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 June 30, 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. 14^th 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 o No 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 –8,311,033 outstanding as of August 7, 2013

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	36
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	55
ITEM 4	Controls and Procedures	57
PART II: OTHER INFORMATION
ITEM 1	Legal Proceedings	58
ITEM 1A	Risk Factors	58
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	58
ITEM 3	Defaults upon Senior Securities	58
ITEM 4	Mine Safety Disclosures	58
ITEM 5	Other Information	58
ITEM 6	Exhibits	59
SIGNATURES		60

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PART I: FINANCIAL INFORMATION

Item 1 Financial Statements

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	Period Ending
	June 30, 2013		December 31, 2012
ASSETS	(Dollars in Thousands)
Investments
Debt maturities, available for sale, at fair value	$	106,212	$	101,755
Debt maturities, held to maturity, at amortized cost		7,265		7,359
Equity securities, available for sale, at fair value		30,507		20,982
Total investments		143,984		130,096
Cash and short term investments		49,313		21,143
Prepaid reinsurance premiums		540		7,045
Premiums receivable, net of allowance for credit losses of $88 and $69, respectively		19,639		8,023
Reinsurance recoverable, net		3,545		3,503
Deferred policy acquisition costs		13,199		8,479
Deferred income taxes, net		3,993		4,338
Income taxes receivable		234		39
Property, plant and equipment, net		906		564
Other assets		2,116		2,658
Total assets	$	237,469	$	185,888
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	$	48,884	$	49,908
Unearned premiums		104,225		59,006
Premiums deposits and customer credit balances		3,082		2,458
Bank overdraft		6,047		5,987
Accounts payable and accrued expenses		6,087		2,624
Total liabilities		168,325		119,983
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding 8,054,297 and 7,979,488, respectively		81		80
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding		-		-
Additional paid-in capital		51,815		51,356
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale		2,616		4,067
Total accumulated other comprehensive income		2,616		4,067
Retained earnings		14,632		10,402
Total shareholders' equity		69,144		65,905
Total liabilities and shareholders' equity	$	237,469	$	185,888

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in Thousands except EPS and share and dividend data)						(Dollars in Thousands except EPS and share and dividend data)
Revenue:
Gross premiums written	$	70,307		$	33,071		$	116,134		$	64,345
Gross premiums ceded		(25,409	)		(11,727	)		(28,244	)		(13,585	)
Net premiums written		44,898			21,344			87,890			50,760
Increase (decrease) in prepaid reinsurance premiums		10,466			269			552			(9,581	)
Increase in unearned premiums		(30,932	)		(6,920	)		(45,218	)		(13,668	)
Net change in prepaid reinsurance premiums and unearned premiums		(20,466	)		(6,651	)		(44,666	)		(23,249	)
Net premiums earned		24,432			14,693			43,224			27,511
Commission income		844			396			1,351			701
Finance revenue		198			127			343			241
Managing general agent fees		1,007			561			1,697			1,095
Net investment income		788			935			1,582			1,896
Net realized investment gains (losses)		887			(218	)		1,700			(228	)
Other income		20			329			152			349
Total revenue		28,176			16,823			50,049			31,565
Expenses:
Losses and LAE		12,819			7,136			22,147			12,864
Operating and underwriting expenses		3,927			2,371			6,655			4,781
Salaries and wages		2,333			1,995			4,666			4,206
Policy acquisition costs - amortization		5,042			2,981			8,794			5,729
Total expenses		24,121			14,483			42,262			27,580
Income before provision for income tax expense		4,055			2,340			7,787			3,985
Provision for income tax expense		1,511			918			2,908			1,491
Net income	$	2,544		$	1,422		$	4,879		$	2,494
Net income per share - basic	$	0.32		$	0.18		$	0.61		$	0.31
Net income per share - diluted	$	0.31		$	0.18		$	0.60		$	0.31
Weighted average number of common shares outstanding - basic		8,019,887			7,947,252			8,001,513			7,946,820
Weighted average number of common shares outstanding - diluted		8,273,974			7,993,763			8,210,792			7,979,084
Dividends paid per share	$	0.03		$	-		$	0.05		$	-

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended June,						Six Months Ended June,
	2013			2012			2013			2012
	(Dollars in Thousands)						(Dollars in Thousands)
Net income	$	2,544		$	1,422		$	4,879		$	2,494
Change in net unrealized (losses) gains on investments available for sale		(3,512	)		1,140			(2,327	)		3,023
Comprehensive (loss) income before tax		(968	)		2,562			2,552			5,517
Income tax benefit (expense) related to items of other comprehensive (loss) income		1,321			(430	)		875			(1,138	)
Comprehensive income	$	353		$	2,132		$	3,427		$	4,379

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2013			2012
	(Dollars in Thousands)
Cash flow from operating activities:
Net income	$	4,879		$	2,494
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium discount, net		731			681
Depreciation and amortization of property plant and equipment, net		121			96
Net realized investment (gains) losses		(1,700	)		228
Non-cash impairment recognition		-			44
Recovery for credit losses, net		-			(8	)
(Recovery) provision for uncollectible premiums receivable		(19	)		14
Non-cash compensation		108			95
Changes in operating assets and liabilities:
Premiums receivable		(11,597	)		(2,492	)
Prepaid reinsurance premiums		6,506			5,920
Reinsurance recoverable, net		(42	)		390
Income taxes recoverable		(195	)		-
Deferred income tax expense, net of other comprehensive income		1,221			1,369
Policy acquisition costs, net of amortization		(4,719	)		(1,718	)
Other assets		542			158
Unpaid losses and LAE		(1,023	)		(6,983	)
Unearned premiums		45,215			13,668
Premium deposits and customer credit balances		624			(559	)
Income taxes payable		-			(39	)
Bank overdraft		60			(2,082	)
Accounts payable and accrued expenses		3,463			(980	)
Net cash provided by operating activities		44,175			10,296
Cash flow used by investing activities:
Proceeds from sale of investment securities		64,354			42,808
Purchases of investment securities available for sale		(79,600	)		(46,871	)
Purchases of property and equipment		(462	)		(60	)
Net cash used by investing activities		(15,708	)		(4,123	)
Cash flow (used) provided  by financing activities:
Exercised stock options	$	293		$	4
Dividends paid		(648	)		-
Tax benefit related to non-cash compensation		58			48
Net cash (used ) provided by financing activities		(297	)		52
Net increase in cash and short term investments		28,170			6,225
Cash and short term investments at beginning of period		21,143			15,205
Cash and short term investments at end of period	$	49,313		$	21,430

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
(continued)	2013		2012
	(Dollars in Thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	1,870	$	-
Non-cash investing and finance activities:
Accrued dividends payable	$	245	$	-

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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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 agents.

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.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

· 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 June 30, 2013, the Company had approximately 18.4% 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 June 30, 2013, 89.1%, 3.9%, 2.6% and 4.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended June 30, 2012,85.5%, 7.7%, 4.4% and 2.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the six months ended June 30, 2013, 88.0%, 4.7%, 2.7% and 4.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.During the six months ended June 30, 2012, 86.1%, 7.7%, 3.9% and 2.3% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and personal 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.

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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. (“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.

(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 June 30, 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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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 three months ended June 30, 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.

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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 June 30, 2013 and December 31, 2012. Changes in interest rates subsequent to June 30, 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 June 30, 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 July 2013, the FASB issued Accounting Standard Update (“ASU”) No. 2013-11: Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  Topic 740, Income Taxes, does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, and there is diversity in practice in the presentation of unrecognized tax benefit in those instances.  The objective of the amendments in this ASU is to eliminate that diversity in practice.  The ASU applies to all entities that have unrecognized tax benefits when a net operating loss carry forward, a similar tax loss, or a tax credit carryforward exists at the operating date. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and early adoption is permitted.  The amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date and   retrospective application is permitted.  The adoption of the amendments in this ASU 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 February 2013, the FASB issued 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.

- 13 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 six months ended June 30, 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.

- 14 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(D) Earnings per Share

Basic earnings per share (“Basic EPS”) is computed by dividing net income 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.

(E) Reclassifications

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

(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 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.

- 15 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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$4.0 million and $4.3 million as ofJune 30, 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 June 30, 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. 14^th 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		193
2014		392
2015		400
2016		408
2017		156
Total	$	1,549

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 $13.9 million, or 10.7%, to $144.0 million as of June 30, 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 June 30, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the six months ended June 30, 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.

- 17 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 June 30, 2013, whereas we charged $44,000 of net realized investment losses to operations during the three and six months ended June 30, 2012.

As of June 30, 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 June 30, 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 June 30, 2013, 72% of our debt portfolio was in diverse industries and 28% was in United States government bonds. As of June 30, 2013, approximately 87% of our equity holdings were in equities related to diverse industries and 13% 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 June 30, 2013 and December 31, 2012, we have classified $7.3 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 and six months ended June 30, 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 June 30, 2013 and December 31, 2012 respectively, the amount held in trust was $1.0 million.

- 18 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

(A) Debt and Equity Securities

The following table summarizes, by type, our investments as of June 30, 2013 and December 31, 2012.

	June 30, 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	$	26,094		18.12	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,434		2.38	%		3,939		3.03	%
Corporate		73,570		51.11	%		67,313		51.74	%
International		3,114		2.16	%		3,111		2.39	%
		106,212		73.77	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		5,183		3.60	%		6,016		4.62	%
Corporate		2,002		1.39	%		1,203		0.92	%
International		80		0.06	%		140		0.11	%
		7,265		5.05	%		7,359		5.65	%
Total debt securities		113,477		78.82	%		109,114		83.87	%
Equity securities, at market:		30,507		21.18	%		20,982		16.13	%
Total investments	$	143,984		100.00	%	$	130,096		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	260		$	8,134	$	315		$	11,548
Equity securities		973			3,365		144			1,015
Total realized gains		1,233			11,499		459			12,563
Debt securities		(91	)		6,555		(109	)		4,371
Equity securities		(255	)		955		(568	)		3,725
Total realized losses		(346	)		7,510		(677	)		8,096
Net realized gains (losses) on investments	$	887		$	19,009	$	(218	)	$	20,659

- 19 -

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 six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,393		$	30,735	$	548		$	18,044
Equity securities		1,162			4,444		660			4,088
Total realized gains		2,555			35,179		1,208			22,132
Debt securities		(500	)		23,031		(315	)		9,413
Equity securities		(355	)		1,578		(1,121	)		5,391
Total realized losses		(855	)		24,609		(1,436	)		14,804
Net realized gains (losses) on investments	$	1,700		$	59,788	$	(228	)	$	36,936

Net realized investment gains totaled $1.7 million for the six months ended June 30, 2013, compared with net realized losses of $0.2 million during the six months ended June 30, 2012. During the six months ended June 30, 2013, the investment committee decided to shorten the duration of the bond portfolio by approximately two years to prepare for the eventuality of rising interest rates over the next several years.  This decision generated approximately $0.9 million in realized gains.  Our equity asset managers make periodic sales from our equity portfolio; these sales generated approximately $0.8 million in realized gains.

- 20 -

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 June 30, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
June 30, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	26,217	$	222	$	345	$	26,094
Obligations of states and political subdivisions		3,420		60		46		3,434
Corporate		73,131		1,338		899		73,570
International		3,166		3		55		3,114
	$	105,934	$	1,623	$	1,345	$	106,212
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	5,183	$	74	$	279	$	4,978
Corporate		2,002		18		19		2,001
International		80		-		2		78
	$	7,265	$	92	$	300	$	7,057
Equity securities - common stocks	$	26,591	$	4,702	$	786	$	30,507
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

- 21 -

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 June 30, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	345	$	345	$	-
Obligations of states and political subdivisions		46		46		-
Corporate		899		899		-
International		55		55		-
		1,345		1,345		-
Equity securities:
Common stocks		786		425		361
Total debt and equity securities	$	2,131	$	1,770	$	361

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 June 30, 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.

	June 30, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	3,383	$	3,406	$	2,925	$	2,944
Due after one through five years		73,100		73,437		49,826		51,523
Due after five through ten years		35,985		35,670		35,070		37,182
Due after ten years		731		756		16,659		17,660
Total	$	113,199	$	113,269	$	104,480	$	109,309

- 22 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

United States Treasury notes with a book value of $62,992 and $2,194,465, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of June 30, 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 June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	654	$	850
Dividends on equity securities		132		84
Interest on cash and cash equivalents		2		1
Total investment income	$	788	$	935
Net realized gains (losses)	$	887	$	(218	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended June 30, 2013 and 2012, were approximately $20.2 million and $24.6 million, respectively.

The table below sets forth investment results for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	1,369	$	1,724
Dividends on equity securities		211		166
Interest on cash and cash equivalents		2		6
Total investment income	$	1,582	$	1,896
Net realized gains (losses)	$	1,700	$	(228	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the six months ended June 30, 2013 and 2012, were approximately $64.4 million and $42.8 million, respectively.

- 23 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	169	$	206
Equity securities		718		(424	)
Total	$	887	$	(218	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	893	$	233
Equity securities		807		(461	)
Total	$	1,700	$	(228	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

(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 our financial condition, results of operations or cash flows.

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 did not have a material effect on our financial position, results of operations, cash flows.

- 24 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 June 30, 2013, presented in accordance with this guidance, are as follows.

	As of June 30, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	17,415	$	8,679	$	-	$	26,094
Obligations of states and political subdivisions		-		3,434		-		3,434
Corporate		67,983		5,587		-		73,570
International		-		3,114		-		3,114
		85,398		20,814		-		106,212
Equity securities:
Common stocks		30,507		-		-		30,507
		30,507		-		-		30,507
Total debt and equity securities	$	115,905	$	20,814	$	-	$	136,719

- 25 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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

(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.

- 26 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 2013–2014 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $562.9 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $420.6 million, with the Company retaining the first $7.0 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 $304.1 million, or 54.0% of the $562.9 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 2013-2014 hurricane season, inclusive of approximately $21.4 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $59.6 million.

- 27 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The 2013-2014 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+
Odyssey Reinsurance Company		A			A-
BERMUDA
ACE Tempest Reinsurance Limited		A+			AA-
Allied World Assurance Company Limited, Bermuda		A			A
Arch Reinsurance Limited		A+			A+
Argo Reinsurance Limited		A			NR
Ariel Reinsurance Bermuda Ltd for and on Behalf of Ariel Syndicate 1910 (ARE)		A-			NR
DaVinci Reinsurance Ltd		A			A+
Endurance Specialty Insurance Limited		A			A
JC Re Ltd. (aka Pillar Capital and fka Juniperus & Actua Re Ltd.)		NR	*	**	NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance Ltd		A+			AA-
S.A.C. Re, Ltd.		A-			NR
XL Re Limited		A			A
UNITED KINGDOM
A.F. Beazley Syndicate No. 623 (AFB)		A			A+
A.F. Beazley Syndicate No. 2623 (AFB)		A			A+
Amlin Syndicate No. 2001 (AML)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 3902 (NOA)		A			A+
Barbican Syndication No. 1955 (BAR)		A			A+
Canopius Syndicate No. 958 (CNP)		A			A+
Canopius Syndicate No. 4444 (CNP)		A			A+
Cathederal Syndicate No. 2010 (MMX)		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 (MAP)		A			A+
MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)		A			A+
Novae Syndicate No. 2007 (NVA)		A			A+
Pembroke Syndicate No. 4000 (PEM)		A			A+
Tokio Marine Kiln Syndicate No. 1880 (TMK)		A			A+
EUROPE
Amlin Bermuda (Branch of Amlin AG)		A			A
SCOR Global P&C SE		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.

- 28 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 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 $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, was approximately $41.6 million.

- 29 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The 2012-2013 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-
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+
ARK 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.

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 wasan increase of $2.1billion 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%.

- 30 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

To date, we have made no claims asserted against our reinsurers in connection with the 2013–2014 and 2012–2013 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 June 30, 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.

(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.

	Six Months			Year Ended
	Ended June 30,			December 31,
	2013			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	$	22,013		$	31,636
Prior years		134			(1,427	)
Total incurred	$	22,147		$	30,209
Paid related to
Current year	$	7,241		$	15,892
Prior years		15,972			25,807
Total paid	$	23,213		$	41,699
Net balance at period end	$	45,339		$	46,405
Plus reinsurance recoverables		3,545			3,503
Balance at period end	$	48,884		$	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 increased the liability for losses and LAE for claims occurring in prior years by $0.1 million for the six months endedJune 30, 2013 and decreased the liability for losses and LAE for claims occurring in prior years by $1.4 million for the year ended December 31, 2012.

- 31 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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.

(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 June 30, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 53,500 and 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 June 30, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 617,122 and 702,597 shares, respectively.

During the three and six months ended June 30, 2012, a total 181,500 options were granted from the 2002 Plan.

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.

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.

- 32 -

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 June 30, 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		$	5.54
Exercised		-		$	-		(74,809	)	$	3.92		-		$	-
Cancelled		(25,000	)	$	11.15		(10,666	)	$	3.68		(500	)	$	5.54
Outstanding at June 30, 2013		53,500		$	13.46		617,122		$	5.35		99,500		$	5.54

Options outstanding as of June 30, 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
June 30, 2013		52,800	$	13.46		330,655	$	5.35
December 31, 2013		700	$	13.46		73,254	$	5.35
December 31, 2014		-	$	13.46		138,313	$	5.35
December 31, 2015		-	$	13.46		74,900	$	5.35
December 31, 2016		-	$	13.46		-	$	5.35
December 31, 2017		-	$	13.46		-	$	5.35
Thereafter		-	$	13.46		-	$	5.35
Total options exercisable		53,500				617,122

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.

- 33 -

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 June 30, 2013 are lower by approximately $88,000 and $55,000, respectively, than if it had continued to account for share-based compensation under APB guidance. The Company’s income from continuing operations before provision for income tax expense and net income for the three months ended June 30, 2012 are lower by approximately $70,000 and $44,000, 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 six months ended June 30, 2013 are lower by approximately $155,000 and $96,000, respectively, than if it had continued to account for share-based compensation under APB guidance.The Company’s income from continuing operations before provision for income tax expense and net income for the six months ended June 30, 2012 are lower by approximately $128,000 and $80,000, 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 June 30, 2013 would have been $0.33 and $0.32, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.32 and $0.31, respectively. Basic and diluted earnings per share for the three months ended June 30, 2012 would have been $0.19, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.18.

Basic and diluted earnings per share for the six months ended June 30, 2013 would have been $0.62 and $0.61, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.61 and $0.60, respectively. Basic and diluted earnings per share for the six months ended June 30, 2012 would have been $0.32, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.31.

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.

	June 30, 2013		June 30, 2012
Dividend yield		N/A		N/A
Expected volatility		N/A		39.79
Risk-free interest rate		N/A		0.28
Expected life (in years)		N/A		4.45

Summary information about the Company’s stock option plans at June 30, 2013 is as follows.

					Weighted Average		Weighted
	Range of		Outstanding at		Contractual		Average		Exercisable at
	Exercise Price		June 30, 2013		Periods in Years		Exercise Price		June 30, 2013
1998 Plan	$	8.67 - $16.59		53,500		0.34	$	13.46		52,800
2002 Plan	$	2.45 - $13.24		617,122		5.34	$	5.35		330,655

- 34 -

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 June 30, 2013, there were nopreferred shares issued or outstanding and there were 8,054,297shares of common stock outstanding.

(11) Subsequent Events

There wereno subsequent events.

- 35 -

Federated National Holding Company

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 June 30, 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.

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Federated National Holding Company

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 agents.

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 June 30, 2013, 89.1%, 3.9%, 2.6% and 4.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended June 30, 2012,85.5%, 7.7%, 4.4% and 2.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the six months ended June 30, 2013, 88.0%, 4.7%, 2.7% and 4.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.During the six months ended June 30, 2012, 86.1%, 7.7%, 3.9% and 2.3% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and personal 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.

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Federated National Holding Company

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, 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. (“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.

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 June 30, 2013 included in Item 1 of this Quarterly Report on Form 10-Q for a discussion of the Company’s critical accounting policies.

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Federated National Holding Company

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 June 30, 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 June 30, 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 $13.9 million, or 10.7%, to $144.0 million as of June 30, 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 June 30, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the six months ended June 30, 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.

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Federated National Holding Company

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 June 30, 2013, whereas we charged $44,000 of net realized investment losses to operations during the three and six months ended June 30, 2012.

As of June 30, 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 June 30, 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 June 30, 2013, 72% of our debt portfolio was in diverse industries and 28% was in United States government bonds. As of June 30, 2013, approximately 87% of our equity holdings were in equities related to diverse industries and 13% 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 June 30, 2013 and December 31, 2012, we have classified $7.3 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 and six months ended June 30, 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 June 30, 2013 and December 31, 2012 respectively, the amount held in trust was $1.0 million.

Below is a summary of net unrealized gains and losses as of June 30, 2013 and December 31, 2012, by category.

	Unrealized Gains and (Losses)
	June 30, 2013			December 31, 2012
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	(123	)	$	567
Obligations of states and political subdivisions		14			201
Corporate		438			3,760
International		(52	)		106
		277			4,634
Equity securities:
Common stocks		3,917			1,887
Total debt and equity securities	$	4,194		$	6,521

The net unrealized gain of $4.2 million is inclusive of $2.1 million of unrealized losses. The $2.1 million of unrealized losses is inclusive of unrealized losses of $1.3 million and $0.8 million from debt and equity securities, respectively.

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Federated National Holding Company

The $1.3 million of unrealized losses from debt securities are made up of $0.9 million losses from corporate bonds, $0.3 million from United State government obligations and $0.1 million from municipal and international bonds. The Company does not expect to settle at prices less than the amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2013 because we neither currently intend to sell these investments nor consider it likely that we will be required to sell these investments before recovery of the amortized cost basis.

The $0.8 million of unrealized losses from equity securities are from common stocks and mutual funds held in diverse industries as of June 30, 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 June 30, 2013.

The following table summarizes, by type, our investments as of June 30, 2013 and December 31, 2012.

	June 30, 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	$	26,094		18.12	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,434		2.38	%		3,939		3.03	%
Corporate		73,570		51.11	%		67,313		51.74	%
International		3,114		2.16	%		3,111		2.39	%
		106,212		73.77	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		5,183		3.60	%		6,016		4.62	%
Corporate		2,002		1.39	%		1,203		0.92	%
International		80		0.06	%		140		0.11	%
		7,265		5.05	%		7,359		5.65	%
Total debt securities		113,477		78.82	%		109,114		83.87	%
Equity securities, at market:		30,507		21.18	%		20,982		16.13	%
Total investments	$	143,984		100.00	%	$	130,096		100.00	%

Cash and Short-Term Investments

Cash and short-term investments, which include cash, certificates of deposits, and money market accounts, increased $28.2 million, or 133.2%, to $49.3 million as of June 30, 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 $6.5 million, or 92.3%, to $0.5 million as of June 30, 2013, compared with $7.0 million as of December 31, 2012 due to the amortization of our payment patterns. 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 $11.6 million, or 144.8%, to $19.6 million as of June 30, 2013, compared with $8.0 million as of December 31, 2012.

Our homeowners’ insurance premiums receivable increased $9.9 million, or 165.5%, to $15.8 million as of June 30, 2013, compared with $6.0 million as of December 31, 2012.

Our commercial general liability insurance premiums receivable increased $0.2 million, or 43.2%, to $0.7 million as of June 30, 2013, compared with $0.5 million as of December 31, 2012.

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Federated National Holding Company

Premiums receivable in connection with our automobile line of business increased $1.6 million, or 95.5%, to $3.2 million as of June 30, 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 June 30, 2013, compared with $0.1 million as of December 31, 2012.

Reinsurance Recoverable, Net

Reinsurance recoverable, net, remained unchanged at $3.5 million as of June 30, 2013 compared with December 31, 2012. The lack of 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 $4.7 million, or 55.7%, to $13.2 million as of June 30, 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 $0.3 million, or 8.0%, to $4.0 million as of June 30, 2013, compared with $4.3 million as of December 31, 2012. Deferred income taxes, net, is comprised of approximately $7.4 million and $6.5 million of deferred tax assets, net of approximately $3.4 million and $2.2 million of deferred tax liabilities as of June 30, 2013 and December 31, 2012. The change to our deferred tax assets includes a decrease related to our available-for-sale portfolio. The change to our deferred tax liabilities includes an increase related to our increased deferred policy acquisition costs.

Property, Plant and Equipment, Net

Property, plant and equipment, net increased $0.3 million, or 60.5%, to $0.9 million as of June 30, 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 20.4%, to $2.1 million as of June 30, 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.

	June 30, 2013		December 31, 2012
	(Dollars in Thousands)
Accrued interest income receivable	$	926	$	966
Deposits		274		249
Prepaid expenses		710		478
Receivable for investments sold		-		598
Other		206		367
Total	$	2,116	$	2,658

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Federated National Holding Company

Unpaid Losses and LAE

Unpaid losses and LAE decreased $1.0 million, or 2.1%, to $48.9 million as of June 30, 2013, compared with $49.9 million as of December 31, 2012. The composition of unpaid losses and LAE by product line is as follows.

	June 30, 2013						December 31, 2012
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	8,981	$	4,814	$	13,795	$	8,276	$	6,637	$	14,913
Commercial General Liability		3,638		18,473		22,111		2,956		22,310		25,266
Automobile		6,011		6,967		12,978		3,643		6,086		9,729
Total	$	18,630	$	30,254	$	48,884	$	14,875	$	35,033	$	49,908

Please see “Results of Operations - Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012 - Losses and LAE” for a description of the factors that affect unpaid losses and LAE.

Unearned Premium

Unearned premiums increased $45.2 million, or 76.6%, to $104.2 million as of June 30, 2013, compared with $59.0 million as of December 31, 2012. The change was due to a $43.4 million increase in unearned homeowners’ insurance premiums, a $0.4 million increase in unearned flood insurance premiums, a $0.6 million increase in unearned commercial general liability premiums, and a $0.8 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 $0.6 million, or 25.4%, to $3.1 million as of June 30, 2013, compared with $2.5 million as of December 31, 2012. Premium deposits are monies received on policies not yet in-force as of June 30, 2013.

Bank Overdraft

Bank overdraft remained unchanged at $6.0 million  as of June 30, 2013 compared with 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 $3.5 million, or 132.0%, to $6.1 million as of June 30, 2013, compared with $2.6 million as of December 31, 2012. The increase is due to a payable in connection with investments purchased but not yet settled at June 30, 2013 and also includes increases to premium taxes, commissions, payroll and dividends payable.

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Federated National Holding Company

Results of Operations

Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012

Gross Premiums Written

Gross premiums written increased $37.2 million, or 112.6%, to $70.3 million for the three months ended June 30, 2013, compared with $33.1 million for the three months ended June 30, 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 June 30,
	2013					2012
			(Dollars in Thousands)
	Amount		Percentage			Amount		Percentage
Homeowners'	$	62,634		89.09	%	$	28,283		85.52	%
Commercial General Liability		2,736		3.89	%		2,533		7.66	%
Federal Flood		1,821		2.59	%		1,452		4.39	%
Automobile		3,116		4.43	%		803		2.43	%
Gross written premiums	$	70,307		100.00	%	$	33,071		100.00	%

The increase in the sale of homeowners’ policies by $34.3 million, or 121.5%, to $62.6 million for the three months ended June 30, 2013, compared with $28.3 million for the three months ended June 30, 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 June 30, 2013, 78.1% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $124.4 million (a 45.5% reduction of in-force premium), while 68.4% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $45.9 million, (a 33.5 % reduction of in-force premium), as of June 30, 2012.

During the three months ended June 30, 2013 and 2012, the change to the cumulative wind mitigation credits afforded our policyholders totaled $43.4 million and $7.7 million, respectively. Our number of in-force homeowners’ policies increased by approximately 16,900 or 25.0%, to approximately 83,900 as of June 30, 2013, compared with approximately 67,000 as of March 31, 2013.

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 $0.2 million, or 8.0%, to $2.7 million for the three months ended June 30, 2013, compared with $2.5 million for the three months ended June 30, 2012.

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 June 30,
	2013					2012
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
State
Alabama	$	30		1.08	%	$	25		0.99	%
Florida		2,518		92.05	%		2,342		92.46	%
Louisiana		39		1.42	%		53		2.09	%
Texas		149		5.45	%		113		4.46	%
Total	$	2,736		100.00	%	$	2,533		100.00	%

The Company’s sale of auto insurance policies increased $2.3 million, or 288.1%, to $3.1 million for the three months ended June 30, 2013, compared with $0.8 million for the three months ended June 30, 2012.

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Federated National Holding Company

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 $13.7 million, or 116.7%, to $25.4 million for the three months ended June 30, 2013, compared with $11.7 million for the three months ended June 30, 2012. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled $21.7 million, $1.8 million, $0.1 million and $1.8 million for the three months ended June 30, 2013, respectively. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled $9.6 million, $1.4 million, $0.1 million and $0.6 million for the three months ended June 30, 2012, respectively. The increased homeowner's gross premiums ceded is due to our increased participation in the FHCF.

Increase in Prepaid Reinsurance Premiums

The increase in prepaid reinsurance premiums was $10.5 million for the three months ended June 30, 2013, compared with $0.3 million for the three months ended June 30, 2012. The increased benefit 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 $30.9 million for the three months ended June 30, 2013, compared with $6.9 million for the three months ended June 30, 2012. The increased charge to written premium was due to a $30.2 million increase in unearned homeowners’ insurance premiums, a $0.3 million increase in unearned commercial general liability premiums and a $0.4 million increase in unearned flood premiums during the three months ended June 30, 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.

Net Premiums Earned

Net premiums earned increased $9.7 million, or 66.3%, to $24.4 million for the three months ended June 30, 2013, compared with $14.7 million for the three months ended June 30, 2012. The following table denotes net premiums earned by product line.

	Three Months Ended June 30,
	2013					2012
	Amount		Percentage			Amount		Percentage
			(Dollars in Thousands)
Homeowners'	$	20,718		84.80	%	$	12,244		83.33	%
Commercial General Liability		2,343		9.59	%		2,280		15.52	%
Automobile		1,371		5.61	%		169		1.15	%
Net premiums earned	$	24,432		100.00	%	$	14,693		100.00	%

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Federated National Holding Company

The $8.5 million increase in homeowners’ net premiums earned is due to a $34.4 million increase in gross written premium, a $12.1 million increase in gross premiums ceded and a $13.8 million increase in the net change to prepaid reinsurance premiums and unearned premium.

The $1.2 million increase in automobile net premiums earned is a result of a $2.3 million increase in gross written premium, a $1.2 million increase in gross premiums ceded and a $0.1 million decrease in the net change to prepaid reinsurance premiums and unearned premium.

Commission Income

Commission income increased $0.4 million, or 113.4%, to $0.8 million for the three months ended June 30, 2013, compared with $0.4 million for the three months ended June 30, 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 $0.4 million, or 79.4%, to $1.0 million for the three months ended June 30, 2013, compared with $0.6 million for the three months ended June 30, 2012. The change is due to the increase in gross premiums written during this same period.

Net Investment Income

Net investment income decreased $0.1 million, or 15.7%, to $0.8 million for the three months ended June 30, 2013, compared with $0.9 million for the three months ended June 30, 2012.

Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 1.7% and 2.0%, respectively, for the three months ended June 30, 2013. Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.5% and 2.8%, respectively, for the three months ended June 30, 2012.

Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.0% and 2.3%, respectively, for the three months ended June 30, 2013. Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.7% and 2.9%, respectively, for the three months ended June 30, 2012.

See also “Analysis of Financial Condition as of June 30, 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 $0.9 million for the three months ended June 30, 2013, compared with net realized losses of $0.2 million during the three months ended June 30, 2012.

From time to time, our equity managers, at their discretion, make periodic sales from the portfolio and during the three months ended June 30, 2013, the majority of the realized gains is from these equity sales.

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 June 30, 2013. During the three months ended June 30, 2012, we did not mark any investments to market value pursuant to guidelines prescribed in FASB issued guidance.

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Federated National Holding Company

The table below depicts the net realized investment gains (losses) by investment category during the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013			2012
	(Dollars in Thousands)
Realized gains:
Debt securities	$	260		$	315
Equity securities		973			144
Total realized gains		1,233			459
Realized losses:
Debt securities		(91	)		(109	)
Equity securities		(255	)		(568	)
Total realized losses		(346	)		(677	)
Net realized gains (losses) on investments	$	887		$	(218	)

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 $5.7 million, or 79.6%, to $12.8 million for the three months ended June 30, 2013, compared with $7.1 million for the three months ended June 30, 2012. The overall change includes a $1.8 million increase in our homeowners’ program, a $2.0 million increase in our commercial general liability program and a $1.9 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.

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

	June 30, 2013						December 31, 2012
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	8,981	$	4,814	$	13,795	$	8,276	$	6,637	$	14,913
Commercial General Liability		3,638		18,473		22,111		2,956		22,310		25,266
Automobile		6,011		6,967		12,978		3,643		6,086		9,729
Total	$	18,630	$	30,254	$	48,884	$	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.

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Federated National Holding Company

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 increased by approximately $1.3 million during the three months ended June 30, 2013.

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 June 30, 2013 was 52.5% compared with 48.6% for the same period in 2012. The unfavorable increase to our loss ratio is due to the $5.7 million increase in losses and LAE measured against the $9.7 million increase in net premium earned during the three months ended June 30, 2013 as compared with the same period in 2012.

Operating and Underwriting Expenses

Operating and underwriting expenses increased $1.5 million, or 65.6%, to $3.9 million for the three months ended June 30, 2013, compared with $2.4 million for the three months ended June 30, 2012. The change is primarily due to a $0.8 million increase in premium tax expense and a $0.2 million increase in surveys and underwriting reports, both of which are in correlation to the increase in gross written premiums during this same period.

Salaries and Wages

Salaries and wages increased $0.3 million, or 16.9%, to $2.3 million for the three months ended June 30, 2013, compared with $2.0 million for the three months ended June 30, 2012. The change is due to an increased number of employees. The charge to operations for stock-based compensation, in accordance with FASB guidance, was approximately $88,000 during the three months ended June 30, 2013 compared with approximately $70,000 for the three months ended June 30, 2012.

Policy Acquisition Costs - Amortization

Policy acquisition costs - amortization, increased $2.0 million, or 69.1%, to $5.0 million for the three months ended June 30, 2013, compared with $3.0 million for the three months ended June 30, 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 $1.5 million for the three months ended June 30, 2013, compared with $0.9 million for the three months ended June 30, 2012. The effective rate for income taxes was 37.3% for the three months ended June 30, 2013, compared with 39.2% for the three months ended June 30, 2012.

Net Income

Net income increased $1.1 million, or 78.9%, to $2.5 million for the three months ended June 30, 2013, compared with $1.4 million for the three months ended June 30, 2012.

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Federated National Holding Company

Results of Operations

Six Months Ended June, 2013 Compared with Six Months Ended June 30, 2012

Gross Premiums Written

Gross premiums written increased $51.8 million, or 80.5%, to $116.1 million for the six months ended June 30, 2013, compared with $64.3 million for the six months ended June 30, 2012. The following table denotes gross premiums written by major product line. This increase reflected primarily an increase in the sale of homeowners’ policies.

	Six Months Ended June 30,
	2013					2012
			(Dollars in Thousands)
	Amount		Percentage			Amount		Percentage
Homeowners'	$	102,277		88.06	%	$	55,369		86.05	%
Commercial General Liability		5,420		4.67	%		4,953		7.70	%
Federal Flood		3,095		2.67	%		2,531		3.93	%
Automobile		5,342		4.60	%		1,492		2.32	%
Gross written premiums	$	116,134		100.00	%	$	64,345		100.00	%

The increase in the sale of homeowners’ policies by $46.9 million, or 84.7%, to $102.3 million for the six months ended June 30, 2013, compared with $55.4 million for the six months ended June 30, 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 June 30, 2013, 78.1% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $124.4 million (a 45.5% reduction of in-force premium), while 68.4% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $45.9 million, (a 33.5 % reduction of in-force premium), as of June 30, 2012.

During the six months ended June 30, 2013 and 2012, the change to the cumulative wind mitigation credits afforded our policyholders totaled $63.4 million and $14.4 million, respectively. Our number of in-force homeowners’ policies increased by approximately 22,800 or 37.0%, to approximately 83,900 as of June 30, 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 $0.4 million, or 9.4%, to $5.4 million for the six months ended June 30, 2013, compared with $5.0 million for the six months ended June 30, 2012.

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

	Six Months Ended June 30,
	2013					2012
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
State
Alabama	$	52		0.95	%	$	32		0.65	%
Florida		5,019		92.61	%		4,615		93.17	%
Louisiana		81		1.49	%		98		1.98	%
Texas		268		4.95	%		208		4.20	%
Total	$	5,420		100.00	%	$	4,953		100.00	%

The Company’s sale of auto insurance policies increased $3.8 million, or 258.0%, to $5.3 million for the six months ended June 30, 2013, compared with $1.5 million for the six months ended June 30, 2012.

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Federated National Holding Company

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 $14.6 million, or 107.9%, to $28.2 million for the six months ended June 30, 2013, compared with $13.6 million for the six months ended June 30, 2012. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled $21.8 million, $3.1 million, $0.2 million and $3.1 million for the six months ended June 30, 2013, respectively. Gross premiums ceded relating to our homeowners’, write-your-own flood, commercial general liability and automobile programs totaled $9.6 million, $2.5 million, $0.3 million and $1.2 million for the six months ended June 30, 2012, respectively. The increased homeowner's gross premiums ceded is due to our increased participation in the FHCF.

Increase (Decrease) in Prepaid Reinsurance Premiums

The increase in prepaid reinsurance premiums was $0.6 million for the six months ended June 30, 2013, compared with a decrease of $9.6 million for the six months ended June 30, 2012. The benefit 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 $45.2 million for the six months ended June 30, 2013, compared with $13.7 million for the six months ended June 30, 2012. The increased charge to written premium was due to a $43.5 million increase in unearned homeowners’ insurance premiums, a $0.6 million increase in unearned commercial general liability premiums, a $0.3 million increase in unearned flood premiums and a $0.8 million increase in unearned automobile premiums during the six months ended June 30, 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.

Net Premiums Earned

Net premiums earned increased $15.7 million, or 57.1%, to $43.2 million for the six months ended June 30, 2013, compared with $27.5 million for the six months ended June 30, 2012. The following table denotes net premiums earned by product line.

	Six Months Ended June 30,
	2013					2012
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
Homeowners'	$	36,425		84.27	%	$	22,545		81.95	%
Commercial General Liability		4,580		10.60	%		4,624		16.81	%
Automobile		2,219		5.13	%		342		1.24	%
Net premiums earned	$	43,224		100.00	%	$	27,511		100.00	%

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Federated National Holding Company

The $13.9 million increase in homeowners’ net premiums earned is due to a $46.9 million increase in gross written premium, a $12.2 million increase in gross premiums ceded and a $20.8 million increase in the net change to prepaid reinsurance premiums and unearned premium.

The $1.8 million increase in automobile net premiums earned is a result of a $3.8 million increase in gross written premium, a $1.9 million increase in gross premiums ceded and a $0.1 million increase in the net change to prepaid reinsurance premiums and unearned premium.

Commission Income

Commission income increased $0.7 million, or 92.8%, to $1.4 million for the six months ended June 30, 2013, compared with $0.7 million for the six months ended June 30, 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 $0.6 million, or 54.9%, to $1.7 million for the six months ended June 30, 2013, compared with $1.1 million for the six months ended June 30, 2012. The change is due to the increase in gross premiums written during this same period.

Net Investment Income

Net investment income decreased $0.3 million, or 16.6%, to $1.6 million for the six months ended June 30, 2013, compared with $1.9 million for the six months ended June 30, 2012.

Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 1.9% and 2.1%, respectively, for the six months ended June 30, 2013. Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.6% and 2.9%, respectively, for the six months ended June 30, 2012.

Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.1% and 2.4%, respectively, for the six months ended June 30, 2013. Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.7% and 3.0%, respectively, for the six months ended June 30, 2012.

See also “Analysis of Financial Condition as of June 30, 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 $1.7 million for the six months ended June 30, 2013, compared with net realized losses of $0.2 million during the six months ended June 30, 2012.

During the six months ended June 30, 2013, the investment committee decided to shorten the duration of the bond portfolio by approximately two years to prepare for the eventuality of rising interest rates over the next several years.  This decision generated approximately $0.9 million in realized gains.  Our equity asset managers make periodic sales from our equity portfolio; these sales generated approximately $0.8 million in realized gains.

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 six months ended June 30, 2013, as compared with approximately $44,000 during the six months ended June 30, 2012.

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Federated National Holding Company

The table below depicts the net realized investment gains (losses) by investment category during the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013			2012
	(Dollars in Thousands)
Realized gains:
Debt securities	$	1,393		$	548
Equity securities		1,162			660
Total realized gains		2,555			1,208
Realized losses:
Debt securities		(500	)		(315	)
Equity securities		(355	)		(1,121	)
Total realized losses		(855	)		(1,436	)
Net realized gains (losses) on investments	$	1,700		$	(228	)

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 $9.2 million, or 72.2%, to $22.1 million for the six months ended June 30, 2013, compared with $12.9 million for the six months ended June 30, 2012. The overall change includes a $4.6 million increase in our homeowners’ program, a $2.4 million increase in our commercial general liability program and a $2.2 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.

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

	June 30, 2013						December 31, 2012
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	8,981	$	4,814	$	13,795	$	8,276	$	6,637	$	14,913
Commercial General Liability		3,638		18,473		22,111		2,956		22,310		25,266
Automobile		6,011		6,967		12,978		3,643		6,086		9,729
Total	$	18,630	$	30,254	$	48,884	$	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.

- 52 -

Federated National Holding Company

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 $1.0 million during the six months ended June 30, 2013.

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 six months ended June 30, 2013 was 51.2% compared with 46.8% for the same period in 2012. The unfavorable increase to our loss ratio is due to the $9.3 million increase in losses and LAE measured against the $15.7 million increase in net premium earned during the six months ended June 30, 2013 as compared with the same period in 2012.

Operating and Underwriting Expenses

Operating and underwriting expenses increased $1.9 million, or 39.1%, to $6.7 million for the six months ended June 30, 2013, compared with $4.8 million for the six months ended June 30, 2012. The change is primarily due to a $1.1 million increase in premium tax expense and a $0.3 million increase in surveys and underwriting reports, both of which are in correlation to the increase in gross written premiums during this same period.

Salaries and Wages

Salaries and wages increased $0.5 million, or 10.9%, to $4.7 million for the six months ended June 30, 2013, compared with $4.2 million for the six months ended June 30, 2012. The change is due to an increased number of employees. The charge to operations for stock-based compensation, in accordance with FASB guidance, was approximately $155,000 during the six months ended June 30, 2013 compared with approximately $128,000 for the six months ended June 30, 2012.

Policy Acquisition Costs - Amortization

Policy acquisition costs - amortization, increased $3.1 million, or 53.5%, to $8.8 million for the six months ended June 30, 2013, compared with $5.7 million for the six months ended June 30, 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 $2.9 million for the six months ended June 30, 2013, compared with a $1.5 million for the six months ended June 30, 2012. The effective rate for income taxes remained unchanged at 37.4% for the six months ended June 30, 2013, compared with the six months ended June 30, 2012.

Net Income

Net income increased $2.4 million, or 95.6%, to $4.9 million for the six months ended June 30, 2013, compared with $2.5 million for the six months ended June 30, 2012.

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Federated National Holding Company

Liquidity and Capital Resources

During the six months ended June 30, 2013, our primary sources of capital included proceeds from the sale of investment securities, increased unearned premiums, decreased prepaid reinsurance premiums, increased accounts payable and accrued expenses, decreased deferred income tax expense, amortization of investment premium discount, net, increased premium deposits and customer credit balances and decreased other assets. Additional sources of capital included exercised stock options, depreciation and amortization, non-cash compensation,  increased bank overdraft and a tax benefit related to non-cash compensation. Because we are a holding company, we are largely dependent upon fees and commissions from our subsidiaries for cash flow.

During the six months ended June 30, 2013 and 2012, operations provided net operating cash flow of $44.2 million and $10.3 million, respectively.

During the six months ended June 30, 2013, operations generated $63.5 million of gross cash flow, due to a $45.2 million increase in unearned premiums, a $6.5 million decrease in prepaid reinsurance premiums, a $3.5 million increase in accounts payable and accrued expenses, a $1.2 million decrease in deferred income tax expense,$0.7 million of amortization of investment premium discount, net, a $0.6 million increase in premium deposits and customer credit balances and a $0.6 million decrease in other assets. Additional sources of cash included $0.1 million depreciation and amortization, $0.1 million non-cash compensation and a $0.1 million increase in bank overdraft, all in conjunction with $4.9 million of net income.

During the six months ended June 30, 2013, operations used $19.3 million of gross cash flow, due to a $11.6 million increase in premiums receivable, a $4.7 million increase in policy acquisition costs and $1.7 million in net realized investment gains. Additional uses of cash included a $1.0 million decrease in unpaid losses and LAE, a $0.2 million increase in income tax recoverable and a $0.1 million increase in reinsurance recoverable, net.

During the six months ended June 30, 2013 and 2012, net cash used by investing activities was $15.7 million and $4.1 million, respectively.Our available-for-sale investment portfolio is highly liquid as it consists entirely of readily marketable securities. During the six months ended June, 2013, investing activities generated $64.4 million and used $80.1 million.

During the six months ended June 30, 2013 and 2012, net financing activities used and provided $0.3 million and less than $0.1 million, respectively. In 2013, the use of cash in connection with financing activities was $0.6 million for dividends paid, and the source of cash was $0.3 million from exercised stock options.

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 June 30, 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.

- 54 -

Federated National Holding Company

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.

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 June 30, 2013, approximately 79% 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.

- 55 -

Federated National Holding Company

The following table summarizes, by type, our investments as of June 30, 2013 and December 31, 2012.

	June 30, 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	$	26,094		18.12	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,434		2.38	%		3,939		3.03	%
Corporate		73,570		51.11	%		67,313		51.74	%
International		3,114		2.16	%		3,111		2.39	%
		106,212		73.77	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		5,183		3.60	%		6,016		4.62	%
Corporate		2,002		1.39	%		1,203		0.92	%
International		80		0.06	%		140		0.11	%
		7,265		5.05	%		7,359		5.65	%
Total debt securities		113,477		78.82	%		109,114		83.87	%
Equity securities, at market:		30,507		21.18	%		20,982		16.13	%
Total investments	$	143,984		100.00	%	$	130,096		100.00	%

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 June 30, 2013 and December 31, 2012, debt securities has 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.

	June 30, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
AAA	$	9,541		8.41	%	$	10,967		10.05	%
AA		38,476		33.90	%		38,733		35.50	%
A		36,220		31.92	%		31,774		29.12	%
BBB		29,240		25.77	%		27,640		25.33	%
Not rated		-		0.00	%		-		0.00	%
	$	113,477		100.00	%	$	109,114		100.00	%

The following table summarizes, by maturity, the debt securities as of June 30, 2013 and December 31, 2012.

	June 30, 2013					December 31, 2012
	Carrying		Percent			Carrying		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Matures In:
One year or less	$	3,401		3.00	%	$	2,938		2.70	%
One year to five years		73,436		64.71	%		51,439		47.14	%
Five years to 10 years		35,884		31.62	%		37,111		34.01	%
More than 10 years		756		0.67	%		17,626		16.15	%
Total debt securities	$	113,477		100.00	%	$	109,114		100.00	%

At June 30, 2013, the weighted average maturity of the debt portfolio was approximately 3.7 years.

- 56 -

Federated National Holding Company

The following table provides information about the financial instruments as of June 30, 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	$	-		$	495		$	3,493		$	415		$	1,577		$	5,982		$	10,144		$	22,106		$	22,024
Obligations of states and political subdivisions		250			-			-			195			350			125			2,365			3,285			3,434
Corporate securities		243			3,879			8,632			13,524			12,217			6,845			19,450			64,790			69,984
International securities		-			-			290			1,810			280			-			734			3,114			3,195
Collateralized mortgage obligations		60			559			2,685			3,367			3,535			3,574			172			13,952			14,840
Equity securities, at market		-			-			-			-			-			-			-			-			30,507
All investments	$	553		$	4,933		$	15,100		$	19,311		$	17,959		$	16,526		$	32,865		$	107,247		$	143,984
Weighted average interest rate by expected maturity:
United States government obligations and authorities		0.00	%		1.75	%		0.27	%		2.18	%		0.52	%		0.96	%		1.58	%		1.14	%
Obligations of states and political subdivisions		1.96	%		0.00	%		0.00	%		1.60	%		1.66	%		1.65	%		4.20	%		3.51	%
Corporate securities		5.53	%		4.92	%		3.59	%		3.86	%		4.61	%		5.28	%		5.18	%		4.58	%
International securities		0.00	%		0.00	%		0.75	%		1.67	%		1.50	%		0.00	%		5.10	%		2.38	%
Collateralized mortgage obligations		4.68	%		5.25	%		4.70	%		5.50	%		4.65	%		3.94	%		4.00	%		4.70	%
Equity securities, at market		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
All investments		3.82	%		4.64	%		2.96	%		3.88	%		4.15	%		3.40	%		3.99	%		3.79	%

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 June 30, 2013. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of June 30, 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 three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

- 57 -

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) None

(b) None

(c) None

Item 3

Defaults upon Senior Securities

(a) None

(b) None

Item 4

Mine Safety Disclosures

Not applicable

Item 5

Other Information

(a) None

(b) None

- 58 -

Federated National Holding Company

Item 6

Exhibits

10.1	Excess Catastrophe Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurers. *
10.2	Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurer. *
10.3	Underlying Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurers. *
10.4	Form of Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement between the Company and certain employees of the Company (incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2013).+
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. **

+   Management Compensation Plan or Arrangement

* 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.

- 59 -

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: August 14, 2013

- 60 -

Federated National Holding Company

EXHIBIT INDEX

10.1	Excess Catastrophe Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurers. *
10.2	Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurer. *
10.3	Underlying Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2013, between Federated National Insurance Company and subscribing reinsurers. *
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.

- 61 -

EX-10.1

EXHIBIT 10.1

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

Table of Contents

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

Excess Catastrophe Reinsurance Contract

Effective: July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to as the "Company")

and

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

Article 1 - Classes of Business Reinsured

A. By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations set forth herein and in Schedule A attached hereto.

B. Neither the Company nor the Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2014.

B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur:

1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

Page 1

2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or

4. The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or

5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or

6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

7. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

8. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2013 to 12:01 a.m., Eastern Standard Time, July 1, 2014.  However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2013 to the effective time and date of termination.

D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract.

Article 3 - Territory

The territorial limits of this Contract shall be identical with those of the Company's policies.

Page 2

Article 4 - Exclusions

A. This Contract does not apply to and specifically excludes the following:

1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation.

2. Hail damage to growing or standing crops.

3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such.

4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such.

5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency.

6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability.

7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance.

8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke.  Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy.

9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract.

10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract.

11. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation.

12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

Page 3

13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises.

14. Mold, unless resulting from a peril otherwise covered under the policy involved.

15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract.

16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved.

"Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment.

"Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature.

However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril.

Article 5 - Retention and Limit

A. As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss, shown as "Company's Retention" for each excess layer in Schedule A attached hereto, arising out of each loss occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company's applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed the amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects any one loss occurrence.

B. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence.  For purposes hereof, the Company shall be the sole judge of what constitutes "one risk."

Page 4

Article 6 - Florida Hurricane Catastrophe Fund

The FHCF mandatory layer of coverage, which is purchased by the Company, shall be deemed to inure to the benefit of this Contract.  Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage.

Article 7 - Other Reinsurance

The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article 8 - Reinstatement

A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon.  For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following:

1. The percentage of the occurrence limit for the excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

2. The earned reinsurance premium for the excess layer reinstated for the term of this Contract (exclusive of reinstatement premium).

B. Whenever the Company requests payment by the Reinsurer of any loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer.  If the earned reinsurance premium for any excess layer for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract has been finally determined.  Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer.  Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company's statement.

Page 5

C. Notwithstanding anything stated herein, the liability of the Reinsurer under any excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following:

1. The amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one loss occurrence; or

2. The amount, shown as "Reinsurer's Term Limit" for that excess layer in Schedule A attached hereto, in all during the term of this Contract.

Article 9 - Definitions

A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract.

Loss adjustment expense as defined above does not include unallocated loss adjustment expense.  Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses.

B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean:

1. "Loss in excess of policy limits" shall mean 80.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

2. "Extra contractual obligations" shall mean 80.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.  Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

Page 6

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance.

D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained.

Article 10 - Loss Occurrence

A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another.  However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows:

1. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event.  The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

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3. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph A) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's "loss occurrence."

4. As regards "freeze," only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's "loss occurrence."

5. As regards conflagration, brush fires and any other fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), all individual losses sustained by the Company which occur during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Company's "loss occurrence."

B. Except for those "loss occurrences" referred to in subparagraph 2 of paragraph A above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any "loss occurrence" referred to in subparagraph 1 of paragraph A above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

C. However, as respects those "loss occurrences" referred to in subparagraph 2 of paragraph A above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more "loss occurrences," provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

D. No individual losses occasioned by an event that would be covered by a 96 or 72 hours clause may be included in any "loss occurrence" claimed under a 168 hours provision.

Article 11 - Loss Notices and Settlements

A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's retention under any excess layer hereunder and/or appear likely to result in a claim under such excess layer, the Company shall notify the Subscribing Reinsurers under that excess layer and shall provide updates related to development of such losses.  The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company.

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Article 12 - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.  Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so.

Article 13 - Reinsurance Premium

A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months), subject to a minimum premium of the amount, shown as "Minimum Premium" for that excess layer in Schedule A attached hereto (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

1. The amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto; times

2. The percentage calculated by dividing (a) the actual Average Annual Loss ("AAL") determined by the Company's wind insurance in force on September 30, 2013, by (b) the original AAL of the amount, shown as "AAL" for that excess layer in Schedule A attached hereto.

The Company's AAL shall be derived from results produced by RMS RiskLink Version 11.0 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge.  It is understood that the calculation of the actual AAL shall be based on the amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, net of the FHCF mandatory layer of coverage purchased by the Company using the current estimates of the mandatory FHCF coverage of 90.0% of $258,128,782 excess of $98,470,089.

B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as "Deposit Premium Installment" for that excess layer in Schedule A attached hereto, on July 1 and October 1 of 2013, and on January 1 and April 1 of 2014.  However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

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C. On or before June 30, 2014, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

Article 14 - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rateas quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked.

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For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article 15 - Offset

The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company.  The provisions of this Article shall not be affected by the insolvency of either party.

Article 16 - Access to Records

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access.  However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company.  "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed.

Article 17 - Liability of the Reinsurer

A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon.  However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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Article 18 - Net Retained Lines (BRMA 32E)

A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article 19 - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article 20 - Currency (BRMA 12A)

A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 21 - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article 22 - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

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B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article 23 - Reserves

A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by:

1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

2. Escrow accounts for the benefit of the Company; and/or

3. Cash advances;

if the Reinsurer:

1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or

2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date.  The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

Page 13

2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

Article 24 - Insolvency

A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees.

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Article 25 - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots.

B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

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Article 26 - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Article 27 - Severability (BRMA 72E)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

Article 28 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

Article 29 - Non-Waiver

The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not:  (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof.

Article 30 - Notices and Contract Execution

A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile.  With the exception of notices of termination, first class mail is also acceptable.

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B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

1. Paper documents with an original ink signature;

2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

3. Electronic records with an electronic signature made via an electronic agent.  For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

Article 31 - Intermediary

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary.  Payments by the Company to the Intermediary will be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below:

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/ Michael H. Braun

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Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess
Company's Retention	$	11,000,000	$	50,000,000	$	98,500,000
Reinsurer's Per Occurrence Limit	$	39,000,000	$	48,500,000	$	25,800,000
Reinsurer's Term Limit	$	78,000,000	$	97,000,000	$	51,600,000
Minimum Premium	$	10,140,000	$	8,536,000	$	2,683,200
AAL	$	6,510,802	$	3,924,181	$	593,198
Annual Deposit Premium	$	12,675,000	$	10,670,000	$	3,354,000
Deposit Premium Installments	$	3,168,750	$	2,667,500	$	838,500

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

    Schedule A

War Exclusion Clause

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

Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.  However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reassured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

12/12/57

N.M.A. 1119

BRMA 35B

Terrorism Exclusion

(Property Treaty Reinsurance)

Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which:

1. Involves violence against one or more persons, or

2. Involves damage to property; or

3. Endangers life other than the person committing the action; or

4. Creates a risk to health or safety of the public or a section of the public; or

5. Is designed to interfere with or disrupt an electronic system.

This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism.

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

ACE Tempest Reinsurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

10.0	%	of the First Excess Catastrophe
17.5	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

ACE Tempest Reinsurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Allied World Assurance Company, LtdHamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
4.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Allied World Assurance Company, Ltd

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

American Agricultural Insurance CompanyIndianapolis, Indiana

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
2.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

American Agricultural Insurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Amlin Bermudabranch of Amlin AGZurich, Switzerland

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

2.5	%	of the First Excess Catastrophe
4.0	%	of the Second Excess Catastrophe
2.5	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Amlin Bermuda branch of Amlin AG

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Arch Reinsurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

10.0	%	of the First Excess Catastrophe
8.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Arch Reinsurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Argo Re Ltd.Pembroke, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
1.5	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Argo Re Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Ariel Re Bermuda Limited

Hamilton, Bermuda on behalf of

Ariel Syndicate 1910

London, England

 (hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

6.0	%	of the First Excess Catastrophe
6.0	%	of the Second Excess Catastrophe
6.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Ariel Re Bermuda Limited on behalf of Ariel Syndicate 1910

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

DaVinci Reinsurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

4.0	%	of the First Excess Catastrophe
2.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

DaVinci Reinsurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Endurance Specialty Insurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

22.0	%	of the First Excess Catastrophe
15.0	%	of the Second Excess Catastrophe
7.5	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Endurance Specialty Insurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Everest Reinsurance CompanyA Delaware Corporation

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

10.0	%	of the First Excess Catastrophe
5.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Everest Reinsurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

JC Re Ltd. A Bermuda segregated accounts insurance company, in respect of its segregated account designated “Value Master Account”

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
5.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

Additionally, as respects the Subscribing Reinsurer's shares in the attached Contract, the following Articles shall be added to and made part of this Contract:

"Article 32 - Obligations

A. The Reinsurer will establish a Trust Fund or provide a Letter of Credit (LOC) issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company as security for the Reinsurer's Obligations:

B. The term "Obligations" shall mean:

1. During the term of this Contract, (a) the Reinsurer's term limit as defined under the Retention and Limit Article, less (b) any unpaid reinsurance premium (net of brokerage and Federal Excise Tax payable) under this Contract, and less (c) any amounts already recovered from the Reinsurer;

Page 1 of 4

2. On the expiration of this Contract, if this Contract is renewed, the Reinsurer's "Obligations" shall be determined as the aggregate of the Reinsurer's share of the following:

a. Losses and allocated loss adjustment expense paid by the Company, but not recovered from the Reinsurer; plus

b. The Company's reserves for losses reported and outstanding; plus

c. The Company's reserves for losses incurred but not reported - to be mutually agreed in good faith; plus

d. The Company's reserves for allocated loss adjustment expense outstanding.

The amount so determined shall be recalculated at each month end until all liability has been extinguished.

C. On December 1, 2013, collateral will be released consistent with the provisions of the Collateral Release Article and Reserves Article.

D. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Trust Fund or LOC may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

1. To reimburse itself for the Reinsurer's share of unearned premiums on the account of cancellations or adjustment premiums, unless paid in cash by the Reinsurer;

2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of this Contract, unless paid in cash by the Reinsurer;

3. To fund a cash account in the amount equal to the Reinsurer's Obligations, if said Trust Fund or LOC has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; and/or

4. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's Obligations, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any Trust Fund or LOC is in excess of the actual amount required, the Company shall return to the Reinsurer the excess amount so drawn within 10 days of receiving notice of the amount due."

Article 33 - Collateral Release

A. As of December 1, 2013 or 31 days from the date of loss, whichever is later, the parties shall determine how much collateral will be required to be maintained within the Trust Fund, less any amount required under the Reserves Article.  This calculation will be performed on a monthly basis until all liability has been extinguished.

Page 2 of 4

B. For the purposes of paragraph C below, "Loss Amount" shall be defined as the sum of:

1. Losses and allocated loss adjustment expense paid by the Company; plus

2. Reserves for losses reported and outstanding; plus

3. Reserves for allocated loss adjustment expense reported and outstanding; plus

4. Reserves for losses incurred but not reported - to be mutually agreed in good faith.

C. For each potentially covered loss hereunder, the Company shall multiply the Loss Amount by the appropriate Buffer Loss Multiplier from the table below, based on the number of days which have elapsed since the loss occurrence.  The product of this calculation shall be defined as the Buffered Loss Amount ('BLA').

Buffer Loss Multiplier table
Number of days since loss occurrence	Windstorm	Earthquake	Other event
0 to 90	180%	250%	200%
91 to 180	145%	200%	165%
181 to 270	125%	175%	140%
271 to 365	110%	150%	115%
366 to 455	100%	125%	100%
456 to 545	100%	110%	100%
Thereafter	100%	100%	100%

D. With respect to each loss occurrence for which the BLA exceeds the Company's retention as defined under the Retention and Limit Article, an amount equal to the Reinsurer's share of the lesser of (1) the amount by which the BLA exceeds the Company's retention as defined under the Retention and Limit Article, or (2) the Reinsurer's per occurrence limit as defined under the Retention and Limit Article, shall be deemed to equal the event specific collateral amount at the calculation date (the 'Event Collateral Amount' or the 'ECA').

E. In respect of all events for which an ECA exceeds $0, the aggregate amount of the required collateral to be held in the Trust Fund shall be equal to the amount by which the lesser of (1) the sum of the ECAs, or (2) the Reinsurer's term limit as defined under the Reinstatement Article, exceeds amounts paid to date by the Reinsurer.  Such aggregate amount shall be deemed to be the 'Aggregate Collateral Obligation' or the 'ACO.'

Page 3 of 4

F. At any month-end at which there is any security on deposit in the Trust Fund, the Company shall perform this calculation within 10 days after the end of such month and report to the Reinsurer and Trustee named in the Trust Agreement information supporting any BLA, ECA and ACO amounts greater than $0.  The Assets in the Trust Fund will be adjusted monthly based on this calculation.  In the event the balance of the Trust Fund is greater than the amount required to fully fund the Obligations, as defined by the ACO, the Company shall promptly, within 10 days, authorize a return of such excess amount to the Reinsurer.  Similarly, in the event the balance of the Trust Fund falls below the amount required to fully fund the Obligations, the Reinsurer shall promptly, within 10 days, add assets to the Trust Fund to eliminate such shortfall."

In Witness Whereof, the parties hereto by their respective duly authorized representatives have executed this Agreement as of the dates specified below:

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/  Michael H. Braun

This ________________ day of ___________________________ in the year ____________.

JC Re Ltd.

Page 4 of 4

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Liberty Syndicates LIB 4472, Paris Office Underwritingfor and on behalf of Lloyd's Syndicate No. 4472 Paris, France

 (hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
2.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of Lloyd's Syndicate No. 4472

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Odyssey Reinsurance CompanyStamford, Connecticut

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
4.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Odyssey Reinsurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Partner Reinsurance Company Ltd.Pembroke, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

10.0	%	of the First Excess Catastrophe
9.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Partner Reinsurance Company Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Platinum Underwriters Bermuda, Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

3.5	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Platinum Underwriters Bermuda, Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Renaissance Reinsurance, Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

6.0	%	of the First Excess Catastrophe
3.0	%	of the Second Excess Catastrophe
0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Renaissance Reinsurance, Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

S.A.C. Re, Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

5.0	%	of the First Excess Catastrophe
3.5	%	of the Second Excess Catastrophe
4.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

S.A.C. Re, Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

XL Re LtdHamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

0	%	of the First Excess Catastrophe
0	%	of the Second Excess Catastrophe
8.5	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

XL Re Ltd

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Certain Underwriting Members of Lloyd's

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

5.0	%	of the First Excess Catastrophe
17.0	%	of the Second Excess Catastrophe
51.5	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Mendes & Mount, LLP, 750 Seventh Avenue, New York, New York  10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Certain Insurance Companies

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

6.0	%	of the First Excess Catastrophe
6.5	%	of the Second Excess Catastrophe
5.0	%	of the Third Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

As respects SCOR Global P&C SE, Paris, Zurich Branch only, the provisions of the Service of Suit Article (BRMA 49C) in the attached Contract shall apply to the Subscribing Reinsurer, except that service of process shall be made upon General Counsel, SCOR Reinsurance Company, 199 Water Street, New York, NY  10038, and, where required by law, shall additionally be made upon the Superintendent, Commissioner, or Director of Insurance in the state of the Company's domicile.  The provisions of the Service of Suit Article (BRMA 49C) in the attached Contract shall not be read to conflict with or override, the arbitration provisions in the Arbitration Article in the attached Contract.

As respects all other Certain Insurance Companies, in any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Mendes & Mount, LLP, 750 Seventh Avenue, New York, New York  10019.

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement as of the date specified below:

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/  Michael H. Braun

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Signing Page

attached to and forming part of the

Interests and Liabilities Agreement

with respect to the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company, et al., as specified in the above-captioned Contract

and

Certain Insurance Companies

(Re)Insurer's Liability Clause - LMA3333

(Re)Insurer's liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract. A (re)insurer is liable only for the proportion of liability it has underwritten. A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer. Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp. This is subject always to the provision concerning "signing" below.

In the case of a Lloyd's syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer. Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together). The liability of each member of the syndicate is several and not joint with other members. A member is liable only for that member's proportion. A member is not jointly liable for any other member's proportion. Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract. The business address of each member is Lloyd's, One Lime Street, London EC3M 7HA. The identity of each member of a Lloyd's syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd's, at the above address.

Proportion of liability

Unless there is "signing" (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its "written line".

Where this contract permits, written lines, or certain written lines, may be adjusted ("signed"). In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together). A definitive proportion (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of a Lloyd's syndicate taken together) is referred to as a "signed line". The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to "this contract" in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.

EX-10.2

EXHIBIT 10.2

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

Table of Contents

Article		Page
1	Coverage	1
2	Commencement and Termination	1
3	Concurrency of Conditions	3
4	Premium	3
5	Loss Notices and Settlements	4
6	Late Payments	4
7	Offset	5
8	Access to Records	5
9	Errors and Omissions (BRMA 14F)	6
10	Currency (BRMA 12A)	6
11	Taxes (BRMA 50B)	6
12	Federal Excise Tax (BRMA 17D)	6
13	Reserves	6
14	Insolvency	8
15	Arbitration	8
16	Service of Suit (BRMA 49C)	9
17	Severability (BRMA 72E)	10
18	Governing Law (BRMA 71B)	10
19	Non-Waiver	10
20	Notices and Contract Execution	10
21	Intermediary	11
	Schedule A
	Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to as the "Company")

and

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

Article 1 - Coverage

A. By this Contract the Reinsurer agrees to indemnify the Company for 100% of any reinstatement premium which the Company pays or becomes liable to pay as a result of loss occurrences covered under the Company's Excess Catastrophe Reinsurance Contract, effective July 1, 2013 (hereinafter referred to as the "Original Contract" and described in Schedule A attached hereto), subject to the terms, conditions and limitations set forth herein and in Schedules A and B attached to and forming part of this Contract.

B. Neither the Company nor the Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, with respect to reinstatement premium payable by the Company under the Original Contract as a result of losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2014.

B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur:

1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

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2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or

4. The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or

5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or

6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

7. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

8. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

C. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract.

Article 3 - Concurrency of Conditions

A. It is agreed that this Contract will follow the terms, conditions, exclusions, definitions, warranties and settlements of the Company under the Original Contract, which are not inconsistent with the provisions of this Contract.

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B. The Company shall advise the Reinsurer of any material changes in the Original Contract which may affect the liability of the Reinsurer under this Contract.

Article 4 - Premium

A. As premium for the reinsurance coverage provided hereunder for each excess layer for the term of this Contract, the Company shall pay the Reinsurer the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months and for purposes of calculating subparagraph 3 below, the term of the Original Contract is a full 12 months):

1. The amount, shown as "Reinstatement Factor" for that excess layer in Schedule B attached hereto; times

2. The Final Adjusted Rate on Line for the corresponding excess layer of the Original Contract; times

3. An amount equal to 100% reinsurance placement percentage under each excess layer of the Original Contract of the final adjusted premium paid by the Company for the corresponding excess layer of the Original Contract.

"Final Adjusted Rate on Line" as used herein shall mean an amount equal to a 100% reinsurance placement percentage under each excess layer of the Original Contract of the final adjusted premium paid by the Company for the corresponding excess layer of the Original Contract divided by the amount, shown as the "Reinsurer's Per Occurrence Limit" for that excess layer under the Original Contract in Schedule A attached hereto.

B. The Company shall pay the Reinsurer a deposit premium for each excess layer of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule B attached hereto, in four equal installments of the amount, shown as "Deposit Premium Installment" for that excess layer in Schedule B attached hereto, on July 1 and October 1 of 2013, and January 1 and April 1 of 2014.  However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

C. As soon as possible after the termination or expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

Article 5 - Loss Notices and Settlements

A. Whenever reinstatement premium settlements made by the Company under the Original Contract appear likely to result in a claim hereunder, the Company shall notify the Reinsurer.  The Company will advise the Reinsurer of all subsequent developments relating to such claims that, in the opinion of the Company, may materially affect the position of the Reinsurer.

Page 3

B. All reinstatement premium settlements made by the Company under the Original Contract, provided they are within the terms of the Original Contract and within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable within 10 days of receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company.

Article 6 - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rateas quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked.

Page 4

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article 7 - Offset

The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company.  The provisions of this Article shall not be affected by the insolvency of either party.

Article 8 - Access to Records

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access.  However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company.  "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed.

Article 9 - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Page 5

Article 10 - Currency (BRMA 12A)

A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 11 - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article 12 - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article 13 - Reserves

A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss reserves (being the sum of all reinstatement premiums paid by the Company under the Original Contract but not yet recovered from the Reinsurer, plus the Company's reserves for reinstatement premium due under the Original Contract, if any) (hereinafter referred to as "Reinsurer's Obligations") by:

1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

2. Escrow accounts for the benefit of the Company; and/or

3. Cash advances;

Page 6

if the Reinsurer:

1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or

2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date.  The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

2. To reimburse itself for the Reinsurer's share of reinstatement premiums paid by the Company under the terms of the Original Contract, unless paid in cash by the Reinsurer;

3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including, but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

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Article 14 - Insolvency

A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees.

Article 15 - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots.

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B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

Article 16 - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Page 9

Article 17 - Severability (BRMA 72E)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

Article 18 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

Article 19 - Non-Waiver

The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not:  (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof.

Article 20 - Notices and Contract Execution

A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile.  With the exception of notices of termination, first class mail is also acceptable.

B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

1. Paper documents with an original ink signature;

2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

3. Electronic records with an electronic signature made via an electronic agent.  For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

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Article 21 - Intermediary

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary.  Payments by the Company to the Intermediary will be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

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Schedule A

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

	Original Contract First Excess		Original Contract Second Excess		Original Contract Third Excess
Company's Retention	$	11,000,000	$	50,000,000	$	98,500,000
Reinsurer's Per Occurrence Limit	$	39,000,000	$	48,500,000	$	25,800,000
Reinsurer's Term Limit	$	78,000,000	$	97,000,000	$	51,600,000
Minimum Premium	$	10,140,000	$	8,536,000	$	2,683,200
AAL	$	6,510,802	$	3,924,181	$	593,198
Annual Deposit Premium	$	12,675,000	$	10,670,000	$	3,354,000
Deposit Premium Installments	$	3,168,750	$	2,667,500	$	838,500

    Schedule A

Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess
Reinstatement Factor		1.015		0.932		0.808
Annual Deposit Premium	$	4,182,750	$	2,187,350	$	352,170
Deposit Premium Installment	$	1,045,687.50	$	546,837.50	$	88,042.50

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

    Schedule B

Interests and Liabilities Agreement

attached to and forming part of the

Reinstatement Premium Protection Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

JC Re Ltd.

Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above:

JC Re Ltd. - A Bermuda segregated accounts insurance company, in respect of its segregated account designated "Olivewood Account":

100.0% of the First Reinstatement Premium Protection Reinsurance

100.0% of the Second Reinstatement Premium Protection Reinsurance

JC Re Ltd. - A Bermuda segregated accounts insurance company, in respect of its segregated account designated "Value Master Account":

100.0% of the Third Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

Additionally, as respects the Subscribing Reinsurer's shares in the attached Contract, the following Articles shall be added to and made part of this Contract:

"Article 22 - Obligations

A. The Reinsurer will establish a Trust Fund or provide a Letter of Credit (LOC) issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company as security for the Reinsurer's Obligations.

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B. The term 'Obligations' shall mean:

1. During the term of this Contract, the balance of (a) the Reinsurer's share of all reinstatement premiums for which the Company may be liable under the Original Contract, less (b) any unpaid reinsurance premium (net of brokerage and Federal Excise Tax payable) under this Contract, and less (c) reinstatement premiums recovered from the Reinsurer;

2. On the expiration of this Contract, if this Contract is renewed, the Reinsurer's 'Obligations' shall be determined as the aggregate of the Reinsurer's share of the following:

a. Reinstatement premiums paid by the Company under the Original Contract, but not recovered from the Reinsurer; plus

b. Accrued reinstatement premiums payable by the Company associated with reserves for losses reported and outstanding under the Original Contract; plus

c. Accrued reinstatement premiums payable by the Company associated with reserves for losses incurred but not reported under the Original Contract; plus

d. Accrued reinstatement premiums payable by the Company associated with reserves for loss adjustment expense under the Original Contract.

The amount so determined shall be recalculated at each month end until all liability has been extinguished.

C. On December 1, 2013, collateral will be released consistent with the provisions of the Collateral Release Article and Reserves Article.

D. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Trust Fund or LOC may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

1. To reimburse itself for the Reinsurer's share of unearned premiums on the account of cancellation or adjustment premiums, unless paid in cash by the Reinsurer;

2. To reimburse itself for the Reinsurer's share of reinstatement premiums paid by the Company under the terms of the Original Contract, unless paid in cash by the Reinsurer;

3. To fund a cash account in the amount equal to the Reinsurer's Obligations, if said Trust Fund or LOC has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; and/or

4. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's Obligations, if so requested by the Reinsurer.

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In the event the amount drawn by the Company on any Trust Fund or LOC is in excess of the actual amount required, the Company shall return to the Reinsurer the excess amount so drawn within 10 days of receiving notice of the amount due.

Article 23 - Collateral Release

A. As of December 1, 2013 or 31 days from the date of the loss occurrence under the Original Contract for which reinstatement premium is due from the Company, whichever is later, the parties shall determine how much collateral will be required to be maintained within the Trust Fund, less any amount required under the Reserves Article.  This calculation will be performed on a monthly basis until all liability has been extinguished.

B. For the purposes of this Article, 'Loss Amount' shall be defined as the sum of:

1. Losses and loss adjustment expense paid by the Company under the Original Contract; plus

2. Reserves for losses reported and outstanding under the Original Contract; plus

3. Reserves for loss adjustment expense reported and outstanding under the Original Contract; plus

4. Reserves for losses incurred but not reported under the Original Contract.

C. For each loss occurrence potentially generating reinstatement premium hereunder, the Company shall multiply the Loss Amount by the appropriate Buffer Loss Multiplier from the table below, based on the number of days which have elapsed since the loss occurrence.  The product of this calculation shall be defined as the Buffered Loss Amount ('BLA').

Buffer Loss Multiplier table
Number of days since loss occurrence	Windstorm	Earthquake	Other event
0 to 90	180%	250%	200%
91 to 180	145%	200%	165%
181 to 270	125%	175%	140%
271 to 365	110%	150%	115%
366 to 455	100%	125%	100%
456 to 545	100%	110%	100%
Thereafter	100%	100%	100%

D. With respect to each loss occurrence for which the BLA would result in reinstatement premium covered under the Original Contract, an amount equal to the Reinsurer's share of the reinstatement premium associated with such BLA for that excess layer shall be deemed to equal the event specific collateral amount at the calculation date (the 'Event Collateral Amount' or the 'ECA').

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E. In respect of all events for which an ECA exceeds $0, the aggregate amount of the required collateral to be held in the Trust Fund shall be equal to the amount by which the lesser of (1) the sum of the ECAs, or (2) the Reinsurer's share of an amount equal to the annual deposit premium due under the Original Contract for that excess layer (i.e., the aggregate limit hereunder), exceeds the amounts paid to date by the Reinsurer.  Such aggregate amount shall be deemed to be the 'Aggregate Collateral Obligation' or the 'ACO.'

F. At any month-end at which there is any security on deposit in the Trust Fund, the Company shall perform this calculation within 10 days after the end of such month and report to the Reinsurer and Trustee named in the Trust Agreement information supporting any BLA, ECA and ACO amounts greater than $0.  The Assets in the Trust Fund will be adjusted monthly based on this calculation.  In the event the balance of the Trust Fund is greater than the amount required to fully fund the Obligations, as defined by the ACO, the Company shall promptly, within 10 days, authorize a return of such excess amount to the Reinsurer.  Similarly, in the event the balance of the Trust Fund falls below the amount required to fully fund the Obligations, the Reinsurer shall promptly, within 10 days, add assets to the Trust Fund to eliminate such shortfall."

In Witness Whereof, the parties hereto by their respective duly authorized representatives have executed this Agreement as of the dates specified below:

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/  Michael H. Braun

This ________________ day of ___________________________ in the year ____________.

JC Re Ltd.

A Bermuda segregated accounts insurance company, in respect of its segregated account designated "Olivewood Account"

This ________________ day of ___________________________ in the year ____________.

JC Re Ltd.

A Bermuda segregated accounts insurance company, in respect of its segregated account designated "Value Master Account"

Page 4 of 4

EX-10.3

EXHIBIT 10.3

AMENDED AND RESTATED NON-COMPETITION, NON-DISCLOSURE

AND NON-SOLICITATION AGREEMENT

THIS AMENDED AND RESTATED NON-COMPETITION, NON DISCLOSURE AND NON-SOLICITATION AGREEMENT (the "Agreement") is entered into effective as of August ___, 2013 by and between:

(i) ________________, an individual residing at ________________ (the "Employee"); and

(ii) FEDERATED NATIONAL HOLDING COMPANY, formerly known as 21^st Century Holding Company, a Florida corporation (the "Company").

P R E L I M I N A R Y   S T A T E M E N T

WHEREAS, the Company is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through its Subsidiaries (as defined in Section 6 below) and its contractual relationships with independent agents and general agents, and, in that regard, underwrites and/or places through its Subsidiaries, its own and third-party insurers’ products (including homeowners’ multi-peril, commercial general liability, federal flood, personal auto and various other lines of insurance) through a network of independent agents and general agents in Florida and various other states, and provides other related services (collectively, the “Company Business”);

WHEREAS, the Employee has been employed by the Company, and is currently party to that certain Second Amended and Restated Employment Agreement dated as of January 18, 2012 (the “Employment Agreement”) with the Company;

WHEREAS, in connection with his employment with the Company, the Employee previously entered into a Non-Compete Agreement dated ____________ (the “Existing Non-Compete Agreement”); and

WHEREAS, the Company and the Employee desire to amend and restate the Existing Non-Compete Agreement and certain provisions of the Employment Agreement, all as set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Non-Competition.  During the Term of the Employee’s employment by the Company (as defined in the Employment Agreement) and for a period of two years following the termination of the Employee’s employment for any reason (the “Restricted Period”), including (a) termination for Cause, without Cause or as a result of the Employee’s disability (each as defined or provided for in the Employment Agreement), (b) termination following a Change in Control (as defined in the Employment Agreement), or (c) the Employee’s resignation for any reason (each of the foregoing, a “Termination”), Employee shall not, directly or indirectly, engage in or have any interest in, directly or indirectly, any sole proprietorship, partnership, corporation, company, business or any other person or entity (whether as an employee, officer, director, partner, member, agent, security holder, creditor, consultant or otherwise) that, directly or indirectly, engages primarily in the development, marketing, distribution, underwriting or sale of products and services competitive with the Company Business in any and all states in which the Company and/or any Subsidiary conducts the Company Business during the Term or at the time of Termination of the Employee’s employment with the Company (the “Restricted Territory”); provided, however, that Employee may continue to hold securities of the Company and/or acquire, solely as an investment, shares of capital stock or other equity securities of any entity engaging in a business competitive with the Company Business, so long as the Employee does not control or acquire a controlling interest in, or become a member of a group which exercises direct or indirect control of more than five percent of, any class of equity security of such entity; and provided further that the Restricted Territory shall include any state in which the Company or a Subsidiary has completed substantially all the steps necessary, including regulatory applications, to conduct the Company Business in such state.

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2.Non-Disclosure.  During the Term and thereafter following any Termination of the Employee’s employment with the Company, the Employee shall not divulge, communicate, use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the Company Business.  Any Confidential Information now or hereafter acquired by the Employee with respect to the business of the Company or any Subsidiary shall be deemed a valuable, special and unique asset of the Company that is received by the Employee in confidence and as a fiduciary.  For purposes of this Agreement, “Confidential Information” means information disclosed to the Employee or known by the Employee as a consequence of or through his employment by the Company or any Subsidiary (including information conceived, originated, discovered or developed by the Employee) prior to or after the date hereof and not generally known or in the public domain, about the Company or its business, including, but not limited to, information concerning the Company’s or any Subsidiary’s financial condition, prospects, technology, customers, business partners, reinsurers, methods of doing business, and marketing, distribution, underwriting or sale of the Company’s or any Subsidiary’s products and services.  Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Employee from disclosing Confidential Information to the extent required by law.

3.Non-Solicitation of Employees.  During the Restricted Period, Employee shall not directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, attempt to employ or enter into any contractual arrangement with any employee or former employee of the Company or any Subsidiary, unless such employee or former employee has not been employed by the Company or a Subsidiary for a period in excess of six months.

4.Books and Records.  All books, records, accounts and similar repositories of Confidential Information of the Company, whether prepared by the Employee or otherwise coming into the Executive’s possession, shall be the exclusive property of the Company and shall be returned immediately to the Company on Termination of the Employee’s employment with the Company or at the Board’s request at any time.

5.Injunction.  It is recognized and hereby acknowledged by the parties hereto that a breach by the Employee of any of the covenants contained in this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain.  As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess.

6.Terminology.  The terms “Subsidiary” or “Subsidiaries” as used in this Agreement shall mean all entities in which the Company holds, directly or indirectly, an equity interest, other than solely for investment purposes.  References to the “Company” in this Agreement shall mean Federated National Holding Company and all of its Subsidiaries, taken as a whole, unless the context requires otherwise.  All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa.  Titles of sections are for convenience only, and neither limit nor amplify the provisions of the Agreement itself.

7.Entire Agreement; Conflict with Employment Agreement.  This Agreement and the Employment Agreement constitute the entire agreement between the parties hereto with respect to the subject matter hereof. and supersede all prior negotiations, letters and understandings relating to the subject matter hereof.  If any provision of this Agreement and the Employment Agreement shall conflict, the terms of this Agreement shall control.

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8.Amendment.  This Agreement may not be amended, supplemented or modified in whole or in part except by an instrument in writing signed by the party or parties against whom enforcement of any such amendment, supplement or modification is sought.

9.Choice of Law.  This Agreement will be interpreted, construed and enforced in accordance with the laws of the State of Florida, without giving effect to the application of the principles pertaining to conflicts of laws.

10.Effect of Waiver.  The failure of any party at any time or times to require performance of any provision of this Agreement will in no manner affect the right to enforce the same.  The waiver by any party of any breach of any provision of this Agreement will not be construed to be a waiver by any such party of any succeeding breach of that provision or a waiver by such party of any breach of any other provision.

11.Severability.  The invalidity, illegality or unenforceability of any provision or provisions of this Agreement will not affect any other provision of this Agreement, which will remain in full force and effect, nor will the invalidity, illegality or unenforceability of a portion of any provision of this Agreement affect the balance of such provision.  In the event that any one or more of the provisions contained in this Agreement or any portion thereof shall for any reason be held to be invalid, illegal or unenforceable in any respect, the parties agree that this Agreement shall be modified, reformed, construed and enforced so that such invalid, illegal or unenforceable provision is enforceable and comes closest to expressing the intention of the unenforceable provision.

12.Enforcement.  Should it become necessary for any party to institute legal action to enforce the terms and conditions of this Agreement, the successful party will be awarded reasonable attorneys' fees at all trial and appellate levels, expenses and costs.  Any suit, action or proceeding with respect to this Agreement shall be brought in the courts of Broward County in the State of Florida or in the U.S. District Court for the Southern District of Florida.  Each party hereto consents to service of process by any means authorized by the applicable law of such forum and each party irrevocably waives, to the fullest extent each may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

Venue for any such action, in addition to any other venue permitted by statute, will be Broward County, Florida.  The parties hereto hereby irrevocably waive, to the fullest extent permitted by law, any objection that any of them may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any judgment entered by any court in respect thereof brought in Broward County, Florida, and hereby further irrevocably waive any claim that any suit, action or proceeding brought in Broward County, Florida, has been brought in an inconvenient forum.

13.Assignment; Binding Effect.  This Agreement may not be assigned by Employee.  This Agreement may be assigned by the Company, in whole or in part, without the consent of Employee.  This Agreement shall be binding upon and inure to the benefit of the parties, their heirs, personal representatives, successors and permitted assigns.

14.Counterparts.  This Agreement may be executed in one or more counterparts, including by facsimile or other electronic transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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15.Notice.  Any notice required or permitted to be delivered hereunder shall be deemed to be delivered when sent by facsimile with receipt confirmed or when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, or by overnight courier, addressed to the Employee at ________________________________ and to the Company at 14050 N.W. 14^th Street, Suite 180, Sunrise, FL  33323, or to such other address as either party hereto shall from time to time designate to the other party by notice in writing as provided herein.

16.Voluntary Execution.  Employee acknowledges that he has read and understands this Agreement, has had an opportunity to consult with an attorney, and signs this Agreement voluntarily, without coercion, based upon his own judgment and not in reliance upon any representations or promises other than those set forth herein.

[SIGNATURES ON FOLLOWING PAGE]

4

IN WITNESS WHEREOF, this Agreement has been duly signed by the parties hereto effective as of the day and year first above written.

FEDERATED NATIONAL HOLDING COMPANY

(formerly known as 21ST CENTURY HOLDING COMPANY):

By:

Name:

Title:

EMPLOYEE

 [NAME OF EMPLOYEE]

5

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

Table of Contents

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

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective: July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to as the "Company")

and

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

Article 1 - Classes of Business Reinsured

A. By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations hereinafter set forth.

B. Neither the Company nor the Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2014.

B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur:

1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

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2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or

4. The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or

5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or

6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or

8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2013 to 12:01 a.m., Eastern Standard Time, July 1, 2014.  However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2013 to the effective time and date of termination.

D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract.

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Article 3 - Territory

The territorial limits of this Contract shall be identical with those of the Company's policies.

Article 4 - Exclusions

A. This Contract does not apply to and specifically excludes the following:

1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation.

2. Hail damage to growing or standing crops.

3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such.

4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such.

5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency.

6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability.

7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance.

8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke.  Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy.

9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract.

10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract.

11. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation.

12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

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13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises.

14. Mold, unless resulting from a peril otherwise covered under the policy involved.

15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract.

16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved.

"Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment.

"Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature.

However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril.

Article 5 - Retention and Limit

A. The Company shall retain and be liable for the first $7,000,000 of ultimate net loss arising out of each loss occurrence.  The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention, but the liability of the Reinsurer shall not exceed $4,000,000 as respects any one loss occurrence, nor shall it exceed $8,000,000 in all during the term of this Contract.

B. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence.  For purposes hereof, the Company shall be the sole judge of what constitutes "one risk."

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Article 6 - Florida Hurricane Catastrophe Fund

The FHCF mandatory layer of coverage, which is purchased by the Company, shall be deemed to inure to the benefit of this Contract.  Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage.

Article 7 - Other Reinsurance

The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article 8 - Definitions

A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract.

Loss adjustment expense as defined above does not include unallocated loss adjustment expense.  Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses.

B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean:

1. "Loss in excess of policy limits" shall mean 80.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

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2. "Extra contractual obligations" shall mean 80.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.  Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance.

D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained.

Article 9 - Loss Occurrence

A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another.  However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows:

1. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event.  The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

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3. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph A) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's "loss occurrence."

4. As regards "freeze," only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's "loss occurrence."

5. As regards conflagration, brush fires and any other fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), all individual losses sustained by the Company which occur during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Company's "loss occurrence."

B. Except for those "loss occurrences" referred to in subparagraph 2 of paragraph A above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any "loss occurrence" referred to in subparagraph 1 of paragraph A above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

C. However, as respects those "loss occurrences" referred to in subparagraph 2 of paragraph A above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more "loss occurrences," provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

D. No individual losses occasioned by an event that would be covered by a 96 or 72 hours clause may be included in any "loss occurrence" claimed under a 168 hours provision.

Article 10 - Loss Notices and Settlements

A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's retention hereunder and/or appear likely to result in a claim under this Contract, the Company shall notify the Subscribing Reinsurers and shall provide updates related to development of such losses.  The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

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B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company.

Article 11 - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.  Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so.

Article 12 - Reinsurance Premium

A. As premium for the reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months), subject to a minimum premium of $2,160,000 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

1. $2,700,000; times

2. The percentage calculated by dividing (a) the actual Average Annual Loss ("AAL") determined by the Company's wind insurance in force on September 30, 2013, by (b) $1,114,274.

The Company's AAL shall be derived from results produced by RMS RiskLink Version 11.0 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge.  It is understood that the calculation of the actual AAL shall be based on the Reinsurer's per occurrence limit of $4,000,000, net of the FHCF mandatory layer of coverage purchased by the Company using the current estimates of the mandatory FHCF coverage of 90.0% of $258,128,782 excess of $98,470,089.

B. The Company shall pay the Reinsurer an annual deposit premium of $2,700,000 in four equal installments of $675,000 on July 1 and October 1 of 2013, and on January 1 and April 1 of 2014.  However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

C. On or before June 30, 2014, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

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Article 13 - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rateas quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

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D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article 14 - Offset

The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company.  The provisions of this Article shall not be affected by the insolvency of either party.

Article 15 - Access to Records

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access.  However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company.  "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed.

Article 16 - Liability of the Reinsurer

A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon.  However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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Article 17 - Net Retained Lines (BRMA 32E)

A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article 18 - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article 19 - Currency (BRMA 12A)

A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 20 - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article 21 - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

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B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article 22 - Reserves

A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by:

1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

2. Escrow accounts for the benefit of the Company; and/or

3. Cash advances;

if the Reinsurer:

1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or

2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date.  The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

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2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

Article 23 - Insolvency

A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees.

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Article 24 - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots.

B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

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Article 25 - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Article 26 - Severability (BRMA 72E)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

Article 27 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

Article 28 - Non-Waiver

The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not:  (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof.

Article 29 - Notices and Contract Execution

A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile.  With the exception of notices of termination, first class mail is also acceptable.

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B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

1. Paper documents with an original ink signature;

2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

3. Electronic records with an electronic signature made via an electronic agent.  For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

Article 30 - Intermediary

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary.  Payments by the Company to the Intermediary will be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below:

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/  Michael H. Braun

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War Exclusion Clause

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

Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.  However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reassured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

12/12/57

N.M.A. 1119

BRMA 35B

Terrorism Exclusion

(Property Treaty Reinsurance)

Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which:

1. Involves violence against one or more persons, or

2. Involves damage to property; or

3. Endangers life other than the person committing the action; or

4. Creates a risk to health or safety of the public or a section of the public; or

5. Is designed to interfere with or disrupt an electronic system.

This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism.

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination.

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

DaVinci Reinsurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

DaVinci Reinsurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Endurance Specialty Insurance Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Endurance Specialty Insurance Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Everest Reinsurance CompanyA Delaware Corporation

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 50.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Everest Reinsurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Renaissance Reinsurance, Ltd.Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date specified below:

This ________________ day of ___________________________ in the year ____________.

Renaissance Reinsurance, Ltd.

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: August 14, 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: August 14, 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 June 30, 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)

August 14, 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 June 30, 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)

August 14, 2013

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Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

(11) Subsequent Events

There wereno subsequent events.

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue:
Gross premiums written	$ 70,307	$ 33,071	$ 116,134	$ 64,345
Gross premiums ceded	(25,409)	(11,727)	(28,244)	(13,585)
Net premiums written	44,898	21,344	87,890	50,760
Increase (decrease) in prepaid reinsurance premiums	10,466	269	552	(9,581)
Increase in unearned premiums	(30,932)	(6,920)	(45,218)	(13,668)
Net change in prepaid reinsurance premiums and unearned premiums	(20,466)	(6,651)	(44,666)	(23,249)
Net premiums earned	24,432	14,693	43,224	27,511
Commission income	844	396	1,351	701
Finance revenue	198	127	343	241
Managing general agent fees	1,007	561	1,697	1,095
Net investment income	788	935	1,582	1,896
Net realized investment gains (losses)	887	(218)	1,700	(228)
Other income	20	329	152	349
Total revenue	28,176	16,823	50,049	31,565
Expenses:
Losses and LAE	12,819	7,136	22,147	12,864
Operating and underwriting expenses	3,927	2,371	6,655	4,781
Salaries and wages	2,333	1,995	4,666	4,206
Policy acquisition costs - amortization	5,042	2,981	8,794	5,729
Total expenses	24,121	14,483	42,262	27,580
Income before provision for income tax expense	4,055	2,340	7,787	3,985
Provision for income tax expense	1,511	918	2,908	1,491
Net income	$ 2,544	$ 1,422	$ 4,879	$ 2,494
Net income per share - basic (in dollars per share)	$ 0.32	$ 0.18	$ 0.61	$ 0.31
Net income per share - diluted (in dollars per share)	$ 0.31	$ 0.18	$ 0.60	$ 0.31
Weighted average number of common shares outstanding - basic (in shares)	8,019,887	7,947,252	8,001,513	7,946,820
Weighted average number of common shares outstanding - diluted (in shares)	8,273,974	7,993,763	8,210,792	7,979,084
Dividends paid per share (in dollars per share)	$ 0.03	$ 0	$ 0.05	$ 0

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Commitments and Contingencies

6 Months Ended

Jun. 30, 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 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$4.0 million and $4.3 million as ofJune 30, 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 June 30, 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. 14^th 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		193
2014		392
2015		400
2016		408
2017		156
Total	$	1,549

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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Stock Compensation Plans (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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		$	5.54
Exercised		-		$	-		(74,809	)	$	3.92		-		$	-
Cancelled		(25,000	)	$	11.15		(10,666	)	$	3.68		(500	)	$	5.54
Outstanding at June 30, 2013		53,500		$	13.46		617,122		$	5.35		99,500		$	5.54

Maturity schedule of exercisable options outstanding

Options outstanding as of June 30, 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
June 30, 2013		52,800	$	13.46		330,655	$	5.35
December 31, 2013		700	$	13.46		73,254	$	5.35
December 31, 2014		-	$	13.46		138,313	$	5.35
December 31, 2015		-	$	13.46		74,900	$	5.35
December 31, 2016		-	$	13.46		-	$	5.35
December 31, 2017		-	$	13.46		-	$	5.35
Thereafter		-	$	13.46		-	$	5.35
Total options exercisable		53,500				617,122

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.

	June 30, 2013		June 30, 2012
Dividend yield		N/A		N/A
Expected volatility		N/A		39.79
Risk-free interest rate		N/A		0.28
Expected life (in years)		N/A		4.45

Summary of non-expired stock option plans outstanding

Summary information about the Company’s stock option plans at June 30, 2013 is as follows.

					Weighted Average		Weighted
	Range of		Outstanding at		Contractual		Average		Exercisable at
	Exercise Price		June 30, 2013		Periods in Years		Exercise Price		June 30, 2013
1998 Plan	$	8.67 - $16.59		53,500		0.34	$	13.46		52,800
2002 Plan	$	2.45 - $13.24		617,122		5.34	$	5.35		330,655

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Summary of Significant Accounting Policies and Practices (Policies)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies and Practices [Abstract]

Impact of New Accounting Pronouncements

(B) Impact of New Accounting Pronouncements

In July 2013, the FASB issued Accounting Standard Update (“ASU”) No. 2013-11: Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  Topic 740, Income Taxes, does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, and there is diversity in practice in the presentation of unrecognized tax benefit in those instances.  The objective of the amendments in this ASU is to eliminate that diversity in practice.  The ASU applies to all entities that have unrecognized tax benefits when a net operating loss carry forward, a similar tax loss, or a tax credit carryforward exists at the operating date. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and early adoption is permitted.  The amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date and   retrospective application is permitted.  The adoption of the amendments in this ASU will not have a material impact on our financial condition, results of operations or cash flows.

In February 2013, the FASB issued 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 six months ended June 30, 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 per Share

Basic earnings per share (“Basic EPS”) is computed by dividing net income 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.

Reclassifications

(E) Reclassifications

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

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Commitments and Contingencies (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 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	4,000,000	4,300,000
Square footage of office facility	18,500
Expected future lease payments [Abstract]
2013	193,000
2014	392,000
2015	400,000
2016	408,000
2017	156,000
Total	$ 1,549,000

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Summary of Significant Accounting Policies and Practices (Details)	6 Months Ended
	Jun. 30, 2013 Category
Summary of Significant Accounting Policies and Practices [Abstract]
Number of categories securities are classified	3

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Unpaid losses and LAE (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 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	22,013	31,636
Prior years	134	(1,427)
Total incurred losses and LAE	22,147	30,209
Paid Related To Unpaid Losses And LAE [Abstract]
Current year	7,241	15,892
Prior years	15,972	25,807
Total paid	23,213	41,699
Unpaid Losses and LAE, net, period end	45,339	46,405
Plus reinsurance recoverables	3,545	3,503
Unpaid losses and LAE, period end	$ 48,884	$ 49,908

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Organization and Business (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Carrier Agent	Jun. 30, 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)			18.40%
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)	89.10%	85.50%	88.00%	86.10%
Ratio of commercial general liability premiums underwritten to total premiums underwritten (in hundredths)	3.90%	7.70%	4.70%	7.70%
Ratio of federal flood premiums underwritten to total premiums underwritten (in hundredths)	2.60%	4.40%	2.70%	3.90%
Ratio of automobile insurance premiums underwritten to total premiums underwritten (in hundredths)	4.40%	2.40%	4.60%	2.30%
Fees earned per policy			$ 25
Number of carriers the entity provides insurance through			30

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flow from operating activities:
Net income	$ 4,879	$ 2,494
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium discount, net	731	681
Depreciation and amortization of property plant and equipment, net	121	96
Net realized investment (gains) losses	(1,700)	228
Non-cash impairment recognition	0	44
Recovery for credit losses, net	0	(8)
(Recovery) provision for uncollectible premiums receivable	(19)	14
Non-cash compensation	108	95
Changes in operating assets and liabilities:
Premiums receivable	(11,597)	(2,492)
Prepaid reinsurance premiums	6,506	5,920
Reinsurance recoverable, net	(42)	390
Income taxes recoverable	(195)	0
Deferred income tax expense, net of other comprehensive income	1,221	1,369
Policy acquisition costs, net of amortization	(4,719)	(1,718)
Other assets	542	158
Unpaid losses and LAE	(1,023)	(6,983)
Unearned premiums	45,215	13,668
Premium deposits and customer credit balances	624	(559)
Income taxes payable	0	(39)
Bank overdraft	60	(2,082)
Accounts payable and accrued expenses	3,463	(980)
Net cash provided by operating activities	44,175	10,296
Cash flow used by investing activities:
Proceeds from sale of investment securities	64,354	42,808
Purchases of investment securities available for sale	(79,600)	(46,871)
Purchases of property and equipment	(462)	(60)
Net cash used by investing activities	(15,708)	(4,123)
Cash flow (used) provided by financing activities:
Exercised stock options	293	4
Dividends paid	(648)	0
Tax benefit related to non-cash compensation	58	48
Net cash (used) provided by financing activities	(297)	52
Net increase in cash and short term investments	28,170	6,225
Cash and short term investments at beginning of period	21,143	15,205
Cash and short term investments at end of period	49,313	21,430
Cash paid during the period for:
Income taxes	1,870	0
Non-cash investing and finance activities:
Accrued dividends payable	$ 245	$ 0

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Basis of Presentation

6 Months Ended

Jun. 30, 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 June 30, 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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Investments

6 Months Ended

Jun. 30, 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 $13.9 million, or 10.7%, to $144.0 million as of June 30, 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 June 30, 2013, compared with 94% as of December 31, 2012.

We did not hold any trading investment securities during the six months ended June 30, 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 June 30, 2013, whereas we charged $44,000 of net realized investment losses to operations during the three and six months ended June 30, 2012.

As of June 30, 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 June 30, 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 June 30, 2013, 72% of our debt portfolio was in diverse industries and 28% was in United States government bonds. As of June 30, 2013, approximately 87% of our equity holdings were in equities related to diverse industries and 13% 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 June 30, 2013 and December 31, 2012, we have classified $7.3 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 and six months ended June 30, 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 June 30, 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 June 30, 2013 and December 31, 2012.

	June 30, 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	$	26,094		18.12	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,434		2.38	%		3,939		3.03	%
Corporate		73,570		51.11	%		67,313		51.74	%
International		3,114		2.16	%		3,111		2.39	%
		106,212		73.77	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		5,183		3.60	%		6,016		4.62	%
Corporate		2,002		1.39	%		1,203		0.92	%
International		80		0.06	%		140		0.11	%
		7,265		5.05	%		7,359		5.65	%
Total debt securities		113,477		78.82	%		109,114		83.87	%
Equity securities, at market:		30,507		21.18	%		20,982		16.13	%
Total investments	$	143,984		100.00	%	$	130,096		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	260		$	8,134	$	315		$	11,548
Equity securities		973			3,365		144			1,015
Total realized gains		1,233			11,499		459			12,563
Debt securities		(91	)		6,555		(109	)		4,371
Equity securities		(255	)		955		(568	)		3,725
Total realized losses		(346	)		7,510		(677	)		8,096
Net realized gains (losses) on investments	$	887		$	19,009	$	(218	)	$	20,659

The following table shows the realized gains (losses) for debt and equity securities for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,393		$	30,735	$	548		$	18,044
Equity securities		1,162			4,444		660			4,088
Total realized gains		2,555			35,179		1,208			22,132
Debt securities		(500	)		23,031		(315	)		9,413
Equity securities		(355	)		1,578		(1,121	)		5,391
Total realized losses		(855	)		24,609		(1,436	)		14,804
Net realized gains (losses) on investments	$	1,700		$	59,788	$	(228	)	$	36,936

Net realized investment gains totaled $1.7 million for the six months ended June 30, 2013, compared with net realized losses of $0.2 million during the six months ended June 30, 2012. During the six months ended June 30, 2013, the investment committee decided to shorten the duration of the bond portfolio by approximately two years to prepare for the eventuality of rising interest rates over the next several years.  This decision generated approximately $0.9 million in realized gains.  Our equity asset managers make periodic sales from our equity portfolio; these sales generated approximately $0.8 million in realized gains.

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at June 30, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
June 30, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	26,217	$	222	$	345	$	26,094
Obligations of states and political subdivisions		3,420		60		46		3,434
Corporate		73,131		1,338		899		73,570
International		3,166		3		55		3,114
	$	105,934	$	1,623	$	1,345	$	106,212
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	5,183	$	74	$	279	$	4,978
Corporate		2,002		18		19		2,001
International		80		-		2		78
	$	7,265	$	92	$	300	$	7,057
Equity securities - common stocks	$	26,591	$	4,702	$	786	$	30,507
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 June 30, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	345	$	345	$	-
Obligations of states and political subdivisions		46		46		-
Corporate		899		899		-
International		55		55		-
		1,345		1,345		-
Equity securities:
Common stocks		786		425		361
Total debt and equity securities	$	2,131	$	1,770	$	361

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 June 30, 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.

	June 30, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	3,383	$	3,406	$	2,925	$	2,944
Due after one through five years		73,100		73,437		49,826		51,523
Due after five through ten years		35,985		35,670		35,070		37,182
Due after ten years		731		756		16,659		17,660
Total	$	113,199	$	113,269	$	104,480	$	109,309

United States Treasury notes with a book value of $62,992 and $2,194,465, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of June 30, 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 June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	654	$	850
Dividends on equity securities		132		84
Interest on cash and cash equivalents		2		1
Total investment income	$	788	$	935
Net realized gains (losses)	$	887	$	(218	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended June 30, 2013 and 2012, were approximately $20.2 million and $24.6 million, respectively.

The table below sets forth investment results for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	1,369	$	1,724
Dividends on equity securities		211		166
Interest on cash and cash equivalents		2		6
Total investment income	$	1,582	$	1,896
Net realized gains (losses)	$	1,700	$	(228	)

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the six months ended June 30, 2013 and 2012, were approximately $64.4 million and $42.8 million, respectively.

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	169	$	206
Equity securities		718		(424	)
Total	$	887	$	(218	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	893	$	233
Equity securities		807		(461	)
Total	$	1,700	$	(228	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

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Summary of Significant Accounting Policies and Practices

6 Months Ended

Jun. 30, 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 three months ended June 30, 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 June 30, 2013 and December 31, 2012. Changes in interest rates subsequent to June 30, 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 June 30, 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 July 2013, the FASB issued Accounting Standard Update (“ASU”) No. 2013-11: Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  Topic 740, Income Taxes, does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, and there is diversity in practice in the presentation of unrecognized tax benefit in those instances.  The objective of the amendments in this ASU is to eliminate that diversity in practice.  The ASU applies to all entities that have unrecognized tax benefits when a net operating loss carry forward, a similar tax loss, or a tax credit carryforward exists at the operating date. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and early adoption is permitted.  The amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date and   retrospective application is permitted.  The adoption of the amendments in this ASU will not have a material impact on our financial condition, results of operations or cash flows.

In February 2013, the FASB issued 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 six months ended June 30, 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 per Share

Basic earnings per share (“Basic EPS”) is computed by dividing net income 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.

(E) Reclassifications

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

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Investments (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Investments [Abstract]
Increase in total investments			$ 13,900,000
Percentage increase in investments (in hundredths)			10.70%
Ratio of available-for-sale securities to total investments (in hundredths)	95.00%		95.00%		94.00%
Net realized investment losses charged to operations	0	44,000,000		44,000,000
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	7,265,000		7,265,000		7,359,000
Irrevocable letter of credit	15,000,000		15,000,000
Amount held in trust	1,000,000		1,000,000		1,000,000
Debt securities, at market [Abstract]
Debt securities, at market	106,212,000		106,212,000		101,755,000
Percent of debt securities at market to total investments (in hundredths)			73.77%		78.22%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	7,265,000		7,265,000		7,359,000
Percent of debt securities at amortized cost to total investments (in hundredths)			5.05%		5.65%
Total debt securities	113,477,000		113,477,000		109,114,000
Percent of debt securities to total investments (in hundredths)			78.82%		83.87%
Equity securities, at market	30,507,000		30,507,000		20,982,000
Percentage of equity securities to total investments (in hundredths)			21.18%		16.13%
Total investments	143,984,000		143,984,000		130,096,000
Total investments (in hundredths)			100.00%		100.00%
Realized gains (losses) [Abstract]
Total realized gains	1,233,000	459,000	2,555,000	1,208,000
Fair Value at Sale of securities with realized gains	11,499,000	12,563,000	35,179,000	22,132,000
Total realized losses	(346,000)	(677,000)	(855,000)	(1,436,000)
Fair Value at Sale of securities with realized losses	7,510,000	8,096,000	24,609,000	14,804,000
Net realized gains on investments	887,000	(218,000)	1,700,000	(228,000)
Fair Value of Investments at Sale	19,009,000	20,659,000	59,788,000	36,936,000
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	105,934,000		105,934,000		97,121,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	1,623,000		1,623,000		4,735,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	1,345,000		1,345,000		101,000
Debt Securities - Available-For-Sale, Estimated Fair Value	106,212,000		106,212,000		101,755,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	7,265,000		7,265,000		7,359,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	92,000		92,000		210,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	300,000		300,000		15,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	7,057,000		7,057,000		7,554,000
Equity securities - common stocks, Amortized Cost	26,591,000		26,591,000		19,095,000
Equity securities - common stocks, Gross Unrealized Gains	4,702,000		4,702,000		2,505,000
Equity securities - common stocks, Gross Unrealized Losses	786,000		786,000		618,000
Equity securities - common stocks, Estimated Fair Value	30,507,000		30,507,000		20,982,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	2,131,000		2,131,000		719,000
Debt/Equity securities, Less than 12 months	1,770,000		1,770,000		531,000
Debt/Equity securities, 12 months or longer	361,000		361,000		188,000
Amortized Cost [Abstract]
Due in one year or less, Amortized Cost	3,383,000		3,383,000		2,925,000
Due after one through five years, Amortized Cost	73,100,000		73,100,000		49,826,000
Due after five through ten years, Amortized Cost	35,985,000		35,985,000		35,070,000
Due after ten years, Amortized Cost	731,000		731,000		16,659,000
Total Amortized Cost	113,199,000		113,199,000		104,480,000
Estimated Fair Value [Abstract]
Due in one year or less, Estimated Fair Value	3,406,000		3,406,000		2,944,000
Due after one through five years, Estimated Fair Value	73,437,000		73,437,000		51,523,000
Due after five through ten years, Estimated Fair Value	35,670,000		35,670,000		37,182,000
Due after ten years, Estimated Fair Value	756,000		756,000		17,660,000
Total Estimated Fair Value	113,269,000		113,269,000		109,309,000
Investment income [Abstract]
Interest on debt securities	654,000	850,000	1,369,000	1,724,000
Dividends on equity securities	132,000	84,000	211,000	166,000
Interest on cash and cash equivalents	2,000	1,000	2,000	6,000
Total investment income	788,000	935,000	1,582,000	1,896,000
Net realized gains (losses)	887,000	(218,000)	1,700,000	(228,000)
Proceeds from sales and maturity of marketable securities	20,200,000	24,600,000	64,400,000	42,800,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	887,000	(218,000)	1,700,000	(228,000)
Net unrealized gains	4,194,000	4,427,000	4,194,000	4,427,000
Diverse Industries Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of debt securities to total debt portfolio (in hundredths)			72.00%		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)			28.00%		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)			87.00%		87.00%
Mutual Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of equity holdings to total equity portfolio (in hundredths)			13.00%		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	5,183,000		5,183,000		6,016,000
Debt securities, at market [Abstract]
Debt securities, at market	26,094,000		26,094,000		27,392,000
Percent of debt securities at market to total investments (in hundredths)			18.12%		21.06%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	5,183,000		5,183,000		6,016,000
Percent of debt securities at amortized cost to total investments (in hundredths)			3.60%		4.62%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	26,217,000		26,217,000		26,825,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	222,000		222,000		632,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	345,000		345,000		65,000
Debt Securities - Available-For-Sale, Estimated Fair Value	26,094,000		26,094,000		27,392,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	5,183,000		5,183,000		6,016,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	74,000		74,000		149,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	279,000		279,000		12,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	4,978,000		4,978,000		6,153,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	345,000		345,000		65,000
Debt/Equity securities, Less than 12 months	345,000		345,000		65,000
Debt/Equity securities, 12 months or longer	0		0		0
Obligations of States and Political Subdivisions [Member]
Debt securities, at market [Abstract]
Debt securities, at market	3,434,000		3,434,000		3,939,000
Percent of debt securities at market to total investments (in hundredths)			2.38%		3.03%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	3,420,000		3,420,000		3,738,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	60,000		60,000		202,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	46,000		46,000		1,000
Debt Securities - Available-For-Sale, Estimated Fair Value	3,434,000		3,434,000		3,939,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	46,000		46,000		1,000
Debt/Equity securities, Less than 12 months	46,000		46,000		1,000
Debt/Equity securities, 12 months or longer	0		0		0
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	2,002,000		2,002,000		1,203,000
Debt securities, at market [Abstract]
Debt securities, at market	73,570,000		73,570,000		67,313,000
Percent of debt securities at market to total investments (in hundredths)			51.11%		51.74%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	2,002,000		2,002,000		1,203,000
Percent of debt securities at amortized cost to total investments (in hundredths)			1.39%		0.92%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	73,131,000		73,131,000		63,553,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	1,338,000		1,338,000		3,794,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	899,000		899,000		34,000
Debt Securities - Available-For-Sale, Estimated Fair Value	73,570,000		73,570,000		67,313,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	2,002,000		2,002,000		1,203,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	18,000		18,000		61,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	19,000		19,000		2,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	2,001,000		2,001,000		1,262,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	899,000		899,000		34,000
Debt/Equity securities, Less than 12 months	899,000		899,000		34,000
Debt/Equity securities, 12 months or longer	0		0		0
Debt Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	260,000	315,000	1,393,000	548,000
Fair Value at Sale of securities with realized gains	8,134,000	11,548,000	30,735,000	18,044,000
Total realized losses	(91,000)	(109,000)	(500,000)	(315,000)
Fair Value at Sale of securities with realized losses	6,555,000	4,371,000	23,031,000	9,413,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	1,345,000		1,345,000		101,000
Debt/Equity securities, Less than 12 months	1,345,000		1,345,000		101,000
Debt/Equity securities, 12 months or longer	0		0		0
Investment income [Abstract]
Net realized gains (losses)	169,000	206,000	893,000	233,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	169,000	206,000	893,000	233,000
Net unrealized gains	277,000	3,991,000	277,000	3,991,000
Equity Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	973,000	144,000	1,162,000	660,000
Fair Value at Sale of securities with realized gains	3,365,000	1,015,000	4,444,000	4,088,000
Total realized losses	(255,000)	(568,000)	(355,000)	(1,121,000)
Fair Value at Sale of securities with realized losses	955,000	3,725,000	1,578,000	5,391,000
Investment income [Abstract]
Net realized gains (losses)	718,000	(424,000)	807,000	(461,000)
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	718,000	(424,000)	807,000	(461,000)
Net unrealized gains	3,917,000	436,000	3,917,000	436,000
International [Member]
Schedule of Available-for-sale Securities [Line Items]
Debt maturities, held to maturity, at amortized cost	80,000		80,000		140,000
Debt securities, at market [Abstract]
Debt securities, at market	3,114,000		3,114,000		3,111,000
Percent of debt securities at market to total investments (in hundredths)			2.16%		2.39%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	80,000		80,000		140,000
Percent of debt securities at amortized cost to total investments (in hundredths)			0.06%		0.11%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	3,166,000		3,166,000		3,005,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	3,000		3,000		107,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	55,000		55,000		1,000
Debt Securities - Available-For-Sale, Estimated Fair Value	3,114,000		3,114,000		3,111,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	80,000		80,000		140,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	0		0		0
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	2,000		2,000		1,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	78,000		78,000		139,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	55,000		55,000		1,000
Debt/Equity securities, Less than 12 months	55,000		55,000		1,000
Debt/Equity securities, 12 months or longer	0		0		0
Common Stock [Member]
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	786,000		786,000		618,000
Debt/Equity securities, Less than 12 months	425,000		425,000		430,000
Debt/Equity securities, 12 months or longer	361,000		361,000		188,000
United States Treasury Notes [Member] | Federated National [Member]
Estimated Fair Value [Abstract]
Due after one through five years, Estimated Fair Value	62,992		62,992		63,481
Due after five through ten years, Estimated Fair Value	$ 2,194,465		$ 2,194,465		$ 2,193,300

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Stock Compensation Plans (Details) (USD $)	3 Months Ended		6 Months Ended					12 Months Ended		6 Months Ended	12 Months Ended		6 Months Ended	12 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013 1998 Stock Option Plan [Member]	Dec. 31, 2012 1998 Stock Option Plan [Member]	Dec. 31, 2011 1998 Stock Option Plan [Member]	Jun. 30, 2013 2002 Stock Option Plan [Member]	Dec. 31, 2012 2002 Stock Option Plan [Member]	Dec. 31, 2011 2002 Stock Option Plan [Member]	Jun. 30, 2013 2012 Stock Incentive Plan [Member]	Dec. 31, 2012 2012 Stock Incentive Plan [Member]	Dec. 31, 2011 2012 Stock Incentive Plan [Member]	Jun. 30, 2013 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Jun. 30, 2013 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Jun. 30, 2013 2012 Stock Incentive Plan [Member] Director [Member]	Jun. 30, 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	(74,809)	(33,104)	0
Cancelled (in shares)							(25,000)	(11,250)	0	(10,666)	(70,499)	(129,100)
Outstanding (in shares)							53,500	78,500	89,750	617,122	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	$ 3.92	$ 3.86	$ 0
Cancelled (in dollars per share)							$ 11.15	$ 13.54	$ 0	$ 3.68	$ 12.45	$ 14.29
Outstanding (in dollars per share)							$ 13.46	$ 12.73	$ 12.83	$ 5.35	$ 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)													(500.00)	0	0
Outstanding (in shares)													99,500.00	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
Exercised (in dollars per share)													$ 0	$ 0	$ 0
Cancelled (in dollars per share)													$ 5.54	$ 0	$ 0
Outstanding (in dollars per share)													$ 5.54	$ 0	$ 0
Options Exercisable at [Abstract]
June 30, 2013 (in shares)							52,800			330,655
December 31, 2013 (in shares)							700			73,254
December 31, 2014 (in shares)							0			138,313
December 31, 2015 (in shares)							0			74,900
December 31, 2016 (in shares)							0			0
December 31, 2017 (in shares)							0			0
Thereafter (in shares)							0			0
Total options exercisable (in shares)							53,500			617,122
Options Weighted Average Option Exercise Price at [Abstract]
June 30, 2013 (in dollars per share)							$ 13.46			$ 5.35
December 31, 2013 (in dollars per share)							$ 13.46			$ 5.35
December 31, 2014 (in dollars per share)							$ 13.46			$ 5.35
December 31, 2015 (in dollars per share)							$ 13.46			$ 5.35
December 31, 2016 (in dollars per share)							$ 13.46			$ 5.35
December 31, 2017 (in dollars per share)							$ 13.46			$ 5.35
Thereafter (in dollars per share)							$ 13.46			$ 5.35
Decrease in income from continuing operations due to change in accounting pronouncement	$ 88,000	$ 70,000	$ 155,000		$ 128,000
Decrease in net income due to change in accounting pronouncement	$ 55,000	$ 44,000	$ 96,000		$ 80,000
Net income (loss) per share after change in accounting pronouncement, basic (in dollars per share)	$ 0.33	$ 0.19	$ 0.62		$ 0.32
Net income (loss) per share after change in accounting pronouncement, diluted (in dollars per share)	$ 0.32	$ 0.19	$ 0.61		$ 0.32
Net income (loss) per share - basic (in dollars per share)	$ 0.32	$ 0.18	$ 0.61		$ 0.31
Net income per share - diluted (in dollars per share)	$ 0.31	$ 0.18	$ 0.60		$ 0.31
Fair value of options granted is estimated on date of grant used assumptions [Abstract]
Dividend yield (in hundredths)				[1]		[1]
Expected volatility (in hundredths)				[1]	39.79%
Risk-free interest rate (in hundredths)				[1]	0.28%
Expected life				[1]	4 years 5 months 12 days
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)							53,500			617,122
Weighted Average Contractual Periods in Years							4 months 2 days			5 years 4 months 2 days
Weighted Average Exercise Price (in dollars per share)							$ 13.46			$ 5.35
Options Exercisable (in shares)							52,800			330,655

[1] NA - Not applicable

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Premiums receivable, allowance for credit losses	$ 88	$ 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)	8,054,297	7,979,488
Common Stock, outstanding (in shares)	8,054,297	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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Unpaid losses and LAE

6 Months Ended

Jun. 30, 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.

	Six Months			Year Ended
	Ended June 30,			December 31,
	2013			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	$	22,013		$	31,636
Prior years		134			(1,427	)
Total incurred	$	22,147		$	30,209
Paid related to
Current year	$	7,241		$	15,892
Prior years		15,972			25,807
Total paid	$	23,213		$	41,699
Net balance at period end	$	45,339		$	46,405
Plus reinsurance recoverables		3,545			3,503
Balance at period end	$	48,884		$	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 increased the liability for losses and LAE for claims occurring in prior years by $0.1 million for the six months endedJune 30, 2013 and decreased the liability for losses and LAE for claims occurring in prior years by $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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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 2,544	$ 1,422	$ 4,879	$ 2,494
Change in net unrealized (losses) gains on investments available for sale	(3,512)	1,140	(2,327)	3,023
Comprehensive (loss) income before tax	(968)	2,562	2,552	5,517
Income tax benefit (expense) related to items of other comprehensive (loss) income	1,321	(430)	875	(1,138)
Comprehensive income	$ 353	$ 2,132	$ 3,427	$ 4,379

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investments
Debt maturities, available for sale, at fair value	$ 106,212	$ 101,755
Debt maturities, held to maturity, at amortized cost	7,265	7,359
Equity securities, available for sale, at fair value	30,507	20,982
Total investments	143,984	130,096
Cash and short term investments	49,313	21,143
Prepaid reinsurance premiums	540	7,045
Premiums receivable, net of allowance for credit losses of $88 and $69, respectively	19,639	8,023
Reinsurance recoverable, net	3,545	3,503
Deferred policy acquisition costs	13,199	8,479
Deferred income taxes, net	3,993	4,338
Income taxes receivable	234	39
Property, plant and equipment, net	906	564
Other assets	2,116	2,658
Total assets	237,469	185,888
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	48,884	49,908
Unearned premiums	104,225	59,006
Premiums deposits and customer credit balances	3,082	2,458
Bank overdraft	6,047	5,987
Accounts payable and accrued expenses	6,087	2,624
Total liabilities	168,325	119,983
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding 8,054,297 and 7,979,488, respectively	81	80
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding	0	0
Additional paid-in capital	51,815	51,356
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale	2,616	4,067
Total accumulated other comprehensive income	2,616	4,067
Retained earnings	14,632	10,402
Total shareholders' equity	69,144	65,905
Total liabilities and shareholders' equity	$ 237,469	$ 185,888

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Fair Value Disclosure (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Debt securities [Abstract]
Debt securities	$ 106,212	$ 101,755
Equity securities [Abstract]
Equity securities	30,507	20,982
Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	26,094	27,392
Obligations of states and political subdivisions	3,434	3,939
Corporate	73,570	67,313
International	3,114	3,111
Debt securities	106,212	101,755
Equity securities [Abstract]
Common stocks	30,507	20,982
Equity securities	30,507	20,982
Total debt and equity securities	136,719	122,737
Level 1 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	17,415	12,464
Obligations of states and political subdivisions	0	0
Corporate	67,983	67,313
International	0	0
Debt securities	85,398	79,777
Equity securities [Abstract]
Common stocks	30,507	20,982
Equity securities	30,507	20,982
Total debt and equity securities	115,905	100,759
Level 2 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	8,679	14,928
Obligations of states and political subdivisions	3,434	3,939
Corporate	5,587	0
International	3,114	3,111
Debt securities	20,814	21,978
Equity securities [Abstract]
Common stocks	0	0
Equity securities	0	0
Total debt and equity securities	20,814	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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Unpaid losses and LAE (Tables)

6 Months Ended

Jun. 30, 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.

	Six Months			Year Ended
	Ended June 30,			December 31,
	2013			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	$	22,013		$	31,636
Prior years		134			(1,427	)
Total incurred	$	22,147		$	30,209
Paid related to
Current year	$	7,241		$	15,892
Prior years		15,972			25,807
Total paid	$	23,213		$	41,699
Net balance at period end	$	45,339		$	46,405
Plus reinsurance recoverables		3,545			3,503
Balance at period end	$	48,884		$	49,908

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Reinsurance Agreements

6 Months Ended

Jun. 30, 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 2013–2014 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $562.9 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $420.6 million, with the Company retaining the first $7.0 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 $304.1 million, or 54.0% of the $562.9 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 2013-2014 hurricane season, inclusive of approximately $21.4 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $59.6 million.

The 2013-2014 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+
Odyssey Reinsurance Company		A			A-
BERMUDA
ACE Tempest Reinsurance Limited		A+			AA-
Allied World Assurance Company Limited, Bermuda		A			A
Arch Reinsurance Limited		A+			A+
Argo Reinsurance Limited		A			NR
Ariel Reinsurance Bermuda Ltd for and on Behalf of Ariel Syndicate 1910 (ARE)		A-			NR
DaVinci Reinsurance Ltd		A			A+
Endurance Specialty Insurance Limited		A			A
JC Re Ltd. (aka Pillar Capital and fka Juniperus & Actua Re Ltd.)		NR	*	**	NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance Ltd		A+			AA-
S.A.C. Re, Ltd.		A-			NR
XL Re Limited		A			A
UNITED KINGDOM
A.F. Beazley Syndicate No. 623 (AFB)		A			A+
A.F. Beazley Syndicate No. 2623 (AFB)		A			A+
Amlin Syndicate No. 2001 (AML)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 3902 (NOA)		A			A+
Barbican Syndication No. 1955 (BAR)		A			A+
Canopius Syndicate No. 958 (CNP)		A			A+
Canopius Syndicate No. 4444 (CNP)		A			A+
Cathederal Syndicate No. 2010 (MMX)		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 (MAP)		A			A+
MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)		A			A+
Novae Syndicate No. 2007 (NVA)		A			A+
Pembroke Syndicate No. 4000 (PEM)		A			A+
Tokio Marine Kiln Syndicate No. 1880 (TMK)		A			A+
EUROPE
Amlin Bermuda (Branch of Amlin AG)		A			A
SCOR Global P&C SE		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 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 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 $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, was approximately $41.6 million.

The 2012-2013 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-
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+
ARK 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.

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 wasan increase of $2.1billion 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 2013–2014 and 2012–2013 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 June 30, 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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Reinsurance Agreements (Details) (USD $)	6 Months Ended	9 Months Ended		12 Months Ended
	Jun. 30, 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	$ 540,000			$ 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
2013-2014 Hurricane Season [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	562,900,000
Maximum single event coverage	420,600,000
Amount retained per Loss	7,000,000
Coverage afforded by FHCF	304,100,000
Percentage of FHCF coverage to total coverage (in hundredths)	54.00%
Reinsurance premium	21,400,000
Prepaid reinsurance premiums	$ 59,600,000

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Stockholders' Equity

6 Months Ended

Jun. 30, 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 June 30, 2013, there were nopreferred shares issued or outstanding and there were 8,054,297shares of common stock outstanding.

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Fair Value Disclosure

6 Months Ended

Jun. 30, 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 our financial condition, results of operations or cash flows.

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 did not have a material effect on our financial position, results of operations, cash flows.

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 June 30, 2013, presented in accordance with this guidance, are as follows.

	As of June 30, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	17,415	$	8,679	$	-	$	26,094
Obligations of states and political subdivisions		-		3,434		-		3,434
Corporate		67,983		5,587		-		73,570
International		-		3,114		-		3,114
		85,398		20,814		-		106,212
Equity securities:
Common stocks		30,507		-		-		30,507
		30,507		-		-		30,507
Total debt and equity securities	$	115,905	$	20,814	$	-	$	136,719

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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Organization and Business

6 Months Ended

Jun. 30, 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 agents.

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 June 30, 2013, the Company had approximately 18.4% 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 June 30, 2013, 89.1%, 3.9%, 2.6% and 4.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended June 30, 2012,85.5%, 7.7%, 4.4% and 2.4% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the six months ended June 30, 2013, 88.0%, 4.7%, 2.7% and 4.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.During the six months ended June 30, 2012, 86.1%, 7.7%, 3.9% and 2.3% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and personal 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. (“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.

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Stockholders' Equity (Details) (USD $)	Jun. 30, 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)	8,054,297	7,979,488

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 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		193
2014		392
2015		400
2016		408
2017		156
Total	$	1,549

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Stock Compensation Plans

6 Months Ended

Jun. 30, 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 June 30, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 53,500 and 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 June 30, 2013 and December 31, 2012, we had outstanding exercisable options to purchase 617,122 and 702,597 shares, respectively.

During the three and six months ended June 30, 2012, a total 181,500 options were granted from the 2002 Plan.

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.

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 June 30, 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		$	5.54
Exercised		-		$	-		(74,809	)	$	3.92		-		$	-
Cancelled		(25,000	)	$	11.15		(10,666	)	$	3.68		(500	)	$	5.54
Outstanding at June 30, 2013		53,500		$	13.46		617,122		$	5.35		99,500		$	5.54

Options outstanding as of June 30, 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
June 30, 2013		52,800	$	13.46		330,655	$	5.35
December 31, 2013		700	$	13.46		73,254	$	5.35
December 31, 2014		-	$	13.46		138,313	$	5.35
December 31, 2015		-	$	13.46		74,900	$	5.35
December 31, 2016		-	$	13.46		-	$	5.35
December 31, 2017		-	$	13.46		-	$	5.35
Thereafter		-	$	13.46		-	$	5.35
Total options exercisable		53,500				617,122

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 June 30, 2013 are lower by approximately $88,000 and $55,000, respectively, than if it had continued to account for share-based compensation under APB guidance. The Company’s income from continuing operations before provision for income tax expense and net income for the three months ended June 30, 2012 are lower by approximately $70,000 and $44,000, 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 six months ended June 30, 2013 are lower by approximately $155,000 and $96,000, respectively, than if it had continued to account for share-based compensation under APB guidance.The Company’s income from continuing operations before provision for income tax expense and net income for the six months ended June 30, 2012 are lower by approximately $128,000 and $80,000, 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 June 30, 2013 would have been $0.33 and $0.32, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.32 and $0.31, respectively. Basic and diluted earnings per share for the three months ended June 30, 2012 would have been $0.19, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.18.

Basic and diluted earnings per share for the six months ended June 30, 2013 would have been $0.62 and $0.61, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.61 and $0.60, respectively. Basic and diluted earnings per share for the six months ended June 30, 2012 would have been $0.32, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.31.

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.

	June 30, 2013		June 30, 2012
Dividend yield		N/A		N/A
Expected volatility		N/A		39.79
Risk-free interest rate		N/A		0.28
Expected life (in years)		N/A		4.45

Summary information about the Company’s stock option plans at June 30, 2013 is as follows.

					Weighted Average		Weighted
	Range of		Outstanding at		Contractual		Average		Exercisable at
	Exercise Price		June 30, 2013		Periods in Years		Exercise Price		June 30, 2013
1998 Plan	$	8.67 - $16.59		53,500		0.34	$	13.46		52,800
2002 Plan	$	2.45 - $13.24		617,122		5.34	$	5.35		330,655

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Reinsurance Agreements (Tables)

6 Months Ended

Jun. 30, 2013

Reinsurance Agreements [Abstract]

Private reinsurance companies

The 2013-2014 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+
Odyssey Reinsurance Company		A			A-
BERMUDA
ACE Tempest Reinsurance Limited		A+			AA-
Allied World Assurance Company Limited, Bermuda		A			A
Arch Reinsurance Limited		A+			A+
Argo Reinsurance Limited		A			NR
Ariel Reinsurance Bermuda Ltd for and on Behalf of Ariel Syndicate 1910 (ARE)		A-			NR
DaVinci Reinsurance Ltd		A			A+
Endurance Specialty Insurance Limited		A			A
JC Re Ltd. (aka Pillar Capital and fka Juniperus & Actua Re Ltd.)		NR	*	**	NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance Ltd		A+			AA-
S.A.C. Re, Ltd.		A-			NR
XL Re Limited		A			A
UNITED KINGDOM
A.F. Beazley Syndicate No. 623 (AFB)		A			A+
A.F. Beazley Syndicate No. 2623 (AFB)		A			A+
Amlin Syndicate No. 2001 (AML)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 3902 (NOA)		A			A+
Barbican Syndication No. 1955 (BAR)		A			A+
Canopius Syndicate No. 958 (CNP)		A			A+
Canopius Syndicate No. 4444 (CNP)		A			A+
Cathederal Syndicate No. 2010 (MMX)		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 (MAP)		A			A+
MAP Underwriting Syndicate No. 2791 (Parallel) (MAP)		A			A+
Novae Syndicate No. 2007 (NVA)		A			A+
Pembroke Syndicate No. 4000 (PEM)		A			A+
Tokio Marine Kiln Syndicate No. 1880 (TMK)		A			A+
EUROPE
Amlin Bermuda (Branch of Amlin AG)		A			A
SCOR Global P&C SE		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 2012-2013 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-
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+
ARK 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.

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Investments (Tables)

6 Months Ended

Jun. 30, 2013

Investments [Abstract]

Schedule of investments

The following table summarizes, by type, our investments as of June 30, 2013 and December 31, 2012.

	June 30, 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	$	26,094		18.12	%	$	27,392		21.06	%
Obligations of states and political subdivisions		3,434		2.38	%		3,939		3.03	%
Corporate		73,570		51.11	%		67,313		51.74	%
International		3,114		2.16	%		3,111		2.39	%
		106,212		73.77	%		101,755		78.22	%
Debt securities, at amortized cost:
United States government obligations and authorities		5,183		3.60	%		6,016		4.62	%
Corporate		2,002		1.39	%		1,203		0.92	%
International		80		0.06	%		140		0.11	%
		7,265		5.05	%		7,359		5.65	%
Total debt securities		113,477		78.82	%		109,114		83.87	%
Equity securities, at market:		30,507		21.18	%		20,982		16.13	%
Total investments	$	143,984		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 June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	260		$	8,134	$	315		$	11,548
Equity securities		973			3,365		144			1,015
Total realized gains		1,233			11,499		459			12,563
Debt securities		(91	)		6,555		(109	)		4,371
Equity securities		(255	)		955		(568	)		3,725
Total realized losses		(346	)		7,510		(677	)		8,096
Net realized gains (losses) on investments	$	887		$	19,009	$	(218	)	$	20,659

The following table shows the realized gains (losses) for debt and equity securities for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013					2012
	Gains			Fair Value		Gains			Fair Value
	(Losses)			at Sale		(Losses)			at Sale
	(Dollars in Thousands)
Debt securities	$	1,393		$	30,735	$	548		$	18,044
Equity securities		1,162			4,444		660			4,088
Total realized gains		2,555			35,179		1,208			22,132
Debt securities		(500	)		23,031		(315	)		9,413
Equity securities		(355	)		1,578		(1,121	)		5,391
Total realized losses		(855	)		24,609		(1,436	)		14,804
Net realized gains (losses) on investments	$	1,700		$	59,788	$	(228	)	$	36,936

Unrealized gain (loss)

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at June 30, 2013 and December 31, 2012 is as follows.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(Dollars in Thousands)
June 30, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	26,217	$	222	$	345	$	26,094
Obligations of states and political subdivisions		3,420		60		46		3,434
Corporate		73,131		1,338		899		73,570
International		3,166		3		55		3,114
	$	105,934	$	1,623	$	1,345	$	106,212
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	5,183	$	74	$	279	$	4,978
Corporate		2,002		18		19		2,001
International		80		-		2		78
	$	7,265	$	92	$	300	$	7,057
Equity securities - common stocks	$	26,591	$	4,702	$	786	$	30,507
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 June 30, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	345	$	345	$	-
Obligations of states and political subdivisions		46		46		-
Corporate		899		899		-
International		55		55		-
		1,345		1,345		-
Equity securities:
Common stocks		786		425		361
Total debt and equity securities	$	2,131	$	1,770	$	361

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 June 30, 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.

	June 30, 2013				December 31, 2012
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	3,383	$	3,406	$	2,925	$	2,944
Due after one through five years		73,100		73,437		49,826		51,523
Due after five through ten years		35,985		35,670		35,070		37,182
Due after ten years		731		756		16,659		17,660
Total	$	113,199	$	113,269	$	104,480	$	109,309

Investment income

The table below sets forth investment results for the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	654	$	850
Dividends on equity securities		132		84
Interest on cash and cash equivalents		2		1
Total investment income	$	788	$	935
Net realized gains (losses)	$	887	$	(218	)

The table below sets forth investment results for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Interest on debt securities	$	1,369	$	1,724
Dividends on equity securities		211		166
Interest on cash and cash equivalents		2		6
Total investment income	$	1,582	$	1,896
Net realized gains (losses)	$	1,700	$	(228	)

Net realized and unrealized investment gains (losses)

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	169	$	206
Equity securities		718		(424	)
Total	$	887	$	(218	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

The table below sets forth a summary of net realized gains (losses) and unrealized investment gains during the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,
	2013		2012
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	893	$	233
Equity securities		807		(461	)
Total	$	1,700	$	(228	)
Net unrealized gains
Debt securities	$	277	$	3,991
Equity securities		3,917		436
Total	$	4,194	$	4,427

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 07, 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		8,311,033
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013

XML

Fair Value Disclosure (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2013, presented in accordance with this guidance, are as follows.

	As of June 30, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	17,415	$	8,679	$	-	$	26,094
Obligations of states and political subdivisions		-		3,434		-		3,434
Corporate		67,983		5,587		-		73,570
International		-		3,114		-		3,114
		85,398		20,814		-		106,212
Equity securities:
Common stocks		30,507		-		-		30,507
		30,507		-		-		30,507
Total debt and equity securities	$	115,905	$	20,814	$	-	$	136,719

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