10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2013

OR

o 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 0-2500111

Federated National 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, Florida 33323

(Address of principal executive offices) (Zip Code)

954-581-9993

(Registrant's telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has electronically submitted and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No o

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

Large accelerated filer o      Accelerated filer o     Non-accelerated filer o      Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes oNo x

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

Common Stock, $.01 par value –8,120,423 outstanding as of May 9, 2013

1

FEDERATED NATIONAL HOLDING COMPANY

INDEX

PART I: FINANCIAL INFORMATION		PAGE
ITEM 1	Financial Statements	3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	49
ITEM 4	Controls and Procedures	51
PART II: OTHER INFORMATION
ITEM 1	Legal Proceedings	52
ITEM 1A	Risk Factors	52
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
ITEM 3	Defaults upon Senior Securities	52
ITEM 4	Mine Safety Disclosures	52
ITEM 5	Other Information	52
ITEM 6	Exhibits	53
SIGNATURES		54

2

PART I: FINANCIAL INFORMATION

Item 1 Financial Statements

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	Period Ending
	March 31, 2013		December 31, 2012
ASSETS	(Dollars in Thousands)
Investments
Debt maturities, available for sale, at fair value	$	107,764	$	101,755
Debt maturities, held to maturity, at amortized cost		6,849		7,359
Equity securities, available for sale, at fair value		27,108		20,982
Total investments		141,721		130,096
Cash and short term investments		28,193		21,143
Prepaid reinsurance premiums		4,063		7,045
Premiums receivable, net of allowance for credit losses of $69 and $69, respectively		12,683		8,023
Reinsurance recoverable, net		3,586		3,503
Deferred policy acquisition costs		10,140		8,479
Deferred income taxes, net		2,637		4,338
Income taxes receivable		-		39
Property, plant and equipment, net		883		564
Other assets		2,120		2,658
Total assets	$	206,026	$	185,888
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	$	47,565	$	49,908
Unearned premiums		73,293		59,006
Premiums deposits and customer credit balances		3,722		2,458
Bank overdraft		6,350		5,987
Income taxes payable		77		-
Accounts payable and accrued expenses		6,350		2,624
Total liabilities		137,357		119,983
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding 7,984,922 and 7,979,488, respectively		80		80
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding		-		-
Additional paid-in capital		51,445		51,356
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale		4,806		4,067
Total accumulated other comprehensive income		4,806		4,067
Retained earnings		12,338		10,402
Total shareholders' equity		68,669		65,905
Total liabilities and shareholders' equity	$	206,026	$	185,888

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2013			2012
	(Dollars in Thousands)
Revenue:
Gross premiums written	$	45,826		$	31,274
Gross premiums ceded		(2,834	)		(1,858	)
Net premiums written		42,992			29,416
Decrease in prepaid reinsurance premiums		(9,914	)		(9,849	)
Increase in unearned premiums		(14,286	)		(6,749	)
Net change in prepaid reinsurance premiums and unearned premiums		(24,200	)		(16,598	)
Net premiums earned		18,792			12,818
Commission income		507			307
Finance revenue		146			114
Managing general agent fees		689			533
Net investment income		794			961
Net realized investment gains (losses)		813			(10	)
Regulatory assessments recovered		-			-
Other income		125			20
Total revenue		21,866			14,743
Expenses:
Losses and LAE		9,321			5,728
Operating and underwriting expenses		2,727			2,411
Salaries and wages		2,333			2,211
Policy acquisition costs - amortization		3,753			2,748
Total expenses		18,134			13,098
Income before provision for income tax expense		3,732			1,645
Provision for income tax expense		1,397			573
Net income	$	2,335		$	1,072
Net income per share - basic	$	0.29		$	0.13
Net income per share - diluted	$	0.29		$	0.13
Weighted average number of common shares outstanding - basic		7,982,934			7,946,384
Weighted average number of common shares outstanding - diluted		8,126,721			7,962,295
Dividends paid per share	$	0.02		$	-

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended March 31,
	2013			2012
	(Dollars in Thousands)
Net income	$	2,335		$	1,072
Change in net unrealized gains on investments available for sale		1,185			1,883
Comprehensive income before tax		3,520			2,955
Income tax expense related to items of other comprehensive income		(446	)		(708	)
Comprehensive income	$	3,074		$	2,247

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2013			2012
	(Dollars in Thousands)
Cash flow from operating activities:
Net income	$	2,335		$	1,072
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium discount, net		337			323
Depreciation and amortization of property plant and equipment, net		53			48
Net realized investment (gains) losses		(813	)		10
Provision for credit losses, net		-			0
Recovery for uncollectible premiums receivable		-			(2	)
Non-cash compensation		48			42
Changes in operating assets and liabilities:
Premiums receivable		(4,660	)		(1,732	)
Prepaid reinsurance premiums		2,983			3,220
Reinsurance recoverable, net		(83	)		307
Income taxes recoverable		39			-
Deferred income tax expense, net of other comprehensive income		1,255			504
Policy acquisition costs, net of amortization		(1,661	)		(869	)
Other assets		538			(2,854	)
Unpaid losses and LAE		(2,342	)		(4,675	)
Unearned premiums		14,283			6,749
Premium deposits and customer credit balances		1,264			358
Income taxes payable		77			48
Bank overdraft		363			(706	)
Accounts payable and accrued expenses		3,726			(740	)
Net cash provided by operating activities		17,742			1,103
Cash flow used by investing activities:
Proceeds from sale of investment securities		44,167			18,257
Purchases of investment securities available for sale		(54,130	)		(19,090	)
Purchases of property and equipment		(372	)		(20	)
Net cash used by investing activities		(10,335	)		(853	)
Cash flow (used) provided  by financing activities:
Exercised stock options		17			-
Dividends paid		(399	)		-
Tax benefit related to non-cash compensation		25			21
Net cash (used ) provided   by financing activities		(357	)		21
Net increase in cash and short term investments		7,050			271
Cash and short term investments at beginning of period		21,143			15,205
Cash and short term investments at end of period	$	27,186		$	15,476

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
(continued)	2013		2012
	(Dollars in Thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	20	$	-
Non-cash investing and finance activities:
Accrued dividends payable	$	399	$	-

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(1) Organization and Business

In this Quarterly Report on Form 10-Q, “FNHC” and the terms “Company”, “we”, “us” and “our” refer to Federated National Holding Company and its subsidiaries, unless the context indicates otherwise. We changed our name on September 11, 2012, pursuant to approval received at our annual shareholders’ meeting, from 21st Century Holding Company so that our parent company and other subsidiary companies’ names are consistent with our primary insurance subsidiary and the name under which we have been writing insurance for more than 20 years.

FNHC is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents.

We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners”), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states.  We market and distribute our own and third-party insurers’ products and our other services through a network of independent agents. We also utilize a select number of general agents for the same purpose.

Our insurance subsidiary is Federated National Insurance Company (“FNIC”). FNIC is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state insurance regulator for authority to write specific lines of insurance in that state.  Through contractual relationships with a network of approximately 3,300 independent agents, of which approximately 1,200 actively sell and service our products, FNIC is authorized to underwrite homeowners’, commercial general liability, fire, allied lines and personal and commercial automobile insurance in Florida. FNIC is also licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texas, and underwrites commercial general liability insurance in those states and personal automobile insurance in Georgia and Texas.

FNIC operates as a non-admitted carrier in Arkansas, Kentucky, Missouri, Nevada, Oklahoma, South Carolina and Tennessee, and can underwrite commercial general liability insurance in all of these states.  A non-admitted carrier, sometimes referred to as a “excess and surplus lines” carrier, is permitted to do business in a state and, although it is strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud, non-admitted carriers are subject to considerably less regulation with respect to policy rates and forms. Non-admitted carriers are not required to financially contribute to and benefit from the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due their policyholders.

In January 2011, we merged FNIC and our other wholly owned insurance subsidiary, American Vehicle Insurance Company (“American Vehicle”), with FNIC continuing the operations of both entities. As part of its approval of the merger between FNIC and American Vehicle, the Florida Office of Insurance Regulation (“Florida OIR”), the Company, FNIC and American Vehicle entered into a consent order with the Florida OIR dated January 25, 2011 (the “Consent Order”), which was amended in February 2013, due to FNIC’s statutory underwriting profit during 2012. Pursuant to the amended Consent Order, the Company and the resulting company in the merger (the “Merged Company”) have agreed to the following:

· The Merged Company retained the following licenses: (010) Fire, (020) Allied Lines, (040) Homeowners Multi Peril, (050) Commercial Multi Peril, (090) Inland Marine, (170) Other Liability, (192) Private Passenger Auto Liability, (194) Commercial Auto Liability, (211) Private Passenger Auto Physical Damage and (212) Commercial Auto Physical Damage.

· The Merged Company will not write commercial multi peril policy premium without prior approval from the Florida OIR. The Merged Company has no commercial multi peril policy premium in force.

· The Merged Company surrendered its surety license. The Merged Company has no surety policy premium in force.

8

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

· The Merged Company will not write new commercial habitation condominium associations without prior approval from the Florida OIR. The current commercial habitation book of business is fully earned.

· The Merged Company agreed to maintain the total number of its homeowners’ policies in Miami-Dade, Broward and Palm Beach counties (the “Tri-County Area”) to no more than 35% of its entire homeowners’ book. As of March 31, 2013, the Company had approximately 19.1% of its homeowners’ policies located within Tri-County Area.

· The managing general agency fees payable by the Merged Company to Federated National Underwriters, Inc. (“FNU”), formerly known as Assurance Managing General Agents, Inc., a wholly owned subsidiary of the Company, which were traditionally 6% of gross written premium, were reduced and will not exceed 4% without prior approval from the Florida OIR. The Merged Company has lowered the fee to amounts varying between 2% and 4% of gross written to further support the FNIC results of operations.  This will have no impact on the Company’s consolidated financial results.

· The claims service fees payable by the Merged Company to Federated National Adjusting, Inc. (“FNA”), formerly known as Superior Adjusting, Inc., were reduced from the traditional 4.5% of gross earned premium to 3.6% of gross earned premium. This will have no impact on the Company’s consolidated financial results.

The merger of FNIC and American Vehicle will be an ongoing transition, many aspects of which will take effect over time. References to the companies contained herein are intended to be references to the operations of FNIC following the January 2011 merger. References to the historical activities of American Vehicle are appropriately identified throughout this document.

During the three months ended March 31, 2013, 86.5%, 5.9%, 2.8% and 4.8% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended March 31, 2012, 86.6%, 7.7%, 3.5% and 2.2% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

Our business, results of operations and financial condition are subject to fluctuations due to a variety of factors. Abnormally high severity or frequency of claims in any period could have a material adverse effect on us. When our estimated liabilities for unpaid losses and loss adjustment expenses (“LAE”) are less than the actuarially determined amounts, we increase the expense in the current period. Conversely, when our estimated liabilities for unpaid losses and LAE are greater than the actuarially determined amounts, we decrease the expense in the current period.

We are focusing our marketing efforts on continuing to expand our distribution network while maintaining our commitment to long-term relationships. We market our products and services throughout Florida and in other states by establishing relationships with additional independent agents and general agents. There can be no assurance, however, that we will be able to obtain the required regulatory approvals to offer additional insurance products or expand into other states.

FNU acts as FNIC’s exclusive managing general agent in Florida and is also licensed as a managing general agent in the States of Alabama, Georgia, Louisiana, Mississippi, Missouri, North Carolina, Nevada, South Carolina, Texas and Virginia. FNU has contracted with several unaffiliated insurance companies to sell commercial general liability, workers compensation, personal umbrella, inland marine and other various lines of insurance through FNU’s existing network of agents.

FNU earns commissions and fees for providing policy administration, marketing, accounting and analytical services, and for participating in the negotiation of reinsurance contracts. FNU earns a $25 per policy fee and traditionally a 6% commission fee from its affiliate, FNIC. During the fourth quarter of 2010, FNU, pursuant to the Consent Order as discussed above, reduced its fee, to earn amounts varying between 2% and 4%, which we anticipate will return to 6% at an unknown future date with approval from the Florida OIR. A formal agreement reflecting this fee modification was executed during January 2011.

9

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

We internally process claims made by our insureds through our wholly owned claims adjusting company, FNA. Our agents have no authority to settle claims or otherwise exercise control over the claims process. Furthermore, we believe that the retention of independent adjusters, in addition to the employment of salaried claims personnel, results in reduced ultimate loss payments, lower LAE and improved customer service for our claimants and policyholders. We also employ an in-house Litigation Manager to cost effectively manage claims-related litigation and to monitor our claims handling practices for efficiency and regulatory compliance.

Insure-Link, Inc. serves as an independent insurance agency. The insurance agency markets direct to the public to provide a variety of insurance products and services to individual clients, as well as business clients, by offering a full line of insurance products including, but not limited to,  homeowners’, flood, personal and commercial automobile, commercial general liability and workers’ compensation insurance through their agency appointments with over thirty different carriers.

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America referred to as Generally Accepted Accounting Principles (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2013 and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2013. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012 included in the Company’s Form 10-K, which was filed with the SEC on April 1, 2013.

In preparing the interim unaudited condensed consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of loss and LAE, ceded reinsurance balances payable, the recoverability of Deferred Policy Acquisition Costs (“DPAC”), the determination of federal income taxes, and the net realizable value of reinsurance recoverables. Although considerable variability is inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations.

All significant intercompany balances and transactions have been eliminated. No reclassifications have been made to the prior-period balances to conform to the current-period presentation.

10

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(3) Summary of Significant Accounting Policies and Practices

(A)  Critical Accounting Policies

The preparation of financial statements in conformity with GAAP 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 inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with management’s evaluation of the determination of (i) liability for unpaid losses and LAE, (ii) the amount and recoverability of amortization of DPAC, (iii) the valuation of investments and (iv) estimates for our reserves with respect to finance contracts, premiums receivable and deferred income taxes. Various assumptions and other factors underlie the determination of these significant estimates, which are described in greater detail in Footnote 2 of the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2012, which we included in the Company’s Annual Report on Form 10-K which was filed with the SEC on April 1, 2013.

We believe that there were no significant changes in those critical accounting policies and estimates during the first three months of fiscal 2013. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Form 10-Q with the Audit Committee of our Board of Directors.

The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, and in the case of unpaid losses and LAE, an actuarial valuation. Management regularly reevaluates these significant factors and makes adjustments where facts and circumstances dictate. In selecting the best estimate, we utilize various actuarial methodologies. Each of these methodologies is designed to forecast the number of claims we will be called upon to pay and the amounts we will pay on average to settle those claims. In arriving at our best estimate, our actuaries consider the likely predictive value of the various loss development methodologies employed in light of underwriting practices, premium rate changes and claim settlement practices that may have occurred, and weight the credibility of each methodology. Our actuarial methodologies take into account various factors, including, but not limited to, paid losses, liability estimates for reported losses, paid allocated LAE, salvage and other recoveries received, reported claim counts, open claim counts and counts for claims closed with and without payment for loss.

Accounting for loss contingencies pursuant to Financial Accounting Standards Board (“FASB”) issued guidance involves the existence of a condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future event(s) occur or fail to occur. Additionally, accounting for a loss contingency requires management to assess each event as probable, reasonably possible or remote. Probable is defined as the future event or events are likely to occur. Reasonably possible is defined as the chance of the future event or events occurring is more than remote but less than probable, while remote is defined as the chance of the future event or events occurring is slight. An estimated loss in connection with a loss contingency shall be recorded by a charge to current operations if both of the following conditions are met: First, the amount can be reasonably estimated, and second, the information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements. It is implicit in this condition that it is probable that one or more future events will occur confirming the fact of the loss or incurrence of a liability.

We are required to review the contractual terms of all our reinsurance purchases to ensure compliance with FASB issued guidance. The guidance establishes the conditions required for a contract with a reinsurer to be accounted for as reinsurance and prescribes accounting and reporting standards for those contracts. Contracts that do not result in the reasonable possibility that the reinsurer may realize a significant loss from the insurance risk assumed generally do not meet the conditions for reinsurance accounting and must be accounted for as deposits. The guidance also requires us to disclose the nature, purpose and effect of reinsurance transactions, including the premium amounts associated with reinsurance assumed and ceded. It also requires disclosure of concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums.

11

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. The guidance requires that these securities be classified into one of three categories: Held-to-maturity, Trading, or Available-for-sale securities.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity. The accounting treatment for held-to-maturity investments is to carry them at amortized cost without consideration to unrealized gains or losses.

Investments classified as trading securities include debt and equity securities bought and held primarily for the sale in the near term. The accounting treatment for trading securities is to carry them at fair value with unrealized holding gains and losses included in current period operations.

Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments. The accounting treatment for available-for-sale securities is to carry them at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, namely “Other Comprehensive Income” and the components of other comprehensive income are presented in a statement separate from and consecutive with the statement of operations. A decline in the fair value of an available-for-sale security below cost that is deemed other-than temporary results in a charge to income, resulting in the establishment of a new cost basis for the security.

 Premiums and discounts are amortized or accreted, respectively, over the life of the related debt security as an adjustment to yield using a method that approximates the effective interest method. Dividends and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific-identification method for determining the cost of securities sold.

Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of investments, premiums receivable, amounts due from reinsurers on paid and unpaid losses and finance contracts. We have not experienced significant losses related to premiums receivable from individual policyholders or groups of policyholders in a particular industry or geographic area. We believe no credit risk beyond the amounts provided for collection losses is inherent in our premiums receivable or finance contracts. In order to reduce credit risk for amounts due from reinsurers, we seek to do business with financially sound reinsurance companies and regularly review the financial strength of all reinsurers used. Additionally, our credit risk in connection with our reinsurers is mitigated by the establishment of irrevocable clean letters of credit in favor of FNIC.

The fair value of our investments is estimated based on prices published by financial services or quotations received from securities dealers and is reflective of the interest rate environment that existed as of the close of business on March 31, 2013 and December 31, 2012. Changes in interest rates subsequent to March 31, 2013 and December 31, 2012 may affect the fair value of our investments.

The carrying amounts for the following financial instrument categories approximate their fair values at March 31, 2013 and December 31, 2012 because of their short-term nature: cash and short term investments, premiums receivable, finance contracts, due from reinsurers, revolving credit outstanding, bank overdraft, accounts payable and accrued expenses.

(B) Impact of New Accounting Pronouncements

In February 2013, the FASB issued Accounting Standard Update (“ASU”) No. 2013-02: Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of this ASU is to improve the reporting of reclassifications out of accumulated other comprehensive income.  The amendments require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety in net income.  For other amounts that are not required to be reclassified to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.  The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements.  The ASU is effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

12

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

In January 2013, the FASB issued ASU No. 2013-01: Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The objective of this ASU is to clarify the scope of offsetting disclosures and to address implementation issues with ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.  The amendments clarify that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.  An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods.  An entity should provide the required disclosures retrospectively for all comparative periods.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

In July 2012, the FASB issued ASU No. 2012-02: Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.   Upon adoption, these amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; early adoption is permitted.  The adoption of these amendments did not have a material impact on our financial condition, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05: Comprehensive Income (Topic 220):  Presentation of Comprehensive Income. The guidance in this ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The guidance in this ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Upon adoption, this update is to be applied retrospectively and is effective during interim and annual periods beginning after December 15, 2011.  Early adoption is permitted. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-12:  Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  The guidance defers certain provisions contained in ASU No. 2011-05 requiring the requirement to present components of reclassifications of other comprehensive income on the face of the income statement or in the notes to the financial statements. However, this deferral does not impact the other requirements contained in the new standard on comprehensive income as described above. This ASU is effective during interim and annual periods beginning after December 15, 2011.  The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08: Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which amends ASC Topic 350, Intangibles-Goodwill and Other. The guidance in this ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

13

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

In December 2011, the FASB issued ASU No. 2011-11: Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which requires new disclosure requirements mandating that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. This ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not have a material impact on our financial condition, results of operations or cash flows.

In October 2010, the FASB issued ASU No. 2010-26: Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, a consensus of FASB Emerging Issues Task Force.  The amendments in this update modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The amendments in this update specify that the costs must be based on successful efforts (that is, acquiring a new or renewal contract).  The amendments also specify that advertising costs should be included as deferred acquisition costs under certain circumstances.  The amendments in this update are effective for fiscal years, and interim period within those fiscal years, beginning after December 15, 2011.  The amendments in this update should be applied prospectively upon adoption.  Retrospective application to all prior periods presented upon the date of adoption also is permitted.  The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued by FASB, the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

           (C) Stock Options

Pursuant to FASB issued guidance, compensation cost recognized during the three months ended March 31, 2013 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the guidance.

(D) Earnings (Loss) per Share

Basic earnings (loss) per share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented.  Diluted earnings per share (“Diluted EPS”) is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period presented. Diluted loss per share would be antidilutive, therefore in accordance with GAAP basic and diluted loss per share is the same.

(E) Reclassifications

No reclassification of the 2012 financial statements was necessary to conform to the 2013 presentation.

14

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(4) Commitments and Contingencies

Management has a responsibility to continually measure and monitor its commitments and its contingencies. The nature of the Company’s commitments and contingencies can be grouped into three major categories: insured claim activity, assessment related activities and operational matters.

(A) Insured Claim Activity

We are involved in claims and legal actions arising in the ordinary course of business. The amount of liability for these claims and lawsuits is uncertain. Revisions to our estimates are based on our analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation. Management revises its estimates based on the results of its analysis. This process assumes that experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for estimating the ultimate settlement of all claims. There is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of the reserves, because the eventual redundancy or deficiency is affected by multiple factors. In the opinion of management, the ultimate disposition of these matters may have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

The Company’s subsidiaries are, from time to time, named as defendants in various lawsuits incidental to their insurance operations. Legal actions relating to claims made in the ordinary course of seeking indemnification for a loss covered by the insurance policy are considered by the Company in establishing loss and LAE reserves.

The Company also faces, in the ordinary course of business, lawsuits that seek damages beyond policy limits. The Company continually evaluates potential liabilities and reserves for litigation of these types using the criteria established by FASB issued guidance. Under this guidance, reserves for a loss are recorded if the likelihood of occurrence is probable and the amount can be reasonably estimated. If a loss, while not probable, is judged to be reasonably possible, management will make an estimate of a possible range of loss or state that an estimate cannot be made. Management considers each legal action using this guidance and records reserves for losses as warranted.

(B) Assessment Related Activity

We operate 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, but are not limited to, Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), Florida Hurricane Catastrophe Fund (“FHCF”) and Florida Joint Underwriters Insurance Association (“JUA”). As a direct premium writer in the state of Florida, we are required to participate in certain insurer solvency associations under Florida Statutes Section 631.57(3) (a), administered by FIGA.

During December 2012, the Company was assessed $0.8 million by FIGA relating to the recent failures of Florida domestic property and casualty insurance companies. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.

FNIC is also required to participate in an insurance apportionment plan under Florida Statutes Section 627.351, 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. FNIC was not assessed by the JUA Plan during 2013 or 2012.  Future assessments by this association are undeterminable at this time.

15

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(C) Operational Matters

The Company’s consolidated federal and state income tax returns for 2009-2011 are open for review by the Internal Revenue Service (“IRS”) and various state taxing authorities.  The 2012 federal and state income tax returns have been extended and will be filed by the extended due date in the third quarter of 2013.  The 2005 and 2006 income tax returns and net operating loss carry-back from tax year 2009 have been reviewed by the Joint Committee on Taxation. The Joint Committee on Taxation completed its consideration in September 2011 and took no exception to the conclusions reached by the IRS regarding the net operating loss carry-back from tax year 2009.

The Company has recorded a net deferred tax asset of $2.6 million and $4.3 million as of March 31, 2013 and December 31, 2012, respectively.  Realization of net deferred tax asset is dependent on generating sufficient taxable income in future periods. Management believes that it is more likely than not that the deferred tax assets will be realized and as such no valuation allowance has been recorded against the net deferred tax asset. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At March 31, 2013, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would record valuation allowances as deemed appropriate in the period that the change in circumstances occurs, along with a corresponding increase or charge to net income. The resolution of tax reserves and changes in valuation allowances could be material to the Company’s results of operations for any period, but is not expected to be material to the Company’s financial position.

Our executive offices are located at 14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 in an 18,500 square foot office facility. All of our operations are consolidated within this facility. We believe that the facilities are well maintained, in substantial compliance with environmental laws and regulations, and adequately covered by insurance. We also believe that these leased facilities are not unique and could be replaced, if necessary, at the end of the lease term. Our lease for this office space will expire in May 2017.

The expected future payments in connection with this lease are as follows.

Fiscal Year	Payments
	(Dollars in Thousands)
2013		280
2014		380
2015		388
2016		395
2017		151
Total	$	1,594

The Company is not currently involved in any material legal actions arising from the ordinary course of business that are not related to the insured claims activity.

16

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(5) Investments

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. The guidance requires that these securities be classified into one of three categories: Held-to-maturity, Trading, or Available-for-sale securities.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity. The accounting treatment for held-to-maturity investments is to carry them at amortized cost without consideration to unrealized gains or losses. Investments classified as trading securities include debt and equity securities bought and held primarily for the sale in the near term. The accounting treatment for trading securities is to carry them at fair value with unrealized holding gains and losses included in current period operations. Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments. The accounting treatment for available-for-sale securities is to carry them at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, namely “Other Comprehensive Income”.

Total investments increased $11.6 million, or 8.9%, to $141.7 million as of March 31, 2013, compared with $130.1 million as of December 31, 2012.

The debt and equity securities that are available for sale and carried at fair value represent 95% of total investments as of March 31, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the three months ended March 31, 2013.

The FASB issued guidance also addresses the determination as to when an investment is considered impaired, whether that impairment is other-than temporary, and the measurement of an impairment loss. The Company’s policy for the valuation of temporarily impaired securities is to determine impairment based on the analysis of the following factors.

· rating downgrade or other credit event (eg., failure to pay interest when due);

· length of time and the extent to which the fair value has been less than amortized cost;

· financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology or discontinuance of a business segment;

· prospects for the issuer’s industry segment;

· intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value;

· historical volatility of the fair value of the security.

Pursuant to FASB issued guidance, the Company records the unrealized losses, net of estimated income taxes that are associated with that part of our portfolio classified as available-for-sale through the shareholders' equity account titled “Other Comprehensive Income”. Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost either is other-than temporarily or permanently impaired. Factors used in such consideration include, but are not limited to, the extent and length of time over which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our ability and intent to keep the investment for a period sufficient to allow for an anticipated recovery in market value.

In reaching a conclusion that a security is either other-than-temporarily or permanently impaired we consider such factors as the timeliness and completeness of expected dividends, principal and interest payments, ratings from nationally recognized statistical rating organizations such as Standard and Poor’s (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), as well as information released via the general media channels. In connection with this process, we have not charged net realized losses to operations during the three months ended March 31, 2013.

17

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

As of March 31, 2013 and December 31, 2012, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of March 31, 2013 and December 31, 2012, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of March 31, 2013, 74% of our debt portfolio was in diverse industries and 26% was in United States government bonds. As of March 31, 2013, approximately 89% of our equity holdings were in equities related to diverse industries and 11% were in mutual funds. As of December 31, 2012, 69% of our debt portfolio was in diverse industries and 31% is in United States government bonds. As of December 31, 2012, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds.

As of March 31, 2013 and December 31, 2012, we have classified $6.9 million and $7.4 million, respectively, of our bond portfolio as held-to-maturity. We classify bonds as held-to-maturity to support securitization of credit requirements.

During the three months ended March 31, 2013 and 2012, respectively, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity.

During April 2006, American Vehicle finalized a $15.0 million irrevocable letter of credit in conjunction with the 100% Quota Share Reinsurance Agreement with Republic Underwriters Insurance Company (“Republic”) which was terminated in April 2007. During 2010, the letter of credit in favor of Republic was replaced by a fully funded trust agreement. As of March 31, 2013 and December 31, 2012 respectively, the amount held in trust was $1.0 million.

 (A) Debt and Equity Securities

The following table summarizes, by type, our investments as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	24,844		17.53	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,862		2.73	%		3,939		3.03	%
Corporate		75,800		53.49	%		67,313		51.74	%
International		3,258		2.30	%		3,111		2.39	%
		107,764		76.05	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,737		3.34	%		6,016		4.62	%
Corporate		2,000		1.41	%		1,203		0.92	%
International		112		0.08	%		140		0.11	%
		6,849		4.83	%		7,359		5.65	%
Total debt securities		114,613		80.88	%		109,114		83.87	%
Equity securities, at market:		27,108		19.12	%		20,982		16.13	%
Total investments	$	141,721		100.00	%	$	130,096		100.00	%

18

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The following table shows the realized gains (losses) for debt and equity securities for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,133		$	22,601	$	233		$	6,496
Equity securities		189			1,079		516			3,073
Total realized gains		1,322			23,680		749			9,569
Debt securities		(409	)		16,476		(206	)		5,042
Equity securities		(100	)		623		(553	)		1,666
Total realized losses		(509	)		17,099		(759	)		6,708
Net realized gains (losses) on investments	$	813		$	40,779	$	(10	)	$	16,277

During the three months ended March 31, 2013 the investment committee decided to shorten the duration of the bond portfolio by approximately one year to prepare for the eventuality of rising interest rates over the next several years. Interest rates and bond prices move inversely, so any rise in interest rates adversely impacts the value of our fixed income portfolio. This impact is magnified when the portfolio is positioned with a longer duration. This decision generated a majority of the approximately $0.8 million in realized gains and also explains the drop in investment income for the quarter measured against the same three month period last year.

19

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at March 31, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
March 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	24,352	$	502	$	10	$	24,844
Obligations of states and political subdivisions		3,664		199		1		3,862
Corporate		73,216		2,622		38		75,800
International		3,258		25		25		3,258
	$	104,490	$	3,348	$	74	$	107,764
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,737	$	124	$	-	$	4,861
Corporate		2,000		37		-		2,037
International		112		-		1		111
	$	6,849	$	161	$	1	$	7,009
Equity securities - common stocks	$	22,676	$	4,953	$	521	$	27,108
December 31, 2012
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	26,825	$	632	$	65	$	27,392
Obligations of states and political subdivisions		3,738		202		1		3,939
Corporate		63,553		3,794		34		67,313
International		3,005		107		1		3,111
	$	97,121	$	4,735	$	101	$	101,755
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	6,016	$	149	$	12	$	6,153
Corporate		1,203		61		2		1,262
International		140		-		1		139
	$	7,359	$	210	$	15	$	7,554
Equity securities - common stocks	$	19,095	$	2,505	$	618	$	20,982

20

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of March 31, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	10	$	10	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		38		38		-
International		25		25		-
		74		74		-
Equity securities:
Common stocks		521		254		267
Total debt and equity securities	$	595	$	328	$	267

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of December 31, 2012.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	65	$	65	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		34		34		-
International		1		1		-
		101		101		-
Equity securities:
Common stocks		618		430		188
Total debt and equity securities	$	719	$	531	$	188

Below is a summary of debt securities at March 31, 2013 and December 31, 2012, by contractual or expected maturity periods. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	2,264	$	2,295	$	2,925	$	2,944
Due after one through five years		70,955		72,528		49,826		51,523
Due after five through ten years		37,384		39,122		35,070		37,182
Due after ten years		736		828		16,659		17,660
Total	$	111,339	$	114,773	$	104,480	$	109,309

21

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

United States Treasury notes with a book value of $63,238 and $2,179,368, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of March 31, 2013, as required by law for FNIC, and are included with other investments held until maturity.

United States Treasury notes with a book value of $63,481 and $2,193,300, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2012, as required by law for FNIC, and are included with other investments held until maturity.

The table below sets forth investment results for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	714	$	878
Dividends on equity securities		80		82
Interest on cash and cash equivalents		-		1
Total investment income	$	794	$	961
Net realized gains (losses)	$	813	$	(10	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended March 31, 2013 and 2012, were approximately $44.2 million and $18.3 million, respectively.

The table below sets forth a summary of net realized and unrealized investment gains during the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Net realized gains
Debt securities	$	724	$	27
Equity securities		89		(37	)
Total	$	813	$	(10	)
Net unrealized gains
Debt securities	$	3,275	$	2,365
Equity securities		4,431		924
Total	$	7,706	$	3,289

22

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(6) Fair Value Disclosure

In April 2009, the FASB issued accounting guidance that if an entity determines that either the volume and/or level of activity for an investment security has significantly decreased (from normal conditions for that investment security) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. This guidance was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. This guidance was applied prospectively. The adoption of this guidance did not have an impact on the Company’s financial statements or condition.

In October 2008, the FASB issued accounting guidance to clarify the application of GAAP in determining fair value of financial instruments in a market that is not active.  The guidance was effective upon issuance, including prior periods for which financial statements had not been issued.  Our adoption of this guidance does not have a material effect on our financial position, results of operations, cash flows or disclosures.

In September 2006, FASB issued accounting guidance that defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date.  This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The guidance also categorizes assets and liabilities at fair value into one of three different levels depending on the observation of the inputs employed in the measurement, as follows.

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.  A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for an asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Securities available for sale:  The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized security exchanges.

23

Assets measured at fair value on a recurring basis as of March 31, 2013, presented in accordance with this guidance, are as follows.

	As of March 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	13,472	$	11,372	$	-	$	24,844
Obligations of states and political subdivisions		-		3,862		-		3,862
Corporate		75,800		-		-		75,800
International		-		3,258		-		3,258
		89,272		18,492		-		107,764
Equity securities:
Common stocks		27,108		-		-		27,108
		27,108		-		-		27,108
Total debt and equity securities	$	116,380	$	18,492	$	-	$	134,872

Assets measured at fair value on a recurring basis as of December 31, 2012, presented in accordance with this guidance, are as follows.

	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	12,464	$	14,928	$	-	$	27,392
Obligations of states and political subdivisions		-		3,939		-		3,939
Corporate		67,313		-		-		67,313
International		-		3,111		-		3,111
		79,777		21,978		-		101,755
Equity securities:
Common stocks		20,982		-		-		20,982
		20,982		-		-		20,982
Total debt and equity securities	$	100,759	$	21,978	$	-	$	122,737

24

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(7) Reinsurance Agreements

Financing risk generally involves a combination of risk retention and risk transfer techniques. “Retention”, similar to a deductible, involves financing losses by funds internally generated. “Transfer” involves the existence of a contractual arrangement designed to shift financial responsibility to another party in exchange for premium. Secondary to the primary risk-transfer agreements, we use reinsurance agreements to transfer a portion of the risks insured under our policies to other companies through the purchase of reinsurance. We utilize reinsurance to reduce exposure to catastrophic and non-catastrophic risks and to help manage the cost of capital. Reinsurance techniques are designed to lessen earnings volatility, improve shareholder return, and to support the required statutory surplus requirements. We also use reinsurance to realize an arbitrage of premium rates, benefit from the availability of our reinsurers’ expertise, and benefit from the management of a profitable portfolio of insureds by way of enhanced analytical capacities. Our primary property line that is subject to catastrophic reinsurance is Homeowners Multiple Peril. FNIC cedes these risks to domestic and foreign reinsurance participants from Bermuda and Europe as well as to the FHCF.

Generally, there are three separate kinds of reinsurance structures – quota share, excess of loss, and facultative, each considered either proportional or non-proportional. Our reinsurance structures are maintained to protect our insurance subsidiary against the severity of losses on individual claims or unusually serious occurrences in which the frequency and or the severity of claims produce an aggregate extraordinary loss from catastrophic events. In addition to reinsurance agreements, we also from time to time enter into retro-cessionary reinsurance agreements; each designed to shift financial responsibility based on predefined conditions.

Although reinsurance does not discharge us from our primary obligation to pay for losses insured under the policies we issue, reinsurance does make the assuming reinsurer liable to the insurance subsidiary for the reinsured portion of the risk. A credit risk exposure exists with respect to ceded losses to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. The collectability of reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. A reinsurer's insolvency or inability to make payments under the terms of a reinsurance contract could have a material adverse effect on our results of operations and financial condition. Our reinsurance structure has significant risks, including the fact that the FHCF may not be able to raise sufficient money to pay its claims or impair its ability to pay its claims in a timely manner. This could result in significant financial, legal and operational challenges to all property and casualty companies associated with FHCF, including our company.

The availability and costs associated with the acquisition of reinsurance will vary year to year. These fluctuations, which can be significant, are not subject to our control and may limit our ability to purchase adequate coverage. For example, FHCF continues to restrict its reinsurance capacity and is expected to continue constricting capacity for future seasons. This gradual restriction is requiring us to replace that capacity with private market reinsurance. Our reinsurance program is subject to approval by the Florida OIR and review by Demotech, Inc. (“Demotech”). The recovery of increased reinsurance costs through rate action is not immediate and cannot be presumed and is subject to Florida OIR approval.

For the 2012–2013 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $328.3 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $246.5 million, with the Company retaining the first $8.0 million of losses and LAE for each event. The reinsurance program includes coverage purchased from the private market, which affords optional reinstatement premium protection that provides coverage beyond the first event, along with any remaining coverage from the FHCF. Coverage afforded by the FHCF totals approximately $144.7 million, or 44.1% of the $328.3 million of aggregate catastrophic losses and LAE. The FHCF affords coverage for the entire season, subject to maximum payouts, without regard to any particular insurable event.

The estimated cost to the Company for the excess of loss reinsurance products for the 2012-2013 hurricane season, inclusive of approximately $9.6 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $41.6 million.

25

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The 2012-2013 private reinsurance companies and their respective A.M. Best Company (“A.M. Best”) rating are listed in the table as follows.

Reinsurer	A.M. Best Rating			S&P Rating
UNITED STATES
American Agricultural Insurance Company	A-			NR
Everest Reinsurance Company	A+			A+
Houston Casualty Company, (UK Branch)	A+	*		AA
Munich Reinsurance America, Inc.	A+			AA-
Odyssey Reinsurance Company	A			A-
BERMUDA
ACE Tempest Reinsurance Limited	A+	*		AA-
Arch Reinsurance Limited	A+	*		A+
Ariel Reinsurance Bermuda Limited for and on Behalf of Ariel Syndicate 1910 (ARE)	A-	*		NR
DaVinci Reinsurance Limited	A	*		A+
JC Re Limited (Juniperus & fka Actua Re Limited)	NR	*	**	NR
Montpelier Reinsurance Limited	A-			A-
Nephila (via Allianz Risk Transfer AG, Bermuda Branch)	NR			AA-
Platinum Underwriters Bermuda Limited	A	*		A-
Renaissance Reinsurance Limited	A+	*		AA-
UNITED KINGDOM
Amlin Syndicate No. 2001 (AML)	A			A+
Ariel Syndicate No. 1910 (ARE)	A	*		A+
RK Syndicate No. 3902 (NOA)	A			A+
Barbican Syndication No. 1955 (BAR)	A			A+
Kiln Syndicate No. 510 (KLN)	A			A+
Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)	NR			A+
MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)	A			A+
Novae Syndicate No. 2007 (NVA)	A			A+
Tokio Marine Kiln Syndicate No. 1880 (TMK)	A			A+
Torus Syndicate No. 1301 (TUL)	A			A+
EUROPE
Amlin Bermuda (Branch of Amlin AG)	A			A
SCOR Global P&C Zurich Branch	A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

For the 2011–2012 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $298.0 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $226.0 million, with the Company retaining the first $7.0 million of losses and LAE for each event. The reinsurance program included coverage purchased from the private market, which affords optional reinstatement premium protection that provides coverage beyond the first event, along with any remaining coverage from the FHCF. Coverage afforded by the FHCF totals approximately $154.1 million, or 51.7% of the $298.0 million of aggregate catastrophic losses and LAE. The FHCF affords coverage for the entire season, subject to maximum payouts, without regard to any particular insurable event.

26

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The estimated cost to the Company for the excess of loss reinsurance products for the 2011-2012 hurricane season, inclusive of approximately $11.7 million payable to the FHCF and the prepaid automatic premium reinstatement protection, was approximately $39.7 million.

The 2011-2012 private reinsurance companies and their respective A.M. Best and S&P ratings are listed in the table as follows.

Reinsurer	A.M. Best Rating			S&P Rating
UNITED STATES
American Agricultural Insurance Company	A-			NR
Everest Reinsurance Company	A+			A+
Houston Casualty Company, (UK Branch)	A+			AA
Munich Reinsurance America, Inc.	A+			AA-
Odyssey Reinsurance Company	A			A-
QBE Reinsurance Corporation	A			A+
BERMUDA
ACE Tempest Reinsurance Limited	A+	*		A+
Arch Reinsurance Limited	A			A+
Ariel Reinsurance Company Limited, Bermuda	A-	*		A-
DaVinci Reinsurance Limited	A	*		A+
D.E. Shaw Re (Bermuda) Limited	NR		**	NR
JC Re Ltd (Juniperus & fka Actua Re Limited)	NR	*	**	NR
Montpelier Reinsurance Limited	A-			A-
Renaissance Reinsurance Limited	A+	*		AA-
Torus Insurance (Bermuda) Limited	A-	*		NR
UNITED KINGDOM
Amlin Syndicate No. 2001 (AML)	A	*		A+
Antares Syndicate No. 1274 (AUL)	A			A+
Arrow Syndicate No. 1910 (ARW)	A	*		A+
Broadgate Syndicate No. 1301 (BGT)	A			A+
Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)	A			A+
MAP Underwriting Syndicate No. 2791 (MAP)	A	*		A+
Novae Syndicate No. 2007 (NVA)	A			A+
EUROPE
Amlin Bermuda ( Branch of Amlin AG)	A			A
Flagstone Reassurance Suisse SA	A-			NR
Lansforsakringar Sak Forsakringsaktiebolag (publ)	NR-5			A
SCOR Global P&C Zurich Branch	A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

27

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

Annually, the cost and amounts of reinsurance are based on management's analysis of FNIC's exposure to catastrophic risk as of June 30 and estimated to September 30. Our data is then subjected to actual exposure level analysis as of September 30. This analysis of our exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in limits and reinsurance premiums as a result of the reconciliation of estimated to actual exposure level. The September 30, 2012 change to total limits was an increase of $2.1 billion of total insured value or 12.6% and the change to reinsurance premiums was an increase of $2.4 million or 3.0%. The September 30, 2011 change to total limits was an increase of $63.1 million of probable maximum loss or 0.5% and the change to reinsurance premiums was an increase of $3.7 million or 8.7%. These adjustments are amortized over the remaining underlying policy term. The September 30, 2011 change to total limits was an increase of $172.2 million of total insured value or 1.4 % and the change to reinsurance premiums was an increase of $0.5 million or 1.1%.

To date, we have made no claims asserted against our reinsurers in connection with the 2012–2013 and 2011–2012 excess of loss and FHCF treaties.

The quota share retrocessionaire reinsurance agreements require FNIC to securitize credit, regulatory and business risk. Fully funded trust agreements totaled $4.8 million as of March 31, 2013 and December 31, 2012.

We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer, their history of responding to claims and their overall reputation. In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually.

28

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(8) Unpaid losses and LAE

The liability for unpaid losses and LAE is determined on an individual-case basis for all incidents reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and Incurred but Not Yet Reported (“IBNR”).

Activity in the liability for unpaid losses and LAE is summarized as follows.

	Three Months Ended			Twelve Months Ended
	March 31, 2013			December 31, 2012
	(Dollars in Thousands)
Balance at January 1	$	49,908		$	59,983
Less reinsurance recoverables		(3,503	)		(2,088	)
Net balance at January 1	$	46,405		$	57,895
Incurred related to
Current year	$	10,126		$	31,636
Prior years		(805	)		(1,427	)
Total incurred	$	9,321		$	30,209
Paid related to
Current year	$	1,867		$	15,892
Prior years		9,880			25,807
Total paid	$	11,747		$	41,699
Net balance at period end	$	43,979		$	46,405
Plus reinsurance recoverables		3,586			3,503
Balance at period end	$	47,565		$	49,908

Based upon consultations with our independent actuarial consultants, we believe that the liability for unpaid losses and LAE is adequate to cover all claims and related expenses that may arise from incidents reported.

As a result of our review of liability for losses and LAE, which includes a re-evaluation of the adequacy of reserve levels for prior year’s claims, we decreased the liability for losses and LAE for claims occurring in prior years by $0.8 million for the three months ended March 31, 2013 and $1.4 million for the year ended December 31, 2012.

We continue to revise our estimates of the ultimate financial impact of claims made resulting from past storms. The revisions to our estimates are based on our analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) Company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages, and (iv) trends in general economic conditions, including the effects of inflation.

29

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(9) Stock Compensation Plans

We implemented a stock option plan in 1998 (the “1998 Plan”), which expired in September 2008. Under this plan, we were authorized to grant options to purchase up to 900,000 common shares, and as of March 31, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 78,500 shares, respectively.

We implemented a stock option plan in 2002 (the “2002 Plan”), which expired in April 2012.  Under this plan, we were authorized to grant options to purchase up to 1,800,000 common shares, and as of March 31, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 693,163 and 702,597 shares, respectively.

In April 2012, our Board of Directors adopted, and in September 2012 our shareholders approved, the Company’s 2012 Stock Incentive Plan (the “2012 Plan”).  The 2012 Plan permits the issuance of up to 1,000,000 shares of our common stock, subject to adjustment as provided for in the 2012 Plan, in connection with the grant of a variety of equity incentive awards, such as incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, and performance shares. Officers, directors and executive, managerial, administrative and professional employees of the Company and its subsidiaries are eligible to participate in the 2012 Plan. Awards may be granted singly, in combination, or in tandem. The 2012 Plan was amended and restated in March 2013 to clarify the plan administrator’s authority to permit the vesting of unvested restricted shares in the event of the death of the grantee. The 2012 Plan will expire on April 5, 2022.

On March 4, 2013, a total of 100,000 restricted shares from the 2012 Plan were granted pursuant to the vesting requirements and other terms and conditions set forth in Restricted Stock Agreements.  Of the total, 25,000 shares were granted to the Company's Chief Executive Officer and President and 15,000 shares were granted to the Company's Chief Financial Officer.  An aggregate of 20,000 shares were granted to the Company's directors and the remaining 40,000 shares were granted to other employees of the Company.

There were no options granted during the three months ended March 31, 2012.

FASB issued guidance requires that when valuing an employee stock option under the Black-Scholes option pricing model, the fair value be based on the option’s expected term and expected volatility rather than the contractual term.  The estimate of the fair value on the grant date should reflect the assumptions marketplace participants now use on the date of the measurement (i.e. grant date).  During 2011, management changed the expected term in the Black –Scholes option pricing model from four years to two years for new options granted.  Management believes that share price volatility over the last two years is more indicative of future share price volatility.  The change has had an immaterial impact on the financial statements.

30

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

Activity in our stock option and incentive plans for the period from January 1, 2011 to March 31, 2013 is as follows.

	1998 Plan					2002 Plan					2012 Plan
	Number of Shares			Weighted Average Option Exercise Price		Number of Shares			Weighted Average Option Exercise Price		Number of Shares		Fair Market Value at Grant
Outstanding at January 1, 2011		89,750		$	12.83		574,800		$	9.12		-	$	-
Granted		-		$	-		179,000		$	2.45		-	$	-
Exercised		-		$	-		-		$	-		-	$	-
Cancelled		-		$	-		(129,100	)	$	14.29		-	$	-
Outstanding at January 1, 2012		89,750		$	12.83		624,700		$	6.15		-	$	-
Granted		-		$	-		181,500		$	4.40		-	$	-
Exercised		-		$	-		(33,104	)	$	3.86		-	$	-
Cancelled		(11,250	)	$	13.54		(70,499	)	$	12.45		-	$	-
Outstanding at January 1, 2013		78,500		$	12.73		702,597		$	5.17		-	$	-
Granted		-		$	-		-		$	-		100,000.00	$	5.54
Exercised		-		$	-		(6,101	)	$	3.16		-	$	-
Cancelled		-		$	-		(3,333	)	$	4.44		-	$	-
Outstanding at March 31, 2013		78,500		$	12.73		693,163		$	5.19		100,000.00	$	5.54

Options outstanding as of March 31, 2013 are exercisable as follows.

	1998 Plan				2002 Plan
Options Exercisable at:	Number of Shares		Weighted Average Option Exercise Price		Number of Shares		Weighted Average Option Exercise Price
March 31, 2013		77,800	$	12.73		336,357	$	5.19
December 31, 2013		700	$	12.73		138,426	$	5.19
December 31, 2014		-	$	12.73		141,480	$	5.19
December 31, 2015		-	$	12.73		76,900	$	5.19
December 31, 2016		-	$	12.73		-	$	5.19
December 31, 2017		-	$	12.73		-	$	5.19
Thereafter		-	$	12.73		-	$	5.19
Total options exercisable		78,500				693,163

Upon the exercise of options, the Company issues authorized shares.

Prior to January 1, 2006, we accounted for the plans under the recognition and measurement provisions of stock-based compensation using the intrinsic value method prescribed by the APB and related Interpretation, as permitted by FASB issued guidance.Under these provisions, no stock-based employee compensation cost was recognized in the Statement of Operations as all options granted under those plans had an exercise price equal to or less than the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB issued guidance using the modified-prospective-transition method. Under that transition method, compensation costs recognized during 2013 and 2012 include the following.

31

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

· Compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FASB issued guidance, and

· Compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair-value estimated in accordance with the provisions of FASB issued guidance. Results for prior periods have not been restated, as they are not required to be by the pronouncement.

As a result of adopting FASB issued guidance on January 1, 2006, the Company’s income from continuing operations before provision for income tax expense and net income for the three months ended March 31, 2013 are lower by approximately $66,000 and $41,000, respectively, than if it had continued to account for share-based compensation under APB guidance.

As a result of adopting FASB issued guidance on January 1, 2006, the Company’s income from continuing operations before provision for income tax expense and net income for the three months ended March 31, 2012 are lower by approximately $58,000 and $36,000, respectively, than if it had continued to account for share-based compensation under APB guidance.

Basic and diluted earnings per share for the three months ended March 31, 2013 would have been $0.30, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.29.

Basic and diluted earnings per share for the three months ended March 31, 2012 would have remained unchanged at $0.13, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.13.

Because the change in income taxes receivable includes the effect of excess tax benefits, those excess tax benefits also must be shown as a separate operating cash outflow so that operating cash flows exclude the effect of excess tax benefits. FASB issued guidance requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows.

 The fair value of options granted is estimated on the date of grant using the following assumptions.

	March 31, 2013	March 31, 2012
Dividend yield	N/A	N/A
Expected volatility	N/A	N/A
Risk-free interest rate	N/A	N/A
Expected life (in years)	N/A	N/A

Summary information about the Company’s stock option and incentive plans at March 31, 2013 is as follows.

				Weighted Average		Weighted
	Range of	Outstanding at		Contractual		Average	Exercisable at
	Exercise Price	March 31, 2013		Periods in Years		Exercise Price	March 31, 2013
1998 Plan	$8.67 - $16.59		78,500		0.47	$12.73		77,800
2002 Plan	$2.45 - $13.24		693,163		5.57	$5.19		336,357

32

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(10) Stockholders’ Equity

Capital Stock

The Company’s authorized capital consists of 1,000,000 shares of preferred stock, par value $0.01 per share, and 25,000,000 shares of common stock, par value $0.01 per share. As of March 31, 2013, there were no preferred shares issued or outstanding and there were 7,984,922 shares of common stock outstanding.

(11) Subsequent Events

 There were no subsequent events.

33

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General information about Federated National Holding Company can be found at www.FedNat.com; however, the information that can be accessed through our web site 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 Section 13 or 15(d) of the Securities and Exchange Act of 1934 available free of charge on our web site, 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

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K  filed with the Securities and Exchange Commission (“SEC”) on April 1, 2013 (“Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “FNHC” “Company,” “we,” “us” and “our,” refers to Federated National Holding Company and its subsidiaries. We changed our name on September 11, 2012, pursuant to approval received at our annual shareholders’ meeting, from 21st Century Holding Company so that our parent company and other subsidiary companies’ names are consistent with our primary insurance subsidiary and the name under which we have been writing insurance for more than 20 years.

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q for the three months ended March 31, 2013 (“Form 10-Q”)  or in documents that are incorporated by reference that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein.  Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements.  The risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections relating to unpaid losses and loss adjustment expenses and other accounting policies, losses from the nine hurricanes that occurred in fiscal years 2005 and 2004 and in other estimates, assumptions and projections contained in this Form 10-Q; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new regulations adopted in Florida which affect the property and casualty insurance market; the costs of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes and the timing thereof; legislative and regulatory developments; the outcome of various litigation matters pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for loss and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions and trends in litigation and health care and auto repair costs; and other matters described from time to time by us in this report, and in our other  filings with the SEC, including the Company’s Form 10-K.

You are cautioned not to place reliance on these forward-looking statements, which are valid only as of the date they were made.  The Company undertakes no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.  In addition, readers should be aware that Generally Accepted Accounting Principles (“GAAP”) prescribes when a company may reserve for particular risks, including litigation exposures.  Accordingly, results for a given reporting period could be significantly affected when a reserve is established for a major contingency.  Reported results may therefore appear to be volatile in certain accounting periods.

34

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

FNHC is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents.

We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners”), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states.  We market and distribute our own and third-party insurers’ products and our other services through a network of independent agents. We also utilize a select number of general agents for the same purpose.

Our insurance subsidiary is Federated National Insurance Company (“FNIC”). FNIC is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state insurance regulator for authority to write specific lines of insurance in that state.  Through contractual relationships with a network of approximately 3,300 independent agents, of which approximately 1,200 actively sell and service our products, FNIC is authorized to underwrite homeowners’, commercial general liability, fire, allied lines and personal and commercial automobile insurance in Florida. FNIC is also licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texas, and underwrites commercial general liability insurance in those states and personal automobile insurance in Georgia and Texas.

FNIC operates as a non-admitted carrier in Arkansas, Kentucky, Missouri, Nevada, Oklahoma, South Carolina and Tennessee, and can underwrite commercial general liability insurance in all of these states.  A non-admitted carrier, sometimes referred to as a “excess and surplus lines” carrier, is permitted to do business in a state and, although it is strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud, non-admitted carriers are subject to considerably less regulation with respect to policy rates and forms. Non-admitted carriers are not required to financially contribute to and benefit from the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due their policyholders.

Our executive offices are located at 14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 and our telephone number is (954) 581-9993.

Merger of FNIC and American Vehicle

In January 2011, we merged FNIC and our other wholly owned insurance subsidiary, American Vehicle Insurance Company (“American Vehicle”), with FNIC continuing the operations of both entities. As part of its approval of the merger between FNIC and American Vehicle, the Florida Office of Insurance Regulation (“Florida OIR”), the Company, FNIC and American Vehicle entered into a consent order with the Florida OIR dated January 25, 2011 (the “Consent Order”), which was amended in February 2013, due to FNIC’s statutory underwriting profit during 2012. See Footnote “(1) Organization and Business”. References to the historical activities of American Vehicle are appropriately identified throughout this document.

Our Subsidiaries

During the three months ended March 31, 2013, 86.5%, 5.9%, 2.8% and 4.8% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended March 31, 2012, 86.6%, 7.7%, 3.5% and 2.2% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

Our business, results of operations and financial condition are subject to fluctuations due to a variety of factors. Abnormally high severity or frequency of claims in any period could have a material adverse effect on us. When our estimated liabilities for unpaid losses and loss adjustment expenses (“LAE”) are less than the actuarially determined amounts, we increase the expense in the current period. Conversely, when our estimated liabilities for unpaid losses and LAE are greater than the actuarially determined amounts, we decrease the expense in the current period.

35

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are focusing our marketing efforts on continuing to expand our distribution network while maintaining our commitment to long-term relationships. We market our products and services throughout Florida and in other states by establishing relationships with additional independent agents and general agents. There can be no assurance, however, that we will be able to obtain the required regulatory approvals to offer additional insurance products or expand into other states.

Federated National Underwriters, Inc. (“FNU”), formerly known as Assurance Managing General Agents, Inc., a wholly owned subsidiary of the Company, acts as FNIC’s exclusive managing general agent in Florida and is also licensed as a managing general agent in the States of Alabama, Georgia, Louisiana, Mississippi, Missouri, North Carolina, Nevada, South Carolina, Texas and Virginia. FNU has contracted with several unaffiliated insurance companies to sell commercial general liability, workers compensation, personal umbrella, inland marine and other various lines of insurance through FNU’s existing network of agents.

FNU earns commissions and fees for providing policy administration, marketing, accounting and analytical services, and for participating in the negotiation of reinsurance contracts. FNU earns a $25 per policy fee, and traditionally a 6% commission fee from its affiliate, FNIC. During the fourth quarter of 2010, FNU, pursuant to the Consent Order as discussed above, reduced its fee, to earn amounts varying between 2% and 4%, which we anticipate will return to 6% at an unknown future date with approval from the Florida OIR. A formal agreement reflecting this fee modification was executed during January 2011.

We internally process claims made by our insureds through our wholly owned claims adjusting company, Federated National Adjusting, Inc. (“FNA”), formerly known as Superior Adjusting, Inc. Our agents have no authority to settle claims or otherwise exercise control over the claims process. Furthermore, we believe that the retention of independent adjusters, in addition to the employment of salaried claims personnel, results in reduced ultimate loss payments, lower LAE and improved customer service for our claimants and policyholders. We also employ an in-house litigation manager to cost effectively manage claims-related litigation and to monitor our claims handling practices for efficiency and regulatory compliance.

Insure-Link, Inc. (“Insure-Link”) serves as an independent insurance agency. The insurance agency markets direct to the public to provide a variety of insurance products and services to individual clients, as well as business clients, by offering a full line of insurance products including, but not limited to,  homeowners’, flood, personal and commercial automobile, commercial general liability and workers’ compensation insurance through their agency appointments with over thirty different carriers.

Insurance Markets in Which We Operate

We operate in highly competitive markets and face competition from national, regional and residual market insurance companies in the homeowners’, commercial general liability, and automobile markets. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers. Large national writers may have certain competitive advantages over agency writers, including increased name recognition, increased loyalty of their customer base and reduced policy acquisition costs. We compete based on underwriting criteria, our distribution network and superior service to our agents and insureds.  Although our pricing is inevitably influenced to some degree by that of our competitors, we believe that it is generally not in our best interest to compete solely on price.

In Florida, more than 200 companies are authorized to underwrite homeowners’ insurance. Several of our competitors include Citizens Property Insurance Corporation (“Citizens”), Universal Property and Casualty Insurance Company and St. Johns Insurance Company. In Florida, more than one dozen companies compete with us in the commercial general liability insurance market.

Significant competition also emerged because of fundamental changes made to the property and casualty insurance business in Florida in recent years, which resulted in a multi-pronged approach to address the cost of residential property insurance in Florida. First, the law increased the capacity of reinsurance that stabilized the reinsurance market to the benefit of the insurance companies writing properties lines in Florida. Secondly, the law provided for rate relief to all policyholders. The law also authorized the state-owned insurance company, Citizens, which is free of many of the restraints on private carriers such as surplus, ratios, income taxes and reinsurance expense, to reduce its premium rates and begin competing against private insurers in the residential property insurance market and expands the authority of Citizens to write commercial insurance.

36

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

See Note 3, “Summary of Significant Accounting Policies” in the Notes to the Company’s condensed consolidated financial statements for the quarter ended March 31, 2013 included in Item 1 of this Quarterly Report on Form 10-Q for a discussion of the Company’s critical accounting policies.

New Accounting Pronouncements

See Note 3, “Summary of Significant Accounting Policies” in the Notes to the Company’s  condensed consolidated financial statements for the quarter ended March 31, 2013 included in Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

Analysis of Financial Condition

As of March 31, 2013 Compared with December 31, 2012

Total Investments

Financial Accounting Standards Board (“FASB”) issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. The guidance requires that these securities be classified into one of three categories: Held-to-maturity, Trading, or Available-for-sale securities.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity. The accounting treatment for held-to-maturity investments is to carry them at amortized cost without consideration to unrealized gains or losses. Investments classified as trading securities include debt and equity securities bought and held primarily for the sale in the near term. The accounting treatment for trading securities is to carry them at fair value with unrealized holding gains and losses included in current period operations. Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments. The accounting treatment for available-for-sale securities is to carry them at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, namely “Other Comprehensive Income”.

Total investments increased $11.6 million, or 8.9%, to $141.7 million as of March 31, 2013, compared with $130.1 million as of December 31, 2012.

The debt and equity securities that are available for sale and carried at fair value represent 95% of total investments as of March 31, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the three months ended March 31, 2013.

The FASB issued guidance also addresses the determination as to when an investment is considered impaired, whether that impairment is other-than temporary, and the measurement of an impairment loss. The Company’s policy for the valuation of temporarily impaired securities is to determine impairment based on the analysis of the following factors.

· rating downgrade or other credit event (eg., failure to pay interest when due);

· length of time and the extent to which the fair value has been less than amortized cost;

· financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology or discontinuance of a business segment;

37

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

· prospects for the issuer’s industry segment;

· intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value;

· historical volatility of the fair value of the security.

Pursuant to FASB issued guidance, the Company records the unrealized losses, net of estimated income taxes that are associated with that part of our portfolio classified as available-for-sale through the shareholders' equity account titled “Other Comprehensive Income”. Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost either is other-than temporarily or permanently impaired. Factors used in such consideration include, but are not limited to, the extent and length of time over which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our ability and intent to keep the investment for a period sufficient to allow for an anticipated recovery in market value.

In reaching a conclusion that a security is either other-than-temporarily or permanently impaired we consider such factors as the timeliness and completeness of expected dividends, principal and interest payments, ratings from nationally recognized statistical rating organizations such as Standard and Poor’s (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), as well as information released via the general media channels. In connection with this process, we have not charged net realized losses to operations during the three months ended March 31, 2013.

As of March 31, 2013 and December 31, 2012, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of March 31, 2013 and December 31, 2012, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of March 31, 2013, 74% of our debt portfolio was in diverse industries and 26% was in United States government bonds. As of March 31, 2013, approximately 89% of our equity holdings were in equities related to diverse industries and 11% were in mutual funds. As of December 31, 2012, 69% of our debt portfolio was in diverse industries and 31% is in United States government bonds. As of December 31, 2012, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds.

As of March 31, 2013 and December 31, 2012, we have classified $6.9 million and $7.4 million, respectively, of our bond portfolio as held-to-maturity. We classify bonds as held-to-maturity to support securitization of credit requirements.

During the three months ended March 31, 2013 and 2012, respectively, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity.

During April 2006, American Vehicle finalized a $15.0 million irrevocable letter of credit in conjunction with the 100% Quota Share Reinsurance Agreement with Republic Underwriters Insurance Company (“Republic”) which was terminated in April 2007. During 2010, the letter of credit in favor of Republic was replaced by a fully funded trust agreement. As of March 31, 2013 and December 31, 2012 respectively, the amount held in trust was $1.0 million.

38

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Below is a summary of net unrealized gains and losses as of March 31, 2013 and December 31, 2012, by category.

	Unrealized Gains and (Losses)
	March 31, 2013		December 31, 2012
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	492	$	567
Obligations of states and political subdivisions		198		201
Corporate		2,584		3,760
International		1		106
		3,275		4,634
Equity securities:
Common stocks		4,431		1,887
Total debt and equity securities	$	7,706	$	6,521

The net unrealized gain of $7.7 million is inclusive of $0.6 million of unrealized losses. The $0.6 million of unrealized losses are primarily from equity securities.

The $0.6 million of unrealized losses from equity securities are from common stocks and mutual funds held in diverse industries as of March 31, 2013.  The Company evaluated the near-term prospects in relation to the severity and duration of the impairment.  Based on this evaluation and the Company’s ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013.

The following table summarizes, by type, our investments as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	24,844		17.53	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,862		2.73	%		3,939		3.03	%
Corporate		75,800		53.49	%		67,313		51.74	%
International		3,258		2.30	%		3,111		2.39	%
		107,764		76.05	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,737		3.34	%		6,016		4.62	%
Corporate		2,000		1.41	%		1,203		0.92	%
International		112		0.08	%		140		0.11	%
		6,849		4.83	%		7,359		5.65	%
Total debt securities		114,613		80.88	%		109,114		83.87	%
Equity securities, at market:		27,108		19.12	%		20,982		16.13	%
Total investments	$	141,721		100.00	%	$	130,096		100.00	%

39

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cash and Short-Term Investments

Cash and short-term investments, which include cash, certificates of deposits, and money market accounts, increased $7.1 million, or 33.3%, to $28.2 million as of March 31, 2013, compared with $21.1 million as of December 31, 2012. The increase in cash and short-term investments is for a planned reinsurance payment.

Prepaid Reinsurance Premiums

Prepaid reinsurance premiums decreased $2.9 million, or 42.3%, to $4.1 million as of March 31, 2013, compared with $7.0 million as of December 31, 2012.  The change is due to $7.7 million paid to reinsurers, offset by $10.6 million amortization of prepaid reinsurance premiums. We believe concentrations of credit risk associated with our prepaid reinsurance premiums are not significant.

Premiums Receivable, Net of Allowance for Credit Losses

Premiums receivable, net of allowance for credit losses, increased $4.7 million, or 58.1%, to $12.7 million as of March 31, 2013, compared with $8.0 million as of December 31, 2012.

Our homeowners’ insurance premiums receivable increased $3.3 million, or 55.6%, to $9.3 million as of March 31, 2013, compared with $6.0 million as of December 31, 2012.

Our commercial general liability insurance premiums receivable increased $0.4 million, or 79.8%, to $0.9 million as of March 31, 2013, compared with $0.5 million as of December 31, 2012.

Premiums receivable in connection with our automobile line of business increased $1.0 million, or 58.4%, to $2.6 million as of March 31, 2013, compared with $1.6 million as of December 31, 2012.

Our allowance for credit losses remained unchanged at less than $0.1 million as of March 31, 2013, compared with $0.1 million as of December 31, 2012.

Reinsurance Recoverable, Net

           Reinsurance recoverable, net, increased $0.1 million, or 2.4%, to $3.6 million as of March 31, 2013, compared with $3.5 million as of December 31, 2012. The change is due to the payment patterns by our reinsurers, as influenced by catastrophe related claims. All amounts are current and deemed collectable. We believe concentrations of credit risk associated with our reinsurance recoverables, net, are not significant.

Deferred Policy Acquisition Costs (“DPAC”)

DPAC increased $1.6 million, or 19.6%, to $10.1 million as of March 31, 2013, compared with $8.5 million as of December 31, 2012. The change is due to the deferral of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned associated with our increased unearned premium.

Deferred Income Taxes, Net

Deferred income taxes, net, decreased $1.7 million, or 39.2%, to $2.6 million as of March 31, 2013, compared with $4.3 million as of December 31, 2012. Deferred income taxes, net, is comprised of approximately $5.5 million and $6.5 million of deferred tax assets, net of approximately $2.9 million and $2.2 million of deferred tax liabilities as of March 31, 2013 and December 31, 2012. The change to our deferred tax assets includes decreases related to our available-for-sale portfolio and net operating loss carry forward and an increase to discounted unearned premiums. The change to our deferred tax liabilities includes an increase related to our increased deferred policy acquisition costs.

40

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Property, Plant and Equipment, Net

Property, plant and equipment, net increased $0.3 million, or 56.6%, to $0.9 million as of March 31, 2013, compared with $0.6 million as of December 31, 2012. The change is due to primarily to investments in information technology.

Other Assets

Other assets decreased $0.6 million, or 20.3%, to $2.1 million as of March 31, 2013, compared with $2.7 million as of December 31, 2012. Major components of other assets are shown in the following table; the accrued interest income receivable is primarily investment related.

	March 31, 2013		December 31, 2012
	(Dollars in Thousands)
Accrued interest income receivable	$	941	$	966
Deposits		138		249
Prepaid expenses		695		478
Receivable for investments sold		-		598
Other		346		367
Total	$	2,120	$	2,658

Unpaid Losses and LAE

Unpaid losses and LAE decreased $2.3 million, or 4.7%, to $47.6 million as of March 31, 2013, compared with $49.9 million as of December 31, 2012. The composition of unpaid losses and LAE by product line is as follows.

	March 31, 2013						December 31, 2012
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	9,126	$	4,715	$	13,841	$	8,276	$	6,637	$	14,913
Commercial General Liability		3,697		19,807		23,504		2,956		22,310		25,266
Automobile		3,479		6,741		10,220		3,643		6,086		9,729
Total	$	16,302	$	31,263	$	47,565	$	14,875	$	35,033	$	49,908

Please see “Results of Operations - Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012 - Losses and LAE” for a description of the factors that affect unpaid losses and LAE.

Unearned Premium

Unearned premiums increased $14.3 million, or 24.2%, to $73.3 million as of March 31, 2013, compared with $59.0 million as of December 31, 2012. The change was due to a $13.3 million increase in unearned homeowners’ insurance premiums, a $0.1 million decrease in unearned flood insurance premiums, a $0.4 million increase in unearned commercial general liability premiums, and a $0.7 million increase in unearned automobile insurance premiums. Generally, as in this case, an increase in unearned premium directly relates to an increase in written premium on a rolling twelve-month basis.

Premium Deposits and Customer Credit Balances

Premium deposits and customer credit balances increased $1.2 million, or 51.4%, to $3.7 million as of March 31, 2013, compared with $2.5 million as of December 31, 2012. Premium deposits are monies received on policies not yet in-force as of March 31, 2013.

41

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Bank Overdraft

Bank overdraft increased $0.3 million, or 6.1 %, to $6.3 million as of March 31, 2013, compared with $6.0 million as of December 31, 2012. The bank overdraft relates primarily to losses and LAE disbursements paid but not presented for payment by the policyholder or vendor. The change relates to the timing of presentation of claims checks to the issuing bank.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses increased $3.7 million, or 142.0%, to $6.3 million as of March 31, 2013, compared with $2.6 million as of December 31, 2012. The increase is primarily due to a $2.2 million payable in connection with investments purchased but not yet settled at March 31, 2013. The change also includes increases to premium taxes, commissions and dividends payable.

Results of Operations

Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012

Gross Premiums Written

Gross premiums written increased $14.5 million, or 46.5%, to $45.8 million for the three months ended March 31, 2013, compared with $31.3 million for the three months ended March 31, 2012. The following table denotes gross premiums written by major product line. This increase reflected primarily an increase in the sale of homeowners’ policies.

	Three Months Ended March 31,
	2013					2012
			(Dollars in Thousands)
	Amount		Percentage			Amount		Percentage
Homeowners'	$	39,643		86.50	%	$	27,086		86.61	%
Commercial General Liability		2,684		5.86	%		2,420		7.74	%
Federal Flood		1,274		2.78	%		1,079		3.45	%
Automobile		2,225		4.86	%		689		2.20	%
Gross written premiums	$	45,826		100.00	%	$	31,274		100.00	%

The increase in the sale of homeowners’ policies by $12.5 million, or 46.4%, to $39.6 million for the three months ended March 31, 2013, compared with $27.1 million for the three months ended March 31, 2012, is gross of reinsurance costs and net of Florida’s mandated homeowners’ wind mitigation discounts. We offer premium discounts for wind mitigation efforts by policyholders, as required by Florida law. As of March 31, 2013, 75.3% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $81.1 million (a 41.4% reduction of in-force premium), while 65.6% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $38.2 million, (a 31.2 % reduction of in-force premium), as of March 31, 2012.

During the three months ended March 31, 2013 and 2012, the change to the cumulative wind mitigation credits afforded our policyholders totaled $20.0 million and $6.7 million, respectively. Our number of in-force homeowners’ policies increased by approximately 5,900 or 10.0%, to approximately 67,000 as of March 31, 2013, compared with approximately 61,100 as of December 31, 2012.

We are required to report write-your-own flood premiums on a direct and 100% ceded basis.

The Company’s sale of commercial general liability policies increased $0.3 million, or 10.9%, to $2.7 million for the three months ended March 31, 2013, compared with $2.4 million for the three months ended March 31, 2012.

42

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth the amounts and percentages of our gross premiums written in connection with our commercial general liability program by state.

	Three Months Ended March 31,
	2013					2012
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
State
Alabama	$	22		0.82	%	$	7		0.30	%
Florida		2,501		93.19	%		2,275		94.00	%
Louisiana		42		1.56	%		45		1.86	%
Texas		119		4.43	%		93		3.84	%
Total	$	2,684		100.00	%	$	2,420		100.00	%

The Company’s sale of auto insurance policies increased $1.5 million, or 223.0%, to $2.2 million for the three months ended March 31, 2013, compared with $0.7 million for the three months ended March 31, 2012.

We are currently rated by Demotech, Inc. (“Demotech”) as "A" ("Exceptional"), which is the third of seven ratings, and defined as “Regardless of the severity of a general economic downturn or deterioration in the insurance cycle, insurers earning a Financial Stability Rating (“FSR”) of “A” possess “Exceptional” financial stability related to maintaining surplus as regards to policyholders”. Demotech’s ratings are based upon factors of concern to agents, reinsurers and policyholders and are not primarily directed toward the protection of investors. Our Demotech rating could be jeopardized by factors including adverse development and various surplus related ratio exceptions.

The withdrawal of our ratings could limit or prevent us from writing or renewing desirable insurance policies, from competing with insurers who have higher ratings, from obtaining adequate reinsurance, or from borrowing on a line of credit. The withdrawal of our ratings could have a material adverse effect on the Company’s results of operations and financial position because the Company’s insurance products might no longer be acceptable to the secondary marketplace and mortgage lenders. Furthermore, a withdrawal of our ratings could prevent independent agents from selling and servicing our insurance products.

Gross Premiums Ceded

Gross premiums ceded increased $0.9 million, or 52.5%, to $2.8 million for the three months ended March 31, 2013, compared with $1.9 million for the three months ended March 31, 2012. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled $0.1 million, $1.3 million, $0.1 million and $1.3 million for the three months ended March 31, 2013, respectively. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled nothing, $1.1 million, $0.1 million and $0.7 million for the three months ended March 31, 2012, respectively.

Decrease in Prepaid Reinsurance Premiums

The decrease in prepaid reinsurance premiums was $9.9 million for the three months ended March 31, 2013, compared with $9.8 million for the three months ended March 31, 2012. The increased charge to written premium is associated with the timing of our reinsurance payments measured against the term of the underlying reinsurance policies.

Increase in Unearned Premiums

The increase in unearned premiums was $14.3 million for the three months ended March 31, 2013, compared with $6.7 million for the three months ended March 31, 2012. The increased charge to written premium was due to a $13.3 million increase in unearned homeowners’ insurance premiums, a $0.3 million increase in unearned commercial general liability premiums and a $0.7 million increase in unearned automobile premiums during the three months ended March 31, 2013. These changes are a result of differences in written premium volume during this period as compared with the same period last year. See “Gross Premiums Written” above.

43

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Net Premiums Earned

Net premiums earned increased $6.0 million, or 46.6%, to $18.8 million for the three months ended March 31, 2013, compared with $12.8 million for the three months ended March 31, 2012. The following table denotes net premiums earned by product line.

	Three Months Ended March 31,
	2013					2012
	Amount		Percentage			Amount		Percentage
			(Dollars in Thousands)
Homeowners'	$	15,707		83.58	%	$	10,301		80.36	%
Commercial General Liability		2,237		11.91	%		2,344		18.29	%
Automobile		848		4.51	%		173		1.35	%
Net premiums earned	$	18,792		100.00	%	$	12,818		100.00	%

The $5.4 million increase in homeowners’ net premiums earned is due to a $12.6 million increase in gross written premium, a $0.2 million increase in gross premiums ceded and a $7.0 million increase in the net change to prepaid reinsurance premiums and unearned premium.

The $0.1 million decrease in commercial general liability net premiums earned is a result of a $0.6 million increase in gross written premium, a $0.1 million decrease in gross premiums ceded and a $0.4 million increase in the net change to prepaid reinsurance premiums and unearned premium.

The $0.7 million increase in automobile net premiums earned is a result of a $1.5 million increase in gross written premium, a $0.6 million increase in gross premiums ceded and a $0.2 million increase in the net change to prepaid reinsurance premiums and unearned premium.

Commission Income

Commission income increased $0.2 million, or 66.0%, to $0.5 million for the three months ended March 31, 2013, compared with $0.3 million for the three months ended March 31, 2012. The primary sources of our commission income are our managing general agent services, write-your-own flood premiums and our independent insurance agency, Insure-Link.

Managing General Agent Fees

Managing general agent fees increased $0.2 million, or 29.2%, to $0.7 million for the three months ended March 31, 2013, compared with $0.5 million for the three months ended March 31, 2012. The change is due to the increase in gross premiums written during this same period.

Net Investment Income

Net investment income decreased $0.2 million, or 17.4%, to $0.8 million for the three months ended March 31, 2013, compared with $1.0 million for the three months ended March 31, 2012.

Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.0% and 2.3%, respectively, for the three months ended March 31, 2013. Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.7% and 2.9%, respectively, for the three months ended March 31, 2012.

Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.3% and 2.5%, respectively, for the three months ended March 31, 2013. Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.8% and 3.1%, respectively, for the three months ended March 31, 2012.

44

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

See also “Analysis of Financial Condition as of March 31, 2013 Compared with December 31, 2012 – Investments” for a further discussion on our investment portfolio.

Net Realized Investment Gains (Losses)

Net realized investment gains totaled $0.8 million for the three months ended March 31, 2013, compared with net realized losses of nearly nothing during the three months ended March 31, 2012.

During the three months ended March 31, 2013 the investment committee decided to shorten the duration of the bond portfolio by approximately one year to prepare for the eventuality of rising interest rates over the next several years. Interest rates and bond prices move inversely, so any rise in interest rates adversely impacts the value of our fixed income portfolio. This impact is magnified when the portfolio is positioned with a longer duration. This decision generated a majority of the approximately $0.8 million in realized gains and also explains the drop in investment income for the quarter measured against the same three month period last year.

FASB has issued guidance regarding when an investment is considered impaired, whether that impairment is other-than temporary and the measurement of an impairment loss. Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost is either other-than temporarily or permanently impaired. Pursuant to FASB issued guidance, we have charged no realized investment losses to operations during the three months ended March 31, 2013, as compared with approximately $44,000 during the three months ended March 31, 2012, which related to common stock held in diverse industries.

The table below depicts the net realized investment gains (losses) by investment category during the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2012			2011
	(Dollars in Thousands)
Realized gains:
Debt securities	$	1,133		$	233
Equity securities		189			516
Total realized gains		1,322			749
Realized losses:
Debt securities		(409	)		(206	)
Equity securities		(100	)		(553	)
Total realized losses		(509	)		(759	)
Net realized gains (losses) on investments	$	813		$	(10	)

Losses and LAE

Losses and LAE, our most significant expense, represent actual payments made and changes in estimated future payments to be made to or on behalf of our policyholders, including expenses required to settle claims and losses. We revise our estimates based on the results of analysis of estimated future payments to be made. This process assumes that experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events.

Losses and LAE increased $3.6 million, or 62.7%, to $9.3 million for the three months ended March 31, 2013, compared with $5.7 million for the three months ended March 31, 2012. The overall change includes a $2.9 million increase in our homeowners’ program, a $0.4 million increase in our commercial general liability program and a $0.3 million increase in connection with our automobile program.

We continue to revise our estimates of the ultimate financial impact of claims made resulting from past storms. The revisions to our estimates are based on our analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) Company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages, and (iv) trends in general economic conditions, including the effects of inflation.

45

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The composition of unpaid losses and LAE by product line is as follows.

	March 31, 2013						December 31, 2012
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	9,126	$	4,715	$	13,841	$	8,276	$	6,637	$	14,913
Commercial General Liability		3,697		19,807		23,504		2,956		22,310		25,266
Automobile		3,479		6,741		10,220		3,643		6,086		9,729
Total	$	16,302	$	31,263	$	47,565	$	14,875	$	35,033	$	49,908

Factors that affect unpaid losses and LAE include the estimates made on a claim-by-claim basis known as “case reserves” coupled with bulk estimates known as Incurred but Not Yet Reported (“IBNR”). Periodic estimates by management of the ultimate costs required to settle all claim files are based on the Company’s analysis of historical data and estimations of the impact of numerous factors such as (i) per claim information; (ii) Company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages, and changes in political attitudes; and (iv) trends in general economic conditions, including the effects of inflation.  Other factors influencing the unpaid loss and LAE balance include improved underwriting processes and claim settling techniques.

Management revises its estimates based on the results of its analysis. This process assumes that experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for estimating the ultimate settlement of all claims. There is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of the reserves, because the eventual redundancy or deficiency is affected by multiple factors. Because of our process, reserves were decreased by approximately $2.3 million during the three months ended March 31, 2013. This overall change includes a $1.0 million decrease in reserves for our homeowners’ program, a $1.8 million decrease in reserves for our commercial general liability program and a $0.5 million increase in reserves for our automobile program.

In accordance with GAAP and as discussed above, our loss ratio is computed as losses and LAE divided by net premiums earned. A lower loss ratio generally results in higher operating income. Our loss ratio for the three months ended March 31, 2013was 49.6% compared with 44.7% for the same period in 2012. The unfavorable increase to our loss ratio is due to the $3.6 million increase in losses and LAE measured against the $6.0 million increase in net premium earned during the three months ended March 31, 2013 as compared with the same period in 2012.

The table below reflects the loss ratios by product line.

	Three Months Ended March 31,
	2013			2012
Homeowners'		46.27	%		42.58	%
Commercial General Liability		66.63	%		45.28	%
Automobile		66.31	%		162.43	%
All lines		49.60	%		44.69	%

Operating and Underwriting Expenses

Operating and underwriting expenses increased $0.3 million, or 13.1%, to $2.7 million for the three months ended March 31, 2013, compared with $2.4 million for the three months ended March 31, 2012.  The change is primarily due to a $0.3 million increase in premium tax expense, which is in correlation to the increase in gross written premiums during this same period.

Salaries and Wages

Salaries and wages increased $0.1 million, or 5.5%, to $2.3 million for the three months ended March 31, 2013, compared with $2.2 million for the three months ended March 31, 2012. The charge to operations for stock-based compensation, in accordance with FASB guidance, was approximately $66,000 during the three months ended March 31, 2013 compared with approximately $58,000 for the three months ended March 31, 2012.

46

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Policy Acquisition Costs - Amortization

Policy acquisition costs - amortization, increased $1.1 million, or 36.6%, to $3.8 million for the three months ended March 31, 2013, compared with $2.7 million for the three months ended March 31, 2012, which corresponds to the increase in net premiums earned during this same period.

Policy acquisition costs - amortization, consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned.

Provision for Income Tax Expense

The provision for income tax expense was $1.4 million for the three months ended March 31, 2013, compared with a $0.6 million for the three months ended March 31, 2012. The effective rate for income taxes was 37.4% for the three months ended March 31, 2013, compared with 34.8% for the three months ended March 31, 2012. The $1.4 million provision for income tax expense for the three months ended March 31, 2013 is primarily the tax-effected decrease in deferred tax assets, net.

Net Income

Net income increased $1.2 million, or 117.9%, to $2.3 million for the three months ended March 31, 2013, compared with $1.1 million for the three months ended March 31, 2012.

Liquidity and Capital Resources

During the three months ended March 31, 2013, our primary sources of capital included proceeds from the sale of investment securities, increased unearned premiums, increased accounts payable and accrued expenses, decreased prepaid reinsurance premiums, increased premium deposits and customer credit balances, decreased deferred income tax expense and decreased other assets. Additional sources of capital included increased bank overdraft, amortization of investment premium discount, net, increased income taxes payable, depreciation and amortization, non-cash compensation, decreased income taxes recoverable, net, a tax benefit related to non-cash compensation and exercised stock options. Because we are a holding company, we are largely dependent upon fees and commissions from our subsidiaries for cash flow.

During the three months ended March 31, 2013 and 2012, operations provided net operating cash flow of $17.7 million and $1.1 million, respectively.

During the three months ended March 31, 2013, operations generated $27.3 million of gross cash flow, due to a $14.3 million increase in unearned premiums, a $3.7 million increase in accounts payable and accrued expenses, a $3.0 million decrease in prepaid reinsurance premiums, a $1.3 million increase in premium deposits and customer credit balances and a $1.3 million decrease in deferred income tax expense. Additional sources of cash included a $0.6 million decrease in other assets, a $0.4 million increase in bank overdraft, $0.3 million of amortization of investment premium discount, net and a $0.1 million increase in income taxes payable, all in conjunction with $2.3 million of net income.

During the three months ended March 31, 2013, operations used $9.6 million of gross cash flow, due to a $4.7 million increase in premiums receivable, a $2.3 million decrease in unpaid losses and LAE and a $1.7 million increase in policy acquisition costs, net of amortization. Additional uses of cash included $0.8 million in net realized investment gains and a $0.1 million increase in reinsurance recoverable, net.

During the three months ended March 31, 2013 and 2012, net cash used by investing activities was $10.3 million and $0.9 million, respectively. Our available-for-sale investment portfolio is highly liquid as it consists entirely of readily marketable securities. During the three months ended March 31, 2013, investing activities generated $44.2 million and used $54.5 million.

47

Federated National Holding Company

Management’s Discussion and Analysis of Financial Condition and Results of Operations

During the three months ended March 31, 2013 and 2012, net financing activities used and provided $0.4 million and less than $0.1 million, respectively. In 2013, the use of cash in connection with financing activities was $0.4 million for dividends paid.

We offer direct billing in connection with our homeowners’, commercial general liability and automobile programs. Direct billing is an agreement in which the insurance company accepts from the insured, as a receivable, a promise to pay the premium, as opposed to requiring the full amount of the policy at policy inception, either directly from the insured or from a premium finance company. The advantage of direct billing a policyholder by the insurance company is that we are not reliant on a credit facility, but remain able to charge and collect interest from the policyholder.

We believe that our current capital resources will be sufficient to meet currently anticipated working capital requirements. There can be no assurances, however, that such will be the case. We continue to evaluate our liquidity and the possibility that we may require additional working capital.

As of March 31, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which were established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. As such, management believes that we currently are not exposed to any financing, liquidity, market or credit risks that could arise if we had engaged in transactions of that type requiring disclosure herein.

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.

48

Federated National Holding Company

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, 2013, approximately 84% 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 94% 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 and carried at amortized cost. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.

The following table summarizes, by type, our investments as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	24,844		17.53	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,862		2.73	%		3,939		3.03	%
Corporate		75,800		53.49	%		67,313		51.74	%
International		3,258		2.30	%		3,111		2.39	%
		107,764		76.05	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,737		3.34	%		6,016		4.62	%
Corporate		2,000		1.41	%		1,203		0.92	%
International		112		0.08	%		140		0.11	%
		6,849		4.83	%		7,359		5.65	%
Total debt securities		114,613		80.88	%		109,114		83.87	%
Equity securities, at market:		27,108		19.12	%		20,982		16.13	%
Total investments	$	141,721		100.00	%	$	130,096		100.00	%

49

Federated National Holding Company

Available-for-sale debt securities are carried on the balance sheet at market and held-to-maturity debt securities are carried on the balance sheet at amortized cost. As of March 31, 2013 and December 31, 2012, debt securities had had the following quality ratings by S&P and for securities not assigned a rating by S&P, Moody’s or Fitch ratings were used.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
AAA	$	9,946		8.68	%	$	10,967		10.05	%
AA		37,554		32.77	%		38,733		35.50	%
A		35,831		31.26	%		31,774		29.12	%
BBB		31,282		27.29	%		27,640		25.33	%
Not rated		-		0.00	%		-		0.00	%
	$	114,613		100.00	%	$	109,114		100.00	%

The following table summarizes, by maturity, the debt securities as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Matures In:
One year or less	$	2,288		2.00	%	$	2,938		2.70	%
One year to five years		72,459		63.22	%		51,439		47.14	%
Five years to 10 years		39,038		34.06	%		37,111		34.01	%
More than 10 years		828		0.72	%		17,626		16.15	%
Total debt securities	$	114,613		100.00	%	$	109,114		100.00	%

At March 31, 2013, the weighted average maturity of the debt portfolio was approximately 3.6 years.

50

Federated National Holding Company

The following table provides information about the financial instruments as of March 31, 2013 that are sensitive to changes in interest rates.  The table presents principal cash flows and the related weighted average interest rate by expected maturity date based upon par values.

																									Carrying
	2013			2014			2015			2016			2017			2018			Thereafter			Total			Amount
Principal amount by expected maturity:
United States government obligations and authorities	$	-		$	600		$	3,328		$	435		$	3,349		$	3,850		$	5,483		$	17,045		$	17,569
Obligations of states and political subdivisions		250			-			-			195			350			125			2,605			3,525			3,862
Corporate securities		368			4,407			8,898			12,094			11,558			5,251			21,737			64,313			72,959
International securities		-			-			290			1,408			280			-			1,159			3,137			2,422
Collateralized mortgage obligations		201			566			3,102			5,367			6,004			1,184			-			16,424			17,801
Equity securities, at market		-			-			-			-			-			-			-			-			27,108
All investments	$	819		$	5,573		$	15,618		$	19,499		$	21,541		$	10,410		$	30,984		$	104,444		$	141,721
Weighted average interest rate by expected maturity:
United States government obligations and authorities		0.00	%		1.51	%		0.27	%		2.16	%		0.71	%		1.05	%		1.56	%		1.04	%
Obligations of states and political subdivisions		1.96	%		0.00	%		0.00	%		1.60	%		1.65	%		1.65	%		4.04	%		3.44	%
Corporate securities		5.01	%		5.19	%		3.66	%		3.96	%		4.68	%		6.19	%		5.35	%		4.79	%
International securities		0.00	%		0.00	%		0.75	%		1.88	%		1.50	%		0.00	%		5.61	%		3.12	%
Collateralized mortgage obligations		5.06	%		5.18	%		4.73	%		4.98	%		4.31	%		3.50	%		0.00	%		4.59	%
Equity securities, at market		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
All investments		4.09	%		4.79	%		3.10	%		4.03	%		3.87	%		3.93	%		4.58	%		4.05	%

Item 4

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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as of March 31, 2013.  Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2013, were effective to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes during the first three months of 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

51

Federated National Holding Company

Part II: OTHER INFORMATION

Item 1

Legal Proceedings

See Item 1 of Part I, “Financial Statements – Note 4 – Commitments and Contingencies.”

Item 1A

Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1, Risk Factors, in the Company’s Form 10-K for the fiscal year ended December 31, 2012.

Additional Risk Factors

The risks described in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

(a)            In March 2013, a total of 100,000 shares were granted to employees, officers and directors of the Company pursuant to the Company’s Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”).  All of such shares are restricted shares under the 2012 Plan, are subject to vesting in an amount equal to 1/3 each year for beginning one year from the date of grant, and are non-transferable prior to vesting.  The foregoing shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving a public offering.

(b) None

(c) None

Item 3

Defaults upon Senior Securities

None

Item 4

Mine Safety Disclosures

Not applicable

Item 5

Other Information

(a) None

(b) None

52

Federated National Holding Company

Item 6

Exhibits

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

** 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 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

53

Federated National Holding Company

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 hereunto duly authorized.

	FEDERATED NATIONAL HOLDING COMPANY
	By:	/s/ Michael H. Braun
		Michael H. Braun, Chief Executive Officer
		(Principal Executive Officer)
		/s/ Peter J. Prygelski, III
		Peter J. Prygelski, III, Chief Financial Officer
		(Principal Financial and Accounting Officer)
Date: May 15, 2013

54

Federated National Holding Company

EXHIBIT INDEX

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. **

** 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 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

55

EX-31.1

Federated National Holding Company

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 Federated National 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.

/s/ Michael H. Braun

Michael H. Braun

Chief Executive Officer

(Principal Executive Officer)

Dated: May 15, 2013

EX-31.2

Federated National Holding Company

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Peter J. Prygelski, III, certify that:

1. I have reviewed this Form 10-Q of Federated National 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.

/s/ Peter J. Prygelski, III

Peter J. Prygelski, III

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: May 15, 2013

EX-32.1

Federated National Holding Company

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 Federated National Holding Company for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Michael H. Braun, Chief Executive Officer of Federated National 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 Federated National Holding Company.

By:  /s/ Michael H. Braun

Michael H. Braun, Chief Executive Officer (Principal Executive Officer)                                                                                                                                

May 15, 2013

EX-32.2

Federated National Holding Company

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 Federated National Holding Company for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Peter J. Prygelski, III, Chief Financial Officer of Federated National 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 Federated National Holding Company.

By:  /s/ Peter J. Prygelski, III

Peter J. Prygelski, III, Chief Financial Officer (Principal Financial and Accounting Officer)

May 15, 2013

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Stockholders' Equity (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Stockholders' Equity [Abstract]
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	25,000,000	25,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, outstanding (in shares)	7,984,922	7,979,488

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Organization and Business (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Carrier Agent	Mar. 31, 2012
Basis of Presentation [Abstract]
Number of independent agents	3,300
Number of agents that actively sell and service the entity's products	1,200
Percentage of entire homeowners' book the entity agreed to maintain its homeowners' policies (in hundredths)	35.00%
Percentage of homeowners' policies located within Tri-County Area (in hundredths)	19.10%
Percentage of gross written premium the managing general agency fees are traditionally (in hundredths)	6.00%
Percentage of gross written premiums the managing general agency fees will not exceed (in hundredths)	4.00%
Percentage of gross written premiums the managing general agency fees minimum (in hundredths)	2.00%
Percentage of gross written premiums the managing general agency fees maximum (in hundredths)	4.00%
Percentage of gross earned period the claims service fees were traditionally (in hundredths)	4.50%
Percentage of gross earned period the claims service fees are currently (in hundredths)	3.60%
Ratio of homeowners' premiums underwritten to total premiums underwritten (in hundredths)	86.50%	86.60%
Ratio of commercial general liability premiums underwritten to total premiums underwritten (in hundredths)	5.90%	7.70%
Ratio of federal flood premiums underwritten to total premiums underwritten (in hundredths)	2.80%	3.50%
Ratio of automobile insurance premiums underwritten to total premiums underwritten (in hundredths)	4.80%	2.20%
Fees earned per policy	$ 25
Number of carriers the entity provides insurance through	30

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Summary of Significant Accounting Policies and Practices

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting Policies and Practices [Abstract]

Summary of Significant Accounting Policies and Practices

(3) Summary of Significant Accounting Policies and Practices

(A)  Critical Accounting Policies

The preparation of financial statements in conformity with GAAP 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 inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with management's evaluation of the determination of (i) liability for unpaid losses and LAE, (ii) the amount and recoverability of amortization of DPAC, (iii) the valuation of investments and (iv) estimates for our reserves with respect to finance contracts, premiums receivable and deferred income taxes. Various assumptions and other factors underlie the determination of these significant estimates, which are described in greater detail in Footnote 2 of the Company's audited consolidated financial statements for the fiscal year ended December 31, 2012, which we included in the Company's Annual Report on Form 10-K which was filed with the SEC on April 1, 2013.

We believe that there were no significant changes in those critical accounting policies and estimates during the first three months of fiscal 2013. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Form 10-Q with the Audit Committee of our Board of Directors.

The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, and in the case of unpaid losses and LAE, an actuarial valuation. Management regularly reevaluates these significant factors and makes adjustments where facts and circumstances dictate. In selecting the best estimate, we utilize various actuarial methodologies. Each of these methodologies is designed to forecast the number of claims we will be called upon to pay and the amounts we will pay on average to settle those claims. In arriving at our best estimate, our actuaries consider the likely predictive value of the various loss development methodologies employed in light of underwriting practices, premium rate changes and claim settlement practices that may have occurred, and weight the credibility of each methodology. Our actuarial methodologies take into account various factors, including, but not limited to, paid losses, liability estimates for reported losses, paid allocated LAE, salvage and other recoveries received, reported claim counts, open claim counts and counts for claims closed with and without payment for loss.

Accounting for loss contingencies pursuant to Financial Accounting Standards Board ("FASB") issued guidance involves the existence of a condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future event(s) occur or fail to occur. Additionally, accounting for a loss contingency requires management to assess each event as probable, reasonably possible or remote. Probable is defined as the future event or events are likely to occur. Reasonably possible is defined as the chance of the future event or events occurring is more than remote but less than probable, while remote is defined as the chance of the future event or events occurring is slight. An estimated loss in connection with a loss contingency shall be recorded by a charge to current operations if both of the following conditions are met: First, the amount can be reasonably estimated, and second, the information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements. It is implicit in this condition that it is probable that one or more future events will occur confirming the fact of the loss or incurrence of a liability.

We are required to review the contractual terms of all our reinsurance purchases to ensure compliance with FASB issued guidance. The guidance establishes the conditions required for a contract with a reinsurer to be accounted for as reinsurance and prescribes accounting and reporting standards for those contracts. Contracts that do not result in the reasonable possibility that the reinsurer may realize a significant loss from the insurance risk assumed generally do not meet the conditions for reinsurance accounting and must be accounted for as deposits. The guidance also requires us to disclose the nature, purpose and effect of reinsurance transactions, including the premium amounts associated with reinsurance assumed and ceded. It also requires disclosure of concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums.

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. The guidance requires that these securities be classified into one of three categories: Held-to-maturity, Trading, or Available-for-sale securities.

Investments classified as held-to-maturity include debt securities wherein the Company's intent and ability are to hold the investment until maturity. The accounting treatment for held-to-maturity investments is to carry them at amortized cost without consideration to unrealized gains or losses.

Investments classified as trading securities include debt and equity securities bought and held primarily for the sale in the near term. The accounting treatment for trading securities is to carry them at fair value with unrealized holding gains and losses included in current period operations.

Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments. The accounting treatment for available-for-sale securities is to carry them at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders' equity, namely "Other Comprehensive Income" and the components of other comprehensive income are presented in a statement separate from and consecutive with the statement of operations. A decline in the fair value of an available-for-sale security below cost that is deemed other-than temporary results in a charge to income, resulting in the establishment of a new cost basis for the security.

 Premiums and discounts are amortized or accreted, respectively, over the life of the related debt security as an adjustment to yield using a method that approximates the effective interest method. Dividends and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific-identification method for determining the cost of securities sold.

Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of investments, premiums receivable, amounts due from reinsurers on paid and unpaid losses and finance contracts. We have not experienced significant losses related to premiums receivable from individual policyholders or groups of policyholders in a particular industry or geographic area. We believe no credit risk beyond the amounts provided for collection losses is inherent in our premiums receivable or finance contracts. In order to reduce credit risk for amounts due from reinsurers, we seek to do business with financially sound reinsurance companies and regularly review the financial strength of all reinsurers used. Additionally, our credit risk in connection with our reinsurers is mitigated by the establishment of irrevocable clean letters of credit in favor of FNIC.

The fair value of our investments is estimated based on prices published by financial services or quotations received from securities dealers and is reflective of the interest rate environment that existed as of the close of business on March 31, 2013 and December 31, 2012. Changes in interest rates subsequent to March 31, 2013 and December 31, 2012 may affect the fair value of our investments.

The carrying amounts for the following financial instrument categories approximate their fair values at March 31, 2013 and December 31, 2012 because of their short-term nature: cash and short term investments, premiums receivable, finance contracts, due from reinsurers, revolving credit outstanding, bank overdraft, accounts payable and accrued expenses.

(B) Impact of New Accounting Pronouncements

In February 2013, the FASB issued Accounting Standard Update ("ASU") No. 2013-02: Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of this ASU is to improve the reporting of reclassifications out of accumulated other comprehensive income.  The amendments require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety in net income.  For other amounts that are not required to be reclassified to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.  The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements.  The ASU is effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

In January 2013, the FASB issued ASU No. 2013-01: Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The objective of this ASU is to clarify the scope of offsetting disclosures and to address implementation issues with ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.  The amendments clarify that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.  An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods.  An entity should provide the required disclosures retrospectively for all comparative periods.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

In July 2012, the FASB issued ASU No. 2012-02: Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.   Upon adoption, these amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; early adoption is permitted.  The adoption of these amendments did not have a material impact on our financial condition, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05: Comprehensive Income (Topic 220):  Presentation of Comprehensive Income. The guidance in this ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The guidance in this ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Upon adoption, this update is to be applied retrospectively and is effective during interim and annual periods beginning after December 15, 2011.  Early adoption is permitted. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-12:  Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  The guidance defers certain provisions contained in ASU No. 2011-05 requiring the requirement to present components of reclassifications of other comprehensive income on the face of the income statement or in the notes to the financial statements. However, this deferral does not impact the other requirements contained in the new standard on comprehensive income as described above. This ASU is effective during interim and annual periods beginning after December 15, 2011.  The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08: Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which amends ASC Topic 350, Intangibles-Goodwill and Other. The guidance in this ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-11: Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which requires new disclosure requirements mandating that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. This ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not have a material impact on our financial condition, results of operations or cash flows.

In October 2010, the FASB issued ASU No. 2010-26: Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, a consensus of FASB Emerging Issues Task Force.  The amendments in this update modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The amendments in this update specify that the costs must be based on successful efforts (that is, acquiring a new or renewal contract).  The amendments also specify that advertising costs should be included as deferred acquisition costs under certain circumstances.  The amendments in this update are effective for fiscal years, and interim period within those fiscal years, beginning after December 15, 2011.  The amendments in this update should be applied prospectively upon adoption.  Retrospective application to all prior periods presented upon the date of adoption also is permitted.  The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Other recent accounting pronouncements issued by FASB, the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

               (C) Stock Options

Pursuant to FASB issued guidance, compensation cost recognized during the three months ended March 31, 2013 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the guidance.

(D) Earnings (Loss) per Share

Basic earnings (loss) per share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented.  Diluted earnings per share ("Diluted EPS") is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period presented. Diluted loss per share would be antidilutive, therefore in accordance with GAAP basic and diluted loss per share is the same.

(E) Reclassifications

No reclassification of the 2012 financial statements was necessary to conform to the 2013 presentation.

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Fair Value Disclosure (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Debt securities [Abstract]
Debt securities	$ 107,764	$ 101,755
Equity securities [Abstract]
Equity securities	27,108	20,982
Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	24,844	27,392
Obligations of states and political subdivisions	3,862	3,939
Corporate	75,800	67,313
International	3,258	3,111
Debt securities	107,764	101,755
Equity securities [Abstract]
Common stocks	27,108	20,982
Equity securities	27,108	20,982
Total debt and equity securities	134,872	122,737
Level 1 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	13,472	12,464
Obligations of states and political subdivisions	0	0
Corporate	75,800	67,313
International	0	0
Debt securities	89,272	79,777
Equity securities [Abstract]
Common stocks	27,108	20,982
Equity securities	27,108	20,982
Total debt and equity securities	116,380	100,759
Level 2 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	11,372	14,928
Obligations of states and political subdivisions	3,862	3,939
Corporate	0	0
International	3,258	3,111
Debt securities	18,492	21,978
Equity securities [Abstract]
Common stocks	0	0
Equity securities	0	0
Total debt and equity securities	18,492	21,978
Level 3 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	0	0
Obligations of states and political subdivisions	0	0
Corporate	0	0
International	0	0
Debt securities	0	0
Equity securities [Abstract]
Common stocks	0	0
Equity securities	0	0
Total debt and equity securities	$ 0	$ 0

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Investments (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Investments [Abstract]
Increase in total investments	$ 11,600,000
Percentage increase in investments (in hundredths)	8.90%
Ratio of available-for-sale securities to total investments (in hundredths)	95.00%		94.00%
Net realized investment losses charged to operations	0
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	6,849,000		7,359,000
Irrevocable letter of credit	15,000,000
Amount held in trust	1,000,000		1,000,000
Debt securities, at market [Abstract]
Debt securities, at market	107,764,000		101,755,000
Percent of debt securities at market to total investments (in hundredths)	76.05%		78.22%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	6,849,000		7,359,000
Percent of debt securities at amortized cost to total investments (in hundredths)	4.83%		5.65%
Total debt securities	114,613,000		109,114,000
Percent of debt securities to total investments (in hundredths)	80.88%		83.87%
Equity securities, at market	27,108,000		20,982,000
Percentage of equity securities to total investments (in hundredths)	19.12%		16.13%
Total investments	141,721,000		130,096,000
Total investments (in hundredths)	100.00%		100.00%
Realized gains (losses) [Abstract]
Total realized gains	1,322,000	749,000
Fair Value at Sale of securities with realized gains	23,680,000	9,569,000
Total realized losses	(509,000)	(759,000)
Fair Value at Sale of securities with realized losses	17,099,000	6,708,000
Net realized gains on investments	813,000	(10,000)
Fair Value of Investments at Sale	40,779,000	16,277,000
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	104,490,000		97,121,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	3,348,000		4,735,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	74,000		101,000
Debt Securities - Available-For-Sale, Estimated Fair Value	107,764,000		101,755,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	6,849,000		7,359,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	161,000		210,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	1,000		15,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	7,009,000		7,554,000
Equity securities - common stocks, Amortized Cost	22,676,000		19,095,000
Equity securities - common stocks, Gross Unrealized Gains	4,953,000		2,505,000
Equity securities - common stocks, Gross Unrealized Losses	521,000		618,000
Equity securities - common stocks, Estimated Fair Value	27,108,000		20,982,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	595,000		719,000
Debt/Equity securities, Less than 12 months	328,000		531,000
Debt/Equity securities, 12 months or longer	267,000		188,000
Amortized Cost [Abstract]
Due in one year or less, Amortized Cost	2,264,000		2,925,000
Due after one through five years, Amortized Cost	70,955,000		49,826,000
Due after five through ten years, Amortized Cost	37,384,000		35,070,000
Due after ten years, Amortized Cost	736,000		16,659,000
Total Amortized Cost	111,339,000		104,480,000
Estimated Fair Value [Abstract]
Due in one year or less, Estimated Fair Value	2,295,000		2,944,000
Due after one through five years, Estimated Fair Value	72,528,000		51,523,000
Due after five through ten years, Estimated Fair Value	39,122,000		37,182,000
Due after ten years, Estimated Fair Value	828,000		17,660,000
Total Estimated Fair Value	114,773,000		109,309,000
Investment income [Abstract]
Interest on debt securities	714,000	878,000
Dividends on equity securities	80,000	82,000
Interest on cash and cash equivalents	0	1,000
Total investment income	794,000	961,000
Net realized gains (losses)	813,000	(10,000)
Proceeds from sales and maturity of marketable securities	44,200,000	18,300,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	813,000	(10,000)
Net unrealized gains	7,706,000	3,289,000
Diverse Industries Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of debt securities to total debt portfolio (in hundredths)	74.00%		69.00%
United States Government Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of debt securities to total debt portfolio (in hundredths)	26.00%		31.00%
Diverse Industries Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of equity holdings to total equity portfolio (in hundredths)	89.00%		87.00%
Mutual Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of equity holdings to total equity portfolio (in hundredths)	11.00%		13.00%
United States Government Obligations and Authorities [Member]
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	4,737,000		6,016,000
Debt securities, at market [Abstract]
Debt securities, at market	24,844,000		27,392,000
Percent of debt securities at market to total investments (in hundredths)	17.53%		21.06%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	4,737,000		6,016,000
Percent of debt securities at amortized cost to total investments (in hundredths)	3.34%		4.62%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	24,352,000		26,825,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	502,000		632,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	10,000		65,000
Debt Securities - Available-For-Sale, Estimated Fair Value	24,844,000		27,392,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	4,737,000		6,016,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	124,000		149,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	0		12,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	4,861,000		6,153,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	10,000		65,000
Debt/Equity securities, Less than 12 months	10,000		65,000
Debt/Equity securities, 12 months or longer	0		0
Obligations of States and Political Subdivisions [Member]
Debt securities, at market [Abstract]
Debt securities, at market	3,862,000		3,939,000
Percent of debt securities at market to total investments (in hundredths)	2.73%		3.03%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	3,664,000		3,738,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	199,000		202,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	1,000		1,000
Debt Securities - Available-For-Sale, Estimated Fair Value	3,862,000		3,939,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	1,000		1,000
Debt/Equity securities, Less than 12 months	1,000		1,000
Debt/Equity securities, 12 months or longer	0		0
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	2,000,000		1,203,000
Debt securities, at market [Abstract]
Debt securities, at market	75,800,000		67,313,000
Percent of debt securities at market to total investments (in hundredths)	53.49%		51.74%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	2,000,000		1,203,000
Percent of debt securities at amortized cost to total investments (in hundredths)	1.41%		0.92%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	73,216,000		63,553,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	2,622,000		3,794,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	38,000		34,000
Debt Securities - Available-For-Sale, Estimated Fair Value	75,800,000		67,313,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	2,000,000		1,203,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	37,000		61,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	0		2,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	2,037,000		1,262,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	38,000		34,000
Debt/Equity securities, Less than 12 months	38,000		34,000
Debt/Equity securities, 12 months or longer	0		0
Debt Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	1,133,000	233,000
Fair Value at Sale of securities with realized gains	22,601,000	6,496,000
Total realized losses	(409,000)	(206,000)
Fair Value at Sale of securities with realized losses	16,476,000	5,042,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	74,000		101,000
Debt/Equity securities, Less than 12 months	74,000		101,000
Debt/Equity securities, 12 months or longer	0		0
Investment income [Abstract]
Net realized gains (losses)	724,000	27,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	724,000	27,000
Net unrealized gains	3,275,000	2,365,000
Equity Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	189,000	516,000
Fair Value at Sale of securities with realized gains	1,079,000	3,073,000
Total realized losses	(100,000)	(553,000)
Fair Value at Sale of securities with realized losses	623,000	1,666,000
Investment income [Abstract]
Net realized gains (losses)	89,000	(37,000)
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	89,000	(37,000)
Net unrealized gains	4,431,000	924,000
International [Member]
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	112,000		140,000
Debt securities, at market [Abstract]
Debt securities, at market	3,258,000		3,111,000
Percent of debt securities at market to total investments (in hundredths)	2.30%		2.39%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	112,000		140,000
Percent of debt securities at amortized cost to total investments (in hundredths)	0.08%		0.11%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	3,258,000		3,005,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	25,000		107,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	25,000		1,000
Debt Securities - Available-For-Sale, Estimated Fair Value	3,258,000		3,111,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	112,000		140,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	0		0
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	1,000		1,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	111,000		139,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	25,000		1,000
Debt/Equity securities, Less than 12 months	25,000		1,000
Debt/Equity securities, 12 months or longer	0		0
Common Stock [Member]
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	521,000		618,000
Debt/Equity securities, Less than 12 months	254,000		430,000
Debt/Equity securities, 12 months or longer	267,000		188,000
United States Treasury Notes [Member] | Federated National [Member]
Estimated Fair Value [Abstract]
Due after one through five years, Estimated Fair Value	63,238		63,481
Due after five through ten years, Estimated Fair Value	$ 2,179,368		$ 2,193,300

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Reinsurance Agreements (Details) (USD $)	3 Months Ended	9 Months Ended		12 Months Ended
	Mar. 31, 2013 Structure	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2012
Reinsurance Agreements [Abstract]
Number of types of reinsurance structures	3
Liability for Catastrophe Claims [Line Items]
Prepaid reinsurance premiums	$ 4,063,000			$ 7,045,000
Increase in total insured value		2,100,000,000	172,200,000
Percentage increase in total insured value (in hundredths)		12.60%	1.40%
Increase reinsurance premiums for total insured value		2,400,000	500,000
Percentage increase in reinsurance premiums for total insured value (in hundredths)		3.00%	1.10%
Increase in probable maximum loss			63,100,000
Percentage increase in probable maximum loss (in hundredths)			0.50%
Increase in reinsurance premiums for probable maximum loss			3,700,000
Percentage increase in reinsurance premiums for probable maximum loss (in hundredths)			8.70%
Trust agreement for loss exposure	4,800,000			4,800,000
2012-2013 Hurricane Season [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	328,300,000
Maximum single event coverage	246,500,000
Amount retained per Loss	8,000,000
Coverage afforded by FHCF	144,700,000
Percentage of FHCF coverage to total coverage (in hundredths)	44.10%
Reinsurance premium	9,600,000
Prepaid reinsurance premiums	41,600,000
2011-2012 Hurricane Season [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	298,000,000
Maximum single event coverage	226,000,000
Amount retained per Loss	7,000,000
Coverage afforded by FHCF	154,100,000
Percentage of FHCF coverage to total coverage (in hundredths)	51.70%
Reinsurance premium	11,700,000
Prepaid reinsurance premiums	$ 39,700,000

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Unpaid losses and LAE (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Unpaid losses and LAE [Abstract]
Unpaid losses and LAE, period start	$ 49,908	$ 59,983
Less reinsurance recoverables	(3,503)	(2,088)
Unpaid Losses and LAE, net, period start	46,405	57,895
Incurred related to Unpaid losses and LAE [Abstract]
Current year	10,126	31,636
Prior years	(805)	(1,427)
Total incurred losses and LAE	9,321	30,209
Paid Related To Unpaid Losses And LAE [Abstract]
Current year	1,867	15,892
Prior years	9,880	25,807
Total paid	11,747	41,699
Unpaid Losses and LAE, net, period end	43,979	46,405
Plus reinsurance recoverables	3,586	3,503
Unpaid losses and LAE, period end	$ 47,565	$ 49,908

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Basis of Presentation

3 Months Ended

Mar. 31, 2013

Basis of Presentation [Abstract]

Basis of Presentation

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America referred to as Generally Accepted Accounting Principles ("GAAP") for interim financial information, and the Securities and Exchange Commission ("SEC") rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company's financial position as of March 31, 2013 and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2013. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012 included in the Company's Form 10-K, which was filed with the SEC on April 1, 2013.

In preparing the interim unaudited condensed consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of loss and LAE, ceded reinsurance balances payable, the recoverability of Deferred Policy Acquisition Costs ("DPAC"), the determination of federal income taxes, and the net realizable value of reinsurance recoverables. Although considerable variability is inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations.

All significant intercompany balances and transactions have been eliminated. No reclassifications have been made to the prior-period balances to conform to the current-period presentation.

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Stock Compensation Plans (Details) (USD $)	3 Months Ended			12 Months Ended		3 Months Ended	12 Months Ended		3 Months Ended	12 Months Ended		3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 1998 Stock Option Plan [Member]	Dec. 31, 2012 1998 Stock Option Plan [Member]	Dec. 31, 2011 1998 Stock Option Plan [Member]	Mar. 31, 2013 2002 Stock Option Plan [Member]	Dec. 31, 2012 2002 Stock Option Plan [Member]	Dec. 31, 2011 2002 Stock Option Plan [Member]	Mar. 31, 2013 2012 Stock Incentive Plan [Member]	Dec. 31, 2012 2012 Stock Incentive Plan [Member]	Dec. 31, 2011 2012 Stock Incentive Plan [Member]	Mar. 31, 2013 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Mar. 31, 2013 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Mar. 31, 2013 2012 Stock Incentive Plan [Member] Director [Member]	Mar. 31, 2013 2012 Stock Incentive Plan [Member] Other Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized to grant options to purchase (in shares)			900,000			1,800,000			1,000,000
Share-based payment award, expiration date			Sep. 30, 2008			Apr. 30, 2012			Apr. 05, 2022
Expected term of stock options in Black-Scholes option pricing model, previous	4 years
Expected term of stock options in Black-Scholes option pricing model, revised	2 years
Stock Option Plans, Shares Outstanding [Abstract]
Outstanding (in shares)			78,500	89,750	89,750	702,597	624,700	574,800
Granted (in shares)			0	0	0	0	181,500	179,000
Exercised (in shares)			0	0	0	(6,101)	(33,104)	0
Cancelled (in shares)			0	(11,250)	0	(3,333)	(70,499)	(129,100)
Outstanding (in shares)			78,500	78,500	89,750	693,163	702,597	624,700
Stock Options, Weighted Average Option Exercise Price [Abstract]
Outstanding (in dollars per share)			$ 12.73	$ 12.83	$ 12.83	$ 5.17	$ 6.15	$ 9.12
Granted (in dollars per share)			$ 0	$ 0	$ 0	$ 0	$ 4.40	$ 2.45
Exercised (in dollars per share)			$ 0	$ 0	$ 0	$ 3.16	$ 3.86	$ 0
Cancelled (in dollars per share)			$ 0	$ 13.54	$ 0	$ 4.44	$ 12.45	$ 14.29
Outstanding (in dollars per share)			$ 12.73	$ 12.73	$ 12.83	$ 5.19	$ 5.17	$ 6.15
Other Than Stock Option Plans, Shares Outstanding [Abstract]
Outstanding (in shares)									0	0	0
Granted (in shares)									100,000.00	0	0	25,000	15,000	20,000	40,000
Exercised (in shares)									0	0	0
Cancelled (in shares)									0	0	0
Outstanding (in shares)									100,000.00	0	0
Other Than Stock Options, Fair Market Value at Grant [Abstract]
Outstanding (in dollars per share)									$ 0	$ 0	$ 0
Granted (in dollars per share)									$ 5.54	$ 0	$ 0
Exercised (in dollars per share)									$ 0	$ 0	$ 0
Cancelled (in dollars per share)									$ 0	$ 0	$ 0
Outstanding (in dollars per share)									$ 5.54	$ 0	$ 0
Options Exercisable at [Abstract]
March 31, 2013 (in shares)			77,800			336,357
December 31, 2013 (in shares)			700			138,426
December 31, 2014 (in shares)			0			141,480
December 31, 2015 (in shares)			0			76,900
December 31, 2016 (in shares)			0			0
December 31, 2017 (in shares)			0			0
Thereafter (in shares)			0			0
Total options exercisable (in shares)			78,500			693,163
Options Weighted Average Option Exercise Price at [Abstract]
March 31, 2013 (in dollars per share)			$ 12.73			$ 5.19
December 31, 2013 (in dollars per share)			$ 12.73			$ 5.19
December 31, 2014 (in dollars per share)			$ 12.73			$ 5.19
December 31, 2015 (in dollars per share)			$ 12.73			$ 5.19
December 31, 2016 (in dollars per share)			$ 12.73			$ 5.19
December 31, 2017 (in dollars per share)			$ 12.73			$ 5.19
Thereafter (in dollars per share)			$ 12.73			$ 5.19
Decrease in income from continuing operations due to change in accounting pronouncement	$ 66,000	$ 58,000
Decrease in net income due to change in accounting pronouncement	$ 41,000	$ 36,000
Net income (loss) per share after change in accounting pronouncement, basic (in dollars per share)	$ 0.30	$ 0.13
Net income (loss) per share after change in accounting pronouncement, diluted (in dollars per share)	$ 0.30	$ 0.13
Net income (loss) per share - basic (in dollars per share)	$ 0.29	$ 0.13
Net income per share - diluted (in dollars per share)	$ 0.29	$ 0.13
Fair value of options granted is estimated on date of grant used assumptions [Abstract]
Dividend yield (in hundredths)
Expected volatility (in hundredths)
Risk-free interest rate (in hundredths)
Expected life
Summary information about stock options outstanding [Abstract]
Range of Exercise Price, Minimum (in dollars per share)			$ 8.67			$ 2.45
Range of Exercise Price, Maximum (in dollars per share)			$ 16.59			$ 13.24
Options Outstanding (in shares)			78,500			693,163
Weighted Average Contractual Periods in Years			5 months 19 days			5 years 6 months 26 days
Weighted Average Exercise Price (in dollars per share)			$ 12.73			$ 5.19
Options Exercisable (in shares)			77,800			336,357

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Investments
Debt maturities, available for sale, at fair value	$ 107,764	$ 101,755
Debt maturities, held to maturity, at amortized cost	6,849	7,359
Equity securities, available for sale, at fair value	27,108	20,982
Total investments	141,721	130,096
Cash and short term investments	28,193	21,143
Prepaid reinsurance premiums	4,063	7,045
Premiums receivable, net of allowance for credit losses of $69 and $69, respectively	12,683	8,023
Reinsurance recoverable, net	3,586	3,503
Deferred policy acquisition costs	10,140	8,479
Deferred income taxes, net	2,637	4,338
Income taxes receivable	0	39
Property, plant and equipment, net	883	564
Other assets	2,120	2,658
Total assets	206,026	185,888
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	47,565	49,908
Unearned premiums	73,293	59,006
Premiums deposits and customer credit balances	3,722	2,458
Bank overdraft	6,350	5,987
Income taxes payable	77	0
Accounts payable and accrued expenses	6,350	2,624
Total liabilities	137,357	119,983
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding 7,984,922 and 7,979,488, respectively	80	80
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding	0	0
Additional paid-in capital	51,445	51,356
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale	4,806	4,067
Total accumulated other comprehensive income	4,806	4,067
Retained earnings	12,338	10,402
Total shareholders' equity	68,669	65,905
Total liabilities and shareholders' equity	$ 206,026	$ 185,888

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flow from operating activities:
Net income	$ 2,335	$ 1,072
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium discount, net	337	323
Depreciation and amortization of property plant and equipment, net	53	48
Net realized investment (gains) losses	(813)	10
Provision for credit losses, net	0	0
Recovery for uncollectible premiums receivable	0	(2)
Non-cash compensation	48	42
Changes in operating assets and liabilities:
Premiums receivable	(4,660)	(1,732)
Prepaid reinsurance premiums	2,983	3,220
Reinsurance recoverable, net	(83)	307
Income taxes recoverable	39	0
Deferred income tax expense, net of other comprehensive income	1,255	504
Policy acquisition costs, net of amortization	(1,661)	(869)
Other assets	538	(2,854)
Unpaid losses and LAE	(2,342)	(4,675)
Unearned premiums	14,283	6,749
Premium deposits and customer credit balances	1,264	358
Income taxes payable	77	48
Bank overdraft	363	(706)
Accounts payable and accrued expenses	3,726	(740)
Net cash provided by operating activities	17,742	1,103
Cash flow used by investing activities:
Proceeds from sale of investment securities	44,167	18,257
Purchases of investment securities available for sale	(54,130)	(19,090)
Purchases of property and equipment	(372)	(20)
Net cash used by investing activities	(10,335)	(853)
Cash flow (used) provided by financing activities:
Exercised stock options	17	0
Dividends paid	(399)	0
Tax benefit related to non-cash compensation	25	21
Net cash (used) provided by financing activities	(357)	21
Net increase in cash and short term investments	7,050	271
Cash and short term investments at beginning of period	21,143	15,205
Cash and short term investments at end of period	28,193	15,476
Cash paid during the period for:
Income taxes	20	0
Non-cash investing and finance activities:
Accrued dividends payable	$ 399	$ 0

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Reinsurance Agreements (Tables)

3 Months Ended

Mar. 31, 2013

Reinsurance Agreements [Abstract]

Private reinsurance companies

The 2012-2013 private reinsurance companies and their respective A.M. Best Company ("A.M. Best") rating are listed in the table as follows.

	Reinsurer	A.M. Best Rating			S&P Rating
UNITED STATES
	American Agricultural Insurance Company		A-			NR
	Everest Reinsurance Company		A+			A+
	Houston Casualty Company, (UK Branch)		A+	*		AA
	Munich Reinsurance America, Inc.		A+			AA-
	Odyssey Reinsurance Company		A			A-
BERMUDA
	ACE Tempest Reinsurance Limited		A+	*		AA-
	Arch Reinsurance Limited		A+	*		A+
	Ariel Reinsurance Bermuda Limited for and on Behalf of Ariel Syndicate 1910 (ARE)		A-	*		NR
	DaVinci Reinsurance Limited		A	*		A+
	JC Re Limited (Juniperus & fka Actua Re Limited)		NR	*	**	NR
	Montpelier Reinsurance Limited		A-			A-
	Nephila (via Allianz Risk Transfer AG, Bermuda Branch)		NR			AA-
	Platinum Underwriters Bermuda Limited		A	*		A-
	Renaissance Reinsurance Limited		A+	*		AA-
UNITED KINGDOM
	Amlin Syndicate No. 2001 (AML)		A			A+
	Ariel Syndicate No. 1910 (ARE)		A	*		A+
	RK Syndicate No. 3902 (NOA)		A			A+
	Barbican Syndication No. 1955 (BAR)		A			A+
	Kiln Syndicate No. 510 (KLN)		A			A+
	Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)		NR			A+
	MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)		A			A+
	Novae Syndicate No. 2007 (NVA)		A			A+
	Tokio Marine Kiln Syndicate No. 1880 (TMK)		A			A+
	Torus Syndicate No. 1301 (TUL)		A			A+
EUROPE
	Amlin Bermuda (Branch of Amlin AG)		A			A
	SCOR Global P&C Zurich Branch		A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

The 2011-2012 private reinsurance companies and their respective A.M. Best and S&P ratings are listed in the table as follows.

	Reinsurer	A.M. Best Rating				S&P Rating
UNITED STATES
	American Agricultural Insurance Company		A-			NR
	Everest Reinsurance Company		A+			A+
	Houston Casualty Company, (UK Branch)		A+			AA
	Munich Reinsurance America, Inc.		A+			AA-
	Odyssey Reinsurance Company		A			A-
	QBE Reinsurance Corporation		A			A+
BERMUDA
	ACE Tempest Reinsurance Limited		A+	*		A+
	Arch Reinsurance Limited		A			A+
	Ariel Reinsurance Company Limited, Bermuda		A-	*		A-
	DaVinci Reinsurance Limited		A	*		A+
	D.E. Shaw Re (Bermuda) Limited		NR		**	NR
	JC Re Ltd (Juniperus & fka Actua Re Limited)		NR	*	**	NR
	Montpelier Reinsurance Limited		A-			A-
	Renaissance Reinsurance Limited		A+	*		AA-
	Torus Insurance (Bermuda) Limited		A-	*		NR
UNITED KINGDOM
	Amlin Syndicate No. 2001 (AML)		A	*		A+
	Antares Syndicate No. 1274 (AUL)		A			A+
	Arrow Syndicate No. 1910 (ARW)		A	*		A+
	Broadgate Syndicate No. 1301 (BGT)		A			A+
	Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)		A			A+
	MAP Underwriting Syndicate No. 2791 (MAP)		A	*		A+
	Novae Syndicate No. 2007 (NVA)		A			A+
EUROPE
	Amlin Bermuda ( Branch of Amlin AG)		A			A
	Flagstone Reassurance Suisse SA		A-			NR
	Lansforsakringar Sak Forsakringsaktiebolag (publ)		NR-5			A
	SCOR Global P&C Zurich Branch		A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

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Stock Compensation Plans (Tables)

3 Months Ended

Mar. 31, 2013

Stock Compensation Plans [Abstract]

Activity in stock option plans

Activity in our stock option and incentive plans for the period from January 1, 2011 to March 31, 2013 is as follows.

	1998 Plan					2002 Plan					2012 Plan
	Number of Shares			Weighted Average Option Exercise Price		Number of Shares			Weighted Average Option Exercise Price		Number of Shares		Fair Market Value at Grant
Outstanding at January 1, 2011		89,750		$	12.83		574,800		$	9.12		-	$	-
Granted		-		$	-		179,000		$	2.45		-	$	-
Exercised		-		$	-		-		$	-		-	$	-
Cancelled		-		$	-		(129,100	)	$	14.29		-	$	-
Outstanding at January 1, 2012		89,750		$	12.83		624,700		$	6.15		-	$	-
Granted		-		$	-		181,500		$	4.40		-	$	-
Exercised		-		$	-		(33,104	)	$	3.86		-	$	-
Cancelled		(11,250	)	$	13.54		(70,499	)	$	12.45		-	$	-
Outstanding at January 1, 2013		78,500		$	12.73		702,597		$	5.17		-	$	-
Granted		-		$	-		-		$	-		100,000.00	$	5.54
Exercised		-		$	-		(6,101	)	$	3.16		-	$	-
Cancelled		-		$	-		(3,333	)	$	4.44		-	$	-
Outstanding at March 31, 2013		78,500		$	12.73		693,163		$	5.19		100,000.00	$	5.54

Maturity schedule of exercisable options outstanding

Options outstanding as of March 31, 2013 are exercisable as follows.

	1998 Plan				2002 Plan
Options Exercisable at:	Number of Shares		Weighted Average Option Exercise Price		Number of Shares		Weighted Average Option Exercise Price
March 31, 2013		77,800	$	12.73		336,357	$	5.19
December 31, 2013		700	$	12.73		138,426	$	5.19
December 31, 2014		-	$	12.73		141,480	$	5.19
December 31, 2015		-	$	12.73		76,900	$	5.19
December 31, 2016		-	$	12.73		-	$	5.19
December 31, 2017		-	$	12.73		-	$	5.19
Thereafter		-	$	12.73		-	$	5.19
Total options exercisable		78,500				693,163

Assumptions used to estimate the fair value of options granted

 The fair value of options granted is estimated on the date of grant using the following assumptions.

	March 31, 2013	March 31, 2012
Dividend yield	N/A	N/A
Expected volatility	N/A	N/A
Risk-free interest rate	N/A	N/A
Expected life (in years)	N/A	N/A

Summary of non-expired stock option plans outstanding

Summary information about the Company's stock option and incentive plans at March 31, 2013 is as follows.

					Weighted Average		Weighted
	Range of		Outstanding at		Contractual		Average		Exercisable at
	Exercise Price		March 31, 2013		Periods in Years		Exercise Price		March 31, 2013
1998 Plan	$	8.67 - $16.59		78,500		0.47	$	12.73		77,800
2002 Plan	$	2.45 - $13.24		693,163		5.57	$	5.19		336,357

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Organization and Business

3 Months Ended

Mar. 31, 2013

Basis of Presentation [Abstract]

Organization and Business

(1) Organization and Business

In this Quarterly Report on Form 10-Q, "FNHC" and the terms "Company", "we", "us" and "our" refer to Federated National Holding Company and its subsidiaries, unless the context indicates otherwise. We changed our name on September 11, 2012, pursuant to approval received at our annual shareholders' meeting, from 21st Century Holding Company so that our parent company and other subsidiary companies' names are consistent with our primary insurance subsidiary and the name under which we have been writing insurance for more than 20 years.

FNHC is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents.

We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners' multi-peril ("homeowners"), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states.  We market and distribute our own and third-party insurers' products and our other services through a network of independent agents. We also utilize a select number of general agents for the same purpose.

Our insurance subsidiary is Federated National Insurance Company ("FNIC"). FNIC is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state insurance regulator for authority to write specific lines of insurance in that state.  Through contractual relationships with a network of approximately 3,300 independent agents, of which approximately 1,200 actively sell and service our products, FNIC is authorized to underwrite homeowners', commercial general liability, fire, allied lines and personal and commercial automobile insurance in Florida. FNIC is also licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texas, and underwrites commercial general liability insurance in those states and personal automobile insurance in Georgia and Texas.

FNIC operates as a non-admitted carrier in Arkansas, Kentucky, Missouri, Nevada, Oklahoma, South Carolina and Tennessee, and can underwrite commercial general liability insurance in all of these states.  A non-admitted carrier, sometimes referred to as a "excess and surplus lines" carrier, is permitted to do business in a state and, although it is strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud, non-admitted carriers are subject to considerably less regulation with respect to policy rates and forms. Non-admitted carriers are not required to financially contribute to and benefit from the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due their policyholders.

In January 2011, we merged FNIC and our other wholly owned insurance subsidiary, American Vehicle Insurance Company ("American Vehicle"), with FNIC continuing the operations of both entities. As part of its approval of the merger between FNIC and American Vehicle, the Florida Office of Insurance Regulation ("Florida OIR"), the Company, FNIC and American Vehicle entered into a consent order with the Florida OIR dated January 25, 2011 (the "Consent Order"), which was amended in February 2013, due to FNIC's statutory underwriting profit during 2012. Pursuant to the amended Consent Order, the Company and the resulting company in the merger (the "Merged Company") have agreed to the following:

· The Merged Company retained the following licenses: (010) Fire, (020) Allied Lines, (040) Homeowners Multi Peril, (050) Commercial Multi Peril, (090) Inland Marine, (170) Other Liability, (192) Private Passenger Auto Liability, (194) Commercial Auto Liability, (211) Private Passenger Auto Physical Damage and (212) Commercial Auto Physical Damage.

· The Merged Company will not write commercial multi peril policy premium without prior approval from the Florida OIR. The Merged Company has no commercial multi peril policy premium in force.

· The Merged Company surrendered its surety license. The Merged Company has no surety policy premium in force.

· The Merged Company will not write new commercial habitation condominium associations without prior approval from the Florida OIR. The current commercial habitation book of business is fully earned.

· The Merged Company agreed to maintain the total number of its homeowners' policies in Miami-Dade, Broward and Palm Beach counties (the "Tri-County Area") to no more than 35% of its entire homeowners' book. As of March 31, 2013, the Company had approximately 19.1% of its homeowners' policies located within Tri-County Area.

· The managing general agency fees payable by the Merged Company to Federated National Underwriters, Inc. ("FNU"), formerly known as Assurance Managing General Agents, Inc., a wholly owned subsidiary of the Company, which were traditionally 6% of gross written premium, were reduced and will not exceed 4% without prior approval from the Florida OIR. The Merged Company has lowered the fee to amounts varying between 2% and 4% of gross written to further support the FNIC results of operations.  This will have no impact on the Company's consolidated financial results.

· The claims service fees payable by the Merged Company to Federated National Adjusting, Inc. ("FNA"), formerly known as Superior Adjusting, Inc., were reduced from the traditional 4.5% of gross earned premium to 3.6% of gross earned premium. This will have no impact on the Company's consolidated financial results.

The merger of FNIC and American Vehicle will be an ongoing transition, many aspects of which will take effect over time. References to the companies contained herein are intended to be references to the operations of FNIC following the January 2011 merger. References to the historical activities of American Vehicle are appropriately identified throughout this document.

During the three months ended March 31, 2013, 86.5%, 5.9%, 2.8% and 4.8% of the premiums we underwrote were for homeowners', commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended March 31, 2012, 86.6%, 7.7%, 3.5% and 2.2% of the premiums we underwrote were for homeowners', commercial general liability, federal flood, and automobile insurance, respectively.

Our business, results of operations and financial condition are subject to fluctuations due to a variety of factors. Abnormally high severity or frequency of claims in any period could have a material adverse effect on us. When our estimated liabilities for unpaid losses and loss adjustment expenses ("LAE") are less than the actuarially determined amounts, we increase the expense in the current period. Conversely, when our estimated liabilities for unpaid losses and LAE are greater than the actuarially determined amounts, we decrease the expense in the current period.

We are focusing our marketing efforts on continuing to expand our distribution network while maintaining our commitment to long-term relationships. We market our products and services throughout Florida and in other states by establishing relationships with additional independent agents and general agents. There can be no assurance, however, that we will be able to obtain the required regulatory approvals to offer additional insurance products or expand into other states.

FNU acts as FNIC's exclusive managing general agent in Florida and is also licensed as a managing general agent in the States of Alabama, Georgia, Louisiana, Mississippi, Missouri, North Carolina, Nevada, South Carolina, Texas and Virginia. FNU has contracted with several unaffiliated insurance companies to sell commercial general liability, workers compensation, personal umbrella, inland marine and other various lines of insurance through FNU's existing network of agents.

FNU earns commissions and fees for providing policy administration, marketing, accounting and analytical services, and for participating in the negotiation of reinsurance contracts. FNU earns a $25 per policy fee and traditionally a 6% commission fee from its affiliate, FNIC. During the fourth quarter of 2010, FNU, pursuant to the Consent Order as discussed above, reduced its fee, to earn amounts varying between 2% and 4%, which we anticipate will return to 6% at an unknown future date with approval from the Florida OIR. A formal agreement reflecting this fee modification was executed during January 2011.

We internally process claims made by our insureds through our wholly owned claims adjusting company, FNA. Our agents have no authority to settle claims or otherwise exercise control over the claims process. Furthermore, we believe that the retention of independent adjusters, in addition to the employment of salaried claims personnel, results in reduced ultimate loss payments, lower LAE and improved customer service for our claimants and policyholders. We also employ an in-house Litigation Manager to cost effectively manage claims-related litigation and to monitor our claims handling practices for efficiency and regulatory compliance.

Insure-Link, Inc. serves as an independent insurance agency. The insurance agency markets direct to the public to provide a variety of insurance products and services to individual clients, as well as business clients, by offering a full line of insurance products including, but not limited to,  homeowners', flood, personal and commercial automobile, commercial general liability and workers' compensation insurance through their agency appointments with over thirty different carriers.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Premiums receivable, allowance for credit losses	$ 69	$ 69
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	25,000,000	25,000,000
Common Stock, issued (in shares)	7,984,922	7,979,488
Common Stock, outstanding (in shares)	7,984,922	7,979,488
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0

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Subsequent Events

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

Subsequent Events

(11) Subsequent Events

 There were no subsequent events.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 09, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	FEDERATED NATIONAL HOLDING CO
Entity Central Index Key	0001069996
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,120,423
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013

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Summary of Significant Accounting Policies and Practices (Policies)

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting Policies and Practices [Abstract]

Impact of New Accounting Pronouncements

(B) Impact of New Accounting Pronouncements

In February 2013, the FASB issued Accounting Standard Update ("ASU") No. 2013-02: Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of this ASU is to improve the reporting of reclassifications out of accumulated other comprehensive income.  The amendments require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety in net income.  For other amounts that are not required to be reclassified to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.  The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements.  The ASU is effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

In January 2013, the FASB issued ASU No. 2013-01: Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The objective of this ASU is to clarify the scope of offsetting disclosures and to address implementation issues with ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.  The amendments clarify that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.  An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods.  An entity should provide the required disclosures retrospectively for all comparative periods.  The adoption of these amendments will not have a material impact on our financial condition, results of operations or cash flows.

In July 2012, the FASB issued ASU No. 2012-02: Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.   Upon adoption, these amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; early adoption is permitted.  The adoption of these amendments did not have a material impact on our financial condition, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05: Comprehensive Income (Topic 220):  Presentation of Comprehensive Income. The guidance in this ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The guidance in this ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Upon adoption, this update is to be applied retrospectively and is effective during interim and annual periods beginning after December 15, 2011.  Early adoption is permitted. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-12:  Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  The guidance defers certain provisions contained in ASU No. 2011-05 requiring the requirement to present components of reclassifications of other comprehensive income on the face of the income statement or in the notes to the financial statements. However, this deferral does not impact the other requirements contained in the new standard on comprehensive income as described above. This ASU is effective during interim and annual periods beginning after December 15, 2011.  The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08: Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which amends ASC Topic 350, Intangibles-Goodwill and Other. The guidance in this ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-11: Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, which requires new disclosure requirements mandating that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. This ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not have a material impact on our financial condition, results of operations or cash flows.

In October 2010, the FASB issued ASU No. 2010-26: Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, a consensus of FASB Emerging Issues Task Force.  The amendments in this update modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The amendments in this update specify that the costs must be based on successful efforts (that is, acquiring a new or renewal contract).  The amendments also specify that advertising costs should be included as deferred acquisition costs under certain circumstances.  The amendments in this update are effective for fiscal years, and interim period within those fiscal years, beginning after December 15, 2011.  The amendments in this update should be applied prospectively upon adoption.  Retrospective application to all prior periods presented upon the date of adoption also is permitted.  The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Other recent accounting pronouncements issued by FASB, the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

Stock Options

               (C) Stock Options

Pursuant to FASB issued guidance, compensation cost recognized during the three months ended March 31, 2013 includes compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the guidance.

Earnings (Loss) per Share

(D) Earnings (Loss) per Share

Basic earnings (loss) per share ("Basic EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented.  Diluted earnings per share ("Diluted EPS") is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period presented. Diluted loss per share would be antidilutive, therefore in accordance with GAAP basic and diluted loss per share is the same.

Reclassifications

(E) Reclassifications

No reclassification of the 2012 financial statements was necessary to conform to the 2013 presentation.

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenue:
Gross premiums written	$ 45,826	$ 31,274
Gross premiums ceded	(2,834)	(1,858)
Net premiums written	42,992	29,416
Decrease in prepaid reinsurance premiums	(9,914)	(9,849)
Increase in unearned premiums	(14,286)	(6,749)
Net change in prepaid reinsurance premiums and unearned premiums	(24,200)	(16,598)
Net premiums earned	18,792	12,818
Commission income	507	307
Finance revenue	146	114
Managing general agent fees	689	533
Net investment income	794	961
Net realized investment gains (losses)	813	(10)
Regulatory assessments recovered	0	0
Other income	125	20
Total revenue	21,866	14,743
Expenses:
Losses and LAE	9,321	5,728
Operating and underwriting expenses	2,727	2,411
Salaries and wages	2,333	2,211
Policy acquisition costs - amortization	3,753	2,748
Total expenses	18,134	13,098
Income before provision for income tax expense	3,732	1,645
Provision for income tax expense	1,397	573
Net income	$ 2,335	$ 1,072
Net income per share - basic (in dollars per share)	$ 0.29	$ 0.13
Net income per share - diluted (in dollars per share)	$ 0.29	$ 0.13
Weighted average number of common shares outstanding - basic (in shares)	7,982,934	7,946,384
Weighted average number of common shares outstanding - diluted (in shares)	8,126,721	7,962,295
Dividends paid per share (in dollars per share)	$ 0.02	$ 0

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Fair Value Disclosure

3 Months Ended

Mar. 31, 2013

Fair Value Disclosure [Abstract]

Fair Value Disclosure

(6) Fair Value Disclosure

In April 2009, the FASB issued accounting guidance that if an entity determines that either the volume and/or level of activity for an investment security has significantly decreased (from normal conditions for that investment security) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. This guidance was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. This guidance was applied prospectively. The adoption of this guidance did not have an impact on the Company's financial statements or condition.

In October 2008, the FASB issued accounting guidance to clarify the application of GAAP in determining fair value of financial instruments in a market that is not active.  The guidance was effective upon issuance, including prior periods for which financial statements had not been issued.  Our adoption of this guidance does not have a material effect on our financial position, results of operations, cash flows or disclosures.

In September 2006, FASB issued accounting guidance that defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date.  This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The guidance also categorizes assets and liabilities at fair value into one of three different levels depending on the observation of the inputs employed in the measurement, as follows.

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.  A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for an asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Securities available for sale:  The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized security exchanges.

Assets measured at fair value on a recurring basis as of March 31, 2013, presented in accordance with this guidance, are as follows.

	As of March 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and
authorities	$	13,472	$	11,372	$	-	$	24,844
Obligations of states and political
subdivisions		-		3,862		-		3,862
Corporate		75,800		-		-		75,800
International		-		3,258		-		3,258
		89,272		18,492		-		107,764
Equity securities:
Common stocks		27,108		-		-		27,108
		27,108		-		-		27,108
Total debt and equity securities	$	116,380	$	18,492	$	-	$	134,872

Assets measured at fair value on a recurring basis as of December 31, 2012, presented in accordance with this guidance, are as follows.

	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and
authorities	$	12,464	$	14,928	$	-	$	27,392
Obligations of states and political
subdivisions		-		3,939		-		3,939
Corporate		67,313		-		-		67,313
International		-		3,111		-		3,111
		79,777		21,978		-		101,755
Equity securities:
Common stocks		20,982		-		-		20,982
		20,982		-		-		20,982
Total debt and equity securities	$	100,759	$	21,978	$	-	$	122,737

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Investments

3 Months Ended

Mar. 31, 2013

Investments [Abstract]

Investments

(5) Investments

FASB issued guidance addresses accounting and reporting for (a) investments in equity securities that have readily determinable fair values and (b) all investments in debt securities. The guidance requires that these securities be classified into one of three categories: Held-to-maturity, Trading, or Available-for-sale securities.

Investments classified as held-to-maturity include debt securities wherein the Company's intent and ability are to hold the investment until maturity. The accounting treatment for held-to-maturity investments is to carry them at amortized cost without consideration to unrealized gains or losses. Investments classified as trading securities include debt and equity securities bought and held primarily for the sale in the near term. The accounting treatment for trading securities is to carry them at fair value with unrealized holding gains and losses included in current period operations. Investments classified as available-for-sale include debt and equity securities that are not classified as held-to-maturity or as trading security investments. The accounting treatment for available-for-sale securities is to carry them at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of shareholders' equity, namely "Other Comprehensive Income".

Total investments increased $11.6 million, or 8.9%, to $141.7 million as of March 31, 2013, compared with $130.1 million as of December 31, 2012.

The debt and equity securities that are available for sale and carried at fair value represent 95% of total investments as of March 31, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the three months ended March 31, 2013.

The FASB issued guidance also addresses the determination as to when an investment is considered impaired, whether that impairment is other-than temporary, and the measurement of an impairment loss. The Company's policy for the valuation of temporarily impaired securities is to determine impairment based on the analysis of the following factors.

· rating downgrade or other credit event (eg., failure to pay interest when due);

· length of time and the extent to which the fair value has been less than amortized cost;

· financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology or discontinuance of a business segment;

· prospects for the issuer's industry segment;

· intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value;

· historical volatility of the fair value of the security.

Pursuant to FASB issued guidance, the Company records the unrealized losses, net of estimated income taxes that are associated with that part of our portfolio classified as available-for-sale through the shareholders' equity account titled "Other Comprehensive Income". Management periodically reviews the individual investments that comprise our portfolio in order to determine whether a decline in fair value below our cost either is other-than temporarily or permanently impaired. Factors used in such consideration include, but are not limited to, the extent and length of time over which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our ability and intent to keep the investment for a period sufficient to allow for an anticipated recovery in market value.

In reaching a conclusion that a security is either other-than-temporarily or permanently impaired we consider such factors as the timeliness and completeness of expected dividends, principal and interest payments, ratings from nationally recognized statistical rating organizations such as Standard and Poor's ("S&P") and Moody's Investors Service, Inc. ("Moody's"), as well as information released via the general media channels. In connection with this process, we have not charged net realized losses to operations during the three months ended March 31, 2013.

As of March 31, 2013 and December 31, 2012, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of March 31, 2013 and December 31, 2012, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of March 31, 2013, 74% of our debt portfolio was in diverse industries and 26% was in United States government bonds. As of March 31, 2013, approximately 89% of our equity holdings were in equities related to diverse industries and 11% were in mutual funds. As of December 31, 2012, 69% of our debt portfolio was in diverse industries and 31% is in United States government bonds. As of December 31, 2012, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds.

As of March 31, 2013 and December 31, 2012, we have classified $6.9 million and $7.4 million, respectively, of our bond portfolio as held-to-maturity. We classify bonds as held-to-maturity to support securitization of credit requirements.

During the three months ended March 31, 2013 and 2012, respectively, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity.

During April 2006, American Vehicle finalized a $15.0 million irrevocable letter of credit in conjunction with the 100% Quota Share Reinsurance Agreement with Republic Underwriters Insurance Company ("Republic") which was terminated in April 2007. During 2010, the letter of credit in favor of Republic was replaced by a fully funded trust agreement. As of March 31, 2013 and December 31, 2012 respectively, the amount held in trust was $1.0 million.

 (A) Debt and Equity Securities

The following table summarizes, by type, our investments as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	24,844		17.53	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,862		2.73	%		3,939		3.03	%
Corporate		75,800		53.49	%		67,313		51.74	%
International		3,258		2.30	%		3,111		2.39	%
		107,764		76.05	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,737		3.34	%		6,016		4.62	%
Corporate		2,000		1.41	%		1,203		0.92	%
International		112		0.08	%		140		0.11	%
		6,849		4.83	%		7,359		5.65	%
Total debt securities		114,613		80.88	%		109,114		83.87	%
Equity securities, at market:		27,108		19.12	%		20,982		16.13	%
Total investments	$	141,721		100.00	%	$	130,096		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,133		$	22,601	$	233		$	6,496
Equity securities		189			1,079		516			3,073
Total realized gains		1,322			23,680		749			9,569
Debt securities		(409	)		16,476		(206	)		5,042
Equity securities		(100	)		623		(553	)		1,666
Total realized losses		(509	)		17,099		(759	)		6,708
Net realized gains (losses) on investments	$	813		$	40,779	$	(10	)	$	16,277

During the three months ended March 31, 2013 the investment committee decided to shorten the duration of the bond portfolio by approximately one year to prepare for the eventuality of rising interest rates over the next several years. Interest rates and bond prices move inversely, so any rise in interest rates adversely impacts the value of our fixed income portfolio. This impact is magnified when the portfolio is positioned with a longer duration. This decision generated a majority of the approximately $0.8 million in realized gains and also explains the drop in investment income for the quarter measured against the same three month period last year.

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at March 31, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
March 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations
and authorities	$	24,352	$	502	$	10	$	24,844
Obligations of states and political
subdivisions		3,664		199		1		3,862
Corporate		73,216		2,622		38		75,800
International		3,258		25		25		3,258
	$	104,490	$	3,348	$	74	$	107,764
Debt Securities  - Held-To-Maturity:
United States government obligations
and authorities	$	4,737	$	124	$	-	$	4,861
Corporate		2,000		37		-		2,037
International		112		-		1		111
	$	6,849	$	161	$	1	$	7,009
Equity securities - common stocks	$	22,676	$	4,953	$	521	$	27,108
December 31, 2012
Debt Securities  - Available-For-Sale:
United States government obligations
and authorities	$	26,825	$	632	$	65	$	27,392
Obligations of states and political
subdivisions		3,738		202		1		3,939
Corporate		63,553		3,794		34		67,313
International		3,005		107		1		3,111
	$	97,121	$	4,735	$	101	$	101,755
Debt Securities  - Held-To-Maturity:
United States government obligations
and authorities	$	6,016	$	149	$	12	$	6,153
Corporate		1,203		61		2		1,262
International		140		-		1		139
	$	7,359	$	210	$	15	$	7,554
Equity securities - common stocks	$	19,095	$	2,505	$	618	$	20,982

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of March 31, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations
and authorities	$	10	$	10	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		38		38		-
International		25		25		-
		74		74		-
Equity securities:
Common stocks		521		254		267
Total debt and equity securities	$	595	$	328	$	267

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of December 31, 2012.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations
and authorities	$	65	$	65	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		34		34		-
International		1		1		-
		101		101		-
Equity securities:
Common stocks		618		430		188
Total debt and equity securities	$	719	$	531	$	188

Below is a summary of debt securities at March 31, 2013 and December 31, 2012, by contractual or expected maturity periods. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	2,264	$	2,295	$	2,925	$	2,944
Due after one through five years		70,955		72,528		49,826		51,523
Due after five through ten years		37,384		39,122		35,070		37,182
Due after ten years		736		828		16,659		17,660
Total	$	111,339	$	114,773	$	104,480	$	109,309

United States Treasury notes with a book value of $63,238 and $2,179,368, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of March 31, 2013, as required by law for FNIC, and are included with other investments held until maturity.

United States Treasury notes with a book value of $63,481 and $2,193,300, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2012, as required by law for FNIC, and are included with other investments held until maturity.

The table below sets forth investment results for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	714	$	878
Dividends on equity securities		80		82
Interest on cash and cash equivalents		-		1
Total investment income	$	794	$	961
Net realized gains (losses)	$	813	$	(10	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended March 31, 2013 and 2012, were approximately $44.2 million and $18.3million, respectively.

The table below sets forth a summary of net realized and unrealized investment gains during the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Net realized gains
Debt securities	$	724	$	27
Equity securities		89		(37	)
Total	$	813	$	(10	)
Net unrealized gains
Debt securities	$	3,275	$	2,365
Equity securities		4,431		924
Total	$	7,706	$	3,289

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Unpaid losses and LAE (Tables)

3 Months Ended

Mar. 31, 2013

Unpaid losses and LAE [Abstract]

Schedule of liability for future insurance policy benefits

Activity in the liability for unpaid losses and LAE is summarized as follows.

	Three Months Ended			Twelve Months Ended
	March 31, 2013			December 31, 2012
	(Dollars in Thousands)
Balance at January 1	$	49,908		$	59,983
Less reinsurance recoverables		(3,503	)		(2,088	)
Net balance at January 1	$	46,405		$	57,895
Incurred related to
Current year	$	10,126		$	31,636
Prior years		(805	)		(1,427	)
Total incurred	$	9,321		$	30,209
Paid related to
Current year	$	1,867		$	15,892
Prior years		9,880			25,807
Total paid	$	11,747		$	41,699
Net balance at period end	$	43,979		$	46,405
Plus reinsurance recoverables		3,586			3,503
Balance at period end	$	47,565		$	49,908

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies [Abstract]

Expected future lease payments

The expected future payments in connection with this lease are as follows.

Fiscal Year	Payments
	(Dollars in Thousands)
2013		280
2014		380
2015		388
2016		395
2017		151
Total	$	1,594

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Stock Compensation Plans

3 Months Ended

Mar. 31, 2013

Stock Compensation Plans [Abstract]

Stock Compensation Plans

(9) Stock Compensation Plans

We implemented a stock option plan in 1998 (the "1998 Plan"), which expired in September 2008. Under this plan, we were authorized to grant options to purchase up to 900,000 common shares, and as of March 31, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 78,500 shares, respectively.

We implemented a stock option plan in 2002 (the "2002 Plan"), which expired in April 2012.  Under this plan, we were authorized to grant options to purchase up to 1,800,000 common shares, and as of March 31, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 693,163 and 702,597 shares, respectively.

In April 2012, our Board of Directors adopted, and in September 2012 our shareholders approved, the Company's 2012 Stock Incentive Plan (the "2012 Plan").  The 2012 Plan permits the issuance of up to 1,000,000 shares of our common stock, subject to adjustment as provided for in the 2012 Plan, in connection with the grant of a variety of equity incentive awards, such as incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, and performance shares. Officers, directors and executive, managerial, administrative and professional employees of the Company and its subsidiaries are eligible to participate in the 2012 Plan. Awards may be granted singly, in combination, or in tandem. The 2012 Plan was amended and restated in March 2013 to clarify the plan administrator's authority to permit the vesting of unvested restricted shares in the event of the death of the grantee. The 2012 Plan will expire on April 5, 2022.

On March 4, 2013, a total of 100,000 restricted shares from the 2012 Plan were granted pursuant to the vesting requirements and other terms and conditions set forth in Restricted Stock Agreements.  Of the total, 25,000 shares were granted to the Company's Chief Executive Officer and President and 15,000 shares were granted to the Company's Chief Financial Officer.  An aggregate of 20,000 shares were granted to the Company's directors and the remaining 40,000 shares were granted to other employees of the Company.

There were no options granted during the three months ended March 31, 2012.

FASB issued guidance requires that when valuing an employee stock option under the Black-Scholes option pricing model, the fair value be based on the option's expected term and expected volatility rather than the contractual term.  The estimate of the fair value on the grant date should reflect the assumptions marketplace participants now use on the date of the measurement (i.e. grant date).  During 2011, management changed the expected term in the Black –Scholes option pricing model from four years to two years for new options granted.  Management believes that share price volatility over the last two years is more indicative of future share price volatility.  The change has had an immaterial impact on the financial statements.

Activity in our stock option and incentive plans for the period from January 1, 2011 to March 31, 2013 is as follows.

	1998 Plan					2002 Plan					2012 Plan
	Number of Shares			Weighted Average Option Exercise Price		Number of Shares			Weighted Average Option Exercise Price		Number of Shares		Fair Market Value at Grant
Outstanding at January 1, 2011		89,750		$	12.83		574,800		$	9.12		-	$	-
Granted		-		$	-		179,000		$	2.45		-	$	-
Exercised		-		$	-		-		$	-		-	$	-
Cancelled		-		$	-		(129,100	)	$	14.29		-	$	-
Outstanding at January 1, 2012		89,750		$	12.83		624,700		$	6.15		-	$	-
Granted		-		$	-		181,500		$	4.40		-	$	-
Exercised		-		$	-		(33,104	)	$	3.86		-	$	-
Cancelled		(11,250	)	$	13.54		(70,499	)	$	12.45		-	$	-
Outstanding at January 1, 2013		78,500		$	12.73		702,597		$	5.17		-	$	-
Granted		-		$	-		-		$	-		100,000.00	$	5.54
Exercised		-		$	-		(6,101	)	$	3.16		-	$	-
Cancelled		-		$	-		(3,333	)	$	4.44		-	$	-
Outstanding at March 31, 2013		78,500		$	12.73		693,163		$	5.19		100,000.00	$	5.54

Options outstanding as of March 31, 2013 are exercisable as follows.

	1998 Plan				2002 Plan
Options Exercisable at:	Number of Shares		Weighted Average Option Exercise Price		Number of Shares		Weighted Average Option Exercise Price
March 31, 2013		77,800	$	12.73		336,357	$	5.19
December 31, 2013		700	$	12.73		138,426	$	5.19
December 31, 2014		-	$	12.73		141,480	$	5.19
December 31, 2015		-	$	12.73		76,900	$	5.19
December 31, 2016		-	$	12.73		-	$	5.19
December 31, 2017		-	$	12.73		-	$	5.19
Thereafter		-	$	12.73		-	$	5.19
Total options exercisable		78,500				693,163

Upon the exercise of options, the Company issues authorized shares.

Prior to January 1, 2006, we accounted for the plans under the recognition and measurement provisions of stock-based compensation using the intrinsic value method prescribed by the APB and related Interpretation, as permitted by FASB issued guidance.Under these provisions, no stock-based employee compensation cost was recognized in the Statement of Operations as all options granted under those plans had an exercise price equal to or less than the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB issued guidance using the modified-prospective-transition method. Under that transition method, compensation costs recognized during 2013 and 2012 include the following.

· Compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FASB issued guidance, and

· Compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair-value estimated in accordance with the provisions of FASB issued guidance. Results for prior periods have not been restated, as they are not required to be by the pronouncement.

As a result of adopting FASB issued guidance on January 1, 2006, the Company's income from continuing operations before provision for income tax expense and net income for the three months ended March 31, 2013 are lower by approximately $66,000 and $41,000, respectively, than if it had continued to account for share-based compensation under APB guidance.

As a result of adopting FASB issued guidance on January 1, 2006, the Company's income from continuing operations before provision for income tax expense and net income for the three months ended March 31, 2012 are lower by approximately $58,000 and $36,000, respectively, than if it had continued to account for share-based compensation under APB guidance.

Basic and diluted earnings per share for the three months ended March 31, 2013 would have been $0.30, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.29.

Basic and diluted earnings per share for the three months ended March 31, 2012 would have remained unchanged at $0.13, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.13.

Because the change in income taxes receivable includes the effect of excess tax benefits, those excess tax benefits also must be shown as a separate operating cash outflow so that operating cash flows exclude the effect of excess tax benefits. FASB issued guidance requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows.l

 The fair value of options granted is estimated on the date of grant using the following assumptions.

	March 31, 2013	March 31, 2012
Dividend yield	N/A	N/A
Expected volatility	N/A	N/A
Risk-free interest rate	N/A	N/A
Expected life (in years)	N/A	N/A

Summary information about the Company's stock option and incentive plans at March 31, 2013 is as follows.

					Weighted Average		Weighted
	Range of		Outstanding at		Contractual		Average		Exercisable at
	Exercise Price		March 31, 2013		Periods in Years		Exercise Price		March 31, 2013
1998 Plan	$	8.67 - $16.59		78,500		0.47	$	12.73		77,800
2002 Plan	$	2.45 - $13.24		693,163		5.57	$	5.19		336,357

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Reinsurance Agreements

3 Months Ended

Mar. 31, 2013

Reinsurance Agreements [Abstract]

Reinsurance Agreements

(7) Reinsurance Agreements

Financing risk generally involves a combination of risk retention and risk transfer techniques. "Retention", similar to a deductible, involves financing losses by funds internally generated. "Transfer" involves the existence of a contractual arrangement designed to shift financial responsibility to another party in exchange for premium. Secondary to the primary risk-transfer agreements, we use reinsurance agreements to transfer a portion of the risks insured under our policies to other companies through the purchase of reinsurance. We utilize reinsurance to reduce exposure to catastrophic and non-catastrophic risks and to help manage the cost of capital. Reinsurance techniques are designed to lessen earnings volatility, improve shareholder return, and to support the required statutory surplus requirements. We also use reinsurance to realize an arbitrage of premium rates, benefit from the availability of our reinsurers' expertise, and benefit from the management of a profitable portfolio of insureds by way of enhanced analytical capacities. Our primary property line that is subject to catastrophic reinsurance is Homeowners Multiple Peril. FNIC cedes these risks to domestic and foreign reinsurance participants from Bermuda and Europe as well as to the FHCF.

Generally, there are three separate kinds of reinsurance structures – quota share, excess of loss, and facultative, each considered either proportional or non-proportional. Our reinsurance structures are maintained to protect our insurance subsidiary against the severity of losses on individual claims or unusually serious occurrences in which the frequency and or the severity of claims produce an aggregate extraordinary loss from catastrophic events. In addition to reinsurance agreements, we also from time to time enter into retro-cessionary reinsurance agreements; each designed to shift financial responsibility based on predefined conditions.

Although reinsurance does not discharge us from our primary obligation to pay for losses insured under the policies we issue, reinsurance does make the assuming reinsurer liable to the insurance subsidiary for the reinsured portion of the risk. A credit risk exposure exists with respect to ceded losses to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. The collectability of reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. A reinsurer's insolvency or inability to make payments under the terms of a reinsurance contract could have a material adverse effect on our results of operations and financial condition. Our reinsurance structure has significant risks, including the fact that the FHCF may not be able to raise sufficient money to pay its claims or impair its ability to pay its claims in a timely manner. This could result in significant financial, legal and operational challenges to all property and casualty companies associated with FHCF, including our company.

The availability and costs associated with the acquisition of reinsurance will vary year to year. These fluctuations, which can be significant, are not subject to our control and may limit our ability to purchase adequate coverage. For example, FHCF continues to restrict its reinsurance capacity and is expected to continue constricting capacity for future seasons. This gradual restriction is requiring us to replace that capacity with private market reinsurance. Our reinsurance program is subject to approval by the Florida OIR and review by Demotech, Inc. ("Demotech"). The recovery of increased reinsurance costs through rate action is not immediate and cannot be presumed and is subject to Florida OIR approval.

For the 2012–2013 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $328.3 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $246.5 million, with the Company retaining the first $8.0 million of losses and LAE for each event. The reinsurance program includes coverage purchased from the private market, which affords optional reinstatement premium protection that provides coverage beyond the first event, along with any remaining coverage from the FHCF. Coverage afforded by the FHCF totals approximately $144.7 million, or 44.1% of the $328.3 million of aggregate catastrophic losses and LAE. The FHCF affords coverage for the entire season, subject to maximum payouts, without regard to any particular insurable event.

The estimated cost to the Company for the excess of loss reinsurance products for the 2012-2013 hurricane season, inclusive of approximately $9.6 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $41.6 million.

The 2012-2013 private reinsurance companies and their respective A.M. Best Company ("A.M. Best") rating are listed in the table as follows.

	Reinsurer	A.M. Best Rating			S&P Rating
UNITED STATES
	American Agricultural Insurance Company		A-			NR
	Everest Reinsurance Company		A+			A+
	Houston Casualty Company, (UK Branch)		A+	*		AA
	Munich Reinsurance America, Inc.		A+			AA-
	Odyssey Reinsurance Company		A			A-
BERMUDA
	ACE Tempest Reinsurance Limited		A+	*		AA-
	Arch Reinsurance Limited		A+	*		A+
	Ariel Reinsurance Bermuda Limited for and on Behalf of Ariel Syndicate 1910 (ARE)		A-	*		NR
	DaVinci Reinsurance Limited		A	*		A+
	JC Re Limited (Juniperus & fka Actua Re Limited)		NR	*	**	NR
	Montpelier Reinsurance Limited		A-			A-
	Nephila (via Allianz Risk Transfer AG, Bermuda Branch)		NR			AA-
	Platinum Underwriters Bermuda Limited		A	*		A-
	Renaissance Reinsurance Limited		A+	*		AA-
UNITED KINGDOM
	Amlin Syndicate No. 2001 (AML)		A			A+
	Ariel Syndicate No. 1910 (ARE)		A	*		A+
	RK Syndicate No. 3902 (NOA)		A			A+
	Barbican Syndication No. 1955 (BAR)		A			A+
	Kiln Syndicate No. 510 (KLN)		A			A+
	Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)		NR			A+
	MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)		A			A+
	Novae Syndicate No. 2007 (NVA)		A			A+
	Tokio Marine Kiln Syndicate No. 1880 (TMK)		A			A+
	Torus Syndicate No. 1301 (TUL)		A			A+
EUROPE
	Amlin Bermuda (Branch of Amlin AG)		A			A
	SCOR Global P&C Zurich Branch		A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

For the 2011–2012 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $298.0 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $226.0 million, with the Company retaining the first $7.0 million of losses and LAE for each event. The reinsurance program included coverage purchased from the private market, which affords optional reinstatement premium protection that provides coverage beyond the first event, along with any remaining coverage from the FHCF. Coverage afforded by the FHCF totals approximately $154.1 million, or 51.7% of the $298.0 million of aggregate catastrophic losses and LAE. The FHCF affords coverage for the entire season, subject to maximum payouts, without regard to any particular insurable event.

The estimated cost to the Company for the excess of loss reinsurance products for the 2011-2012 hurricane season, inclusive of approximately $11.7 million payable to the FHCF and the prepaid automatic premium reinstatement protection, wass approximately $39.7 million.

The 2011-2012 private reinsurance companies and their respective A.M. Best and S&P ratings are listed in the table as follows.

	Reinsurer	A.M. Best Rating				S&P Rating
UNITED STATES
	American Agricultural Insurance Company		A-			NR
	Everest Reinsurance Company		A+			A+
	Houston Casualty Company, (UK Branch)		A+			AA
	Munich Reinsurance America, Inc.		A+			AA-
	Odyssey Reinsurance Company		A			A-
	QBE Reinsurance Corporation		A			A+
BERMUDA
	ACE Tempest Reinsurance Limited		A+	*		A+
	Arch Reinsurance Limited		A			A+
	Ariel Reinsurance Company Limited, Bermuda		A-	*		A-
	DaVinci Reinsurance Limited		A	*		A+
	D.E. Shaw Re (Bermuda) Limited		NR		**	NR
	JC Re Ltd (Juniperus & fka Actua Re Limited)		NR	*	**	NR
	Montpelier Reinsurance Limited		A-			A-
	Renaissance Reinsurance Limited		A+	*		AA-
	Torus Insurance (Bermuda) Limited		A-	*		NR
UNITED KINGDOM
	Amlin Syndicate No. 2001 (AML)		A	*		A+
	Antares Syndicate No. 1274 (AUL)		A			A+
	Arrow Syndicate No. 1910 (ARW)		A	*		A+
	Broadgate Syndicate No. 1301 (BGT)		A			A+
	Liberty Syndicates Services Limited Paris, for and on Behalf of Lloyd's Syndicate  No. 4472 (LIB)		A			A+
	MAP Underwriting Syndicate No. 2791 (MAP)		A	*		A+
	Novae Syndicate No. 2007 (NVA)		A			A+
EUROPE
	Amlin Bermuda ( Branch of Amlin AG)		A			A
	Flagstone Reassurance Suisse SA		A-			NR
	Lansforsakringar Sak Forsakringsaktiebolag (publ)		NR-5			A
	SCOR Global P&C Zurich Branch		A			A
* Reinstatement Premium Protection Program Participants
** Participant will fund a trust agreement for their exposure with cash and U.S. Government obligations of American institutions at fair market value.

Annually, the cost and amounts of reinsurance are based on management's analysis of FNIC's exposure to catastrophic risk as of June 30 and estimated to September 30. Our data is then subjected to actual exposure level analysis as of September 30. This analysis of our exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in limits and reinsurance premiums as a result of the reconciliation of estimated to actual exposure level. The September 30, 2012 change to total limits was an increase of $2.1 billion of total insured value or 12.6% and the change to reinsurance premiums was an increase of $2.4 million or 3.0%. The September 30, 2011 change to total limits was an increase of $63.1 million of probable maximum loss or 0.5% and the change to reinsurance premiums was an increase of $3.7 million or 8.7%. These adjustments are amortized over the remaining underlying policy term. The September 30, 2011 change to total limits was an increase of $172.2 million of total insured value or 1.4 % and the change to reinsurance premiums was an increase of $0.5 million or 1.1%.

To date, we have made no claims asserted against our reinsurers in connection with the 2012–2013 and 2011–2012 excess of loss and FHCF treaties.

The quota share retrocessionaire reinsurance agreements require FNIC to securitize credit, regulatory and business risk. Fully funded trust agreements totaled $4.8 million as of March 31, 2013 and December 31, 2012.

We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer, their history of responding to claims and their overall reputation. In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually.

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Unpaid losses and LAE

3 Months Ended

Mar. 31, 2013

Unpaid losses and LAE [Abstract]

Unpaid losses and LAE

(8) Unpaid losses and LAE

The liability for unpaid losses and LAE is determined on an individual-case basis for all incidents reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and Incurred but Not Yet Reported ("IBNR").

Activity in the liability for unpaid losses and LAE is summarized as follows.

	Three Months Ended			Twelve Months Ended
	March 31, 2013			December 31, 2012
	(Dollars in Thousands)
Balance at January 1	$	49,908		$	59,983
Less reinsurance recoverables		(3,503	)		(2,088	)
Net balance at January 1	$	46,405		$	57,895
Incurred related to
Current year	$	10,126		$	31,636
Prior years		(805	)		(1,427	)
Total incurred	$	9,321		$	30,209
Paid related to
Current year	$	1,867		$	15,892
Prior years		9,880			25,807
Total paid	$	11,747		$	41,699
Net balance at period end	$	43,979		$	46,405
Plus reinsurance recoverables		3,586			3,503
Balance at period end	$	47,565		$	49,908

Based upon consultations with our independent actuarial consultants, we believe that the liability for unpaid losses and LAE is adequate to cover all claims and related expenses that may arise from incidents reported.

As a result of our review of liability for losses and LAE, which includes a re-evaluation of the adequacy of reserve levels for prior year's claims, we decreased the liability for losses and LAE for claims occurring in prior years by $0.8 million for the three months ended March 31, 2013 and $1.4 million for the year ended December 31, 2012.

We continue to revise our estimates of the ultimate financial impact of claims made resulting from past storms. The revisions to our estimates are based on our analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) Company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages, and (iv) trends in general economic conditions, including the effects of inflation.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

(10) Stockholders' Equity

Capital Stock

The Company's authorized capital consists of 1,000,000 shares of preferred stock, par value $0.01 per share, and 25,000,000 shares of common stock, par value $0.01 per share. As of March 31, 2013, there were no preferred shares issued or outstanding and there were 7,984,922 shares of common stock outstanding.

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Fair Value Disclosure (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosure [Abstract]

Assets measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis as of March 31, 2013, presented in accordance with this guidance, are as follows.

	As of March 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and
authorities	$	13,472	$	11,372	$	-	$	24,844
Obligations of states and political
subdivisions		-		3,862		-		3,862
Corporate		75,800		-		-		75,800
International		-		3,258		-		3,258
		89,272		18,492		-		107,764
Equity securities:
Common stocks		27,108		-		-		27,108
		27,108		-		-		27,108
Total debt and equity securities	$	116,380	$	18,492	$	-	$	134,872

Assets measured at fair value on a recurring basis as of December 31, 2012, presented in accordance with this guidance, are as follows.

	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and
authorities	$	12,464	$	14,928	$	-	$	27,392
Obligations of states and political
subdivisions		-		3,939		-		3,939
Corporate		67,313		-		-		67,313
International		-		3,111		-		3,111
		79,777		21,978		-		101,755
Equity securities:
Common stocks		20,982		-		-		20,982
		20,982		-		-		20,982
Total debt and equity securities	$	100,759	$	21,978	$	-	$	122,737

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Summary of Significant Accounting Policies and Practices (Details)	3 Months Ended
	Mar. 31, 2013 Category
Summary of Significant Accounting Policies and Practices [Abstract]
Number of categories securities are classified	3

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 2,335	$ 1,072
Change in net unrealized gains on investments available for sale	1,185	1,883
Comprehensive income before tax	3,520	2,955
Income tax expense related to items of other comprehensive income	(446)	(708)
Comprehensive income	$ 3,074	$ 2,247

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(4) Commitments and Contingencies

Management has a responsibility to continually measure and monitor its commitments and its contingencies. The nature of the Company's commitments and contingencies can be grouped into three major categories: insured claim activity, assessment related activities and operational matters.

(A) Insured Claim Activity

We are involved in claims and legal actions arising in the ordinary course of business. The amount of liability for these claims and lawsuits is uncertain. Revisions to our estimates are based on our analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation. Management revises its estimates based on the results of its analysis. This process assumes that experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for estimating the ultimate settlement of all claims. There is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of the reserves, because the eventual redundancy or deficiency is affected by multiple factors. In the opinion of management, the ultimate disposition of these matters may have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

The Company's subsidiaries are, from time to time, named as defendants in various lawsuits incidental to their insurance operations. Legal actions relating to claims made in the ordinary course of seeking indemnification for a loss covered by the insurance policy are considered by the Company in establishing loss and LAE reserves.

The Company also faces, in the ordinary course of business, lawsuits that seek damages beyond policy limits. The Company continually evaluates potential liabilities and reserves for litigation of these types using the criteria established by FASB issued guidance. Under this guidance, reserves for a loss are recorded if the likelihood of occurrence is probable and the amount can be reasonably estimated. If a loss, while not probable, is judged to be reasonably possible, management will make an estimate of a possible range of loss or state that an estimate cannot be made. Management considers each legal action using this guidance and records reserves for losses as warranted.

(B) Assessment Related Activity

We operate 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, but are not limited to, Florida Insurance Guaranty Association ("FIGA"), Citizens Property Insurance Corporation ("Citizens"), Florida Hurricane Catastrophe Fund ("FHCF") and Florida Joint Underwriters Insurance Association ("JUA"). As a direct premium writer in the state of Florida, we are required to participate in certain insurer solvency associations under Florida Statutes Section 631.57(3) (a), administered by FIGA.

During December 2012, the Company was assessed $0.8 million by FIGA relating to the recent failures of Florida domestic property and casualty insurance companies. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.

FNIC is also required to participate in an insurance apportionment plan under Florida Statutes Section 627.351, 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. FNIC was not assessed by the JUA Plan during 2013 or 2012.  Future assessments by this association are undeterminable at this time.

(C) Operational Matters

The Company's consolidated federal and state income tax returns for 2009-2011 are open for review by the Internal Revenue Service ("IRS") and various state taxing authorities.  The 2012 federal and state income tax returns have been extended and will be filed by the extended due date in the third quarter of 2013.  The 2005 and 2006 income tax returns and net operating loss carry-back from tax year 2009 have been reviewed by the Joint Committee on Taxation. The Joint Committee on Taxation completed its consideration in September 2011 and took no exception to the conclusions reached by the IRS regarding the net operating loss carry-back from tax year 2009.

The Company has recorded a net deferred tax asset of $2.6 million and $4.3 million as of March 31, 2013 and December 31, 2012, respectively.  Realization of net deferred tax asset is dependent on generating sufficient taxable income in future periods. Management believes that it is more likely than not that the deferred tax assets will be realized and as such no valuation allowance has been recorded against the net deferred tax asset. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At March 31, 2013, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would record valuation allowances as deemed appropriate in the period that the change in circumstances occurs, along with a corresponding increase or charge to net income. The resolution of tax reserves and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's financial position.

Our executive offices are located at 14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 in an 18,500 square foot office facility. All of our operations are consolidated within this facility. We believe that the facilities are well maintained, in substantial compliance with environmental laws and regulations, and adequately covered by insurance. We also believe that these leased facilities are not unique and could be replaced, if necessary, at the end of the lease term. Our lease for this office space will expire in May 2017.

The expected future payments in connection with this lease are as follows.

Fiscal Year	Payments
	(Dollars in Thousands)
2013		280
2014		380
2015		388
2016		395
2017		151
Total	$	1,594

The Company is not currently involved in any material legal actions arising from the ordinary course of business that are not related to the insured claims activity.

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Commitments and Contingencies (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013 Category sqft	Dec. 31, 2012
Commitments and Contingencies [Abstract]
Number of major categories the entity commitments and contingencies are grouped into	3
Insurer solvency association regulatory assessments		$ 800,000
Net deferred tax asset	2,600,000	4,300,000
Square footage of office facility	18,500
Expected future lease payments [Abstract]
2013	280,000
2014	380,000
2015	388,000
2016	395,000
2017	151,000
Total	$ 1,594,000

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Investments (Tables)

3 Months Ended

Mar. 31, 2013

Investments [Abstract]

Schedule of investments

The following table summarizes, by type, our investments as of March 31, 2013 and December 31, 2012.

	March 31, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	24,844		17.53	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,862		2.73	%		3,939		3.03	%
Corporate		75,800		53.49	%		67,313		51.74	%
International		3,258		2.30	%		3,111		2.39	%
		107,764		76.05	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,737		3.34	%		6,016		4.62	%
Corporate		2,000		1.41	%		1,203		0.92	%
International		112		0.08	%		140		0.11	%
		6,849		4.83	%		7,359		5.65	%
Total debt securities		114,613		80.88	%		109,114		83.87	%
Equity securities, at market:		27,108		19.12	%		20,982		16.13	%
Total investments	$	141,721		100.00	%	$	130,096		100.00	%

Realized gains (losses)

The following table shows the realized gains (losses) for debt and equity securities for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,133		$	22,601	$	233		$	6,496
Equity securities		189			1,079		516			3,073
Total realized gains		1,322			23,680		749			9,569
Debt securities		(409	)		16,476		(206	)		5,042
Equity securities		(100	)		623		(553	)		1,666
Total realized losses		(509	)		17,099		(759	)		6,708
Net realized gains (losses) on investments	$	813		$	40,779	$	(10	)	$	16,277

During the three months ended March 31, 2013 the investment committee decided to shorten the duration of the bond portfolio by approximately one year to prepare for the eventuality of rising interest rates over the next several years. Interest rates and bond prices move inversely, so any rise in interest rates adversely impacts the value of our fixed income portfolio. This impact is magnified when the portfolio is positioned with a longer duration. This decision generated a majority of the approximately $0.8 million in realized gains and also explains the drop in investment income for the quarter measured against the same three month period last year.

Unrealized gain (loss)

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at March 31, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
March 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations
and authorities	$	24,352	$	502	$	10	$	24,844
Obligations of states and political
subdivisions		3,664		199		1		3,862
Corporate		73,216		2,622		38		75,800
International		3,258		25		25		3,258
	$	104,490	$	3,348	$	74	$	107,764
Debt Securities  - Held-To-Maturity:
United States government obligations
and authorities	$	4,737	$	124	$	-	$	4,861
Corporate		2,000		37		-		2,037
International		112		-		1		111
	$	6,849	$	161	$	1	$	7,009
Equity securities - common stocks	$	22,676	$	4,953	$	521	$	27,108
December 31, 2012
Debt Securities  - Available-For-Sale:
United States government obligations
and authorities	$	26,825	$	632	$	65	$	27,392
Obligations of states and political
subdivisions		3,738		202		1		3,939
Corporate		63,553		3,794		34		67,313
International		3,005		107		1		3,111
	$	97,121	$	4,735	$	101	$	101,755
Debt Securities  - Held-To-Maturity:
United States government obligations
and authorities	$	6,016	$	149	$	12	$	6,153
Corporate		1,203		61		2		1,262
International		140		-		1		139
	$	7,359	$	210	$	15	$	7,554
Equity securities - common stocks	$	19,095	$	2,505	$	618	$	20,982

Continuous unrealized loss position

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of March 31, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations
and authorities	$	10	$	10	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		38		38		-
International		25		25		-
		74		74		-
Equity securities:
Common stocks		521		254		267
Total debt and equity securities	$	595	$	328	$	267

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of December 31, 2012.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations
and authorities	$	65	$	65	$	-
Obligations of states and political subdivisions		1		1		-
Corporate		34		34		-
International		1		1		-
		101		101		-
Equity securities:
Common stocks		618		430		188
Total debt and equity securities	$	719	$	531	$	188

Investments classified by contractual maturity date

Below is a summary of debt securities at March 31, 2013 and December 31, 2012, by contractual or expected maturity periods. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	2,264	$	2,295	$	2,925	$	2,944
Due after one through five years		70,955		72,528		49,826		51,523
Due after five through ten years		37,384		39,122		35,070		37,182
Due after ten years		736		828		16,659		17,660
Total	$	111,339	$	114,773	$	104,480	$	109,309

Investment income

The table below sets forth investment results for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	714	$	878
Dividends on equity securities		80		82
Interest on cash and cash equivalents		-		1
Total investment income	$	794	$	961
Net realized gains (losses)	$	813	$	(10	)

Net realized and unrealized investment gains (losses)

The table below sets forth a summary of net realized and unrealized investment gains during the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
	(Dollars in Thousands)
Net realized gains
Debt securities	$	724	$	27
Equity securities		89		(37	)
Total	$	813	$	(10	)
Net unrealized gains
Debt securities	$	3,275	$	2,365
Equity securities		4,431		924
Total	$	7,706	$	3,289