K for a complete discussion of the Company’s exposures to market risks.

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Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness

Our management and our audit committee do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control gaps and instances of fraud have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions.

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Part II: OTHER INFORMATION

Item 1.  Legal Proceedings

Refer to Note 11 to our Consolidated Financial Statements set forth in Part I, “Financial Statements” for information about legal proceedings.

Item 1A.  Risk Factors

Our operations, financial condition and results could be adversely affected by COVID-19.

We continue to closely monitor developments related to COVID-19 to assess any potential impact on our business. Because this is an evolving and highly uncertain situation (including possible actions that our regulators or other governmental or judicial entities may take in both a retrospective and go-forward manner) it is not possible at this time to provide an estimate of potential insurance, reinsurance, or investment exposure or any other indirect effects the pandemic may have on our results of operations, financial condition or liquidity. However, material disruptions to the Company caused by the pandemic could include:

•Although we believe that our product offerings and contractual coverages limit our exposure to claims related to COVID-19, there is a risk that legislative, regulatory, judicial or social influences may extend coverage beyond our contractual obligations or may result in an increase in the frequency or severity of claims beyond expected levels.

•Volatile and illiquid financial global financial markets resulting from the outbreak may adversely impact the fair value or credit quality of securities in our investment portfolio.

•Reduced liquidity, higher operating costs and strained profitability from legislative, regulatory or judicial actions may result in denials of rate increases, require premium payment grace periods, prevent cancellations for non-payment of premium, or require us to cover losses for excluded coverages.

•A decline in demand for our product offerings or declining ability or willingness of our policy holders to pay premiums may reduce our revenues.

•We may require additional liquidity at a time when our cost of capital increases and/or access to capital is hampered.

•Social distancing impedes observing certain claims on-site and, in some cases, may adversely impact our ability to properly assess certain claims.

•The economic effects adversely impacting the liquidity and financial stability of our reinsurers may cause an increase in our reinsurance costs and/or counterparty risk with resulting write-offs of reinsurance recoverables.

•Market volatility and declining economic conditions adversely impacting the liquidity and financial stability of the issuers of securities we hold may result in realized losses.

•Our ability to maintain relationships with key vendors, and those vendors’ willingness or ability to perform services for us as expected, may be adversely impacted.

•We may experience cyber security losses due to our employees working remotely.

Therefore, a prolonged period of commercial disruption, reduced economic activity, high unemployment, extreme market volatility, disruptions to capital and credit markets, and other consequences of the COVID-19 pandemic could have a material adverse impact on our operations, financial condition and results.

As a property and casualty insurer, we may be impacted by different severe weather events at different times of the year.

Our homeowners business is impacted by catastrophic and other severe weather events, which may cause our operating results and financial condition to vary significantly from one period to the next. The incidence and severity of weather conditions are largely unpredictable, although certain types of events are more likely to occur during particular times of year. For example, hurricane season in the Atlantic and Caribbean oceans and in the Gulf of Mexico is from June 1st to November 30th of each year, with the peak occurrence of storms typically from mid-August to late October. By comparison, severe storms resulting in hail and tornados are more likely to occur in the spring in the states in which we operate. The nature of spring storms also tends to result in multiple occurrences, none of which would typically exceed our catastrophe reinsurance retention on an individual basis. There is generally an increase in the frequency and severity of claims when severe weather conditions occur.

There have been no other material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of the Company’s 2019 Form 10-K. Please refer to that section for those additional disclosures regarding what we believe are the most significant risks and uncertainties related to our business.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities. The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended March 31, 2020 by or on behalf of FNHC:

໿

				Total Number of	Approximate Dollar
	Total Number	Average		Shares Purchased	Value of Shares That
	of Shares	Price Paid		as Part of Publicly	May Yet Be Purchased
	Repurchased	Per Share		Announced Plans	Under the Plans (1)
January 2020	105,102	$	15.98	105,102	$	8,320,010
February 2020	100,046	15.18		100,046	6,801,534
March 2020	318,435	11.15		318,435	13,249,952

໿

(1)In December 2019, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $10.0 million of its outstanding shares of common stock from January 1, 2020 through December 31, 2020. In March 2020, the Company’s Board of Directors authorized an additional $10.0 million increase to the share repurchase program. As of March 31, 2020, the remaining availability for future repurchases of our common stock was $13.2 million. Any such purchases would be made in the open market in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act.

Item 3.  Defaults upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

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Item 6.  Exhibits

Exhibit No.	Description
10.1	FHCF Supplement Layer Reinsurance Contract effective June 1, 2020 between FedNat Insurance Company and subscribing reinsurers*
10.2	Form of Reimbursement Contract effective June 1, 2020 between the State Board of Administration of the State of Florida, as administrator of the Florida Hurricane Catastrophe Fund, and each of FedNat Insurance Company; Monarch National Insurance Company; and Maison Insurance Company**
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act**
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act**
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act**
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act**
101.INS	XBRL Instance Document***
101.SCH	XBRL Taxonomy Extension Schema Document***
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document***
101.LAB	XBRL Taxonomy Extension Label Linkbase Document***
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document***

________________________

* Filed herewith. Certain identified information has been omitted from this exhibit in accordance with and as permitted by Item 601(b)(10)(iv) of Regulation S-K.

** Filed herewith.

*** In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FEDNAT HOLDING COMPANY
By:	/s/ Michael H. Braun
	Michael H. Braun, Chief Executive Officer
	(Principal Executive Officer)
	/s/ Ronald Jordan
	Ronald Jordan, Chief Financial Officer
	(Principal Financial Officer)

Date: May 6, 2020

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EX-10.1

FHCF Supplement Layer Reinsurance Contract Effective: June 1, 2020 FedNat Insurance Company Sunrise, Florida _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 20\F7V1085

Table of Contents Article Page 1 Classes of Business Reinsured 1 2 Commencement and Termination 1 3 Territory 2 4 Exclusions 3 5 Retention and Limit 4 6 Other Reinsurance 5 7 Definitions 5 8 Loss Occurrence 6 9 Loss Notices and Settlements 6 10 Cash Call 7 11 Salvage and Subrogation 7 12 Reinsurance Premium 7 13 Sanctions 8 14 Late Payments 8 15 Offset 9 16 Access to Records 9 17 Liability of the Reinsurer 10 18 Net Retained Lines (BRMA 32E) 10 19 Errors and Omissions (BRMA 14F) 10 20 Currency (BRMA 12A) 10 21 Taxes (BRMA 50B) 11 22 Federal Excise Tax (BRMA 17D) 11 23 Reserves 11 24 Insolvency 12 25 Arbitration 13 26 Service of Suit (BRMA 49C) 14 27 Severability (BRMA 72E) 14 28 Governing Law (BRMA 71B) 14 29 Confidentiality 15 30 Non-Waiver 16 31 Notices and Contract Execution 16 32 Intermediary 16 20\F7V1085

FHCF Supplement Layer Reinsurance Contract Effective: June 1, 2020 entered into by and between FedNat Insurance Company Sunrise, Florida (hereinafter referred to as the "Company") and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations hereinafter set forth. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, June 1, 2020, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, June 1, 2021. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or 2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or 20\F7V1085 Page 1

3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 4. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2020 to 12:01 a.m., Eastern Standard Time, June 1, 2021. However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2020 to the effective time and date of termination. D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article 3 - Territory This Contract shall only apply to risks located in the State of Florida. 20\F7V1085 Page 2

Article 4 - Exclusions A. This Contract does not apply to and specifically excludes the following: 1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation. 2. Hail damage to growing or standing crops. 3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such. 4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such. 5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency. 6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability. 7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance. 8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy. 9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract. 10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract. 11. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation. 12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. 20\F7V1085 Page 3

13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises. 14. Mold, unless resulting from a peril otherwise covered under the policy involved. 15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract. 16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved. "Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment. "Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature. However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril. Article 5 - Retention and Limit A. Subject further to the provisions of paragraph B below, the Company shall retain and be liable for the first $275,000,000 of ultimate net loss arising out of any one loss occurrence. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention, but the Reinsurer's liability for ultimate net loss (plus an allowance for loss adjustment expense) shall not exceed $710,000,000 as respects all losses arising out of loss occurrences commencing during the term of this Contract. B. The amounts provided for in paragraph A above are based on an estimate of the Company's Florida Hurricane Catastrophe Fund ("FHCF") Mandatory layer. Such amounts shall be provisional, and shall be further adjusted to the Company's actual FHCF Mandatory layer used in its Reimbursement Contract for the 2020/2021 hurricane season beginning on June 1, 2020 (hereinafter the "Reimbursement Contract"). 20\F7V1085 Page 4

C. Notwithstanding the provisions of paragraphs A and B above, the following shall apply: 1. When the Company experiences ultimate net loss from one or two covered events during the term of this Contract, the Company’s full retention shall be applied to each of the covered events; and 2. When the Company experiences ultimate net loss from more than two covered events during the term of this Contract, the Company’s full retention shall be applied to each of the two covered events causing the largest ultimate net loss for the Company. For each other covered event resulting in ultimate net loss, the Company’s retention shall be reduced to one - third of its full retention and applied to all other covered events. D. No claim will be made under this Contract in any one loss occurrence unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. E. As part of the Reinsurer's limit of liability set forth in paragraphs A and B above, the Reinsurer shall be liable for an amount equal to 10.0% of ultimate net loss paid or to be paid by the Reinsurer as an allowance for loss adjustment expense incurred by the Company. Article 6 - Other Reinsurance The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. Article 7 - Definitions A. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean: 1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. 2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its 20\F7V1085 Page 5

insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy. Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. B. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance. C. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits and extra contractual obligations, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. Article 8 - Loss Occurrence A. "Loss occurrence" as used in this Contract shall mean the sum of individual insured losses incurred under Policies resulting from the same covered event. B. "Covered event" as used in this Contract shall mean any one storm declared to be a hurricane by the National Hurricane Center of the National Weather Service or any other division of the National Weather Service, operated by the National Oceanographic and Atmospheric Administration of the United States Government (NHC) which causes insured losses in Florida. A covered event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a covered event. Article 9 - Loss Notices and Settlements A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's retention hereunder and/or appear likely to result in a claim under this Contract, the Company shall notify the Subscribing Reinsurers and shall provide updates related to development of such losses. The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. 20\F7V1085 Page 6

B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable, including the associated allowance for loss adjustment expense, upon receipt of reasonable evidence of the amount paid by the Company. Article 10 - Cash Call Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements (including the associated allowance for loss adjustment expense) that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss. Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer. Article 11 - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so. Article 12 - Reinsurance Premium A. As premium for reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months): 1. A factor of 1.11; times 2. The final rate on line determined in accordance with the Company's Reimbursement Contract; times 3. The Company's actual limit under the FHCF Mandatory layer used in its Reimbursement Contract. B. The Company shall pay the Reinsurer an annual deposit premium of $[***], in four equal installments of $[***] on July 1 and October 1 of 2020, and on January 1 and April 1 of 20\F7V1085 Page 7

2021. However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination. C. On or before May 31, 2021, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly. Article 13 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. Article 14 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 20\F7V1085 Page 8

2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article 15 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. Article 16 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. 20\F7V1085 Page 9

Article 17 - Liability of the Reinsurer A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract. Article 18 - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article 19 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article 20 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. 20\F7V1085 Page 10

Article 21 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. Article 22 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article 23 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and the allowance for loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. 20\F7V1085 Page 11

B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of losses and/or the allowance for loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 24 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the 20\F7V1085 Page 12

Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Article 25 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, 20\F7V1085 Page 13

defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 26 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 27 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. Article 28 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. 20\F7V1085 Page 14

Article 29 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential 20\F7V1085 Page 15

Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. Article 30 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 31 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 32 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed 20\F7V1085 Page 16

payment to the Company only to the extent that such payments are actually received by the Company. In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below: This 2nd day of April in the year 2020. FedNat Insurance Company /s/ Mike Braun 20\F7V1085 Page 17

War Exclusion Clause As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. 20\F7V1085

Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.) 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate (a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. 6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. 12/12/57 N.M.A. 1119 BRMA 35B 20\F7V1085

Terrorism Exclusion (Property Treaty Reinsurance) Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 1. Involves violence against one or more persons, or 2. Involves damage to property; or 3. Endangers life other than the person committing the action; or 4. Creates a risk to health or safety of the public or a section of the public; or 5. Is designed to interfere with or disrupt an electronic system. This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism. Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination. 20\F7V1085

The Interests and Liabilities Agreements, constituting 6 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 20\F7V1085

EX-10.2

RON DESANTIS STATE BOARD OF ADMINISTRATION GOVERNOR CHAIR OF FLORIDA JIMMY PATRONIS CHIEF FINANCIAL OFFICER 1801 HERMITAGE BOULEVARD, SUITE 100 TALLAHASSEE, FLORIDA 32308 ASHLEY MOODY ATTORNEY GENERAL (850) 488-4406 ASHBEL C. WILLIAMS POST OFFICE BOX 13300 EXECUTIVE DIRECTOR & 32317-3300 CHIEF INVESTMENT OFFICER REIMBURSEMENT CONTRACT Effective: June 1, 2020 (“Contract”) between 1 (“Company”) NAIC #2 and THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (“SBA”) WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (“FHCF”) PREAMBLE Section 215.555, Florida Statutes creates the FHCF and directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to Section 215.555, Florida Statutes, and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principal document are equally applicable to each Addendum unless specifically superseded by one of the Addenda. In consideration of the promises set forth in this Contract, the parties agree as follows: ARTICLE I - SCOPE OF AGREEMENT As a condition precedent to the SBA’s obligations under this Contract, the Company shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies. The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides 1 FedNat Insurance Company; Monarch National Insurance Company; or Maison Insurance Company 2 FedNat Insurance Company--10790; Monarch National Insurance Company--15715; Maison Insurance Company-- 14568 1 FHCF-2020K Rule 19-8.010 F.A.C.

reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the Covered Event causing the Loss, in excess of the Company’s Retention as a result of each Covered Event commencing during the Contract Year, to the extent funds are available, all as hereinafter defined. ARTICLE II - PARTIES TO THE CONTRACT This Contract is solely between the Company, an Authorized Insurer or any entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, and the SBA. In no instance shall any insured of the Company, any claimant against an insured of the Company, or any other third party have any rights under this Contract, except as provided in Article XV. The SBA will disburse funds only to the Company, except as provided for in Article XV. The Company shall not, without the prior approval of the Florida Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums. ARTICLE III – TERM; EXECUTION (1) Term This Contract applies to Losses from Covered Events which commence during the period from 12:00:01 a.m., Eastern Time, June 1, 2020, to 12:00 midnight, Eastern Time, May 31, 2021 (the “Contract Year”). The SBA shall not be liable for Losses from Covered Events which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Covered Event is in progress, the SBA shall be responsible for such Covered Event in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Covered Event in progress. (2) Mandatory Nature of this Contract (a) Statutory Requirement This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code (F.A.C.), in fulfillment of the statutory requirement that the SBA enter into a Contract with each Company writing Covered Policies in Florida. Under Section 215.555(4)(a), Florida Statutes, the SBA must enter into such a Contract with each such Company, and each such Company must enter into the Contract as a condition of doing business in Florida. Under Section 215.555(16)(c), Florida Statutes, Companies writing Covered Policies must execute the Contract by March 1 of the immediately preceding Contract Year. 2 FHCF-2020K Rule 19-8.010 F.A.C.

(b) Duty to Provide a Fully and Timely Executed Copy of this Contract to the FHCF Administrator The Company must provide a fully executed copy of this Contract in electronic form to the Administrator no later than the March 1 statutory deadline for execution, or, in the case of a New Participant, no later than 30 days after the New Participant began writing Covered Policies. (3) Contract Deemed Executed Notwithstanding Execution Errors Except with respect to New Participants, this Contract is deemed to have been executed by the Company as of the March 1 statutory deadline, notwithstanding the fact that the Coverage Level election in Article XX(1)(b) may be invalid, and notwithstanding the fact that the person purporting to execute the Contract on the part of the Company may have lacked the requisite authority. With respect to New Participants, this Contract is deemed to have been executed by the New Participant as of the date on which the New Participant began writing Covered Policies; coverage shall be determined as provided in paragraphs (c) and (d). Execution of this Contract by or on behalf of an entity that does not write Covered Policies is void. If the Company failed to timely submit an executed copy of this Contract, or if the executed Contract includes an invalid Coverage Level election under Article XX, the Company’s Coverage Level shall be deemed as follows: (a) For a Company that is a member of a National Association of Insurance Commissioners (NAIC) group, the same Coverage Level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the Coverage Level from the prior Contract Year shall be deemed. (b) For a Company that is not a member of an NAIC group under which other Companies are active participants in the FHCF, the Coverage Level from the prior Contract Year shall be deemed. (c) For a New Participant that is a member of an NAIC group, the same Coverage Level selected by the other Companies of the same NAIC group shall be deemed. (d) For a New Participant that is not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% Coverage Levels may be selected if the FHCF Administrator receives executed Contracts within 30 calendar days after the effective date of the first Covered Policy, otherwise, the 45% Coverage Level shall be deemed to have been selected. ARTICLE IV - LIABILITY OF THE FHCF 3 FHCF-2020K Rule 19-8.010 F.A.C.

(1) The SBA shall reimburse the Company with respect to each Covered Event commencing during the Contract Year in the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to the definition of Retention in Article V, multiplied by the applicable Coverage Level, plus 10% of the reimbursed Losses as a Loss Adjustment Expense Allowance, the total of which shall not exceed the Company’s Limit. (2) Section 215.555(4)(c)1., Florida Statutes provides that the obligation of the FHCF with respect to all Contracts covering a particular Contract Year shall not exceed the Actual Claims-Paying Capacity of the FHCF up to a specified dollar limit. (3) In order to assure that reimbursements do not exceed the statutory limit on the obligation of the FHCF provided in Section 215.555(4)(c)1., Florida Statutes, the SBA shall, upon the occurrence of a Covered Event, evaluate the potential Losses to the FHCF and the FHCF’s capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its Losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCF’s coverage. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurer’s projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity. (4) Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources. Once the Company’s Limit has been exhausted, the Company will not be entitled to further reimbursements. ARTICLE V - DEFINITIONS As used in this Contract, the following words and phrases are defined to mean: (1) Actual Claims-Paying Capacity of the FHCF This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds under Section 215.555(6), Florida Statutes. (2) Actuarially Indicated This term means an amount determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate, to pay current and future obligations and expenses of the fund, including additional amounts if needed to pay debt service on revenue bonds and to provide required debt service coverage in excess of the amounts required to pay actual debt service on revenue bonds, and determined according to principles of actuarial science to reflect each insurer’s relative exposure to hurricane losses. 4 FHCF-2020K Rule 19-8.010 F.A.C.

(3) Additional Living Expense (ALE) ALE Losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF. (4) Administrator This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The current Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83rd Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492. (5) Authorized Insurer This term is defined in Section 624.09(1), Florida Statutes. (6) Balance of the Fund as of December 31 or Fund Balance This term means the amount of assets available to pay claims resulting from Covered Events which occurred during the Contract Year, not including any pre-event or post-event bonds, reinsurance, or proceeds from other financing mechanisms. (7) Borrowing Capacity This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves. (8) Citizens Property Insurance Corporation (Citizens) This term means Citizens Property Insurance Corporation as created under Section 627.351(6), Florida Statutes. For the purposes of the FHCF, Citizens Property Insurance Corporation incorporates two accounts, (a) the coastal account and (b) the personal lines and commercial lines accounts. Each account is treated by the FHCF as if it were a separate participating insurer with its own reportable exposures, Reimbursement Premium, Retention, and Ultimate Net Loss. (9) Covered Event This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event. (10) Coverage Level 5 FHCF-2020K Rule 19-8.010 F.A.C.

This term means the level of reimbursement (90%, 75%, or 45%), as elected by the Company under Article XX or deemed under Article III(3), which is used in determining reimbursement under Article IV. (11) Covered Policy (a) Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure or the contents of a Residential Structure, located in the State of Florida. (b) 1. Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrower’s and the lender’s financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the company submits the required data as specified in the Data Call adopted under Rule 19-8.029, F.A.C. 2. The SBA finds that the replacement cost value of a dwelling is the functional equivalent of the dwelling coverage amount under the lapsed homeowner’s policy and that coverage in the amount of the replacement cost value fulfills the legislative intent that collateral protection policies are to be covered by the FHCF only when they protect the borrower’s interest in the dwelling to the same extent as a traditional residential policy. Therefore, for purposes of this definition of Covered Policy, a collateral protection policy is deemed to be written in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy if the dwelling coverage amount is either: a. Equal to or greater than the amount of dwelling coverage in place under the “lapsed homeowner’s policy,” i.e., the last residential policy placed by the borrower; or b. Equal to or greater than 100% of the replacement cost value of the dwelling, as determined under a methodology approved in advance as required by the Data Call. For the purpose of this determination, “replacement cost value” means the cost to replace the dwelling on the same premises, without deduction for depreciation, with material of like kind and quality and for like use. (c) Covered Policy does not include any policy or exposure excluded under Article VI. (12) Deductible Buy-Back Policy 6 FHCF-2020K Rule 19-8.010 F.A.C.

This term means a specific policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a policy issued by another insurer. (13) Estimated Claims-Paying Capacity of the FHCF This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes. (14) Excess Policy This term means, for the purposes of this Contract, a policy that provides insurance protection for large commercial property risks and that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible. (15) Insurer Group For purposes of the Coverage Level election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for regulatory purposes. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group. (16) Limit This term means the maximum amount that a Company may recover under this Contract, calculated by multiplying the Company’s Reimbursement Premium by the Payout Multiple. (17) Loss This term means an incurred loss under a Covered Policy from a Covered Event, including Additional Living Expenses not to exceed 40 percent of the insured value of a Residential Structure or its contents and amounts paid as fees on behalf of or inuring to the benefit of a policyholder. The term Loss does not include allocated or unallocated loss adjustment expenses or any item for which this Contract does not provide reimbursement pursuant to the exclusions in Article VI. (18) Loss Adjustment Expense Allowance (a) The Loss Adjustment Expense Allowance is equal to 10% of the reimbursed Losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)1., Florida Statutes. (b) The Loss Adjustment Expense Allowance is included in, and not in addition to, the Limit applicable to a Company. (19) New Participant This term means a Company that begins writing Covered Policies on or after the beginning of the Contract Year. A Company that removes Covered Policies from Citizens pursuant to an assumption 7 FHCF-2020K Rule 19-8.010 F.A.C.

agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant. (20) Payout Multiple This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the actual single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined. (21) Premium Formula This term means the Formula developed pursuant to Section 215.555(5)(b), Florida Statutes, and approved by the SBA Trustees for the purpose of determining the Actuarially Indicated Reimbursement Premium to be paid to the FHCF. (22) Projected Payout Multiple The Projected Payout Multiple is used to calculate a Company’s projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Company’s Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Company’s coverage from the FHCF for the Contract Year. (23) Reimbursement Premium or Premium These terms mean the amount to be paid by the Company, as determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C. (24) Residential Structure In general, this term means a unit or building used exclusively or predominantly for dwelling or habitational occupancies, including the primary structure and appurtenant structures insured under the same Covered Policy and any other structures covered under endorsements associated with the Covered Policy covering the Residential Structure. (a) With respect to a unit or home insured under a personal lines residential policy form, such unit or home is deemed to have a habitational occupancy and to be a Residential Structure regardless of the term of its occupancy. (b) With respect to a condominium structure or complex insured under a commercial lines policy, such structure is deemed to have a habitational occupancy and to be a Residential Structure, regardless of the term of occupancy of individual units. 8 FHCF-2020K Rule 19-8.010 F.A.C.

(c) A single structure which includes a mix of commercial habitational and commercial non- habitational occupancies, and is insured under a commercial lines policy, is considered a Residential Structure if 50% or more of the total insured value of the structure is used for habitational occupancies. (d) Residential Structures do not include any structures excluded under Article VI. (25) Retention This term means the amount of Losses from a Covered Event which must be incurred by the Company before it is eligible for reimbursement from the FHCF. (a) When the Company incurs Losses from one or two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the Covered Events. (b) When the Company incurs Losses from more than two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the two Covered Events causing the largest Losses for the Company. For each other Covered Event resulting in Losses, the Company’s Retention shall be reduced to one-third of its full Retention. 1. All reimbursement of Losses for each Covered Event shall be based on the Company’s full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one- third of the full Retention shall be made on or after January 1 of the Contract Year provided the Company reports its Losses as specified in this Contract. 2. Adjustments to the Company’s Retention shall be based upon its paid and outstanding Losses as reported on the Company’s Proof of Loss Reports, but shall not include incurred but not reported Losses. The Company’s Proof of Loss Reports shall be used to determine which Covered Events constitute the Company’s two largest Covered Events. After this initial determination, any subsequent adjustments shall be made quarterly by the SBA only if the Proof of Loss Reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one-third of the full Retention. (c) The Company’s full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Company’s Reimbursement Premium for the Contract Year. (26) Retention Multiple (a) The Retention Multiple is applied to the Company’s Reimbursement Premium to determine the Company’s Retention. The Retention Multiple for the 2020/2021 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2018/2019 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry 9 FHCF-2020K Rule 19-8.010 F.A.C.

Reimbursement Premium at the 90% Coverage Level for the Contract Year as determined by the SBA. (b) The Retention Multiple shall be adjusted to reflect the Coverage Level elected by the Company under this Contract as follows: 1. If the Company elects the 90% Coverage Level, the adjusted Retention Multiple is 100% of the amount determined under paragraph (a); 2. If the Company elects the 75% Coverage Level, the adjusted Retention Multiple is 120% of the amount determined under paragraph (a); or 3. If the Company elects the 45% Coverage Level, the adjusted Retention Multiple is 200% of the amount determined under paragraph (a). (27) Ultimate Net Loss (a) This term means all Losses under Covered Policies in force at the time of a Covered Event prior to the application of the Company’s Retention and Coverage Level, and excluding loss adjustment expense and any exclusions under Article VI. (b) In calculating the Company’s Ultimate Net Loss, the amounts described in paragraph (a) shall be reduced by the deductibles applicable under the policy to the hurricane loss, which must first be applied to the portion of the Loss covered by the FHCF. (c) Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such Loss to arrive at the amount of liability attaching hereunder. (d) All salvages, recoveries or payments recovered or received subsequent to a Loss settlement under this Contract shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto. (e) The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event. ARTICLE VI – EXCLUSIONS This Contract does not provide reimbursement for: (1) Any losses not defined as being within the scope of a Covered Policy, including any loss other than a loss under the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage. (2) Any policy which excludes wind or hurricane coverage. 10 FHCF-2020K Rule 19-8.010 F.A.C.

(3) Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking, as determined by the FHCF. (4) (a) Any policy for Residential Structures that provides a layer of coverage underneath an Excess Policy issued by a different insurer; (b) Any policy providing a layer of windstorm or hurricane coverage for a particular structure above or below a layer of windstorm or hurricane coverage under a separate policy issued by a different insurer, or any other circumstance in which two or more insurers provide primary windstorm or hurricane coverage for a single structure using separate policy forms; (c) Any other policy providing a layer of windstorm or hurricane coverage for a particular structure below a layer of self-insured windstorm or hurricane coverage for the same structure; or (d) The exclusions in this subsection do not apply to primary quota share policies written by Citizens Property Insurance Corporation under Section 627.351(6)(c)2., Florida Statutes. (5) Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption. (6) Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(11)(b). (7) Any reinsurance assumed by the Company. (8) Hotels, motels, timeshares, shelters, camps, retreats, or other similar structures. This exclusion does not apply to any policy identified as covering a residential condominium association or to any policy on which the insured is a residential condominium association. (9) Retail, office, mercantile, or manufacturing facilities, or other similar structures. (10) Any exposure for condominium or homeowner associations if no Residential Structures are insured under the policy. (11) Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion. (12) Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex). (13) Policies covering only Additional Living Expense. (14) Any exposure for barns or barns with apartments or living quarters. 11 FHCF-2020K Rule 19-8.010 F.A.C.

(15) Any exposure for builders risk coverage or new Residential Structures under construction. (16) Any exposure for vehicles, recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing. (17) Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits. This exclusion includes, but is not limited to, amounts paid as bad faith awards, punitive damages awards, or other court-imposed fines, sanctions, or penalties; or other amounts in excess of the coverage limits under the Covered Policy. (18) Any losses paid in excess of a policy’s hurricane limit in force at the time of the Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense), or other amounts paid as the result of a voluntary expansion of coverage by the insurer, including, but not limited to, a discount on or waiver of an applicable deductible. This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit. (19) Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year). (20) Any losses which the Company’s claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year. (21) Any exposure for, or amounts paid to reimburse a policyholder for, condominium association loss assessments or under similar coverages for contractual liabilities. (22) Losses in excess of the aggregate limits of liability specified in Article IV and in Section 215.555(4)(c), Florida Statutes. (23) Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Company and Citizens are covered by this Contract. (24) All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or 12 FHCF-2020K Rule 19-8.010 F.A.C.

assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. (25) Property losses that are proximately caused by any peril other than a Covered Event, including, but not limited to, fire, theft, flood or rising water, or windstorm that does not constitute a Covered Event, or any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss. (26) Losses from water damage including flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind. (27) A policy providing personal property coverage separate from coverage of personal property included in a homeowner’s, mobile home owner’s, condominium unit owner’s, or tenant’s policy or other policy covering a Residential Structure, or in an endorsement to such a policy. Also excluded is a personal property endorsement to a policy that excludes windstorm or hurricane coverage or to any other type of policy that does not meet the definition of covered policy. (28) Endorsements predominantly covering Specialized Fine Arts Risks or collectible types of property meeting the following requirements: (a) An endorsement predominantly covering Specialized Fine Arts Risks and not covering any Residential Structure if it meets the description in subparagraph 1 and if the conditions in subparagraph 2 are met. 1. For purposes of this exemption, a Specialized Fine Arts Risk endorsement is an endorsement that: a. Insures works of art, of rarity, or of historic value, such as paintings, works on paper, etchings, art glass windows, pictures, statuary, sculptures, tapestries, antique furniture, antique silver, antique rugs, rare books or manuscripts, jewelry, or other similar items; b. Charges a minimum premium of $500; and c. Insures scheduled items valued, in the aggregate, at no less than $100,000. 2. The insurer offers specialized loss prevention services or other collector services designed to prevent or minimize loss, or to value or inventory the Specialized Fine Arts for insurance purposes, such as: 13 FHCF-2020K Rule 19-8.010 F.A.C.

a. Collection risk assessments; b. Fire and security loss prevention; c. Warehouse inspections to protect items stored off-site; d. Assistance with collection inventory management; or e. Collection valuation reviews. (b) An endorsement generally used by the Company to cover personal property which could include property of a collectible nature, including fine arts, as further described in this paragraph, either on a scheduled basis or written under a blanket limit, and not covering anything other than personal property. All such endorsements are subject to the exclusion provided in this paragraph when the endorsement limit equals or exceeds $500,000. Generally such collectible property has unusually high values due to its investible, artistic, or unique intrinsic nature. The class of property covered under such an endorsement represents an unusually high exposure value and such endorsement is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies. In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time. The investment nature of such property distinguishes this type of exposure from the typical contents associated with a Covered Policy. (29) Any losses under liability coverages. ARTICLE VII - MANAGEMENT OF CLAIMS AND LOSSES The Company shall investigate and settle or defend all claims and Losses. All payments of claims or Losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations. ARTICLE VIII –REIMBURSEMENT ADJUSTMENTS Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess reimbursements which have been paid to the Company along with interest thereon. Excess reimbursements are those payments made to the Company by the SBA that are in excess of the Company’s coverage under the Contract Year. Excess reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculation of Reimbursement Premium or Retention, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date 14 FHCF-2020K Rule 19-8.010 F.A.C.

for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Company’s control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date. ARTICLE IX - REIMBURSEMENT PREMIUM (1) The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2). (2) The Company’s Reimbursement Premium is based on its June 30 exposure in accordance with Article X, except as provided for New Participants under Article X, and is not adjusted to reflect an increase or decrease in exposure for Covered Policies effective after June 30 nor is the Reimbursement Premium adjusted when the Company cancels policies or is liquidated or otherwise changes its business status (merger, acquisition, or termination) or stops writing new business (continues in business with its policies in a runoff mode). Similarly, new business written after June 30 will not increase or decrease the Company’s FHCF Reimbursement Premium or impact its FHCF coverage. FHCF Reimbursement Premiums are required of all Companies based on their writing Covered Policies in Florida as of June 30, and each Company’s FHCF coverage as based on the definition in Section 215.555(2)(m), Florida Statutes, shall exist for the entirety of the Contract Year regardless of exposure changes, except as provided for New Participants under Article X. (3) Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Reimbursement Premium installments. However, if the Company’s estimation is less than the provisional Reimbursement Premium billed, an interest charge will accrue on the difference between the estimated Reimbursement Premium and the final Reimbursement Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Reimbursement Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Reimbursement Premium if paid as billed by the FHCF’s Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Reimbursement Premium billed but is less than the final Reimbursement Premium, interest will not 15 FHCF-2020K Rule 19-8.010 F.A.C.

accrue. If the Reimbursement Premium payment is not received from a Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Reimbursement Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Reimbursement Premium which is overpaid as either an estimate or as a provisional Reimbursement Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%. ARTICLE X - REPORTS AND REMITTANCES (1) Exposures (a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCF-D1A (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA. (b) If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than February 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of November 30 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA. (c) If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA. (d) The requirement that a report is due on a certain date means that the report shall be received by the SBA no later than 4 p.m. Eastern Time on the due date. Reports sent to the FHCF Administrator in Minneapolis, Minnesota, will be returned to the sender. Reports not in the physical possession of the SBA by 4 p.m., Eastern Time, on the applicable due date are late. (2) Reimbursement Premium (a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in installments due on or before August 1, October 1, and 16 FHCF-2020K Rule 19-8.010 F.A.C.

December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Company’s Reimbursement Premium for the prior Contract Year was less than $5,000, the Company’s full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. the Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Premium payment, on or before December 1 of the Contract Year. (b) If the Company is under administrative supervision, or if any control or oversight of the Company has been transferred through any legal or regulatory action to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as “state action”): 1. The full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year. 2. Failure by such Company to pay the full annual provisional Reimbursement Premium as specified in subparagraph 1. by the applicable due date shall result in the 45% Coverage Level being deemed for the complete Contract Year regardless of the level selected for the Company through the execution of this Contract and regardless of whether a Covered Event occurred or triggered coverage. 3. Subparagraphs 1. and 2. do not apply if the state regulator, receiver, or rehabilitator provides a letter of assurance to the FHCF stating that the Company will have the resources and will pay the full Reimbursement Premium for the Coverage Level selected through the execution of this Contract. 4. When control or oversight has been transferred, in whole or in part, through a legal or regulatory action, the controlling management of the Company shall specify by August 1 or as soon thereafter as possible (but not to exceed two weeks after any regulatory or legal action) in a letter to the FHCF as to the Company’s intentions to either pay the full FHCF Reimbursement Premium as specified in subparagraph 1., to default to the 45% Coverage Level being deemed as specified in subparagraph 2., or to provide the assurances as specified in subparagraph 3. (c) A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies. The Administrator shall calculate the Company's actual Reimbursement Premium for the period based on its actual exposure as of November 30 of the Contract Year, as reported on or before February 1 of the Contract Year. To recognize that New Participants have limited exposure during 17 FHCF-2020K Rule 19-8.010 F.A.C.

this period, the actual Reimbursement Premium as determined by processing the Company's exposure data shall then be divided in half, the provisional Reimbursement Premium shall be credited, and the resulting amount shall be the total Reimbursement Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Reimbursement Premium payment is due no later than April 1 of the Contract Year. The Company’s Retention and coverage will be determined based on the total Reimbursement Premium due as calculated above. (d) A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies. (e) The requirement that the Reimbursement Premium is due on a certain date means that the Reimbursement Premium shall be remitted by wire transfer or ACH and shall have been credited to the FHCF’s account, as set out on the invoice sent to the Company, on the due date applicable to the particular installment. (f) Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for Losses attributable to Covered Events occurring in that Contract Year or for Losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past Losses or for debt service on post-event revenue bonds issued pursuant to Section 215.555(6)(a)1., Florida Statutes. Reimbursement Premiums and earnings thereon may be used for payments relating to such revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on post- event revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the post-event revenue bonds and any other purposes for which emergency assessments were levied. (3) Losses (a) In General Losses resulting from a Covered Event commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreement(s) with Citizens Property Insurance Corporation Coastal Account, Citizens and the Company shall report only their respective portion of Losses under the 18 FHCF-2020K Rule 19-8.010 F.A.C.

quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for Losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes, for any one Contract Year. (b) Loss Reports 1. At the direction of the SBA, the Company shall report its projected Ultimate Net Loss from each Covered Event to provide information to the SBA in determining any potential liability for possible reimbursable Losses under the Contract on the Interim Loss Report, Form FHCF- L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required. 2. FHCF reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C. a. To qualify for reimbursement, the Proof of Loss Report must have the electronic signatures of two executive officers authorized by the Company to sign or submit the report. b. The Company must also submit a Detailed Claims Listing, Form FHCF-DCL, adopted for the Contract Year under Rule 19-8.029, F.A.C., at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and must be prepared to supply a Detailed Claims Listing for any subsequent Proof of Loss Report upon request. c. While the Company may submit a Proof of Loss Report requesting reimbursement at any time following a Covered Event, the Company shall submit a mandatory Proof of Loss Report for each Covered Event no later than December 31 of the Contract Year during which the Covered Event occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of reimbursements or advances already received. d. The Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available, but with an “as of” date not more than sixty days prior to the applicable quarter-end or year-end date. e. For the Proof of Loss Reports due by December 31 of the Contract Year and the required subsequent annual reports required under subparagraph 4., the Company shall include a Detailed Claims Listing if requested by the SBA. 19 FHCF-2020K Rule 19-8.010 F.A.C.

3. Updated Proof of Loss Reports for each Covered Event are due quarterly thereafter until all Losses resulting from a Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Covered Event occurred. Guidelines follow: a. Quarterly Proof of Loss Reports are due by March 31 from a Company whose Losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Covered Event. b. Quarterly Proof of Loss Reports are due by June 30 from all Companies regardless of the amount of Ultimate Net Loss or the amount of reimbursements or advances already received. c. Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from a Company whose Losses exceed, or are expected to exceed, its FHCF Retention for a specific Covered Event, except as required under subparagraph 4. If the Company’s Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCF’s reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCF’s obligations. 4. The Company shall submit a mandatory Proof of Loss Report for each Covered Event by June 30 and December 31 of each calendar year following the end of the Contract Year, regardless of whether the Company’s Losses exceed, or are expected to exceed, its FHCF Retention for a specific Covered Event. This Proof of Loss Report filing requirement shall continue until the earlier of the commutation process described in paragraph (3)(d) or until all Losses resulting from the Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries. 5. The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on Losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of Losses. a. The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements. 20 FHCF-2020K Rule 19-8.010 F.A.C.

b. The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid Losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm Losses, prior to the issuance of reimbursements. c. The SBA shall have the right to conduct a claims examination prior to the issuance of any advances or reimbursements requested by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator. 6. All Proof of Loss Reports received will be compared with the FHCF’s exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and claims examinations to determine the reasonableness of the reported Losses. Except as noted in subparagraph 5., Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The discovery of errors in a Company’s reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Company’s Reimbursement Premium, Retention, and coverage for the Contract Year, will be required before the Company’s request for reimbursement or an advance will be fully processed by the Administrator. (c) Loss Reimbursement Calculations 1. In general, the Company’s paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(25)(b), Retention adjustments will be made on or after January 1 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company, including entities created pursuant to Section 627.351(6), Florida Statutes, incurring reimbursable Losses will receive the amount of reimbursement due under the individual Company’s Contract up to the amount of the Company’s payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Company’s Retention for each Covered Event. However, the Company’s reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout 21 FHCF-2020K Rule 19-8.010 F.A.C.

Multiple or Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year. 2. Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable Losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable Losses for the previous Contract Year, based on the length of time the Losses have been outstanding, the amount of Losses already paid, the percentage of incurred Losses still unpaid, and any other factors specific to the loss development of the Covered Events involved. (d) Commutation 1. Except as provided in subparagraph 3., not less than 36 months or more than 60 months after the end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable Losses as described in sub-subparagraph a. Otherwise, the final Proof of Loss Report(s) is required as specified in sub-subparagraph b. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF claims examination for the Company and the resolution of all outstanding examination issues. a. If the Company’s most recently submitted Proof of Loss Report(s) indicates that it has no Losses resulting from Covered Events during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to Losses. If the Company chooses not to execute a final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report indicating reimbursable Losses had been filed and the commutation shall be deemed concluded. However, during this time, if the Company determines that it does have Losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section. b. If the Company has submitted a Proof of Loss Report indicating that it does have Losses resulting from a Covered Event during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report for each 22 FHCF-2020K Rule 19-8.010 F.A.C.

Covered Event during the Contract Year. The Proof of Loss Report must include all paid Losses as well as all outstanding Losses and incurred but not reported Losses, which are not finally settled and which may be reimbursable Losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjuster’s summary report or equivalent details) and a copy of a written opinion on the present value of the outstanding Losses and incurred but not reported Losses by the Company’s certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report, supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Florida Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported Losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation. 2. Determining the present value of outstanding Losses. a. If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding Losses, both reported and incurred but not reported, resulting from Covered Events during the Contract Year. The Loss valuation process under this subparagraph may begin only after all other issues arising under this Contract have been resolved, and shall be suspended pending resolution of any such issues that arise during the Loss valuation process. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Company’s certifying actuary shall constitute a complete and final release of the SBA in respect of all Losses, both reported and unreported, under this Contract. b. If agreement on present value cannot be reached within 90 days of the FHCF’s receipt of the final Proof of Loss Report and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such Losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such Losses. c. If the parties fail to agree on the valuation of any Losses, then any difference in valuation of the Loss shall be settled by a panel of three actuaries, as provided in this subparagraph. Either the SBA or the Company may initiate the process under this subparagraph by providing written notice to the other party stating that the parties are at an impasse with respect to valuation of Losses and specifying the dollar amounts in dispute. 23 FHCF-2020K Rule 19-8.010 F.A.C.

i. One actuary shall be chosen by each party, and the third actuary shall be chosen by those two actuaries. If either party does not appoint an actuary within 30 days after the initiation of the process, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. ii. All of the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries. iii. None of the actuaries shall be under the control of either party to this Contract. iv. Each party shall submit a written statement of its case to the panel of actuaries and the opposing party no later than 30 days after the appointment of the third actuary. Within 15 days after receiving the other party’s submission, a party may submit its written response to the panel of actuaries and the other party. After the appointment of the third actuary, a party may not communicate with the panel or any member of the panel except in writing simultaneously furnished to all members of the panel and the opposing party. Any member of the panel may present questions to be answered by both parties, which shall be answered in writing and simultaneously furnished to the members of the panel and the opposing party or, at the discretion of the panel, may be provided in a meeting or teleconference attended by both parties and all members of the panel. v. The written decision of a majority of the panel as to the disagreement over the valuation of losses identified in the written notice of impasse, when filed with the parties hereto, shall be final and binding on both parties. d. The reasonable and customary expense of the actuaries and of the commutation (as a result of sub-subparagraphs 2.b. and c.) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA. 3. The Company and SBA may mutually agree to initiate and complete a commutation for zero dollars without being subject to the 36-month waiting period provided in subparagraph (d)1. Such early commutation, once completed, eliminates the mandatory Proof of Loss Report requirements required under subparagraphs (b)3. and 4. for all reporting periods subsequent to the completion of the commutation. 24 FHCF-2020K Rule 19-8.010 F.A.C.

4. Upon full execution of the commutation agreement and the issuance of the final reimbursement payment, if any, each party, on behalf of its predecessors, successors, assigns, and its past, present and future officers, directors, shareholders, employees, agents, receivers, trustees, attorneys and its legal representatives, unconditionally and completely releases and forever discharges the other party, its predecessors, successors, assigns, and its past, present and future officers, directors, shareholders, employees, agents, receivers, trustees, attorneys, and its legal representatives from any and all past, present, and future rights, liabilities, and obligations including, but not limited to, payments, claims, debts, demands, causes of action, costs, disbursements, fees, attorneys’ fees, expenses, damages, injuries, or losses of every kind, whether known or unknown, reported or unreported, or fixed or contingent, relating to or arising out of this Reimbursement Contract. (4) Advances (a) The SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Company’s paid and reported outstanding Losses for Covered Policies (excluding all incurred but not reported Losses) as reported on a Proof of Loss Report, and shall include a Loss Adjustment Expense Allowance as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under subsection (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under paragraphs (c) and (d). All reimbursements due to the Company shall be offset against any amount of outstanding advances plus the interest due thereon. (b) For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Company’s Proof of Loss Report for the Covered Event for which the Company qualifies for reimbursement. If such reimbursement is less than the amount of outstanding advances issued to the Company, interest 25 FHCF-2020K Rule 19-8.010 F.A.C.

will continue to accrue on the outstanding balance of the advances until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advances. Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment. (c) If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported Losses as reported on the applicable December Proof of Loss Report. (d) The specific type of advances enumerated in Section 215.555, Florida Statutes, follow. 1. Advances to Companies to prevent insolvency, as defined under Article XV. a. Section 215.555(4)(e)1., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBA’s estimate of the reimbursement due to the Company. b. In addition to the requirements outlined in subparagraph (4)(a), the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information: i. Current assets; ii. Current liabilities other than liabilities due to the Covered Event; iii. Current surplus as to policyholders; iv. Estimate of other expected liabilities not due to the Covered Event; and v. Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties. c. The SBA’s final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBA’s obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner. 2. Advances to entities created pursuant to Section 627.351(6), Florida Statutes. 26 FHCF-2020K Rule 19-8.010 F.A.C.

a. Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBA’s estimate of the reimbursement due or the entity’s share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF. b. In addition to the requirements outlined in paragraph (4)(a), the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event. 3. Advances to limited apportionment companies. Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies. (e) In determining whether or not to grant an advance and the amount of an advance, the SBA: 1. Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its obligations to other Companies prior to granting an advance; 2. Shall review and consider all the information submitted by such Companies; 3. Shall review such Companies’ compliance with all requirements of Section 215.555, Florida Statutes; 4. Shall consult with all relevant regulatory agencies to seek all relevant information; 5. Shall review the damage caused by the Covered Event and when that Covered Event occurred; 6. Shall consider whether the Company has substantially exhausted amounts previously advanced; 7. Shall consider any other factors deemed relevant; and 8. Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested. (f) Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event which has precipitated the immediate need to continue to pay additional claims as they become due. 27 FHCF-2020K Rule 19-8.010 F.A.C.

(5) Inadequate Data Submissions If exposure data or other information required to be reported by the Company under the terms of this Contract are not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Company’s request for reimbursement or an advance. (6) Confidential Information/Trade Secret Information Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution. If other information submitted by the Company to the FHCF could reasonably be ruled a “trade secret” as defined in Section 812.081, Florida Statutes, such information must be clearly marked “Trade Secret Information.” ARTICLE XI - TAXES In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Reimbursement Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Reimbursement Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes. ARTICLE XII - ERRORS AND OMISSIONS Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made. ARTICLE XIII - INSPECTION OF RECORDS The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, Losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or Losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or claims examination file and the termination of the Contract. The Company shall 28 FHCF-2020K Rule 19-8.010 F.A.C.

have no right to re-open an exposure or claims examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the State Board of Administration Finance Corporation has issued revenue bonds and relied upon the exposure and Loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in definition (11)(b) of Article V, must be able to provide documentation that the policy covers personal residences, protects both the borrower’s and lender’s interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy or at least equal to the replacement cost value of the dwelling, as provided in Article V(11)(b). (1) Purpose of FHCF Examination The purpose of the examinations conducted by the SBA is to evaluate the accuracy of the FHCF exposure or Loss data reported by the Company. However, due to the limited nature of the examination, it cannot be relied upon as an assurance that a Company’s data is reported accurately or in its entirety. The Company should not rely on the FHCF to identify every type of reporting error in its data. In addition, the reporting requirements are subject to change each Contract Year so it is the Company’s responsibility to be familiar with the applicable Contract Year requirements and to incorporate any changes into its data for that Contract Year. It is also the Company’s responsibility to ensure that its data is reported accurately and to comply with Florida Statutes and any applicable rules when reporting exposure data. The examination report is not intended to provide a legal determination of the Company’s compliance. (2) Examination Requirements for Exposure Verification The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Company’s exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred Losses until the completion of the claims examination and commutation for that Contract Year. The records to be retained are outlined in the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C. 29 FHCF-2020K Rule 19-8.010 F.A.C.

A complete list of records to be retained for the exposure examination is set forth in Form FHCF- EAP1, adopted for the Contract Year under Rule 19-8.029, F.A.C. 30 FHCF-2020K Rule 19-8.010 F.A.C.

(3) Examination Requirements for Loss Reports The Company shall retain complete and accurate records of all reported Losses and/or advances submitted to the SBA until the SBA has completed its examination of the Company’s reimbursable Losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B and Form FHCF-LAP1, both adopted for the Contract Year under Rule 19-8.029, F.A.C. (4) Examination Procedures (a) The FHCF will send an examination notice letter to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA. (b) The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported exposure or Losses which are provided after the examiner has left the work-site will, at the SBA’s discretion, result in an additional examination of exposure and/or Loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company. (c) At the conclusion of the examiner’s work and the management review of the examiner’s report, findings, recommendations, and work papers, the FHCF will forward an examination report to the Company. (d) Within 30 days from the date of the letter accompanying the examination report, the Company must provide a written response to the FHCF. The response must indicate whether the Company agrees with the findings and recommendations of the examination report. If the Company disagrees with any examination findings or recommendations, the reason for the disagreement must be outlined in the response and the Company must provide supporting information to support its objection. An extension of 30 days may be granted if the Company can show that the need for additional time is due to circumstances beyond the reasonable control of the Company. No response is required if the examination report does not include any findings or recommendations. 31 FHCF-2020K Rule 19-8.010 F.A.C.

(e) If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed. (f) If the Company disputes the examiner’s findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management. (g) 1. If the recommendation of the examiner is to resubmit the Company’s exposure data for the Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. Once the resubmission is received, the FHCF’s Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiner’s findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiner’s findings, the exam is closed. 2. If the recommendation of the examiner is to give the Company the option to either resubmit the exposure data or to pay the estimated Reimbursement Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Reimbursement Premium difference and including a deadline for the resubmission or the payment to be received by the FHCF’s Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XIII(4) apply. (h) If the recommendation of the examiner is to update the Company’s Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCF’s Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiner’s findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiner’s findings, the exam is closed. (i) The examiner’s list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Company’s policies or claims rather than the whole universe of the Company’s Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Company’s book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF. 32 FHCF-2020K Rule 19-8.010 F.A.C.

(5) Costs of the Examinations The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Company’s failure, despite proper notice, to be prepared for the examination or as a result of a Company’s failure to provide requested information. All requested information must be complete and accurate. ARTICLE XIV – OFFSETS The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under the Reimbursement Contract for any Contract Year and also including the Company’s full Reimbursement Premium for the current Contract Year (regardless of installment due dates), against any (1) Reimbursement Premium refunds under any Contract Year, (2) reimbursement or advance amounts, or (3) amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA. ARTICLE XV - INSOLVENCY OF THE COMPANY Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Company’s Losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and claims examinations will be maintained until completion of the Company’s exposure and claims examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested reimbursements until the exposure and claims examinations for the Company are completed. Only those Losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the “net amount of all reimbursement moneys” due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and claims examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, 33 FHCF-2020K Rule 19-8.010 F.A.C.

which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time. ARTICLE XVI - TERMINATION The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided by law or applicable rules. ARTICLE XVII – VIOLATIONS (1) Statutory Provisions (a) Section 215.555(10), Florida Statutes, provides that any violation of Section 215.555, Florida Statutes, or of rules adopted under that section, constitutes a violation of the Florida Insurance Code. This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code, under the authority of that section of Florida Statutes. (b) Section 215.555(11), Florida Statutes, authorizes the SBA to take any action necessary to enforce the rules and the provisions and requirements of this Contract, required by and adopted pursuant to Section 215.555, Florida Statutes. (2) Noncompliance (a) As used in this Article, the term “noncompliance” means the failure of the Company to meet any applicable requirement of Section 215.555, Florida Statutes, or of any rule adopted under the authority of that section of Florida Statutes, including, but not limited to, any failure to meet a deadline for an FHCF payment, Data Call submissions or resubmissions, Loss reporting or commutation documentation, or a deadline related to SBA examination requirements. The Company remains in a state of noncompliance as long as the Company fails to meet the applicable requirement(s). (b) If the Company is in a state of noncompliance, the SBA reserves the right to withhold any payments or advances due to the Company until the SBA determines that the Company is no longer in a state of noncompliance. ARTICLE XVIII - APPLICABLE LAW This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract. 34 FHCF-2020K Rule 19-8.010 F.A.C.

ARTICLE XIX – DUE DATES If any due date provided in this Contract is a Saturday, Sunday or a legal State of Florida or federal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or a legal State of Florida or federal holiday. ARTICLE XX – REIMBURSEMENT CONTRACT ELECTIONS (1) Coverage Level For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a 45% or 75% or 90% Coverage Level under this Contract. If the Company is a member of an NAIC group, all members must elect the same Coverage Level, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same Coverage Level as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the 90% Coverage Level. The Company shall not be permitted to change its Coverage Level after the March 1 statutory deadline for execution of the Contract. The Company shall be permitted to change its Coverage Level upon timely execution of the Contract for the next Contract Year, but may not reduce its Coverage Level if revenue bonds issued under Section 215.555(6), Florida Statutes, are outstanding. The Coverage Level elected by the Company for the prior Contract Year effective June 1, 2019 was as follows: 3 (a) NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group: X (b) Coverage Level Election: The Company hereby elects the following Coverage Level for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2020, to 12:00 a.m., Eastern Time, May 31, 2021, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company): X 45% OR 75% OR 90% 3 FedNat Insurance Company—75%; Monarch National Insurance Company—75%; Maison Insurance Company— 90% 35 FHCF-2020K Rule 19-8.010 F.A.C.

(2) Additional Living Expense (ALE) Written as Time Element Coverage If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the ‘Yes – Time Element ALE’ box below. If your Company does not write time element ALE coverage, initial ‘No – Time Element ALE’ box below. 4 5 OR Yes – Time No – Time Element ALE Element ALE ARTICLE XXI – SIGNATURES Approved by: Paragon Strategic Solutions Inc., on Behalf of the State Board of Administration of the State of Florida and as Administrator of the Florida Hurricane Catastrophe Fund. By: _/s/ Martin K. Helgestad____________________ __3/27/2020________________________ Date Authority to sign on behalf of the Company: The person signing this Contract on behalf of the Company hereby represents that he or she is an officer of the Company, acting within his or her authority to enter into this Contract on behalf of the Company, with the requisite authority to bind the Company and make the representations on behalf of the Company as set forth in this Contract. ______________________________6_______________________________________ Printed Name and Title By: __________________7_________________________ _____________8________________ Signature Date 4 Maison Insurance Company 5 FedNat Insurance Company; Monarch National Insurance Company 6 FedNat Insurance Company; Monarch National Insurance Company; Maison Insurance Company 7 FedNat Insurance Company—Michael Braun, President; Monarch National Insurance Company—Michael Braun, President; Maison Insurance Company—Doug Raucy, President 8 FedNat Insurance Company—2/26/2020; Monarch National Insurance Company—2/26/2020; Maison Insurance Company—2/19/2020 36 FHCF-2020K Rule 19-8.010 F.A.C.

EX-31.1

Exhibit 31(1)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Michael H. Braun, certify that:

1. I have reviewed this Form 10-Q of FedNat Holding Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 6, 2020

/s/ Michael H. Braun

Michael H. Braun

Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31(2)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Ronald Jordan, certify that:

1. I have reviewed this Form 10-Q of FedNat Holding Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2020

/s/ Ronald Jordan

Ronald Jordan

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32(1)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of FedNat Holding Company for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Michael H. Braun, Chief Executive Officer of FedNat Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedNat Holding Company.

/s/ Michael H. Braun

Michael H. Braun

Chief Executive Officer (Principal Executive Officer)

May 6, 2020

EX-32.2

Exhibit 32(2)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of FedNat Holding Company for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Ronald Jordan, Chief Financial Officer of FedNat Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedNat Holding Company.

/s/ Ronald Jordan

Ronald Jordan

Chief Financial Officer

(Principal Financial and Accounting Officer)

May 6, 2020

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INVESTMENTS (Tables)

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Unrealized Gain (Loss) on Investments

The difference between amortized cost or cost and estimated fair value and gross unrealized gains and losses, by major investment category, consisted of the following:

໿

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	187,452	$	8,924	$	13	$	196,363
Obligations of states and political subdivisions	21,935		400		37		22,298
Corporate	293,927		5,745		5,942		293,730
International	31,237		324		1,117		30,444
	534,551		15,393		7,109		542,835
Debt securities - held-to-maturity:
United States government obligations and authorities	3,555		53		65		3,543
Corporate	671		7		6		672
International	45		1		—		46
	4,271		61		71		4,261
Total investments, excluding equity securities	$	538,822	$	15,454	$	7,180	$	547,096

໿

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	191,546	$	3,073	$	426	$	194,193
Obligations of states and political subdivisions	23,748		294		22		24,020
Corporate	268,182		10,252		132		278,302
International	29,169		593		12		29,750
	512,645		14,212		592		526,265
Debt securities - held-to-maturity:
United States government obligations and authorities	3,585		12		39		3,558
Corporate	697		20		—		717
International	55		1		—		56
	4,337		33		39		4,331
Total investments, excluding equity securities	$	516,982	$	14,245	$	631	$	530,596

Net Realized Gains (Losses) by Major Investment Category

Net realized and unrealized gains (losses) recognized in earnings, by major investment category, consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross realized and unrealized gains:
Debt securities	$	1,386	$	317
Equity securities	319		2,830
Total gross realized and unrealized gains	1,705		3,147
Gross realized and unrealized losses:
Debt securities	(148)		(400)
Equity securities	(4,382)		(446)
Total gross realized and unrealized losses	(4,530)		(846)
Net realized and unrealized gains (losses) on investments	$	(2,825)	$	2,301

Investments Classified by Contractual Maturity Date

Amortized cost and estimated fair value of debt securities, by contractual maturity, consisted of the following:

໿

	March 31, 2020
	Amortized
	Cost		Fair Value
Securities with Maturity Dates	(In thousands)
Debt securities, available-for-sale:
One year or less	$	33,374	$	33,413
Over one through five years	170,802		171,418
Over five through ten years	158,874		161,147
Over ten years	171,501		176,857
	534,551		542,835
Debt securities, held-to-maturity:
One year or less	285		286
Over one through five years	3,846		3,833
Over five through ten years	39		39
Over ten years	101		103
	4,271		4,261
Total	$	538,822	$	547,096

Summary of Net Investment Income

Net investment income consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Interest income	$	3,822	$	3,657
Dividends income	70		53
Net investment income	$	3,892	$	3,710

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value

Gross unrealized losses and related fair values for debt securities, grouped by duration of time in a continuous unrealized loss position, consisted of the following:

໿

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	810	$	1	$	268	$	12	$	1,078	$	13
Obligations of states and political subdivisions	5,544		37		—		—		5,544		37
Corporate	117,591		5,754		—		188		117,591		5,942
International	13,330		1,079		132		38		13,462		1,117
	137,275		6,871		400		238		137,675		7,109
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,222		65		2,222		65
Corporate	235		6		—		—		235		6
International	—		—		—		—		—		—
	235		6		2,222		65		2,457		71
Total investments, excluding equity securities	$	137,510	$	6,877	$	2,622	$	303	$	140,132	$	7,180

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	49,833	$	409	$	2,218	$	17	$	52,051	$	426
Obligations of states and political subdivisions	6,810		22		—		—		6,810		22
Corporate	15,872		94		7,694		38		23,566		132
International	3,856		10		179		2		4,035		12
	76,371		535		10,091		57		86,462		592
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,287		39		2,287		39
Corporate	—		—		—		—		—		—
International	—		—		—		—		—		—
	—		—		2,287		39		2,287		39
Total investments, excluding equity securities	$	76,371	$	535	$	12,378	$	96	$	88,749	$	631

Gain (Loss) on Securities

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net realized and unrealized gains (losses)	$	(4,063)	$	2,384
Less:
Net realized and unrealized gains (losses) on securities sold	(635)		326
Net realized and unrealized gains (losses) recognized during the period still held as of the end-of-period	$	(3,428)	$	2,058

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

14. SUBSEQUENT EVENTS

Dividends Declared

Refer to Note 13 above for information related to our dividend declared in April 2020.

Severe Weather Events

In the month of April 2020, five catastrophe events were cataloged by Property Claim Services in the states in which the Company writes property business. These events consisted of hail and wind related storms in the states of Texas, Louisiana, Florida and other states. As of the date of this report, we have 1,417 reported claims and $15.2 million gross incurred losses across all of our states that we do business in and across all three insurance carriers for these five severe weather events. Additionally, $6.3 million of the total $15.2 million gross incurred losses are from FNIC’s non-Florida business, which will be subject to a 50% profit-sharing arrangement with the non-affiliated managing general underwriter that writes this business.

Due to the recency of these events, the Company has not yet produced an estimate on the full financial impact of these severe weather events. An elevated level of severe weather events is not uncommon in the southeast United States during the second quarter.

The Company’s catastrophic reinsurance protection in place through June 30, 2020 provides coverage on each event if covered gross losses thereon exceed $20 million for FNIC’s Florida and/or non-Florida business. The retention amounts are $5 million and $3 million for MIC and MNIC’s businesses, respectively.

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COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Assets And Liabilities, Lessee

Additional information related to our operating lease agreement for office space consisted of the following:

	March 31,
	2020
	(In thousands)
Right-of-use asset	$	7,938
Accrued rent	(216)
Right-of-use asset, net	$	7,722
Lease liability	$	7,938
Weighted average discount rate	4.70		%
Weighted average remaining years of lease term	8.4

Additional Lease Cost Information

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Lease expense	$	280	$	260
Sublease income	(155)		—
Lease expense, net	$	125	$	260
Net cash provided by (used in) operating activities	$	(89)	$	(137)

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ALLOWANCE FOR CREDIT LOSSES (Premium Receivable Past Due) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Financing Receivable, Past Due [Line Items]
Amortized cost	$ 38,526
Allowance for credit loss	(189)	$ (159)
Net	38,337
Current
Financing Receivable, Past Due [Line Items]
Amortized cost	35,822
Allowance for credit loss	0
Net	35,822
Financial Asset, 1 to 29 Days Past Due
Financing Receivable, Past Due [Line Items]
Amortized cost	2,507
Allowance for credit loss	(26)
Net	2,481
Financial Asset, 30 to 59 Days Past Due
Financing Receivable, Past Due [Line Items]
Amortized cost	29
Allowance for credit loss	(1)
Net	28
Financial Asset, 60 to 89 Days Past Due
Financing Receivable, Past Due [Line Items]
Amortized cost	9
Allowance for credit loss	(3)
Net	6
Financial Asset, Equal to or Greater than 90 Days Past Due
Financing Receivable, Past Due [Line Items]
Amortized cost	159
Allowance for credit loss	(159)
Net	$ 0

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INVESTMENTS (Net Unrealized Gains (Losses) Still Held (Details) - Equity Securities - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Equity Securities, FV-NI, Gain (Loss), Total	$ (4,063)	$ 2,384
Less: Net realized and unrealized gains (losses)	(635)	326
Net unrealized gains (losses) still held as of the end-of-period	$ (3,428)	$ 2,058

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REINSURANCE (Narrative) (Details) - USD ($)			1 Months Ended	3 Months Ended
	Jul. 01, 2018	Jul. 01, 2017	Jul. 31, 2016	Mar. 31, 2020	Dec. 31, 2019	Jul. 01, 2016
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				$ 63,051,000	$ 102,467,000
Reinsurance Recoverables, Including Reinsurance Premium Paid				261,150,000	209,615,000
Maximum | Hurricane Irma
Liability for Catastrophe Claims [Line Items]
Reinsurance Recoverables, Including Reinsurance Premium Paid				210,500,000	163,700,000
Federated National 2018-2019 Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				148,800,000
Federated National 2018-2019 Reinsurance Programs | First Event Coverage
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				3,000,000.0
Federated National 2018-2019 Reinsurance Programs | Maximum
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				20,000,000.0
Multiple Year Protection Terminated | Maximum
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				89,000,000.0
Multiple Year Protection Plan Expired | Maximum
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				156,000,000.0
Federated Nationals Insurance Company Non Florida Reinsurance Program 2018-2019 | First Event Coverage
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				5,000,000.0
Reinsurance retention amount				15,000,000.0
Reinsurance amount retained on net basis with profit share agreement				7,500,000
Federated Nationals Insurance Company Non Florida Reinsurance Program 2018-2019 | Second Event Coverage
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				13,000,000.0
Reinsurance retention amount				2,000,000.0
Reinsurance amount retained on net basis with profit share agreement				1,000,000.0
Federated Nationals Insurance Company Non Florida Reinsurance Program 2018-2019 | Maximum
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				1,800,000
Additional coverage amount				23,000,000.0
Federated Nationals Insurance Company Non Florida Reinsurance Program 2018-2019 | Maximum | Second Event Coverage
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				18,000,000.0
2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				224,300,000
2019-2020 Catastrophe Excess Loss Reinsurance Programs | Maximum | First Event Coverage
Liability for Catastrophe Claims [Line Items]
Reinsurance retention amount				20,000,000
Reinsurance amount retained on net basis with profit share agreement				10,000,000
2019-2020 Catastrophe Excess Loss Reinsurance Programs | Maximum | Second Event Coverage
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				18,000,000
Reinsurance retention amount				2,000,000
Reinsurance amount retained on net basis with profit share agreement				1,000,000
FHCF | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				$ 45,900,000
FHCF | 2019-2020 Catastrophe Excess Loss Reinsurance Programs | Maximum
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty				90.00%
FNIC
Liability for Catastrophe Claims [Line Items]
Maximum single event coverage				$ 20,000,000
Trust agreement for loss exposure (Less than)				100,000	$ 100,000
FNIC | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Excess retention, amount reinsured				27,000,000
Additional coverage amount				$ 20,000,000
FNIC | Quota Share One | Property Insurance Product Line
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share expired on cut off basis		10.00%
FNIC | Quota Share One | Florida Homeowners Book of Business
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty	2.00%			30.00%
FNIC | Quota Share Two | Florida Homeowners Book of Business
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty				10.00%
Private and FHCF Reinsurance | Federated Nationals Insurance Company Non Florida Reinsurance Program 2018-2019
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				$ 2,000,000.0
Private and FHCF Reinsurance | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Liability for catastrophe claims				1,900,000,000
Maximum single event coverage				1,300,000,000
Maximum Second and Third Event Coverage				$ 15,000,000
Private and FHCF Reinsurance | 2019-2020 Catastrophe Excess Loss Reinsurance Programs | Maximum
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty				75.00%
Monarch National S Florida
Liability for Catastrophe Claims [Line Items]
Maximum single event coverage				$ 3,000,000
Monarch National S Florida | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Maximum Second and Third Event Coverage				10,000,000
Additional coverage amount				2,000,000
Maison | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Additional coverage amount				5,000,000
Florida | Quota Share Treaties | Property Insurance Product Line
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty		10.00%	30.00%
Florida | Quota Share One | Property Insurance Product Line
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share expired on cut off basis						30.00%
Percentage of unearned premiums and losses retained						30.00%
Florida | Federated National's Florida Exposure | Federated National 2018-2019 Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				102,700,000
Florida | Federated National's Florida Exposure | 2019-2020 Catastrophe Excess Loss Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				178,900,000
Florida | FHCF | Federated National 2018-2019 Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Reinsurance payable				$ 46,100,000
Percentage of property quota share reinsurance treaty				75.00%
Florida | FNIC | Quota Share Treaties | Property Insurance Product Line
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty				40.00%
Florida | Private and FHCF Reinsurance | Federated National 2018-2019 Reinsurance Programs
Liability for Catastrophe Claims [Line Items]
Liability for catastrophe claims				$ 1,800,000,000
Maximum single event coverage				$ 1,300,000,000

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SHAREHOLDERS' EQUITY (Summary of Stock Option Activity) (Details)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding, beginning of period (in shares) | shares	38,850,000
Granted (in shares) | shares	0
Exercised (in shares) | shares	(100,000)
Canceled (in shares) | shares	0
Outstanding, end of period (in shares) | shares	38,750,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 3.80
Granted, Weighted Average Options Exercise Price (in dollars per share) | $ / shares	0
Exercised, Weighted Average Options Exercise Price (in dollars per share) | $ / shares	3.30
Canceled, Weighted Average Options Exercise Price (in dollars per share) | $ / shares	0
Outstanding, end of period (in dollars per share) | $ / shares	$ 3.81

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INCOME TAXES (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Effective income tax rate	5.40%	26.20%
Unrecognized Tax Benefits	$ 0.4		$ 0.4
Recognized benefit related to uncertain tax positions	0.0
Income tax expense from uncertain tax position (less than)	$ 0.1

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flow from operating activities:
Net income (loss)	$ 2,133	$ (3,865)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized and unrealized investment (gains) losses	2,825	(2,301)
Loss (gain) on early extinguishment of debt	0	3,575
Amortization of investment premium or discount, net	400	197
Depreciation and amortization	465	355
Share-based compensation	453	675
Changes in operating assets and liabilities:
Prepaid reinsurance premiums	56,194	38,719
Premiums receivable, net	3,085	7,107
Reinsurance recoverable, net	(51,567)	(90,498)
Deferred acquisition costs and value of business acquired, net	(1,579)	(796)
Income taxes, net	1,510	(1,146)
Deferred revenue	(86)	(18)
Loss and loss adjustment expense reserves	51,313	77,894
Unearned premiums	(2,612)	(6,132)
Reinsurance payable	(39,416)	(32,200)
Other	(1,745)	1,639
Net cash provided by (used in) operating activities	21,373	(6,795)
Cash flow from investing activities:
Proceeds from sales of equity securities	2,056	1,506
Proceeds from sales of debt securities	103,118	49,174
Purchases of equity securities	3,428	2,188
Purchases of debt securities	(134,971)	(62,741)
Maturities and redemptions of debt securities	10,850	8,271
Purchases of property and equipment	(1,224)	(486)
Net cash provided by (used in) investing activities	(23,599)	(6,464)
Cash flow from financing activities:
Proceeds from issuance of long-term debt, net of issuance costs	0	98,464
Payment of long-term debt and prepayment penalties	0	(48,000)
Purchases of FedNat Holding Company common stock	(6,643)	0
Dividends paid	(1,302)	(1,039)
Net cash provided by (used in) financing activities	(7,945)	49,425
Net increase (decrease) in cash and cash equivalents	(10,171)	36,166
Cash and cash equivalents at beginning-of-period	133,361	64,423
Cash and cash equivalents at end-of-period	123,190	100,589
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for interest	3,750	902
Cash paid (received) during the period for income taxes	(811)	(277)
Right-of-use asset	(7,938)	(8,103)
Lease liability	$ 7,938	$ 8,103

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EARNINGS PER SHARE (Dividends Declared) (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended		3 Months Ended
	Apr. 30, 2020	Feb. 29, 2020	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Dividends declared per share (in dollars per share)		$ 0.09	$ 0.09	$ 0.08
Payments of ordinary dividends, amount		$ 1.3
Subsequent Event
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Dividends declared per share (in dollars per share)	$ 0.09
Payments of ordinary dividends, amount	$ 1.3

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investments:
Debt securities, available-for-sale, at amortized cost	$ 534,551	$ 512,645
Total investments (including $0,000 and $26,284 related to the VIE, respectively)	564,430	550,641
Premium Receivable, Allowance for Credit Loss	189	159
Deferred financing costs	$ 1,438	$ 1,478
Shareholders' Equity
Preferred stock, par value (in dollars)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	25,000,000	25,000,000
Common stock, shares issued (in shares)	13,949,971	14,414,821
Common stock, shares outstanding (in shares)	13,949,971	14,414,821

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INVESTMENTS (Summary of Amortized Cost and Fair Value of Debt and Equity Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	$ 534,551	$ 512,645
Debt securities - available-for-sale, at fair value:	542,835	526,265
Held-to-maturity securities, Amortized Cost or Cost	4,271	4,337
Total investments, Amortized Cost or Cost	538,822	516,982
Total investments, Gross Unrealized Gain	15,454	14,245
Total investments, Gross Unrealized Loss	7,180	631
Total investments, Fair Value	547,096	530,596
Debt Securities
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	534,551	512,645
Debt securities, available-for-sale securities, Gross Unrealized Gain	15,393	14,212
Debt securities, available-for-sale securities, Gross Unrealized Losses	7,109	592
Debt securities - available-for-sale, at fair value:	542,835	526,265
Held-to-maturity securities, Amortized Cost or Cost	4,271	4,337
Held-to-maturity securities, Gross Unrealized Gains	61	33
Held-to-maturity securities, Gross Unrealized Losses	71	39
Held-to-maturity securities, fair value	4,261	4,331
United States Government Obligations and Authorities
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	187,452	191,546
Debt securities, available-for-sale securities, Gross Unrealized Gain	8,924	3,073
Debt securities, available-for-sale securities, Gross Unrealized Losses	13	426
Debt securities - available-for-sale, at fair value:	196,363	194,193
Held-to-maturity securities, Amortized Cost or Cost	3,555	3,585
Held-to-maturity securities, Gross Unrealized Gains	53	12
Held-to-maturity securities, Gross Unrealized Losses	65	39
Held-to-maturity securities, fair value	3,543	3,558
Obligations of States and Political Subdivisions
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	21,935	23,748
Debt securities, available-for-sale securities, Gross Unrealized Gain	400	294
Debt securities, available-for-sale securities, Gross Unrealized Losses	37	22
Debt securities - available-for-sale, at fair value:	22,298	24,020
Corporate
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	293,927	268,182
Debt securities, available-for-sale securities, Gross Unrealized Gain	5,745	10,252
Debt securities, available-for-sale securities, Gross Unrealized Losses	5,942	132
Debt securities - available-for-sale, at fair value:	293,730	278,302
Held-to-maturity securities, Amortized Cost or Cost	671	697
Held-to-maturity securities, Gross Unrealized Gains	7	20
Held-to-maturity securities, Gross Unrealized Losses	6	0
Held-to-maturity securities, fair value	672	717
International
Schedule of Investments [Line Items]
Debt securities, available-for-sale, at amortized cost	31,237	29,169
Debt securities, available-for-sale securities, Gross Unrealized Gain	324	593
Debt securities, available-for-sale securities, Gross Unrealized Losses	1,117	12
Debt securities - available-for-sale, at fair value:	30,444	29,750
Held-to-maturity securities, Amortized Cost or Cost	45	55
Held-to-maturity securities, Gross Unrealized Gains	1	1
Held-to-maturity securities, Gross Unrealized Losses	0	0
Held-to-maturity securities, fair value	$ 46	$ 56

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SHAREHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

Share-based compensation arrangements include the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Restricted stock	$	353	$	494
Performance stock	100		181
Total share-based compensation expense	$	453	$	675
Recognized tax benefit	$	111	$	171
Intrinsic value of options exercised	2		—
Fair value of restricted stock vested	1,032		927

Schedule of Stock Options Roll Forward

A summary of the Company’s stock option activity includes the following:

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	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2020	38,850	$	3.80
Granted	—	—
Exercised	(100)	3.30
Cancelled	—	—
Outstanding at March 31, 2020	38,750	$	3.81

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity

RSA activity includes the following:

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020	255,345	$	17.82
Granted	210,272	11.82
Vested	(58,633)	17.59
Cancelled	(15,990)	18.24
Outstanding at March 31, 2020	390,994	$	14.62

Schedule of Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) associated with debt securities - available-for-sale consisted of the following:

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	Three Months Ended March 31,
	2020						2019
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(In thousands)
Accumulated other comprehensive income (loss), beginning-of-period	$	13,621	$	(3,340)	$	10,281	$	(5,023)	$	1,273	$	(3,750)
Other comprehensive income (loss) before reclassification	(4,098)		1,004		(3,094)		11,528		(2,922)		8,606
Reclassification adjustment for realized losses (gains) included in net income	(1,238)		304		(934)		(2,301)		583		(1,718)
	(5,336)		1,308		(4,028)		9,227		(2,339)		6,888
Accumulated other comprehensive income (loss), end-of-period	$	8,285	$	(2,032)	$	6,253	$	4,204	$	(1,066)	$	3,138

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ACQUISITIONS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
1347 Property Insurance Holdings, Inc
Business Acquisition [Line Items]
Revenue of business acquired	$ 15,400
Net income of business acquired	$ 1,700
Maison Companies
Business Acquisition [Line Items]
Revenue		$ 118,621
Net income (loss)		$ (3,395)

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INCOME TAXES

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

10. INCOME TAXES

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act,” was signed into law on March 27, 2020. The CARES Act contains several relief provisions for corporations and lifts certain deduction limitations originally imposed by the Tax Cut and Jobs Act. The CARES Act, among other things, includes temporary changes regarding the prior and future utilization of net operating losses (“NOL”), temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes and the creation of certain refundable employee retention credits. The Company has been evaluating the various provisions of the CARES Act. As described below, the Company did utilize the NOL provision in the first quarter of 2020.

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. The effective income tax rate was 5.4% and 26.2% for the three months ended March 31, 2020 and 2019, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction, and executive compensation as well as NOL carrybacks from the impact of the CARES Act.

The Company had an uncertain tax position of $0.4 million as of March 31, 2020 and December 31, 2019. The Company does not have a valuation allowance on its deferred income tax asset as of March 31, 2020 and December 31, 2019.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense (benefit) in the consolidated statements of operations and statements of comprehensive income (loss). For the three months ended March 31, 2020 and 2019, the Company recognized no benefit related to an uncertain tax position and our associated accrued interest and penalties was less than $0.1 million.

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REINSURANCE

3 Months Ended

Mar. 31, 2020

Reinsurance Disclosures [Abstract]

REINSURANCE

6. REINSURANCE

Overview

Reinsurance is used to mitigate the exposure to losses, manage capacity and protect capital resources. The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota-share basis in order to limit the Company’s loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, the Company remains primarily liable to its policyholders.

The Company is selective in choosing reinsurers and considers numerous factors, the most important of which is the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation.  In an effort to minimize the Company’s exposure to the insolvency of a reinsurer, the Company evaluates the acceptability and review the financial condition of the reinsurer at least annually with the assistance of the Company’s reinsurance broker.

Significant Reinsurance Contracts

2018-2019 Excess of Loss Reinsurance Programs

With the February 21, 2018 acquisition of the minority interests of MNIC, the Company combined both FNIC and MNIC under a single program allowing the Company to capitalize on efficiencies and scale. FNIC and MNIC’s combined 2018-2019 reinsurance program cost $148.8 million. This amount included $102.7 million for the private reinsurance for the Company’s exposure, including prepaid automatic premium reinstatement protection, along with $46.1 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords FNIC and MNIC $1.8 billion of aggregate coverage with a maximum single event coverage totaling $1.3 billion, exclusive of retentions. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2018 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $20.0 million, up slightly from the 2017-2018 reinsurance program and MNIC’s single event pre-tax retention for a catastrophic event is $3.0 million, down slightly from the 2017-2018 reinsurance program.

The combined FNIC and MNIC private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective July 1, 2018 and all private layers have prepaid automatic reinstatement protection, which afforded the Company additional coverage for subsequent events. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all layers attach after $20.0 million in losses for FNIC and after $3.0 million in losses for MNIC. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted. Given market conditions, FNIC has elected not to purchase any multiple year protection and terminated the second year of the $89.0 million of multiple year protection that FNIC purchased in 2017 on a two-year basis. FNIC also had $156.0 million of multiple year protection that expired on June 30, 2018. The overall reinsurance programs are with reinsurers that currently have an A.M. Best or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

FNIC’s non-Florida excess of loss reinsurance treaties afforded us an additional $23.0 million of aggregate coverage with first event coverage totaling $5.0 million and second event coverage totaling $18.0 million, with the incremental $13.0 million of second event coverage applying to hurricane losses only. The end result is a non-Florida retention of $15.0 million for the first event and $2.0 million for the second event though these retentions are reduced to $7.5 million and $1.0 million after taking into account the profit-sharing agreement that FNIC has with the nonaffiliated managing general underwriter that writes FNIC non-Florida property

business. FNIC’s non-Florida reinsurance program cost included $2.0 million for this private reinsurance, including prepaid automatic premium reinstatement protection.

2019-2020 Catastrophe Excess of Loss Reinsurance Program

Given the December 2, 2019 acquisition of the Maison Companies, the Company and PIH agreed to combine FNIC, MNIC, and MIC under a single reinsurance program allowing the carriers to capitalize on efficiencies, spread of risk and scale.

The combined reinsurance treaties provide approximately $1.3 billion of single-event reinsurance coverage in excess of a $27 million retention for catastrophic losses on the first event (and $15 million on the second and third events), including hurricanes, and aggregate coverage of $1.9 billion, at an approximate total cost of $224.3 million.

The combined FNIC, MIC and MNIC private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective July 1, 2019 and all private layers have prepaid automatic reinstatement protection, which affords the carriers additional coverage for subsequent events. This private market excess of loss treaty structure breaks coverage into layers, with a cascading feature such that substantially all layers attach after $20 million in losses for FNIC, $2 million in losses for MNIC and $5 million in losses for MIC. For FNIC and MNIC, the second and third event attaches at $10 million per event, on a combined basis. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted. The overall reinsurance program is with reinsurers that currently have an A.M. Best Company or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts. 

As indicated above, FNIC, MIC and MNIC's combined 2019-2020 reinsurance program is estimated to cost $224.3 million. This amount includes approximately $178.9 million for private reinsurance for the carriers’ exposure described above, including prepaid automatic premium reinstatement protection, along with approximately $45.9 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords FNIC, MNIC, and MIC approximately $1.9 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.3 billion, exclusive of retentions. Each carrier will pay directly its allocated portion of the aggregate reinsurance ceded premium cost. The allocation methodology by which FNIC, MNIC, and MIC determines their share of the premium and distribution of reinsurance recoveries under the combined reinsurance tower is based on catastrophe loss modeling of the separate books of business. Each carrier shares the combined program cost in proportion to its contribution to the total expected loss in each reinsurance layer. Each carrier's reinsurance recoveries will be based on that carrier's contributing share of a given event's total loss. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2019 hurricane season, and MIC increased its FHCF participation to 90%.

FNIC’s non-Florida excess of loss reinsurance treaty affords us an additional $18 million of coverage for a second event, which applies to hurricane losses only. The result is a non-Florida retention of $20 million for FNIC for the first event and $2 million for the second event, although these retentions are reduced to $10 million and $1 million after taking into account the profit-sharing agreement that FNIC has with the non-affiliated managing general underwriter that writes FNIC’s non-Florida property business. FNIC’s non-Florida reinsurance program cost for the above specific coverage approximates $1.8 million for this private reinsurance.

The insurance carriers’ cost and amounts of reinsurance are based on current analysis of exposure to catastrophic risk. The data is subjected to exposure level analysis at various dates through December 31, 2019. This analysis of the carriers’ exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in retentions, limits and reinsurance premiums in total, and by carrier, as a result of increases or decreases in the carriers’ exposure levels.

Quota-Share Reinsurance Programs

FNIC's reinsurance programs also include quota-share treaties. One such treaty for 30% became effective July 1, 2014, and another for 10% became effective on July 1, 2015 with each running for two years. The combined treaties provided up to a 40% quota-share reinsurance on covered losses for the homeowners’ property and liability insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.

On July 1, 2016, the 30% quota-share treaty expired on a cut-off basis, which means as of that date the Company retained an incremental 30% of its unearned premiums and losses. On July 1, 2017, the 10% quota-share treaty expired on a cut-off basis, which means as of that date we retained an incremental 10% of the underlying unearned premiums and losses. The reinsurers remain liable for the paid losses occurring during the terms of the treaties, until each treaty is commuted.

On July 1, 2017, FNIC bound a 10% quota-share on its Florida homeowners book of business, which excluded named storms, subject to certain limitations. This treaty is not subject to accounting as a retrospectively rated contract. This treaty expired on July 1, 2018 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded was returned to FNIC.

On July 1, 2018, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was initially set at a 2%, cession and is subject to certain limitations. In addition, this quota-share allowed FNIC to prospectively increase or decrease the cession percentage up to three times during the term of the agreement. Effective October 1, 2018, FNIC elected to increase the cession percentage from 2% to 10% on an in-force, new and renewal basis.

The treaty expired on July 1, 2019 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded was returned to FNIC.

On July 1, 2019, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was set at a 10% cession and is subject to certain limitations. In addition, this quota-share allows FNIC the flexibility to prospectively increase or decrease the cession percentage up to three times during the term of the agreement.

The Company’s private passenger automobile quota-share treaties are programs which became effective at different points in the year and cover auto policies across several states.

Associated Trust Agreements

Certain reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled less than $0.1 million as of March 31, 2020 and December 31, 2019.

Reinsurance Recoverable, Net

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverable. Reinsurance recoverable, net consisted of the following:

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	March 31,		December 31,
	2020		2019
	(In thousands)
Reinsurance recoverable on paid losses	$	48,544	$	45,186
Reinsurance recoverable on unpaid losses	212,606		164,429
Reinsurance recoverable, net	$	261,150	$	209,615

As of March 31, 2020, and December 31, 2019, the Company had reinsurance recoverable of $210.5 million and $163.7 million, respectively as a result of Hurricanes Michael and Irma. All reinsurers in our excess-of-loss reinsurance programs have an A.M. Best or Standard & Poor’s rating of “A-“ or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

Net Premiums Written and Net Premiums Earned

Net premiums written and net premiums earned consisted of the following:

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	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net Premiums Written
Direct	$	172,962	$	132,233
Ceded	(13,766)		(11,793)
	$	159,196	$	120,440
Net Premiums Earned
Direct	$	175,574	$	138,367
Ceded	(69,664)		(49,583)
	$	105,910	$	88,784

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Label	Element	Value
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ (25,000)
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ (25,000)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Preferred Stock	Common Stock	Additional Paid-in Capital	Other Comprehensive Income (Loss)	Retained Earnings
Balance (in shares) at Dec. 31, 2018		0	12,784,444
Balance at Dec. 31, 2018	$ 215,259		$ 128	$ 141,128	$ (3,750)	$ 77,753
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(3,865)					(3,865)
Shares issued under share-based compensation plans	6,888				6,888
Dividends declared	(1,041)					(1,041)
Shares issued under share-based compensation plans (in shares)			51,957
Shares issued under share-based compensation plans	0
Share-based compensation	675			675
Balance (in shares) at Mar. 31, 2019		0	12,836,401
Balance at Mar. 31, 2019	217,916		$ 128	141,803	3,138	72,847
Balance (in shares) at Dec. 31, 2019		0	14,414,821
Balance at Dec. 31, 2019	248,693		$ 144	167,677	10,281	70,591
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	2,133					2,133
Shares issued under share-based compensation plans	(4,028)				(4,028)
Dividends declared	(1,302)					(1,302)
Shares issued under share-based compensation plans (in shares)			58,733
Shares issued under share-based compensation plans	0
Repurchases of common stock (in shares)			523,583
Repurchases of common stock	(6,750)		$ (5)			(6,745)
Share-based compensation	453			453
Balance (in shares) at Mar. 31, 2020		0	13,949,971
Balance at Mar. 31, 2020	$ 239,174		$ 139	$ 168,130	$ 6,253	$ 64,652

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EARNINGS PER SHARE (Schedule of Calculation of Basic and Diluted Net Income Per Common Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended	3 Months Ended
	Feb. 29, 2020	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share [Abstract]
Net income (loss) attributable to FedNat Holding Company shareholders		$ 2,133	$ (3,865)
Weighted average number of common shares outstanding - basic		14,249	12,795
Net (loss) income per share - basic (in dollars per share)		$ 0.15	$ (0.30)
Dilutive effect of stock compensation plans		63	0
Weighted average number of common shares outstanding - diluted		14,312	12,795
Net (loss) income per share - diluted (in dollars per share)		$ 0.15	$ (0.30)
Dividends declared per share (in dollars per share)	$ 0.09	$ 0.09	$ 0.08

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $534,551 and $512,645, respectively)	$ 542,835	$ 526,265
Debt Securities, Held-to-maturity	4,271	4,337
Equity securities, at fair value	17,324	20,039
Total investments	564,430	550,641
Cash and cash equivalents	123,190	133,361
Prepaid reinsurance premiums	89,465	145,659
Premiums receivable, net of allowance of $189 and $159, respectively	38,337	41,422
Reinsurance Recoverables, Including Reinsurance Premium Paid	261,150	209,615
Deferred acquisition costs and value of business acquired, net	57,715	56,136
Current and deferred income taxes, net	2,358	2,552
Other assets	29,456	28,633
Total assets	1,177,098	1,179,016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	375,675	324,362
Unearned premiums	358,258	360,870
Reinsurance payable	63,051	102,467
Debt and Lease Obligation	98,562	98,522
Deferred revenue	6,770	6,856
Other liabilities	35,608	37,246
Total liabilities	937,924	930,323
Shareholders' Equity
Preferred Stock, Value, Issued	0	0
Common Stock, Value, Issued	139	144
Additional paid-in capital	168,130	167,677
Accumulated other comprehensive income (loss)	6,253	10,281
Retained earnings	64,652	70,591
Total shareholders’ equity	239,174	248,693
Total liabilities and shareholders' equity	1,177,098	1,179,016
Goodwill	10,997	10,997
Reinsurance Recoverable, Allowance for Credit Loss	53	0
Debt Securities, Held-to-maturity, Allowance for Credit Loss	$ 2	$ 0

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SHAREHOLDERS' EQUITY (Schedule of Share-based Compensation Arrangements) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 453	$ 675
Recognized tax benefit	111	171
Intrinsic value of options exercised	2	0
Fair value of restricted stock vested	1,032	927
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	353	494
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 100	$ 181

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LOSS AND LOSS ADJUSTMENT RESERVES (Narrative) (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Jul. 01, 2017	Jul. 31, 2016	Mar. 31, 2020	Mar. 31, 2019
Liability for Future Policy Benefit, by Product Segment [Line Items]
Claim and claim adjustment expenses incurred related to current year			$ (69,365)	$ (67,048)
Claim and claim adjustment expenses incurred related to prior year			(412)	(209)
Reinsurance Programs | Florida
Liability for Future Policy Benefit, by Product Segment [Line Items]
Claim and claim adjustment expenses incurred related to current year			$ 100	$ 700
Quota Share Treaties | Florida | Property Insurance Product Line
Liability for Future Policy Benefit, by Product Segment [Line Items]
Percentage of property quota share reinsurance treaty	10.00%	30.00%

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table presents the calculation of basic and diluted EPS:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands, except per share data)
Net income (loss) attributable to FedNat Holding Company shareholders	$	2,133	$	(3,865)
Weighted average number of common shares outstanding - basic	14,249		12,795
Net income (loss) per common share - basic	$	0.15	$	(0.30)
Weighted average number of common shares outstanding - basic	14,249		12,795
Dilutive effect of stock compensation plans	63		—
Weighted average number of common shares outstanding - diluted	14,312		12,795
Net income (loss) per common share - diluted	$	0.15	$	(0.30)
Dividends per share	$	0.09	$	0.08

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FAIR VALUE (Available-for-Sale Financial Instruments Measured at Fair Value) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	$ 542,835	$ 526,265
Equity securities, at fair value	17,324	20,039
Total investments, at fair value	560,159	546,304
United States Government Obligations and Authorities
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	196,363	194,193
Obligations of States and Political Subdivisions
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	22,298	24,020
Corporate
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	293,730	278,302
International
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	30,444	29,750
Level 1
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	66,033	83,764
Equity securities, at fair value	13,720	17,361
Total investments, at fair value	79,753	101,125
Level 1 | United States Government Obligations and Authorities
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	66,033	83,764
Level 1 | Obligations of States and Political Subdivisions
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	0
Level 1 | Corporate
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	0
Level 1 | International
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	0
Level 2
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	476,802	442,501
Equity securities, at fair value	3,604	2,678
Total investments, at fair value	480,406	445,179
Level 2 | United States Government Obligations and Authorities
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	130,330	110,429
Level 2 | Obligations of States and Political Subdivisions
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	22,298	24,020
Level 2 | Corporate
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	293,730	278,302
Level 2 | International
Investments, Debt and Equity Securities [Abstract]
Debt securities - available-for-sale, at fair value:	$ 30,444	$ 29,750

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INVESTMENTS (Net Realized Gains (Losses) by Major Investment Category (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Gross realized and unrealized gains
Total gross realized and unrealized gains	$ 1,705	$ 3,147
Gross Realized and Unrealized Lossses [Abstract]
Debt And Equity Securities, Realized And Unrealized Losses	(4,530)	(846)
Net realized and unrealized gains (losses) on investments	(2,825)	2,301
Debt Securities
Gross realized and unrealized gains
Debt securities	1,386	317
Gross Realized and Unrealized Lossses [Abstract]
Debt Securities, Trading, Realized And Unrealized Losses	(148)	(400)
Equity Securities
Gross realized and unrealized gains
Equity securities	319	2,830
Gross Realized and Unrealized Lossses [Abstract]
Equity Securities, FV-NI, Realized And Unrealized Losses	$ (4,382)	$ (446)

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LONG-TERM DEBT

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

LONG-TERM DEBT

9. LONG-TERM DEBT

Refer to Note 8 of our 2019 Form 10-K for information regarding our long-term debt.

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ACQUISITIONS

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

ACQUISITIONS

3. ACQUISITIONS

On December 2, 2019, the Company completed its acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. ("PIH"). Specifically, the Company purchased from PIH all of the outstanding equity of MIC, Maison Managers, Inc., and ClaimCor LLC (collectively, the "Maison Companies"). The Maison Companies provide multi-peril and wind/hail only coverage to personal residential dwellings and manufactured/mobile homes in Louisiana, Texas and Florida. The acquisition enables us to increase geographic diversification of our book of business outside Florida and generate additional business with operating synergies and general and administrative expense savings.

Revenues and net income of the business acquired were $15.4 million and $1.7 million, respectively for the three months ended March 31, 2020.

The following unaudited pro forma condensed consolidated statements of operations of the Company assume that the acquisition of the Maison Companies was completed on January 1, 2019:

	Three
	Months
	Ended
	March 31, 2019
	(In thousands)
Revenue	$	118,621
Net income (loss)	(3,395)

Pro forma adjustments include the revenue and net income (loss) of the Maison Companies for each period as well as estimates for amortization of identifiable intangible assets acquired and fair value adjustments associated with investments, VOBA (different than deferred acquisition costs) and reinsurance recoverable. Other pro forma adjustments include the incremental increase to interest expense attributable to financing the acquisition and the impact of reflecting acquisition and integration costs earlier in 2019.

For more information regarding our acquisition, refer to Note 3 of our 2019 Form 10-K.

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LOSS AND LOSS ADJUSTMENT RESERVES (Tables)

3 Months Ended

Mar. 31, 2020

Liability for Future Policy Benefit, before Reinsurance [Abstract]

Activity in Liability for Loss and LAE Reserves

Activity in the liability for loss and LAE reserves is summarized as follows:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross reserves, beginning-of-period	$	324,362	$	296,230
Less: reinsurance recoverable (1)	(164,429)		(166,396)
Net reserves, beginning-of-period	159,933		129,834
Incurred loss, net of reinsurance, related to:
Current year	69,365		67,048
Prior year loss development (redundancy) (2)	(117)		721
Ceded losses subject to offsetting experience account adjustments (3)	(295)		(930)
Prior years	(412)		(209)
Amortization of acquisition fair value adjustment	(23)		—
Total incurred loss and LAE, net of reinsurance	68,930		66,839
Paid loss, net of reinsurance, related to:
Current year	13,371		14,868
Prior years	52,423		41,974
Total paid loss and LAE, net of reinsurance	65,794		56,842
Net reserves, end-of-period	163,069		139,831
Plus: reinsurance recoverable (1)	212,606		234,293
Gross reserves, end-of-period	$	375,675	$	374,124

(1)Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

(2)Reflects loss development from prior accident years impacting pre-tax net income. Excludes losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment.

(3)Reflects losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment, such that there is no impact on pre-tax net income (loss).

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FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The Company’s financial instruments measured at fair value on a recurring basis and the level of the fair value hierarchy of inputs used consisted of the following:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	66,033	$	130,330	$	—	$	196,363
Obligations of states and political subdivisions	—		22,298		—		22,298
Corporate securities	—		293,730		—		293,730
International securities	—		30,444		—		30,444
Debt securities, at fair value	66,033		476,802		—		542,835
Equity securities, at fair value	13,720		3,604		—		17,324
Total investments, at fair value	$	79,753	$	480,406	$	—	$	560,159

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	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	83,764	$	110,429	$	—	$	194,193
Obligations of states and political subdivisions	—		24,020		—		24,020
Corporate securities	—		278,302		—		278,302
International securities	—		29,750		—		29,750
Debt securities, at fair value	83,764		442,501		—		526,265
Equity securities, at fair value	17,361		2,678		—		20,039
Total investments, at fair value	$	101,125	$	445,179	$	—	$	546,304

Fair Value, Assets Measured on Recurring and Nonrecurring Basis

Held-to-maturity debt securities reported on the consolidated balance sheets at amortized cost and disclosed at fair value below (and in Note 5) and the level of fair value hierarchy of inputs used consisted of the following:

	Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2020	$	3,439	$	822	$	—	$	4,261
December 31, 2019	3,453		878		—		4,331

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Earnings Per Share

13. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period, including vested restricted stock awards during the period. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options and unvested restricted stock awards.  Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed exercise of common stock options and the vesting of RSAs using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive.

The following table presents the calculation of basic and diluted EPS:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands, except per share data)
Net income (loss) attributable to FedNat Holding Company shareholders	$	2,133	$	(3,865)
Weighted average number of common shares outstanding - basic	14,249		12,795
Net income (loss) per common share - basic	$	0.15	$	(0.30)
Weighted average number of common shares outstanding - basic	14,249		12,795
Dilutive effect of stock compensation plans	63		—
Weighted average number of common shares outstanding - diluted	14,312		12,795
Net income (loss) per common share - diluted	$	0.15	$	(0.30)
Dividends per share	$	0.09	$	0.08

Dividends Declared

In February 2020, our Board of Directors declared a $0.09 per common share dividend, payable in March 2020, to shareholders of record on February 14, 2020, amounting to $1.3 million.

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INVESTMENTS (Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity) (Details) $ in Thousands	Mar. 31, 2020 USD ($)
Debt Securities, Available-for-sale, Amortized Cost, Fiscal Year Maturity [Abstract]
One year or less	$ 33,374
Over one through five years	170,802
Over five through ten years	158,874
Over ten years	171,501
Amortized cost	534,551
Available-for-sale Securities, Debt maturities, Fair value:
One year or less	33,413
Over one through five years	171,418
Over five through ten years	161,147
Over ten years	176,857
Fair value	542,835
Held-to-maturity Securities, Debt maturities, Amortized cost [Abstract]
One year or less	285
Over one through five years	3,846
Over five through ten years	39
Over ten years	101
Amortized cost	4,271
Held-to-maturity Securities, Debt Maturities, Fair value:
One year or less	286
Over one through five years	3,833
Over five through ten years	39
Over ten years	103
Fair value	4,261
Total Investments
Amortized cost	538,822
Fair value	$ 547,096

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REINSURANCE (Reinsurance Recoverables) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Reinsurance Disclosures [Abstract]
Reinsurance recoverable on paid losses	$ 48,544	$ 45,186
Reinsurance recoverable on unpaid losses	212,606	164,429	$ 234,293	$ 166,396
Reinsurance recoverable, net	$ 261,150	$ 209,615

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LOSS AND LOSS ADJUSTMENT RESERVES (Activity in Liability for Loss and LAE Reserves) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward]
Gross reserves, beginning-of-period	$ 324,362	$ 296,230
Less: reinsurance recoverable	(164,429)	(166,396)
Net reserves, beginning-of-period	159,933	129,834
Incurred loss, net of reinsurance, related to:
Current year	69,365	67,048
Prior year loss development	(117)	721
Ceded losses subject to offsetting experience account adjustments	(295)	(930)
Prior years	(412)	(209)
Amortization of acquisition fair value adjustment	(23)	0
Total incurred loss and LAE, net of reinsurance	68,930	66,839
Paid loss, net of reinsurance, related to:
Current year	13,371	14,868
Prior years	52,423	41,974
Total paid loss and LAE, net of reinsurance	65,794	56,842
Net reserves, end-of-period	163,069	139,831
Plus: reinsurance recoverable	212,606	234,293
Gross reserves, end-of-period	$ 375,675	$ 374,124

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenues:
Net premiums earned	$ 105,910	$ 88,784
Net investment income	3,892	3,710
Net realized and unrealized investment gains (losses)	(2,825)	2,301
Direct written policy fees	3,466	2,391
Other income	5,256	4,011
Total revenues	115,699	101,197
Costs and expenses:
Losses and loss adjustment expenses	68,930	66,839
Commissions and other underwriting expenses	36,355	28,234
General and administrative expenses	6,245	6,311
Interest expense	1,915	5,051
Total costs and expenses	113,445	106,435
Income (loss) before income taxes	2,254	(5,238)
Income tax expense (benefit)	121	(1,373)
Net income (loss)	$ 2,133	$ (3,865)
Net Income (Loss) Per Common Share
Basic (in dollars per share)	$ 0.15	$ (0.30)
Diluted (in dollars per share)	$ 0.15	$ (0.30)
Weighted Average Number of Shares of Common Stock Outstanding
Basic (in shares)	14,249	12,795
Diluted (in shares)	14,312	12,795
Dividends declared per share of common stock (in dollars per share)	$ 0.09	$ 0.08

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SHAREHOLDERS' EQUITY (Summary of Restricted Stock Activity) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Granted (in shares)	210,272	140,156
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding, beginning of period (in shares)	255,345
Granted (in shares)	210,272
Vested (in shares)	(58,633)
Cancelled (in shares)	(15,990)
Outstanding, end of period (in shares)	390,994
Restricted Shares, Weighted Average Option Exercise Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 17.82
Granted (in dollars per share)	11.82
Vested (in dollars per share)	17.59
Cancelled (in dollars per share)	18.24
Outstanding, end of period (in dollars per share)	$ 14.62

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FAIR VALUE

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE

4. FAIR VALUE

Fair Value Disclosures of Financial Instruments

The Company accounts for financial instruments at fair value or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information.  All assets and liabilities that are recorded at fair value are classified and disclosed in one of the following three categories:

•Level 1 - Quoted market prices (unadjusted) for identical assets or liabilities in active markets is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis, or observable inputs.

•Level 2 - Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques using observable market data.  Significant other observable that can be corroborated by observable market data; and

•Level 3 - Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

The Company’s financial instruments measured at fair value on a recurring basis and the level of the fair value hierarchy of inputs used consisted of the following:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	66,033	$	130,330	$	—	$	196,363
Obligations of states and political subdivisions	—		22,298		—		22,298
Corporate securities	—		293,730		—		293,730
International securities	—		30,444		—		30,444
Debt securities, at fair value	66,033		476,802		—		542,835
Equity securities, at fair value	13,720		3,604		—		17,324
Total investments, at fair value	$	79,753	$	480,406	$	—	$	560,159

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	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	83,764	$	110,429	$	—	$	194,193
Obligations of states and political subdivisions	—		24,020		—		24,020
Corporate securities	—		278,302		—		278,302
International securities	—		29,750		—		29,750
Debt securities, at fair value	83,764		442,501		—		526,265
Equity securities, at fair value	17,361		2,678		—		20,039
Total investments, at fair value	$	101,125	$	445,179	$	—	$	546,304

Held-to-maturity debt securities reported on the consolidated balance sheets at amortized cost and disclosed at fair value below (and in Note 5) and the level of fair value hierarchy of inputs used consisted of the following:

	Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2020	$	3,439	$	822	$	—	$	4,261
December 31, 2019	3,453		878		—		4,331

We measure the fair value of our securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the security, and we consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is based on a market approach that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. We review the third-party pricing methodologies on a quarterly basis and validate the fair value prices to a separate independent data service and ensure there are no material differences. Additionally, market indicators, industry and economic events are monitored.

A summary of the significant valuation techniques and market inputs for each financial instrument carried at fair value includes the following:

•United States Government Obligations and Authorities - In determining the fair value for United States government securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for United States government securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

•Obligations of States and Political Subdivisions - In determining the fair value for state and municipal securities, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

•Corporate and International Securities - In determining the fair value for corporate securities the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.

•Equity Securities - In determining the fair value for equity securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for equity securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

We did not have securities trading in less liquid or illiquid markets with limited or no pricing information, therefore we did not use unobservable inputs to measure fair value as of March 31, 2020 and December 31, 2019. Additionally, we did not have any assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2020 or December 31, 2019, and we noted no significant changes in our valuation methodologies between those periods.

There were no changes to the Company’s valuation methodology and the Company is not aware of any events or circumstances that would have a significant adverse effect on the carrying value of its assets and liabilities measured at fair value as of March 31, 2020 and December 31, 2019. There were no transfers between the fair value hierarchy levels during the three months ended March 31, 2020 and 2019.

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COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES (Leases) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
Operating lease, term		9 years 6 months
Balance Sheet Related Disclosures [Abstract]
Right-of-use asset	$ 7,938
Accrued rent	(216)
Right-of-use asset, net	7,722
Lease liability	$ 7,938
Weighted average discount rate	4.70%
Income Statement Related Disclosures [Abstract]
Lease expense	$ 280	$ 260
Sublease income	(155)	0
Lease expense, net	125	260
Net cash provided by (used in) operating activities	$ (89)	$ (137)
Operating Lease, Weighted Average Remaining Lease Term	8 years 4 months 24 days

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ALLOWANCE FOR CREDIT LOSSES

3 Months Ended

Mar. 31, 2020

Receivables [Abstract]

ALLOWANCE FOR CREDIT LOSSES

7. ALLOWANCES FOR CREDIT LOSS

Overview

There is significant risk and judgment involved in determining estimates of our allowances for credit loss, which reduce the amortized cost of an asset to produce an estimate of the net amount that will be collected over the asset's contractual life. Longer time horizons generally present more uncertainty in expected cash flow. We evaluate the expected credit loss of assets on an individual basis, except in cases where assets collectively share similar risk characteristics where we pool them together. We evaluate and estimate our allowances for credit loss by considering reasonable, relevant and supportable available information.

Activity in the allowances for credit loss, by asset line item on the consolidated balance sheet, is summarized as follows:

	Debt
	Securities,				Reinsurance
	Held-to-		Premiums		Recoverable,
	Maturity		Receivable		Net		Total
	(In thousands)
Balance as of December 31, 2019	$	—	$	159	$	—	$	159
Cumulative effect of new accounting standard (1)	1		—		32		33
Credit loss expense (recovery) (2)	1		30		21		52
Balance as of March 31, 2020	$	2	$	189	$	53	$	244

(1)Refer to Note 2 above for information about our adoption of ASU 2016-13 on January 1, 2020.

(2)Reflected in commissions and other underwriting expenses on the consolidated statements of comprehensive income (loss).

Accrued investment income is included in other assets on the consolidated balance sheet. We immediately write-off accrued investment income if it becomes uncollectible, therefore we do not measure or record an allowance for credit losses.

Investments

Our investment policy is established by the Board of Directors’ Investment Committee and is reviewed on a regular basis. This policy currently limits investment in non-investment-grade debt securities (including high-yield bonds), and limits total investments in preferred stock, common stock and mortgage notes receivable. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.

Our investment portfolio has inherent risks because it contains volatility associated with market pricing and interest rate sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates or credit worthiness. The effects of market volatility, declining economic conditions, such as a U.S. or global economic slowdown, whether due to COVID-19, or other factors, could adversely impact the credit quality of securities in our portfolio and may have unforeseen consequences on the liquidity and financial stability of the issuers of securities we hold.

Our debt securities portfolio includes securities that:

•Are explicitly guaranteed by a sovereign entity that can print its own currency;

•The currency is routinely held by central banks, used in international commerce and commonly viewed as a reserve currency; and

•Have experienced a consistent high credit rating by rating agencies and a long history with no credit losses.

We believe if these governments were to technically default it is reasonable to assume an expectation of immaterial losses, even in the current strained market conditions. Refer to Note 5 above for the balances of these sovereign debt securities, which are reported in the following investment categories:

•United States government obligations and authorities;

•Obligations of states and political subdivisions; and

•International.

For our debt securities, available-for-sale, the fact that a security’s fair value is below its amortized cost is not a decisive indicator of credit loss. In many cases, a security’s fair value may decline due to factors that are unrelated to the issuer’s ability to pay. For this reason, we consider the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, with a special emphasis on securities downgraded below investment grade. A comparison is made between the present value of expected future cash flows for a security and its amortized cost. If the present value of future expected cash flows is less than amortized cost, a credit loss is presumed to exist and an allowance for credit losses is established. Management may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost. As a result of this review, management concluded that there were no credit-related impairments of our available-for-sale securities as of January 1, 2020, and March 31, 2020. Management does not intend to sell available-for-sale securities in an unrealized loss position, and it is not “more likely than not” that the Company will be required to sell these securities before a recovery in their value to their amortized cost basis occurs.

Our equity investments are measured at fair value through net income (loss), therefore they do not require an allowance for credit loss.

We measure and record our valuation allowances for credit losses on our held-to-maturity corporate securities assets by multiplying the probability the asset would default within a given timeframe (“PD”) by the percentage of the asset not expected to be collected upon default, or loss given default (“LGD”), and multiplying that percentage by the amortized cost of the asset. We use market observable data for our PD and LGD assumptions.

Premiums Receivable

We do have collectability risk, but our homeowners policy terms are one year or less and our policyholders are dispersed throughout the southeast United States, although the majority of our policyholders are located in Florida.

We write-off premiums receivable if the individual policy becomes uncollectible. Because collectively our premiums receivable share similar risk characteristics, we pool them to measure our valuation allowance for credit losses using an aging method approach. This method applies historical loss rates to levels of delinquency for our policy terms that are one year or less. Based upon historical collectability, adjusted for current and future economic conditions, we have measured and recorded our valuation allowances for premiums receivable.

The aging of our premiums receivable and associated allowance for credit loss as of March 31, 2020 was as follows:

			Days Past Due
	Current		1-29		30-59		60-89		90 plus		0	Total
			(In thousands)
Amortized cost	$	35,822	$	2,507	$	29	$	9	$	159		$	38,526
Allowance for credit loss	—		(26)		(1)		(3)		(159)			(189)
Net	$	35,822	$	2,481	$	28	$	6	$	—		$	38,337

Reinsurance Recoverable

Refer to Note 6 above for details of our efforts to minimize our exposure to losses from a reinsurer’s inability to pay.

We measure and record our valuation allowances for credit losses on our reinsurance recoverables asset by multiplying the PD by the LGD and multiplying the result by the amortized cost of the asset. We use market observable data for our PD and LGD assumptions, and in cases where we are unable to observe LGD, we assume it is 100%.

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ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Organization

FedNat Holding Company (“FNHC,” the “Company,” “we,” “us,” or “our”) is a regional insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents.  We, through our wholly owned subsidiaries, are authorized to underwrite and/or place homeowners multi-peril (“homeowners”), federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.

FedNat Insurance Company (“FNIC”), our largest wholly owned insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance by the state’s insurance departments, in Florida, Louisiana, Texas, Georgia, South Carolina, Alabama and Mississippi.

Maison Insurance Company ("MIC"), an insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance as well as wind/hail-only exposures by the state's insurance departments in Louisiana, Texas and Florida.

Monarch National Insurance Company (“MNIC”), an insurance subsidiary, is licensed as an admitted carrier to write homeowners property and casualty insurance in Florida.

Material Distribution Relationships

Ivantage Select Agency, Inc.

The Company is a party to an insurance agency master agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which the Company has been authorized by ISA to appoint Allstate agents to offer our FNIC homeowners insurance products to consumers in Florida. As a percentage of the total homeowners premiums we underwrote, 20.5% and 22.8% were from Allstate’s network of Florida agents, for the three months ended March 31, 2020 and 2019, respectively.

SageSure Insurance Managers, LLC

The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) to facilitate growth in our FNIC homeowners business outside of Florida.  As a percentage of the total homeowners premiums, 24.2% and 19.6% of the Company’s premiums were underwritten by SageSure, for the three months ended March 31, 2020 and 2019, respectively. As part of our partnership with SageSure, we entered into a profit share agreement, whereby we share 50% of net profits of this line of business, as calculated per the terms of the agreement, subject to certain limitations. The profit share cost is reflected in commissions and underwriting expenses on our consolidated statement of operations.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  The consolidated financial statements include the accounts of FNHC and its wholly-owned subsidiaries and all entities in which the Company has a controlling financial interest and any variable interest entity (“VIE”) of which the Company is the primary beneficiary. The Company’s management believes the consolidated financial statements reflect all material adjustments, including normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows of the Company for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company identifies a VIE as an entity that does not have sufficient equity to finance its own activities without additional financial support or where the equity investors lack certain characteristics of a controlling financial interest.  The Company assesses its contractual, ownership or other interests in a VIE to determine if the Company’s interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  The Company performs an ongoing qualitative assessment of its variable interests in a VIE to determine whether the Company has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the assets and liabilities of the VIE in its consolidated financial statements.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Litigation and Legal Proceedings

In the ordinary course of business, the Company is involved in various legal proceedings, specifically claims litigation.  The Company’s insurance subsidiaries participate in most of these proceedings by either defending third-party claims brought against insureds or litigating first-party coverage claims.  The Company accounts for such activity through the establishment of loss and LAE reserves. The Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to the Company’s consolidated financial statements. The Company is also occasionally involved in other legal and regulatory proceedings, some of which may assert claims for substantial amounts, making the Company party to individual actions in which extra contractual damages, punitive damages or penalties, such as claims alleging bad faith in the handling of insurance claims, are sought.

The Company reviews the outstanding matters, if any, on a quarterly basis. The Company accrues for estimated losses and contingent obligations in the consolidated financial statements if and when the obligation or potential loss from any litigation, legal proceeding or claim is considered probable and the amount of the potential exposure is reasonably estimable. The Company records such probable and estimable losses, through the establishment of legal expense reserves. As events evolve, facts concerning litigation

and contingencies become known and as additional information becomes available, the Company’s management reassesses its potential liabilities related to pending claims and litigation and may revise its previous estimates and make appropriate adjustment to the financial statements. Estimates that require judgment are subject to change and are based on management’s assessment, including the advice of legal counsel, the expected outcome of litigation and legal proceedings or other dispute resolution proceedings or the expected resolution of contingencies. The Company’s management believes that the Company’s accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on the Company’s consolidated financial statements.

Assessment Related Activity

The Company operates in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Property Insurance Association of Louisiana (“PIAL”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Underwriters Association (“AIUA”). As a direct premium writer, we are required to participate in certain insurer solvency associations under the applicable laws in the states in which we do business.

In connection with its automobile line of business, which is currently winding down, FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan, which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. There were no material assessments by the JUA Plan as of December 31, 2019. Future assessments by the JUA and the JUA Plan are indeterminable at this time.

Leases

The Company is committed under various operating lease agreements for office space.

The right-of-use asset is reflected in other assets and the lease liability is reflected in other liabilities on our consolidated balance sheets. Lease expense, net of sublease income is reflected in general and administrative expenses on our consolidated statements of operations.

Additional information related to our operating lease agreement for office space consisted of the following:

	March 31,
	2020
	(In thousands)
Right-of-use asset	$	7,938
Accrued rent	(216)
Right-of-use asset, net	$	7,722
Lease liability	$	7,938
Weighted average discount rate	4.70		%
Weighted average remaining years of lease term	8.4

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Lease expense	$	280	$	260
Sublease income	(155)		—
Lease expense, net	$	125	$	260
Net cash provided by (used in) operating activities	$	(89)	$	(137)

The interest rates implicit in our leases were not known, therefore the weighted-average discount rate above was determined by what FedNat would have had to pay to borrow the lease payments in a similar economic environment that existed at inception of our leases while considering our general credit and the theoretical collateral of the office space. In the event of a change to lease term, the Company would re-evaluate all inputs and assumptions, including the discount rate.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Jan. 01, 2020	Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Retained earnings	$ (64,652)		$ (70,591)
Cumulative Effect, Period Of Adoption, Adjustment [Member] | Accounting Standards Update 2016-13 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Retained earnings		$ 100

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INVESTMENTS (Narrative) (Details) $ in Millions	Mar. 31, 2020 USD ($) security	Dec. 31, 2019 USD ($) security
Investments, Debt and Equity Securities [Abstract]
Debt securities and equity securities held in an unrealized loss position 12 months or more	15	24
Fair value of investments deposited with governmental authorities required by law | $	$ 9.5	$ 11.2
Debt securities, available-for-sale, unrealized loss position, number of positions	522	203

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REINSURANCE (Tables)

3 Months Ended

Mar. 31, 2020

Reinsurance Disclosures [Abstract]

Reinsurance Recoverables

Reinsurance recoverable, net consisted of the following:

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	March 31,		December 31,
	2020		2019
	(In thousands)
Reinsurance recoverable on paid losses	$	48,544	$	45,186
Reinsurance recoverable on unpaid losses	212,606		164,429
Reinsurance recoverable, net	$	261,150	$	209,615

Premiums Written and Earned

Net premiums written and net premiums earned consisted of the following:

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	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net Premiums Written
Direct	$	172,962	$	132,233
Ceded	(13,766)		(11,793)
	$	159,196	$	120,440
Net Premiums Earned
Direct	$	175,574	$	138,367
Ceded	(69,664)		(49,583)
	$	105,910	$	88,784

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Material Distribution Relationships

Material Distribution Relationships

Ivantage Select Agency, Inc.

The Company is a party to an insurance agency master agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which the Company has been authorized by ISA to appoint Allstate agents to offer our FNIC homeowners insurance products to consumers in Florida. As a percentage of the total homeowners premiums we underwrote, 20.5% and 22.8% were from Allstate’s network of Florida agents, for the three months ended March 31, 2020 and 2019, respectively.

SageSure Insurance Managers, LLC

The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) to facilitate growth in our FNIC homeowners business outside of Florida.  As a percentage of the total homeowners premiums, 24.2% and 19.6% of the Company’s premiums were underwritten by SageSure, for the three months ended March 31, 2020 and 2019, respectively. As part of our partnership with SageSure, we entered into a profit share agreement, whereby we share 50% of net profits of this line of business, as calculated per the terms of the agreement, subject to certain limitations. The profit share cost is reflected in commissions and underwriting expenses on our consolidated statement of operations.

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  The consolidated financial statements include the accounts of FNHC and its wholly-owned subsidiaries and all entities in which the Company has a controlling financial interest and any variable interest entity (“VIE”) of which the Company is the primary beneficiary. The Company’s management believes the consolidated financial statements reflect all material adjustments, including normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows of the Company for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company identifies a VIE as an entity that does not have sufficient equity to finance its own activities without additional financial support or where the equity investors lack certain characteristics of a controlling financial interest.  The Company assesses its contractual, ownership or other interests in a VIE to determine if the Company’s interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  The Company performs an ongoing qualitative assessment of its variable interests in a VIE to determine whether the Company has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the assets and liabilities of the VIE in its consolidated financial statements.

Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  The consolidated financial statements include the accounts of FNHC and its wholly-owned subsidiaries and all entities in which the Company has a controlling financial interest and any variable interest entity (“VIE”) of which the Company is the primary beneficiary. The Company’s management believes the consolidated financial statements reflect all material adjustments, including normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows of the Company for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company identifies a VIE as an entity that does not have sufficient equity to finance its own activities without additional financial support or where the equity investors lack certain characteristics of a controlling financial interest.  The Company assesses its contractual, ownership or other interests in a VIE to determine if the Company’s interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  The Company performs an ongoing qualitative assessment of its variable interests in a VIE to determine whether the Company has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the assets and liabilities of the VIE in its consolidated financial statements.

Accounting Estimates and Assumptions

Accounting Estimates and Assumptions

The Company prepares the accompanying consolidated financial statements in accordance with GAAP, which requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may materially differ from those estimates.

Similar to other property and casualty insurers, the Company’s liability for loss and loss adjustment expenses ("LAE") reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, the Company believes that the liability and LAE reserve is adequate. The Company reviews and evaluates its estimates and assumptions regularly and makes adjustments, reflected in current operations, as necessary, on an ongoing basis.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements, Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment ("OTTI") model. The update also requires enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The Company adopted the guidance effective January 1, 2020, by reflecting a cumulative effect adjustment of less than $0.1 million, after-tax, which decreased retained earnings, held-to-maturity debt securities and reinsurance recoverable.

Refer to Note 7 for additional information regarding allowances for credit loss.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the guidance effective January 1, 2020, which did not have any impact on the Company’s consolidated financial condition or results of operations.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In January 2020, the FASB issued ASU 2020-1, Accounting for Equity Securities and Equity Investments, which clarifies the interaction between accounting standards related to equity securities (Topic 321), equity method investments (Topic 323), and certain derivatives (Topic 815). The update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The update is effective for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is in the early stage of evaluating the impact that the update will have on the Company’s consolidated financial position or results of operations.

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INVESTMENTS (Gross Unrealized Losses and Related Fair Values for Debt and Equity Securities, Grouped by Duration of Time in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Fair Value [Abstract]
Less than 12 Months	$ 235	$ 0
12 Months or Longer, Fair Value	2,222	2,287
Total	2,457	2,287
Gross unrealized loss position [Abstract]
Less than 12 Months	6	0
12 Months or Longer, Accumulated Loss	65	39
Total	71	39
Total Investments, excluding equity securities, less than 12 months, Fair Value	137,510	76,371
Total Investments, excluding equity securities, Less than 12 Months, Gross Unrealized Losses	6,877	535
Total Investments, excluding equity securities, 12 months or longer, Fair Value	2,622	12,378
Total Investments, excluding equity securities, 12 months or longer, Gross Unrealized Losses	303	96
Total Investments, excluding equity securities, Total Fair Value	140,132	88,749
Total Investments, excluding equity securities, Total Gross Unrealized Losses	7,180	631
United States Government Obligations and Authorities
Fair value [Abstract]
Less than 12 months	810	49,833
12 Months or Longer	268	2,218
Total	1,078	52,051
Gross unrealized losses [Abstract]
Less than 12 months	1	409
12 Months or Longer	12	17
Total	13	426
Fair Value [Abstract]
Less than 12 Months	0	0
12 Months or Longer, Fair Value	2,222	2,287
Total	2,222	2,287
Gross unrealized loss position [Abstract]
Less than 12 Months	0	0
12 Months or Longer, Accumulated Loss	65	39
Total	65	39
Obligations of States and Political Subdivisions
Fair value [Abstract]
Less than 12 months	5,544	6,810
12 Months or Longer	0	0
Total	5,544	6,810
Gross unrealized losses [Abstract]
Less than 12 months	37	22
12 Months or Longer	0	0
Total	37	22
Corporate
Fair value [Abstract]
Less than 12 months	117,591	15,872
12 Months or Longer	0	7,694
Total	117,591	23,566
Gross unrealized losses [Abstract]
Less than 12 months	5,754	94
12 Months or Longer	188	38
Total	5,942	132
Fair Value [Abstract]
Less than 12 Months	235	0
12 Months or Longer, Fair Value	0	0
Total	235	0
Gross unrealized loss position [Abstract]
Less than 12 Months	6	0
12 Months or Longer, Accumulated Loss	0	0
Total	6	0
International
Fair value [Abstract]
Less than 12 months	13,330	3,856
12 Months or Longer	132	179
Total	13,462	4,035
Gross unrealized losses [Abstract]
Less than 12 months	1,079	10
12 Months or Longer	38	2
Total	1,117	12
Fair Value [Abstract]
Less than 12 Months	0	0
12 Months or Longer, Fair Value	0	0
Total	0	0
Gross unrealized loss position [Abstract]
Less than 12 Months	0	0
12 Months or Longer, Accumulated Loss	0	0
Total	0	0
Debt Securities
Fair value [Abstract]
Less than 12 months	137,275	76,371
12 Months or Longer	400	10,091
Total	137,675	86,462
Gross unrealized losses [Abstract]
Less than 12 months	6,871	535
12 Months or Longer	238	57
Total	$ 7,109	$ 592

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ALLOWANCE FOR CREDIT LOSSES (Schedule of allowance for credit losses) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Debt Securities, Held-to-maturity, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	$ 0
Balance as of March 31, 2020	2
Premium Receivable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	159
Balance as of March 31, 2020	189
Reinsurance Recoverable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	0
Balance as of March 31, 2020	53
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	159
Credit loss, expense (reversal)	52
Balance as of March 31, 2020	244
Cumulative Effect, Period Of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	33
Debt Securities, Held-to-Maturity
Debt Securities, Held-to-maturity, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	0
Credit loss expense (reversal)	1
Balance as of March 31, 2020	2
Debt Securities, Held-to-Maturity | Cumulative Effect, Period Of Adoption, Adjustment [Member]
Debt Securities, Held-to-maturity, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	1
Premiums Receivable [Member]
Premium Receivable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	159
Credit loss expense (reversal)	30
Balance as of March 31, 2020	189
Premiums Receivable [Member] | Cumulative Effect, Period Of Adoption, Adjustment [Member]
Premium Receivable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	0
Reinsurance Recoverable, Net [Member]
Reinsurance Recoverable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	0
Credit loss expense (reversal)	21
Balance as of March 31, 2020	53
Reinsurance Recoverable, Net [Member] | Cumulative Effect, Period Of Adoption, Adjustment [Member]
Reinsurance Recoverable, Allowance for Credit Loss [Roll Forward]
Balance as of December 31, 2019	$ 32

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SUBSEQUENT EVENTS (Details)	1 Months Ended
	Apr. 30, 2020 USD ($) numberOfReportedClaims numberOfCatastrophicEvents	Mar. 31, 2020 USD ($)
FNIC
Subsequent Event [Line Items]
Maximum single event coverage		$ 20,000,000
Maison Companies
Subsequent Event [Line Items]
Maximum single event coverage		5,000,000
Monarch National S Florida
Subsequent Event [Line Items]
Maximum single event coverage		$ 3,000,000
Subsequent Event | Hail and Wind Related Storms
Subsequent Event [Line Items]
Number of Catastrophic Events | numberOfCatastrophicEvents	5
Liability for Catastrophic Events, Number of Reported Claims | numberOfReportedClaims	1,417
Loss in period	$ 15,200,000
Liability for catastrophe claims	15,200,000
Subsequent Event | Affiliated Entity [Member] | FNIC | Hail and Wind Related Storms
Subsequent Event [Line Items]
Liability for catastrophe claims	$ 6,300,000
Profit sharing arrangement, percent	50.00%

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ALLOWANCE FOR CREDIT LOSSES (Tables)

3 Months Ended

Mar. 31, 2020

Receivables [Abstract]

Debt Securities, Held-to-maturity, Allowance for Credit Loss

Activity in the allowances for credit loss, by asset line item on the consolidated balance sheet, is summarized as follows:

	Debt
	Securities,				Reinsurance
	Held-to-		Premiums		Recoverable,
	Maturity		Receivable		Net		Total
	(In thousands)
Balance as of December 31, 2019	$	—	$	159	$	—	$	159
Cumulative effect of new accounting standard (1)	1		—		32		33
Credit loss expense (recovery) (2)	1		30		21		52
Balance as of March 31, 2020	$	2	$	189	$	53	$	244

(1)Refer to Note 2 above for information about our adoption of ASU 2016-13 on January 1, 2020.

(2)Reflected in commissions and other underwriting expenses on the consolidated statements of comprehensive income (loss).

Premium Receivable, Allowance for Credit Loss

The aging of our premiums receivable and associated allowance for credit loss as of March 31, 2020 was as follows:

			Days Past Due
	Current		1-29		30-59		60-89		90 plus		0	Total
			(In thousands)
Amortized cost	$	35,822	$	2,507	$	29	$	9	$	159		$	38,526
Allowance for credit loss	—		(26)		(1)		(3)		(159)			(189)
Net	$	35,822	$	2,481	$	28	$	6	$	—		$	38,337

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ACQUISITIONS (Tables)

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Business Acquisition, Pro Forma Information

The following unaudited pro forma condensed consolidated statements of operations of the Company assume that the acquisition of the Maison Companies was completed on January 1, 2019:

	Three
	Months
	Ended
	March 31, 2019
	(In thousands)
Revenue	$	118,621
Net income (loss)	(3,395)

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INVESTMENTS (Summary of Net Investment Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Investment Income, Interest and Dividend [Abstract]
Interest income	$ 3,822	$ 3,657
Dividends income	70	53
Net investment income	$ 3,892	$ 3,710

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REINSURANCE (Premiums Written and Earned) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net Premiums Written
Direct	$ 172,962	$ 132,233
Ceded	(13,766)	(11,793)
Total premiums written	159,196	120,440
Net Premiums Earned
Direct	175,574	138,367
Ceded	(69,664)	(49,583)
Net premiums earned	$ 105,910	$ 88,784

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SHAREHOLDERS' EQUITY (Reconciliation of Changes in Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net
Accumulated Other Comprehensive Income (Loss), Net of Tax	$ 10,281
Accumulated Other Comprehensive Income (Loss), Net of Tax	6,253
AOCI Attributable to Parent
Before Tax
AOCI Including Portion Attributable to Noncontrolling Interest, before Tax	13,621	$ (5,023)
Other Comprehensive Income (Loss), before Reclassifications, before Tax	(4,098)	11,528
Reclassification from Accumulated Other Comprehensive Income, Current Period, before Tax	(1,238)	(2,301)
Comprehensive income (loss)	(5,336)	9,227
AOCI Including Portion Attributable to Noncontrolling Interest, before Tax	8,285	4,204
Income Tax
AOCI Including Portion Attributable to Noncontrolling Interest, Tax	(3,340)	1,273
Other Comprehensive Income (Loss) before Reclassifications, Tax	1,004	(2,922)
Reclassification from AOCI, Current Period, Tax	304	583
Other Comprehensive Income (Loss), Tax	1,308	(2,339)
AOCI Including Portion Attributable to Noncontrolling Interest, Tax	(2,032)	(1,066)
Net
Accumulated Other Comprehensive Income (Loss), Net of Tax	10,281	(3,750)
Other Comprehensive Income (Loss), before Reclassifications, Net of Tax	(3,094)	8,606
Reclassification adjustment for realized losses (gains) included in net income, Net	(934)	(1,718)
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	(4,028)	6,888
Accumulated Other Comprehensive Income (Loss), Net of Tax	$ 6,253	$ 3,138

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INVESTMENTS

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

5. INVESTMENTS

Unrealized Gains and Losses

The difference between amortized cost or cost and estimated fair value and gross unrealized gains and losses, by major investment category, consisted of the following:

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	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	187,452	$	8,924	$	13	$	196,363
Obligations of states and political subdivisions	21,935		400		37		22,298
Corporate	293,927		5,745		5,942		293,730
International	31,237		324		1,117		30,444
	534,551		15,393		7,109		542,835
Debt securities - held-to-maturity:
United States government obligations and authorities	3,555		53		65		3,543
Corporate	671		7		6		672
International	45		1		—		46
	4,271		61		71		4,261
Total investments, excluding equity securities	$	538,822	$	15,454	$	7,180	$	547,096

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	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	191,546	$	3,073	$	426	$	194,193
Obligations of states and political subdivisions	23,748		294		22		24,020
Corporate	268,182		10,252		132		278,302
International	29,169		593		12		29,750
	512,645		14,212		592		526,265
Debt securities - held-to-maturity:
United States government obligations and authorities	3,585		12		39		3,558
Corporate	697		20		—		717
International	55		1		—		56
	4,337		33		39		4,331
Total investments, excluding equity securities	$	516,982	$	14,245	$	631	$	530,596

Net Realized and Unrealized Gains and Losses

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method.

Net realized and unrealized gains (losses) recognized in earnings, by major investment category, consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross realized and unrealized gains:
Debt securities	$	1,386	$	317
Equity securities	319		2,830
Total gross realized and unrealized gains	1,705		3,147
Gross realized and unrealized losses:
Debt securities	(148)		(400)
Equity securities	(4,382)		(446)
Total gross realized and unrealized losses	(4,530)		(846)
Net realized and unrealized gains (losses) on investments	$	(2,825)	$	2,301

The above line item, net realized and unrealized gains (losses) on investments, includes the following equity securities gains (losses) recognized in earnings:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Net realized and unrealized gains (losses)	$	(4,063)	$	2,384
Less:
Net realized and unrealized gains (losses) on securities sold	(635)		326
Net realized and unrealized gains (losses) recognized during the period still held as of the end-of-period	$	(3,428)	$	2,058

Contractual Maturity

Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.

Amortized cost and estimated fair value of debt securities, by contractual maturity, consisted of the following:

໿

	March 31, 2020
	Amortized
	Cost		Fair Value
Securities with Maturity Dates	(In thousands)
Debt securities, available-for-sale:
One year or less	$	33,374	$	33,413
Over one through five years	170,802		171,418
Over five through ten years	158,874		161,147
Over ten years	171,501		176,857
	534,551		542,835
Debt securities, held-to-maturity:
One year or less	285		286
Over one through five years	3,846		3,833
Over five through ten years	39		39
Over ten years	101		103
	4,271		4,261
Total	$	538,822	$	547,096

Net Investment Income

Net investment income consisted of the following:

໿

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Interest income	$	3,822	$	3,657
Dividends income	70		53
Net investment income	$	3,892	$	3,710

Aging of Gross Unrealized Losses

Gross unrealized losses and related fair values for debt securities, grouped by duration of time in a continuous unrealized loss position, consisted of the following:

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	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
March 31, 2020
Debt securities - available-for-sale:
United States government obligations and authorities	$	810	$	1	$	268	$	12	$	1,078	$	13
Obligations of states and political subdivisions	5,544		37		—		—		5,544		37
Corporate	117,591		5,754		—		188		117,591		5,942
International	13,330		1,079		132		38		13,462		1,117
	137,275		6,871		400		238		137,675		7,109
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,222		65		2,222		65
Corporate	235		6		—		—		235		6
International	—		—		—		—		—		—
	235		6		2,222		65		2,457		71
Total investments, excluding equity securities	$	137,510	$	6,877	$	2,622	$	303	$	140,132	$	7,180

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In thousands)
December 31, 2019
Debt securities - available-for-sale:
United States government obligations and authorities	$	49,833	$	409	$	2,218	$	17	$	52,051	$	426
Obligations of states and political subdivisions	6,810		22		—		—		6,810		22
Corporate	15,872		94		7,694		38		23,566		132
International	3,856		10		179		2		4,035		12
	76,371		535		10,091		57		86,462		592
Debt securities, held-to-maturity:
United States government obligations and authorities	—		—		2,287		39		2,287		39
Corporate	—		—		—		—		—		—
International	—		—		—		—		—		—
	—		—		2,287		39		2,287		39
Total investments, excluding equity securities	$	76,371	$	535	$	12,378	$	96	$	88,749	$	631

As of March 31, 2020, the Company held a total of 522 debt securities that were in an unrealized loss position, of which 15 securities were in an unrealized loss position continuously for 12 months or more. As of December 31, 2019, the Company held a total of 203 debt securities that were in an unrealized loss position, of which 24 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these securities consisted primarily of losses related to corporate securities.

Collateral Deposits

Cash and cash equivalents and investments, the majority of which were debt securities, with fair values of $9.5 million and $11.2 million, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations as of March 31, 2020 and December 31, 2019, respectively.

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SHAREHOLDERS' EQUITY (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	May 06, 2020	Mar. 30, 2020	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock repurchased in the period (in shares)	523,583
Stock repurchased in the period, amount	$ 6,800,000
Treasury Stock Acquired, Average Cost Per Share	$ 12.89
Remaining authorized repurchase amount	$ 13,200,000
Accumulated other comprehensive income (loss)	$ 6,253,000				$ 10,281,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	210,272	140,156
Securities Offerings, reserved for future issuance						$ 150,000,000.0
Subsequent Event
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Remaining authorized repurchase amount			$ 10,000,000.0
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award requisite service period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	210,272
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Minimum | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Ultimate expense range, percent of target	0.00%
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock repurchases authorized amount	$ 20,000,000			$ 10,000,000.0	$ 10,000,000.0
Award vesting period	5 years
Maximum | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Ultimate expense range, percent of target	250.00%

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 2,133	$ (3,865)
Other Comprehensive Income (Loss), Securities, Available-for-Sale, Unrealized Holding Gain (Loss) Arising During Period, after Tax	(4,028)	6,888
Comprehensive income (loss)	$ (1,895)	$ 3,023

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Cover Page - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
Cover page [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2020
Document Transition Report	false
Entity File Number	000-25001
Entity Registrant Name	FedNat Holding Company
Entity Incorporation, State or Country Code	FL
Entity Tax Identification Number	65-0248866
Entity Address, Address Line One	14050 N.W. 14th Street
Entity Address, Address Line Two	Suite 180
Entity Address, City or Town	Sunrise
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33323
City Area Code	800
Local Phone Number	293-2532
Title of 12(b) Security	Common Stock
Trading Symbol	FNHC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		13,673,319
Entity Central Index Key	0001069996
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020
Amendment Flag	false

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SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

SHAREHOLDERS' EQUITY

12. SHAREHOLDERS' EQUITY

Common Stock Repurchases

The Company may repurchase shares in open market transactions in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.

In December 2019, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $10.0 million of its outstanding shares of common stock from January 1, 2020 through December 31, 2020. In March 2020, the Company’s Board of Directors authorized an additional $10.0 million increase to the share repurchase program. This increased authorization will allow the Company to purchase up to $20 million of shares outstanding through December 31, 2020. During the three months ended March 31, 2020, the Company repurchased 523,583 shares of its common stock at a total cost of $6.8 million, which is an average price per share of $12.89. As of March 31, 2020, the remaining availability for future repurchases of our common stock under this program was $13.2 million. As of the filing of this report, the remaining availability of our common stock under this program was $10.0 million.

Securities Offerings

In June 2018, the Company filed with the Securities and Exchange Commission (“SEC”) on Form S-3, a shelf registration statement enabling the Company to offer and sell, from time to time, up to an aggregate of $150.0 million of securities. No securities have been offered or sold under this registration statement.

Share-Based Compensation Expense

Share-based compensation arrangements include the following:

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	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Restricted stock	$	353	$	494
Performance stock	100		181
Total share-based compensation expense	$	453	$	675
Recognized tax benefit	$	111	$	171
Intrinsic value of options exercised	2		—
Fair value of restricted stock vested	1,032		927

The intrinsic value of options exercised represents the difference between the stock option exercise price and the weighted average closing stock price of FNHC common stock on the exercise dates, as reported on the NASDAQ Global Market.

Stock Option Awards

A summary of the Company’s stock option activity includes the following:

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	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2020	38,850	$	3.80
Granted	—	—
Exercised	(100)	3.30
Cancelled	—	—
Outstanding at March 31, 2020	38,750	$	3.81

Restricted Stock Awards

The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by the Company’s directors, executives and other key employees. For all RSA awards, excluding grants based on total relative shareholder return ("TSR"), the accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis for service awards and over successive one-year requisite service periods for performance-based awards. Our expense for our performance awards depends on achievement of specified results; therefore, the ultimate expense can range from 0% to 250% of target. Our TSR-based cliff vesting awards contain performance criteria which are tied to the achievement of certain market conditions. The TSR grant date fair value was determined using a Monte Carlo simulation and, unlike the performance condition awards, the expense is not reversed if the performance condition is not met. This value is recognized as expense over the requisite service period using the straight-line recognition method.

During the three months ended March 31, 2020 and 2019, the Board of Directors granted 210,272 and 140,156 RSAs, respectively, vesting over three or five years, to the Company’s directors, executives and other key employees.

RSA activity includes the following:

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2020	255,345	$	17.82
Granted	210,272	11.82
Vested	(58,633)	17.59
Cancelled	(15,990)	18.24
Outstanding at March 31, 2020	390,994	$	14.62

The weighted average grant date fair value is measured using the closing price of FNHC common stock on the grant date, as reported on the NASDAQ Global Market.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) associated with debt securities - available-for-sale consisted of the following:

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	Three Months Ended March 31,
	2020						2019
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(In thousands)
Accumulated other comprehensive income (loss), beginning-of-period	$	13,621	$	(3,340)	$	10,281	$	(5,023)	$	1,273	$	(3,750)
Other comprehensive income (loss) before reclassification	(4,098)		1,004		(3,094)		11,528		(2,922)		8,606
Reclassification adjustment for realized losses (gains) included in net income	(1,238)		304		(934)		(2,301)		583		(1,718)
	(5,336)		1,308		(4,028)		9,227		(2,339)		6,888
Accumulated other comprehensive income (loss), end-of-period	$	8,285	$	(2,032)	$	6,253	$	4,204	$	(1,066)	$	3,138

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LOSS AND LOSS ADJUSTMENT RESERVES

3 Months Ended

Mar. 31, 2020

Liability for Future Policy Benefit, before Reinsurance [Abstract]

LOSS AND LOSS ADJUSTMENT RESERVES

8. LOSS AND LOSS ADJUSTMENT RESERVES

The liability for loss and LAE reserves is determined on an individual-case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and incurred but not reported ("IBNR").

Activity in the liability for loss and LAE reserves is summarized as follows:

	Three Months Ended
	March 31,
	2020		2019
	(In thousands)
Gross reserves, beginning-of-period	$	324,362	$	296,230
Less: reinsurance recoverable (1)	(164,429)		(166,396)
Net reserves, beginning-of-period	159,933		129,834
Incurred loss, net of reinsurance, related to:
Current year	69,365		67,048
Prior year loss development (redundancy) (2)	(117)		721
Ceded losses subject to offsetting experience account adjustments (3)	(295)		(930)
Prior years	(412)		(209)
Amortization of acquisition fair value adjustment	(23)		—
Total incurred loss and LAE, net of reinsurance	68,930		66,839
Paid loss, net of reinsurance, related to:
Current year	13,371		14,868
Prior years	52,423		41,974
Total paid loss and LAE, net of reinsurance	65,794		56,842
Net reserves, end-of-period	163,069		139,831
Plus: reinsurance recoverable (1)	212,606		234,293
Gross reserves, end-of-period	$	375,675	$	374,124

(1)Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

(2)Reflects loss development from prior accident years impacting pre-tax net income. Excludes losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment.

(3)Reflects losses ceded under retrospective reinsurance treaties to the extent there is an offsetting experience account adjustment, such that there is no impact on pre-tax net income (loss).

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple interpretations. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

During the three months ended March 31, 2020, the Company experienced $0.1 million of favorable loss and LAE reserve development on prior accident years, which consists of redundancy in the homeowners line of business as a result of lower LAE expenses associated primarily with Hurricane Irma, mostly offset by adverse development in its commercial general liability line of business.

During the three months ended March 31, 2019, the Company experienced $0.7 million of favorable loss and LAE reserve redundancy in accident year 2017. The redundancy was the result of lower LAE expenses associated primarily with Hurricane Irma.

As previously disclosed, the Company entered into 30% and 10% retrospectively-rated Florida-only property quota-share treaties, which ended on July 1, 2016 and 2017, respectively.  These agreements included a profit share (experience account) provision, under which the Company will receive ceded premium adjustments at the end of the treaty to the extent there is a positive balance in the experience account.  This experience account is based on paid losses rather than incurred losses.  Due to the retrospectively-rated nature of this treaty, when the experience account is positive we cede losses under these treaties as the claims are paid with an equal and offsetting adjustment to ceded premiums (in recognition of the related change to the experience account receivable), with no impact on net income.  Conversely, when the experience account is negative, the Company cedes losses on an incurred basis with no offsetting adjustment to ceded premiums, which impacts net income. Loss development can be either favorable or unfavorable regardless of whether the experience account is in a positive or negative position.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

SIGNIFICANT OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Our significant accounting policies were described in Note 2 of our 2019 Form 10-K. Other than the changes noted in "Recently Issued Accounting Pronouncements, Adopted" below, there have been no significant changes in our significant accounting policies for the three months ended March 31, 2020.

Accounting Estimates and Assumptions

The Company prepares the accompanying consolidated financial statements in accordance with GAAP, which requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may materially differ from those estimates.

Similar to other property and casualty insurers, the Company’s liability for loss and loss adjustment expenses ("LAE") reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, the Company believes that the liability and LAE reserve is adequate. The Company reviews and evaluates its estimates and assumptions regularly and makes adjustments, reflected in current operations, as necessary, on an ongoing basis.

Recently Issued Accounting Pronouncements, Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment ("OTTI") model. The update also requires enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The Company adopted the guidance effective January 1, 2020, by reflecting a cumulative effect adjustment of less than $0.1 million, after-tax, which decreased retained earnings, held-to-maturity debt securities and reinsurance recoverable.

Refer to Note 7 for additional information regarding allowances for credit loss.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the guidance effective January 1, 2020, which did not have any impact on the Company’s consolidated financial condition or results of operations.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In January 2020, the FASB issued ASU 2020-1, Accounting for Equity Securities and Equity Investments, which clarifies the interaction between accounting standards related to equity securities (Topic 321), equity method investments (Topic 323), and certain derivatives (Topic 815). The update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The update is effective for interim and annual reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is in the early stage of evaluating the impact that the update will have on the Company’s consolidated financial position or results of operations.

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ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION (Narrative) (Details) - Premiums Written Net - Homeowners Multiperil Insurance Product Line - Customer Concentration Risk	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Ivantage Select Agency Inc
Organization, Consolidation, And Basis of Preparation [Line Items]
Concentration risk, percentage	20.50%	22.80%
SageSure Insurance Managers LLC
Organization, Consolidation, And Basis of Preparation [Line Items]
Concentration risk, percentage	24.20%	19.60%

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FAIR VALUE (Held-to-Maturity Financial Instruments Measured at Fair Value) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2019	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in valuation inputs or changes in assumptions	$ 0		$ 0
Unobservable inputs reconciliation, transfers	0	$ 0
US Government Obligations and Authorities, Corporate and International Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity securities, fair value	4,261			$ 4,331
US Government Obligations and Authorities, Corporate and International Securities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity securities, fair value	3,439			3,453
US Government Obligations and Authorities, Corporate and International Securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Held-to-maturity securities, fair value	$ 822			$ 878