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 September 30, 2014

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)

800-293-2532

(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 –14,008,844 outstanding as of October 30, 2014

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	59
ITEM 4	Controls and Procedures	61
PART II: OTHER INFORMATION
ITEM 1	Legal Proceedings	62
ITEM 1A	Risk Factors	62
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	62
ITEM 3	Defaults upon Senior Securities	62
ITEM 4	Mine Safety Disclosures	62
ITEM 5	Other Information	62
ITEM 6	Exhibits	63
SIGNATURES		64

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PART I: FINANCIAL INFORMATION

Item 1 Financial Statements

FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	Period Ending
	September 30, 2014		December 31, 2013
ASSETS	(Dollars in Thousands)
Investments
Debt maturities, available for sale, at fair value	$	275,387	$	174,912
Debt maturities, held to maturity, at amortized cost		7,352		7,214
Equity securities, available for sale, at fair value		36,463		38,584
Total investments		319,202		220,710
Cash and short term investments		45,926		41,446
Prepaid reinsurance premiums		39,202		7,592
Premiums receivable, net of allowance for credit losses of $143 and $143, respectively		28,112		22,414
Reinsurance recoverable, net		9,235		2,742
Deferred policy acquisition costs		10,980		16,708
Deferred income taxes, net		-		1,006
Income taxes receivable		2,130		-
Property, plant and equipment, net		1,670		929
Other assets		5,135		3,194
Contingent quota-share profit sharing		14,000		-
Total assets	$	475,592	$	316,741
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	$	73,109	$	61,016
Unearned premiums		186,638		128,343
Premiums deposits and customer credit balances		7,094		3,833
Claims payments outstanding		7,182		6,203
Income taxes payable		-		2,379
Deferred income taxes, net		1,964		-
Accounts payable and accrued expenses		7,631		6,473
Deferred quota-share profit sharing		12,250		-
Total liabilities		295,868		208,247
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding 13,594,962 and 10,901,716, respectively		136		109
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding		-		-
Additional paid-in capital		125,433		80,525
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale		6,093		5,964
Total accumulated other comprehensive income		6,093		5,964
Retained earnings		48,062		21,896
Total shareholders' equity		179,724		108,494
Total liabilities and shareholders' equity	$	475,592	$	316,741

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in Thousands)						(Dollars in Thousands)
Revenue:
Gross premiums written	$	92,032		$	60,741		$	280,487		$	175,609
Gross premiums ceded		(129,298	)		(49,936	)		(179,137	)		(78,179	)
Net premiums written		(37,266	)		10,805			101,350			97,430
Increase in prepaid reinsurance premiums		80,013			29,318			86,900			29,870
Increase in unearned premiums		(8,229	)		(12,762	)		(58,295	)		(57,981	)
Net change in prepaid reinsurance premiums and unearned premiums		71,784			16,556			28,605			(28,111	)
Net premiums earned		34,518			27,361			129,955			69,319
Commission income		1,173			637			3,350			1,989
Finance revenue		392			241			1,051			584
Direct written policy fees		2,238			1,632			6,417			4,594
Net investment income		1,450			800			3,758			2,382
Net realized investment gains		659			780			4,047			2,480
Other income		970			466			1,540			618
Quota-share profit sharing		1,750			-			1,750			-
Total revenue		43,150			31,917			151,868			81,966
Expenses:
Losses and LAE		15,126			14,436			60,476			36,583
Operating and underwriting expenses		6,732			3,411			14,600			10,066
Salaries and wages		4,022			2,709			10,520			7,375
Amortization of deferred policy acquisition costs		5,815			6,576			23,095			15,370
Total expenses		31,695			27,132			108,691			69,394
Income before provision for income tax expense		11,455			4,785			43,177			12,572
Provision for income tax expense		4,228			1,504			15,973			4,411
Net income	$	7,227		$	3,281		$	27,204		$	8,161
Net income per share - basic	$	0.57		$	0.41		$	2.35		$	1.02
Net income per share - diluted	$	0.56		$	0.39		$	2.28		$	0.99
Weighted average number of common shares outstanding - basic		12,624,746			8,066,773			11,562,709			8,023,505
Weighted average number of common shares outstanding - diluted		12,956,407			8,345,924			11,934,057			8,260,435
Dividends paid per share	$	0.03		$	0.03		$	0.09		$	0.08

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in Thousands)						(Dollars in Thousands)
Net income	$	7,227		$	3,281		$	27,204		$	8,161
Change in net unrealized (losses) gains  on investments available for sale		(1,883	)		2,658			359			331
Comprehensive income before tax		5,344			5,939			27,563			8,492
Income tax benefit (expense)  related to items of other comprehensive income		615			(1,000	)		(229	)		(125	)
Comprehensive income	$	5,959		$	4,939		$	27,334		$	8,367

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2014			2013
	(Dollars in Thousands)
Cash flow from operating activities:
Net income	$	27,204		$	8,161
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium or discount, net		2,909			1,135
Depreciation and amortization of property plant and equipment, net		334			190
Net realized investment gains		(4,047	)		(2,480	)
Recovery for uncollectible premiums receivable		-			(34	)
Non-cash compensation		72			188
Changes in operating assets and liabilities:
Premiums receivable		(5,698	)		(12,053	)
Prepaid reinsurance premiums		(31,610	)		5,339
Reinsurance recoverable, net		(6,494	)		818
Income taxes recoverable		(2,130	)		(829	)
Deferred income tax expense, net of other comprehensive income		2,741			3,361
Policy acquisition costs, net of amortization		5,728			(5,881	)
Other assets		(1,941	)		171
Contingent quota-share profit sharing		(1,750	)		-
Unpaid losses and LAE		12,093			2,042
Unearned premiums		58,295			57,981
Premium deposits and customer credit balances		3,261			1,383
Income taxes payable		(2,379	)		-
Claims payments outstanding		979			(1,177	)
Accounts payable and accrued expenses		1,158			4,785
Net cash provided by operating activities		58,725			63,100
Cash flow used by investing activities:
Proceeds from sale of investment securities		65,869			93,079
Purchases of investment securities available for sale		(162,864	)		(129,349	)
Purchases of property and equipment		(1,074	)		(542	)
Net cash used by investing activities		(98,069	)		(36,812	)
Cash flow provided (used) by financing activities:
Exercised stock options	$	1,433		$	358
Dividends paid		(1,038	)		(903	)
Issuance of common stock		43,116			-
Tax benefit related to non-cash compensation		313			108
Net cash provided (used) by financing activities		43,824			(437	)
Net increase in cash and short term investments		4,480			25,851
Cash and short term investments at beginning of period		41,446			21,143
Cash and short term investments at end of period	$	45,926		$	46,994

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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FEDERATED NATIONAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
(continued)	2014		2013
	(Dollars in Thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	18,185	$	1,870
Non-cash investing and finance activities:
Accrued dividends payable	$	350	$	250

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 independent 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 department of insurance giving the company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to 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. Through contractual relationships with a network of approximately 3,600 independent agents, of which approximately 2,100 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 licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texas and underwrites commercial general liability insurance in those states. Federated National also underwrites  homeowners’ insurance in Louisiana and Alabama, commencing in October of 2014. Additionally, we underwrite personal automobile insurance in Georgia and Texas.

FNIC is also licensed as a non-admitted carrier in Nevada and South Carolina and can underwrite commercial general liability insurance in these states. Currently there are no operations in Nevada or South Carolina. 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.

We have entered into a Coexistence Agreement effective August 30, 2013 (the “Coexistence Agreement”) with Federated Mutual Insurance Company (“Federated Mutual”) pursuant to which, among other things, we may continue to use “Federated National” until at least August 30, 2020, after which time we have agreed to either cease using “Federated” in commerce or otherwise adopt and use trade names that are not confusingly similar to Federated Mutual’s trademarks.  We continue to develop our brand under the “FedNat” name, which is the name by which agents generally know us.

As of September 30, 2014, we have satisfied all applicable conditions of the consent order we entered into in January 2011 (the "Consent Order") with the Florida Office of Insurance Regulation ("Florida OIR"). We entered into the consent order in connection with the merger of our one of our wholly owned insurance subsidiaries, American Vehicle Insurance Company, into FNIC, with FNIC continuing the operations of both entities. As of the date of this Report, the only operational restriction that remains in effect is a requirement to obtain OIR approval prior to writing commercial multi peril business or any new commercial property business, including condo associations, under any other line of business for which FNIC is authorized. FNIC currently has no commercial multi peril policy premium in force and the current commercial habitation book of business is fully earned.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

During the three months ended September 30, 2014, 90.5%, 3.4%, 2.5% and 3.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended September 30, 2013, 89.1%, 4.3%, 2.9% and 3.7% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the nine months ended September 30, 2014, 91.2%, 3.4%, 2.2% and 3.2% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the nine months ended September 30, 2013, 89.0%, 4.6%, 2.8% and 3.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the three months ended September 30, 2014, $19.0 million or 22.8% of the $83.3 million of the homeowners’ premiums we underwrote were produced under an agency agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company, that grants Allstate agents the authority to offer certain FNIC products. The $19.0 million of homeowners’ premiums produced under this agreement with ISA represents 65.1% of the total increase in the sale of homeowners’ policies during the three months ended September 30, 2014. During the three months ended September 30, 2013, $10.9 million or 20.1% of the $54.1 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. This network of agents began writing for FNIC in March 2013.

During the nine months ended September 30, 2014, $49.4 million or 19.3% of the $255.9 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. The $49.4 million of homeowners’ premiums produced under this agreement with ISA represents 49.7% of the total increase in the sale of homeowners’ policies during the nine months ended September 30, 2014. During the nine months ended September 30, 2013, $19.1 million or 12.2% of the $156.4 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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, Nevada, South Carolina and Texas. 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%. 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.

During the three months ended June 30, 2014, the Florida OIR approved an application to allow the claims administration operations of FNA to be assumed by FNU. Under the amended managing general agency agreement between FNU and FNIC, FNU will provide the same claims administration services under the same fee structure. The combination of these services in FNU had no affect on consolidated net income.

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 forty 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 September 30, 2014 and the results of operations and cash flows for the periods presented.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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, 2014. 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, 2013 included in the Company’s Form 10-K, which was filed with the SEC on March 17, 2014.

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 material reclassifications have been made to the prior-period balances to conform to the current-period presentation.

(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, and (iii) 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, 2013, which we included in the Company’s Annual Report on Form 10-K which was filed with the SEC on March 17, 2014.

We believe that there were no significant changes in those critical accounting policies and estimates during the nine months ended September 30, 2014. 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 weigh 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.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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.”

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 September 30, 2014 and December 31, 2013. Changes in interest rates subsequent to September 30, 2014 and December 31, 2013 may affect the fair value of our investments.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2014 and December 31, 2013 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 June 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-12: Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, a consensus of the FASB Emerging Issues Task Force.  The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period.  That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target (for example, an initial public offering or a profitability target) could be achieved and still be eligible to vest in the award if and when the performance target is achieved.  The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award.  The amendments in this ASU provide explicit guidance for those awards.    The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and, earlier adoption is permitted.  The adoption of the amendments in this ASU will not have a material impact on our financial position, results of operations or cash flows.

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 did 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 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 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 did 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.

- 14 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 did not have a material impact on our financial condition, results of operations or cash flows.

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 nine months ended September 30, 2014 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 material reclassification of the 2013 financial statements was necessary to conform to the 2014 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.

- 15 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 losses 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.

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 assessed approximately $27,000 by the JUA Plan during 2014 and nothing during 2013. Future assessments by this association are undeterminable at this time.

(C) Operational Matters

The Company files federal income tax returns as well as multiple state and local tax returns. The Company’s consolidated federal and state income tax returns for 2010 - 2013 are open for review by the Internal Revenue Service (“IRS”) and the various state taxing authorities. The Company’s 2011 federal tax return was reviewed by the IRS and a “no change” report was issued indicating that the IRS is in agreement with the tax positions presented on the 2011 return. The 2013 federal and state income tax returns were timely filed by the extended filing deadline of September 15, 2014.  The Company does not have any known uncertain tax positions and all tax positions are evaluated in accordance with FIN 48.  Any change to or resolution of tax reserves 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.

The Company has recorded a net deferred tax liability of $2.0 million as of September 30, 2014 and a net deferred tax asset of $1.0 million as of December 31, 2013, respectively.

The calculation of current and deferred income taxes presents management’s assessment of the amount of current and future taxes to be paid. The calculation of deferred tax assets and liabilities is in accordance with ASC 740. These assets and liabilities may be impacted if new information not previously available is considered in future analysis and calculations. Because of the unpredictability and complexity of these future uncertainties the ultimate resolution of the tax payment may be an amount that is materially different from the current estimate of the tax liabilities. As of September 30, 2014 the Company has recorded a net deferred tax liability of $2.0 million. The primary reasons for the shift from a deferred tax asset to a deferred tax liability include the tax impact of the appreciation in the market value of the available-for-sale securities, the resolution of an accrued legal settlement, and the decrease in the unearned premium balance related to the ceding of 30% of policies under a homeowners quota share reinsurance agreement.  Any change in circumstances leading to a change in the tax liability would be recorded in the period that the change in circumstances occurs.

- 16 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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. Our original lease for this office space was scheduled to expire in May 2017. During March 2014, we extended our lease term to expire in August 2019 and expanded the leased premises to include an additional 13,642 square feet. All of our operations are consolidated within these facilities. 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.

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

Fiscal Year	Payments
	(Dollars in Thousands)
2014		171
2015		694
2016		708
2017		722
2018		736
2019		499
Total	$	3,530

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.

(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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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 $98.5 million, or 44.6%, to $319.2 million as of September 30, 2014, compared with $220.7 million as of December 31, 2013. The change is due primarily to our homeowners’ gross written premium, which increased by $99.5 million, or 63.6%, to $255.9 million for the nine months ended September 30, 2014, compared with $156.4 million for the nine months ended September 30, 2013. The increased homeowners’ gross written premium generated additional cash available for investment, of which approximately $59.0 million was transferred to the investment accounts during the nine months ended September 30, 2014.

The debt and equity securities that are available-for-sale and carried at fair value represent 98% and 97% of total investments as of September 30, 2014 and December 31, 2013, respectively.

We did not hold any trading investment securities during the nine months ended September 30, 2014.

- 17 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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. During the nine months ended September 30, 2014 and 2013, respectively, in connection with the process, we have not charged operations with investment losses.

As of September 30, 2014 and December 31, 2013, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of September 30, 2014 and December 31, 2013, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of September 30, 2014, 79% of our debt portfolio was in diverse industries and 21% was in United States government bonds. As of September 30, 2014, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds. As of December 31, 2013, 83% of our debt portfolio was in diverse industries and 17% was in United States government bonds. As of December 31, 2013, approximately 91% of our equity holdings were in equities related to diverse industries and 9% were in mutual funds.

As of September 30, 2014 and December 31, 2013, we have classified $7.4 million and $7.2 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 nine months ended September 30, 2014, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity. During the nine months ended September 30, 2013, we re-classified $0.1 million of our bond portfolio between available-for-sale and held-to-maturity.

- 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 September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	55,643		17.43	%	$	27,209		12.33	%
Obligations of states and political subdivisions		91,641		28.71	%		52,064		23.59	%
Corporate		117,150		36.70	%		91,941		41.66	%
International		10,953		3.43	%		3,698		1.68	%
		275,387		86.27	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,433		1.39	%		4,630		2.10	%
Corporate		2,673		0.84	%		2,475		1.12	%
International		246		0.08	%		109		0.05	%
		7,352		2.31	%		7,214		3.27	%
Total debt securities		282,739		88.58	%		182,126		82.53	%
Equity securities, at market:		36,463		11.42	%		38,584		17.47	%
Total investments	$	319,202		100.00	%	$	220,710		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	241		$	16,413	$	202		$	6,183
Equity securities		453			1,642		1,274			5,619
Total realized gains		694			18,055		1,476			11,802
Debt securities		(20	)		1,627		(421	)		14,462
Equity securities		(15	)		118		(275	)		1,471
Total realized losses		(35	)		1,745		(696	)		15,933
Net realized gains on investments	$	659		$	19,800	$	780		$	27,735

Net realized investment gains totaled $0.7 million for the three months ended September 30, 2014, compared with $0.8 million during the three months ended September 30, 2013. During the three months ended September 30, 2014, the investment committee directed new invested dollars to the fixed income portfolio.

- 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 nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	533		$	38,657	$	1,595		$	36,918
Equity securities		4,013			12,595		2,437			10,063
Total realized gains		4,546			51,252		4,032			46,981
Debt securities		(118	)		8,333		(922	)		37,493
Equity securities		(381	)		1,639		(630	)		3,049
Total realized losses		(499	)		9,972		(1,552	)		40,542
Net realized gains on investments	$	4,047		$	61,224	$	2,480		$	87,523

Net realized investment gains totaled $4.0 million for the nine months ended September 30, 2014, compared with $2.5 million during the nine months ended September 30, 2013. During the nine months ended September 30, 2014, the investment committee decided to increase the fixed income asset allocation by directing new invested dollars and reducing our exposure to equities.

- 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 September 30, 2014 and December 31, 2013 is as follows.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)
September 30, 2014
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	55,371	$	469	$	197	$	55,643
Obligations of states and political subdivisions		90,597		1,091		47		91,641
Corporate		115,833		1,613		296		117,150
International		10,909		57		13		10,953
	$	272,710	$	3,230	$	553	$	275,387
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,433	$	31	$	243	$	4,221
Corporate		2,673		33		2		2,704
International		246		1		1		246
	$	7,352	$	65	$	246	$	7,171
Equity securities - common stocks	$	29,220	$	7,886	$	643	$	36,463
December 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	27,422	$	186	$	399	$	27,209
Obligations of states and political subdivisions		51,883		303		122		52,064
Corporate		91,475		1,233		767		91,941
International		3,731		5		38		3,698
	$	174,511	$	1,727	$	1,326	$	174,912
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,630	$	32	$	326	$	4,336
Corporate		2,475		22		17		2,480
International		109		-		1		108
	$	7,214	$	54	$	344	$	6,924
Equity securities - common stocks	$	29,423	$	9,436	$	275	$	38,584

- 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 September 30, 2014.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	197	$	89	$	108
Obligations of states and political subdivisions		47		39		8
Corporate		296		188		108
International		13		13		-
		553		329		224
Equity securities:
Common stocks		643		614		29
Total debt and equity securities	$	1,196	$	943	$	253

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, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	399	$	391	$	8
Obligations of states and political subdivisions		122		122		-
Corporate		767		761		6
International		38		38		-
		1,326		1,312		14
Equity securities:
Common stocks		275		148		127
Total debt and equity securities	$	1,601	$	1,460	$	141

Below is a summary of debt securities at September 30, 2014 and December 31, 2013, 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.

	September 30, 2014				December 31, 2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Due in one year or less	$	13,702	$	13,734	$	5,161	$	5,181
Due after one through five years		176,615		177,950		113,027		113,561
Due after five through ten years		89,719		90,841		62,656		62,220
Due after ten years		26		33		881		874
Total	$	280,062	$	282,558	$	181,725	$	181,836

- 22 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

United States Treasury notes with a book value of $61,727 and $2,220,344, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of September 30, 2014, as required by law for FNIC, and are included with other investments held until maturity.

United States Treasury notes with a book value of $62,490 and $2,193,814, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2013, 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 September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	1,328	$	691
Dividends on equity securities		121		108
Interest on cash and cash equivalents		1		1
Total investment income	$	1,450	$	800
Net realized gains	$	659	$	780

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended September 30, 2014 and 2013, were approximately $21.8 million and $28.7 million, respectively.

The table below sets forth investment results for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	3,432	$	2,059
Dividends on equity securities		324		320
Interest on cash and cash equivalents		2		3
Total investment income	$	3,758	$	2,382
Net realized gains	$	4,047	$	2,480

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the nine months ended September 30, 2014 and 2013, were approximately $65.9 million and $93.1 million, respectively.

- 23 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The table below sets forth a summary of net realized investment gains (losses) during the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	221	$	(219	)
Equity securities		438		999
Total	$	659	$	780

The table below sets forth a summary of net realized investment gains during the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains
Debt securities	$	415	$	673
Equity securities		3,632		1,807
Total	$	4,047	$	2,480

The table below sets forth a summary of net unrealized investment gains as of September 30, 2014 and December 31, 2013.

	Unrealized Gains
	September 30, 2014		December 31, 2013
	(Dollars in Thousands)
Net unrealized gains
Debt securities	$	2,677	$	401
Equity securities		7,243		9,161
Total	$	9,920	$	9,562

(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 or 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 September 30, 2014, presented in accordance with this guidance, are as follows.

	As of September 30, 2014
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	55,643	$	-	$	55,643
Obligations of states and political subdivisions		-		91,641		-		91,641
Corporate		-		117,150		-		117,150
International		-		10,953		-		10,953
		-		275,387		-		275,387
Equity securities:
Common stocks		36,463		-		-		36,463
		36,463		-		-		36,463
Total debt and equity securities	$	36,463	$	275,387	$	-	$	311,850

- 25 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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

	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	27,209	$	-	$	27,209
Obligations of states and political subdivisions		-		52,064		-		52,064
Corporate		-		91,941		-		91,941
International		-		3,698		-		3,698
		-		174,912		-		174,912
Equity securities:
Common stocks		38,584		-		-		38,584
		38,584		-		-		38,584
Total debt and equity securities	$	38,584	$	174,912	$	-	$	213,496

(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.

Quota share reinsurance is a pro rata agreement among the primary insurer and one or more reinsurers where each party shares a fixed and predetermined percentage of the program’s premiums and losses. Excess of loss risk transfer agreements involve the transfer of premium in exchange for reimbursement for claims, if they occur, as a result of specific events such as  severe catastrophic weather. For quota share and excess of loss reinsurance, coverage is generally afforded based on meeting predetermined risk characteristics. In contrast, facultative reinsurance is negotiated between the primary insurer and the reinsurer(s) on a case-by-case basis with no obligation on either part to cede or assume share in the risk.

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.

- 26 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 2014–2015 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $1.49 billion of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $1.00 billion, with the Company retaining the first $7.0 million in Florida and $3.0 million in Louisiana for losses and LAE from each event. Florida risks represent 98.5%, or $1.46 billion of the $1.49 billion of total aggregate catastrophic losses and LAE. 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. The FHCF only affords coverage for losses sustained in Florida. Coverage afforded by the FHCF totals approximately $546.3 million, or 37.4% of Florida’s $1.46 billion 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 2014–2015 hurricane season, inclusive of approximately $41.0 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $117.4 million.

Included in this year’s program is a 30% quota share reinsurance treaty for the Company’s in-force new and renewal homeowners’ insurance program in the State of Florida. This two-year quota share reinsurance treaty provides 30% of $200 million of aggregate catastrophe coverage per year with maximum single event coverage of 30% of $100 million per year. The approximate cost of this quota share is projected to be $6.7 million per year, net of ceding commissions, and it is included in the $117.4 million amount referenced above. The quota share treaty contains commutation provisions for the Company to share profits based on loss experience during the term of the treaty.

The 30% quota share reinsurance treaty described above contains profit sharing provisions that will adjust over its two-year term depending on the Company’s loss experience from catastrophic and non-catastrophic events during the term. The frequency and severity of catastrophic events, coupled with non-catastrophic loss experience, will determine the ultimate profit share, if any. In accordance with GAAP, the Company will initially recognize an asset and liability and the resultant net income or loss. For example, deferred quota-share profit sharing totaled $12.3 million as of September 30, 2014. The deferred quota-share profit sharing was originally recorded at $14.0 million at the program’s July 1, 2014 inception and will continue to amortize over the life of the program. Subsequently, the Company will adjust the value of the asset and liability based on information available at the time of valuation. Upward and downward adjustments to the asset’s value will affect the Company’s results of operations by increasing or decreasing net income in the period of the adjustment.

- 27 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The 2014-2015 private reinsurance companies and their respective A.M. Best Company (“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
American Standard Insurance Company of Wisconsin		A			NR
AIG (National Union Fire Insurance Company of Pittsburgh, PA)		A			A+
Everest Reinsurance Company		A+			A+
Odyssey Reinsurance Company		A			A-
QBE Reinsurance Corporation		A			A+
RLI Insurance Company		A+			A+
Transatlantic Reinsurance Company		A			A+
BERMUDA
ACE Tempest Reinsurance Limited		A++			AA-
Allied World Assurance Company, Limited		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-			A+
Aspen Bermuda Limited		A			A
AXIS Specialty Limited		A+			A+
BGS Services (Bermuda) Limited/Lloyds Syndicate 2987		A			A+
DaVinci Reinsurance Ltd		A			AA-
Endurance Specialty Insurance Limited		A			A
Hamilton Re, Limited		A-			NR
Hiscox Insurance Company (Bermuda) Limited		A			NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance, Limited		A+			AA-
Securis Re III Limited Bermuda		NR	*	**	NR
Securis Re IV Limited Bermuda		NR	*	**	NR
Tokio Millennium Re AG, Bermuda Branch		A++			AA-
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+
Antares Syndicate No. 1274 (AUL)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 4020 (ARK)		A			A+
Ascot Syndicate No. 1414 (ASC)		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+
Chaucer Syndicate No. 1084 (CSL)		A			A+
Dale Underwriting Syndicate No. 1729 (DUW)		A			A+
Faraday Syndicate No. 435 (FDY)		A			A+
Hiscox Syndicate No. 0033 (HIS)		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)		A			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+
S.J.O, Catlin & Others No. 2003 (SJC)		A			A+
EUROPE
Amlin AG, Switzerland, Bermuda Branch		A			A
Hannover Rueck SE (obo Pillar Capital Management)		NR	*	**	NR
Lansforsakringar Sak Forsakringsaktiebolag (publ)		NR			A
SCOR Global P&C SE, Paris, Zurich Branch		A			A
ASIA
China Reinsurance (Group) Corporation		A			NR
Qatar Reinsurance Company LLC		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 2013–2014 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $562.7 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $420.4 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 $278.1 million, or 49.4% of the $562.7 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 $21.7 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $67.9 million.

- 29 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

The 2013-2014 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			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+
Ascot Syndicate No. 1414 (ASC)		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.

- 30 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

Annually, the cost and amounts of reinsurance are based on management's analysis of FNIC's exposure to catastrophic risk as of June 30 and estimated to September 30. Our data is then subjected to actual exposure level analysis as of September 30. This analysis of our exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in limits and reinsurance premiums as a result of the reconciliation of estimated to actual exposure level. The September 30, 2014 change to total insured value was an increase of $5.4 billion or 8.2% and the change to reinsurance premiums are not yet available. The September 30, 2013 change to total insured value  was an increase of $8.7 billion or 25.3% and the change to reinsurance premiums was an increase of $8.3 million or 13.3%.These adjustments are amortized over the remaining underlying policy term.

To date, we have made no claims asserted against our reinsurers in connection with the 2014–2015 and 2013–2014 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 and $4.9 million as of September 30, 2014 and December 31, 2013.

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.

	Period Ending
	September 30, 2014			December 31, 2013
	(Dollars in Thousands)
Balance at January 1	$	61,016		$	49,908
Less reinsurance recoverables		(2,742	)		(3,503	)
Net balance at January 1	$	58,274		$	46,405
Incurred related to
Current year	$	56,818		$	56,209
Prior years		3,658			201
Total incurred	$	60,476		$	56,410
Paid related to
Current year	$	24,153		$	22,695
Prior years		30,723			21,846
Total paid	$	54,876		$	44,541
Net balance at period end	$	63,874		$	58,274
Plus reinsurance recoverables		9,235			2,742
Balance as of period end	$	73,109		$	61,016

- 31 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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.

Our review of the liability for losses and LAE 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 $3.7 million during the nine months ended September 30, 2014. This development is attributable to adverse decisions on matters beyond the insurance company policy limits. These matters are resolved and further development is unlikely. We increased the liability for losses and LAE for claims occurring in prior years by $0.2 million during the year ended December 31, 2013.

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 September 30, 2014 and December 31, 2013, we had outstanding exercisable options to purchase zero and 3,000 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 September 30, 2014 and December 31, 2013, we had outstanding exercisable options to purchase 250,303 and 523,521 shares, respectively.

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

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

On August 5, 2013, a total of 150,000 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, 100,000 shares were granted to the Company's Chief Executive Officer and President and 50,000 shares were granted to the Company's Chief Financial Officer.

On March 4, 2014, a total of 88,648 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, 43,997 shares were granted to the Company's Chief Executive Officer and President and 16,341 shares were granted to the Company's Chief Financial Officer. An aggregate of 15,710 shares were granted to the Company's directors and the remaining 12,600 shares were granted to other employees of the Company.

- 32 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

On September 9, 2014, a total of 130,000 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, 45,000 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 50,000 shares were granted to the Company's directors and the remaining 20,000 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, 2012 to September 30, 2014 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, 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		-		$	-		-		$	-		250,000		$	8.23
Exercised		(500	)	$	8.67		(165,577	)	$	7.15		-		$	-
Cancelled		(75,000	)	$	12.92		(13,499	)	$	5.41		(500	)	$	5.54
Outstanding at January 1, 2014		3,000		$	8.67		523,521		$	4.54		249,500		$	8.24
Granted		-		$	-		-		$	-		218,648		$	21.66
Exercised		(3,000	)	$	8.67		(268,984	)	$	5.31		(68,988	)	$	18.67
Cancelled		-		$	-		(4,234	)	$	3.50		(846	)	$	7.73
Outstanding at September 30, 2014		-		$	-		250,303		$	3.73		398,314		$	13.80

Options outstanding as of September 30, 2014 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
September 30, 2014		-	$	-		181,603	$	3.73
December 31, 2014		-	$	-		1,000	$	3.73
December 31, 2015		-	$	-		67,700	$	3.73
December 31, 2016		-	$	-		-	$	3.73
December 31, 2017		-	$	-		-	$	3.73
December 31, 2018		-	$	-		-	$	3.73
Thereafter		-	$	-		-	$	3.73
Total options exercisable		-				250,303

- 33 -

Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

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 2014 and 2013 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 September 30, 2014 are lower by approximately $367,000 and $228,000, 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 September 30, 2013 are lower by approximately $132,000 and $82,000, 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 nine months ended September 30, 2014 are lower by approximately $831,000 and $518,000, 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 nine months ended September 30, 2013 are lower by approximately $287,000 and $179,000, 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 September 30, 2014 would have been $0.59 and $0.58, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.57 and $0.56, respectively. Basic and diluted earnings per share for the three months ended September 30, 2013 would have been $0.42 and $0.40, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.41 and $0.39, respectively.

Basic and diluted earnings per share for the nine months ended September 30, 2014 would have been $2.39 and $2.32, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $2.35 and $2.28, respectively.  Basic and diluted earnings per share for the nine months ended September 30, 2013 would have been $1.04 and $1.01, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $1.02 and $0.99, respectively.

Because the change in income taxes payable 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.

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Federated National Holding Company

Notes to Condensed Consolidated Financial Statements

Summary information about the Company’s stock option plans at September 30, 2014 is as follows.

	Range of Exercise Price		Outstanding at September 30, 2014		Weighted Average Contractual Periods in Years		Weighted Average Exercise Price		Exercisable at September 30, 2014
1998 Plan	$	-		-		-	$	-		-
2002 Plan	$	2.45 - $4.59		250,303		6.56	$	3.73		181,603

(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 September 30, 2014, there were no preferred shares issued or outstanding and there were 13,594,962 shares of common stock outstanding.

(11) Subsequent Events

Operations to selectively distribute homeowners’ insurance to targeted coastal counties in Alabama began in October of 2014. These operations, in conjunction with the on-going homeowners’ operations in Florida and Louisiana, reflect FNIC’s intentions to manage a well-balanced regional portfolio of homeowners’ risks.

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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 March 17, 2014 (“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 September 30, 2014 (“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 (“LAE”) 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 independent 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 department of insurance giving the company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to 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. Through contractual relationships with a network of approximately 3,600 independent agents, of which approximately 2,100 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 licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texas and underwrites commercial general liability insurance in those states. Federated National also underwrites  homeowners’ insurance in Louisiana and Alabama, commencing in October of 2014. Additionally, we underwrite personal automobile insurance in Georgia and Texas.

FNIC is also licensed as a non-admitted carrier in Nevada and South Carolina and can underwrite commercial general liability insurance in these states. Currently there are no operations in Nevada or South Carolina. 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.

We have entered into a Coexistence Agreement effective August 30, 2013 (the “Coexistence Agreement”) with Federated Mutual Insurance Company (“Federated Mutual”) pursuant to which, among other things, we may continue to use “Federated National” until at least August 30, 2020, after which time we have agreed to either cease using “Federated” in commerce or otherwise adopt and use trade names that are not confusingly similar to Federated Mutual’s trademarks.  We continue to develop our brand under the “FedNat” name, which is the name by which agents generally know us.

Our executive offices are located at 14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 and our telephone number is (800) 293-2532.

Merger of FNIC and American Vehicle

As of September 30, 2014, we have satisfied all applicable conditions of the consent order we entered into in January 2011 (the "Consent Order") with the Florida Office of Insurance Regulation ("Florida OIR"). We entered into the consent order in connection with the merger of our one of our wholly owned insurance subsidiaries, American Vehicle Insurance Company, into FNIC, with FNIC continuing the operations of both entities. As of the date of this Report, the only operational restriction that remains in effect is a requirement to obtain OIR approval prior to writing commercial multi peril business or any new commercial property business, including condo associations, under any other line of business for which FNIC is authorized. FNIC currently has no commercial multi peril policy premium in force and the current commercial habitation book of business is fully earned.

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Federated National Holding Company

Our Subsidiaries

During the three months ended September 30, 2014, 90.5%, 3.4%, 2.5% and 3.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended September 30, 2013, 89.1%, 4.3%, 2.9% and 3.7% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the nine months ended September 30, 2014, 91.2%, 3.4%, 2.2% and 3.2% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the nine months ended September 30, 2013, 89.0%, 4.6%, 2.8% and 3.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the three months ended September 30, 2014, $19.0 million or 22.8% of the $83.3 million of the homeowners’ premiums we underwrote were produced under an agency agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company, that grants Allstate agents the authority to offer certain FNIC products. The $19.0 million of homeowners’ premiums produced under this agreement with ISA represents 65.1% of the total increase in the sale of homeowners’ policies during the three months ended September 30, 2014. During the three months ended September 30, 2013, $10.9 million or 20.1% of the $54.1 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. This network of agents began writing for FNIC in March 2013.

During the nine months ended September 30, 2014, $49.4 million or 19.3% of the $255.9 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. The $49.4 million of homeowners’ premiums produced under this agreement with ISA represents 49.7% of the total increase in the sale of homeowners’ policies during the nine months ended September 30, 2014. During the nine months ended September 30, 2013, $19.1 million or 12.2% of the $156.4 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA.

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 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.

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, Nevada, South Carolina and Texas. 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%. A formal agreement reflecting this fee modification was executed during January 2011.

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Federated National Holding Company

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

During the three months ended June 30, 2014, the Florida OIR approved an application to allow the claims administration operations of FNA to be assumed by FNU. Under the amended managing general agency agreement between FNU and FNIC, FNU will provide the same claims administration services under the same fee structure. The combination of these services in FNU had no affect on consolidated net income.

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 forty 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 100 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.

In May 2013, SB 1770 was signed by the Governor of Florida and passed during the 2013 legislative session. This bill is intended to reform Citizens by reducing its insurance policy count and establishing the Property Insurance Clearinghouse (“Clearinghouse”). The Clearinghouse launched in January 2014, for new business ineligible for Citizens if a participating insurance company is willing to afford similar coverage at a price that is no more than 15% above the price of a policy with Citizens. Similarly, existing Citizens policies will not be eligible for renewal with Citizens if a participating insurance company is willing to afford similar coverage at no additional cost over the price for a Citizens policy. This will allow potentially new and renewal policies of Citizens to be comparatively shopped by participating private market insurers before becoming, or remaining, policies of Citizens. Effective March 30, 2014 FNIC joined as a participating insurance company in the Clearinghouse.

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 September 30, 2014 included in Item 1 of this Quarterly Report on Form 10-Q for a discussion of the Company’s critical accounting policies.

New Accounting Pronouncements

See Note 3, “Summary of Significant Accounting Policies” in the Notes to the Company’s  condensed consolidated financial statements for the quarter ended September 30, 2014 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.

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Federated National Holding Company

Analysis of Financial Condition

As of September 30, 2014 Compared with December 31, 2013

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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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 $98.5 million, or 44.6%, to $319.2 million as of September 30, 2014, compared with $220.7 million as of December 31, 2013. The change is due primarily to our homeowners’ gross written premium, which increased by $99.5 million, or 63.6%, to $255.9 million for the nine months ended September 30, 2014, compared with $156.4 million for the nine months ended September 30, 2013. The increased homeowners’ gross written premium generated additional cash available for investment, of which approximately $59.0 million was transferred to the investment accounts during the nine months ended September 30, 2014.

The debt and equity securities that are available-for-sale and carried at fair value represent 98% and 97% of total investments as of September 30, 2014 and December 31, 2013, respectively.

We did not hold any trading investment securities during the nine months ended September 30, 2014.

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.

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Federated National Holding Company

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. During the nine months ended September 30, 2014 and 2013, respectively, in connection with the process, we have not charged operations with investment losses.

As of September 30, 2014 and December 31, 2013, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of September 30, 2014 and December 31, 2013, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of September 30, 2014, 79% of our debt portfolio was in diverse industries and 21% was in United States government bonds. As of September 30, 2014, approximately 87% of our equity holdings were in equities related to diverse industries and 13% were in mutual funds. As of December 31, 2013, 83% of our debt portfolio was in diverse industries and 17% was in United States government bonds. As of December 31, 2013, approximately 91% of our equity holdings were in equities related to diverse industries and 9% were in mutual funds.

As of September 30, 2014 and December 31, 2013, we have classified $7.4 million and $7.2 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 nine months ended September 30, 2014, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity. During the nine months ended September 30, 2013, we re-classified $0.1 million of our bond portfolio between available-for-sale and held-to-maturity.

Below is a summary of net unrealized gains (losses) as of September  30, 2014 and December 31, 2013, by category.

	Unrealized Gains (Losses)
	September 30, 2014		December 31, 2013
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	272	$	(213	)
Obligations of states and political subdivisions		1,044		180
Corporate		1,334		467
International		27		(33	)
		2,677		401
Equity securities:
Common stocks		7,243		9,161
Total debt and equity securities	$	9,920	$	9,562

The net unrealized gain of $9.9 million is inclusive of $1.2 million of unrealized losses; $0.6 million of unrealized losses are from debt securities and $0.6 million of unrealized losses are from equity securities.

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Federated National Holding Company

The $0.6 million of unrealized losses from debt securities are made up of $0.3 million losses from corporate bonds and $0.3 million from United State government obligations. 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 September 30, 2014 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 $0.6 million of unrealized losses from equity securities are from common stocks and mutual funds held in diverse industries as of September 30, 2014. 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 September 30, 2014.

The following table summarizes, by type, our investments as of September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	55,643		17.43	%	$	27,209		12.33	%
Obligations of states and political subdivisions		91,641		28.71	%		52,064		23.59	%
Corporate		117,150		36.70	%		91,941		41.66	%
International		10,953		3.43	%		3,698		1.68	%
		275,387		86.27	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,433		1.39	%		4,630		2.10	%
Corporate		2,673		0.84	%		2,475		1.12	%
International		246		0.08	%		109		0.05	%
		7,352		2.31	%		7,214		3.27	%
Total debt securities		282,739		88.58	%		182,126		82.53	%
Equity securities, at market:		36,463		11.42	%		38,584		17.47	%
Total investments	$	319,202		100.00	%	$	220,710		100.00	%

Cash and Short-Term Investments

Cash and short-term investments, which include cash, certificates of deposits, and money market accounts, increased $4.5 million, or 10.8%, to $45.9 million as of September 30, 2014, compared with $41.4 million as of December 31, 2013. The change is due primarily to our homeowners’ gross written premium, which increased by $99.5 million, or 63.6%, to $255.9 million for the nine months ended September 30, 2014, compared with $156.4 million for the nine months ended September 30, 2013. The increased homeowners’ gross written premium generated additional cash available for investment, of which approximately $59.0 million was transferred to the investment accounts during the nine months ended September 30, 2014.

Prepaid Reinsurance Premiums

Prepaid reinsurance premiums increased $31.6 million, or 416.4%, to $39.2 million as of September 30, 2014, compared with the $7.6 million asset balance as of December 31, 2013. The change is due to $91.1 million paid to reinsurers, offset by $59.5 million amortization of prepaid reinsurance premiums. We believe concentrations of credit risk associated with our prepaid reinsurance premiums are not significant.

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Federated National Holding Company

Premiums Receivable, Net of Allowance for Credit Losses

Premiums receivable, net of allowance for credit losses, increased $5.7 million, or 25.4%, to $28.1 million as of September 30, 2014, compared with $22.4 million as of December 31, 2013.

Our homeowners’ insurance premiums receivable increased $4.4 million, or 22.4%, to $23.8 million as of September 30, 2014, compared with $19.4 million as of December 31, 2013. Our commercial general liability insurance premiums receivable increased $0.2 million, or 48.6%, to $0.5 million as of September 30, 2014, compared with $0.3 million as of December 31, 2013. Our automobile insurance premiums receivable increased $1.2 million, or 42.9%, to $4.0 million as of September 30, 2014, compared with $2.8 million as of December 31, 2013. Our allowance for credit losses remained unchanged at $0.1 million as of September 30, 2014, compared with December 31, 2013.

Reinsurance Recoverable, Net

Reinsurance recoverable, net, increased $6.5 million, or 236.9%, to $9.2 million as of September 30, 2014, compared with $2.7 million as of December 31, 2013. 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 decreased $5.7 million, or 34.3%, to $11.0 million as of September 30, 2014, compared with $16.7 million as of December 31, 2013. The change reflects in part 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, which during the nine months ended September 30, 2014 totaled approximately $8.5 million. The $8.5 million increase was offset by a $14.2 million decrease relating to the quota-share program.

Deferred Income Taxes, Net

Deferred income taxes, net converted to a net liability balance of $2.0 million as of September 30, 2014 compared with a net asset balance of $1.0 million as of December 31, 2013. The net liability balance of $2.0 million as of September 30, 2014 is comprised of approximately $7.2 million of deferred tax assets, net of approximately $9.2 million of deferred tax liabilities. The net asset balance of $1.0 million as of December 31, 2013 was comprised of approximately $11.0 million of deferred tax assets, net of approximately $10.0 million of deferred tax liabilities.

Income Taxes Receivable

Income taxes receivable totaled $2.1 million as of September 30, 2014, compared with nothing as of December 31, 2013. The change is due to estimated tax payments made in excess of the related accrued liability.

Property, Plant and Equipment, Net

Property, plant and equipment, net increased $0.8 million, or 79.7%, to $1.7 million as of September 30, 2014, compared with $0.9 million as of December 31, 2013. The change is due primarily to investments in information technology.

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Federated National Holding Company

Other Assets

Other assets increased $1.9 million, or 60.8%, to $5.1 million as of September 30, 2014, compared with $3.2 million as of December 31, 2013. Major components of other assets are shown in the following table. The accrued interest income receivable is primarily investment related and the commission income receivable is primarily related to the commission income sharing with our reinsurance intermediary.

	September 30, 2014		December 31, 2013
	(Dollars in Thousands)
Accrued interest income receivable	$	2,513	$	1,684
Commission receivable		1,105		-
Deposits		293		327
Prepaid expenses		954		812
Other		270		371
Total	$	5,135	$	3,194

Contingent Quota-Share Profit Sharing

Contingent quota-share profit sharing totaled $14.0 million as of September 30, 2014, compared with nothing as of December 31, 2013. The $14.0 million is our current estimated profit-sharing benefit associated with the quota-share program. The provisions of this program allow for profit-sharing up to approximately $32.0 million at the end of the two-year contract term. The ultimate benefit is based upon the occurance of future catastrophic events and predefined non-catastrophic loss ratios.

Unpaid Losses and LAE

Unpaid losses and LAE increased $12.1 million, or 19.8%, to $73.1 million as of September 30, 2014, compared with $61.0 million as of December 31, 2013. This change is in conjunction with the increase to net premiums earned during the nine months ended September 30, 2014 as compared with the nine months ended September 30, 2013. The composition of unpaid losses and LAE by product line is as follows.

	September 30, 2014						December 31, 2013
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	13,624	$	30,220	$	43,844	$	11,399	$	19,623	$	31,022
Commercial General Liability		5,697		12,676		18,373		3,503		13,231		16,734
Automobile		3,647		7,245		10,892		8,259		5,001		13,260
Total	$	22,968	$	50,141	$	73,109	$	23,161	$	37,855	$	61,016

Please see “Results of Operations - Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013 - Losses and LAE” for a description of the factors that affect unpaid losses and LAE.

Unearned Premium

Unearned premiums increased $58.3 million, or 45.4%, to $186.6 million as of September 30, 2014, compared with $128.3 million as of December 31, 2013. The change was due to a $55.6 million increase in unearned homeowners’ insurance premiums, a $1.2 million increase in unearned flood insurance premiums, a $1.2 million increase in unearned commercial general liability insurance premiums and a $0.3 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.

The $55.6 million change in unearned homeowners’ insurance premiums includes approximately $104.9 increase from gross premiums written during the nine months ended September 30, 2014, net of approximately $49.3 million of unearned premium ceded to the quota-share program.

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Federated National Holding Company

Premium Deposits and Customer Credit Balances

Premium deposits and customer credit balances increased $3.3 million, or 85.1%, to $7.1 million as of September 30, 2014, compared with $3.8 million as of December 31, 2013. Premium deposits are monies received on policies not yet in-force, the change of which is due to the increase in gross written premiums during this same period.

Income Taxes Payable

Income taxes payable totaled nothing as of September 30, 2014, compared with $2.4 million as of December 31, 2013. The change is due to estimated tax payments made in excess of the related accrued liability.

Deferred Income Taxes, Net

Deferred income taxes, net, was a net liability balance of $2.0 million as of September 30, 2014 compared with a net asset balance of $1.0 million as of December 31, 2013. The net liability balance of $2.0 million as of September 30, 2014 is comprised of approximately $7.2 million of deferred tax assets, net of approximately $9.2 million of deferred tax liabilities. The net asset balance of $1.0 million as of December 31, 2013 was comprised of approximately $11.0 million of deferred tax assets, net of approximately $10.0 million of deferred tax liabilities.

Claims Payments Outstanding

Claims payments outstanding increased $1.0 million, or 15.8%, to $7.2 million as of September 30, 2014, compared with $6.2 million as of December 31, 2013. The claims payments outstanding relate primarily to losses and LAE disbursements paid but not presented for payment by the policyholder or vendor. The change is due to the timing of presentation of claims checks to the issuing bank.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses increased $1.1 million, or 17.9%, to 7.6 million as of September 30, 2014, compared with $6.5 million as of December 31, 2013. The change includes a $0.8 million increase in accrued expenses due to the timing of payments with our trade vendors and a $0.3 million increase to commissions payable.

Deferred Quota-Share Profit Sharing

Deferred quota-share profit sharing totaled $12.3 million as of September 30, 2014, compared with nothing as of December 31, 2013, and relates to the quota-share program. The deferred quota-share profit sharing was originally recorded at $14.0 million at the program’s July 1, 2014 inception and will continue to amortize over the life of the program.

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Federated National Holding Company

Results of Operations

Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013

Gross Premiums Written

Gross premiums written increased $31.3 million, or 51.5%, to $92.0 million for the three months ended September 30, 2014, compared with $60.7 million for the three months ended September 30, 2013. The following table denotes gross premiums written by major product line. The increase in gross premiums written during the 2014 period is primarily due to the increase in the sale of homeowners’ policies. Beginning in 2013, our improved underwriting, risk management and product distribution enabled us to write more policies than in prior years.

	Three Months Ended September 30,
	2014					2013
			(Dollars in Thousands)
	Amount		Percentage			Amount		Percentage
Homeowners'	$	83,280		90.49	%	$	54,100		89.07	%
Commercial General Liability		3,161		3.43	%		2,597		4.28	%
Federal Flood		2,299		2.50	%		1,794		2.95	%
Automobile		3,292		3.58	%		2,250		3.70	%
Gross written premiums	$	92,032		100.00	%	$	60,741		100.00	%

The increase in the sale of homeowners’ policies by $29.2 million, or 53.9%, to $83.3 million for the three months ended September 30, 2014, compared with $54.1 million for the three months ended September 30, 2013, 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 September 30, 2014, 76.9% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $312.8 million (a 50.1% reduction of in-force premium), while 80.9% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $170.8 million, (a 48.4% reduction of in-force premium), as of September 30, 2013.

During the three months ended September 30, 2014, $19.0 million or 22.8% of the $83.3 million of the homeowners’ premiums we underwrote were produced under an agency agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company, that grants Allstate agents the authority to offer certain FNIC products. The $19.0 million of homeowners’ premiums produced under this agreement with ISA represents 65.1% of the total increase in the sale of homeowners’ policies during the three months ended September 30, 2014. During the three months ended September 30, 2013, $10.9 million or 20.1% of the $54.1 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. This network of agents began writing for FNIC in March 2013.

During the three months ended September 30, 2014 and 2013, the change to the cumulative wind mitigation credits afforded our policyholders totaled $22.8 million and $46.4 million, respectively. These premium discounts have had a significant effect on both written and earned premium. Wind mitigation credits are 50.1% of the pre-credit premium, or $624.4 million, as of September 30, 2014, as compared with 48.4% of the pre-credit premium, or $352.8 million, as of September 30, 2013. Our number of in-force homeowners’ policies increased by approximately 15,000 or 9.8%, to approximately 167,600 as of September 30, 2014, compared with approximately 152,600 as of June 30, 2014.

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 $0.6 million, or 21.7%, to $3.2 million for the three months ended September 30, 2014, compared with $2.6 million for the three months ended September 30, 2013.

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Federated National Holding Company

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 September 30,
	2014					2013
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
State
Alabama	$	35		1.11	%	$	21		0.81	%
Florida		2,842		89.91	%		2,375		91.45	%
Georgia		7		0.22	%		-		0.00	%
Louisiana		36		1.14	%		43		1.66	%
Texas		241		7.62	%		158		6.08	%
Total	$	3,161		100.00	%	$	2,597		100.00	%

The Company’s sale of auto insurance policies increased $1.0 million, or 46.3%, to $3.3 million for the three months ended September 30, 2014, compared with $2.3 million for the three months ended September 30, 2013.

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 $79.4 million, or 158.9%, to $129.3 million for the three months ended September 30, 2014, compared with $49.9 million for the three months ended September 30, 2013. The increase includes a $78.1 million increase to homeowners’ gross premiums ceded, a $0.8 million increase to automobile gross premiums ceded and a $0.5 million increase to flood gross premiums ceded. The gross premiums ceded total of $129.3 million for the three months ended September 30, 2014 primarily includes $123.9 million associated with our catastrophic reinsurance programs.

Increase in Prepaid Reinsurance Premiums

The increase in prepaid reinsurance premiums was $80.0 million for the three months ended September 30, 2014, compared with $29.3 million for the three months ended September 30, 2013. 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 $8.2 million for the three months ended September 30, 2014, compared with $12.8 million for the three months ended September 30, 2013. The decreased charge to written premium was due to a $7.4 million increase in unearned homeowners’ insurance premiums, a $0.5 million increase in unearned flood insurance premiums and a $0.3 million increase in unearned commercial general liability insurance premiums during the three months ended September 30, 2014. 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.

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Federated National Holding Company

The $7.4 million change in unearned homeowners’ insurance premiums includes approximately $56.7 increase from gross premiums written during the three months ended September 30, 2014, net of approximately $49.3 million of unearned premium ceded to the quota-share program.

Net Premiums Earned

Net premiums earned increased $7.1 million, or 26.2%, to $34.5 million for the three months ended September 30, 2014, compared with $27.4 million for the three months ended September 30, 2013. The $7.1 million increase is net of a $16.5 million decrease due to accounting for our quota-share program. The net impact of the quota-share program was $0.4 million.  The reduction in net premiums earned was offset by an estimated $6.1 million reduction in our reinsurance costs, a reduction in losses and LAE of $5.0 million, a reduction in amortization of deferred policy acquisition costs of $4.1 million, and the recognition of $1.7 million of the aforementioned accrued income resulting from the quota-share agreement.

The following table denotes net premiums earned by product line.

	Three Months Ended September 30,
	2014					2013
	Amount		Percentage			Amount		Percentage
			(Dollars in Thousands)
Homeowners'	$	30,907		89.54	%	$	24,343		88.98	%
Commercial General Liability		2,787		8.07	%		2,401		8.77	%
Automobile		824		2.39	%		617		2.25	%
Net premiums earned	$	34,518		100.00	%	$	27,361		100.00	%

The $6.6 million increase in homeowners’ net premiums earned is due to a $29.2 million increase in gross written premium, a $78.1 million increase in gross premiums ceded and a $55.5 million increase in the net change to prepaid reinsurance premiums and unearned premium.

The $0.4 million increase in commercial general liability net premiums earned is a result of a $0.6 million increase in gross written premium, a less than $0.1 million increase in gross premiums ceded and a $0.2 million decrease in the net change to prepaid reinsurance premiums and unearned premium.

Commission Income

Commission income increased $0.6 million, or 83.9%, to $1.2 million for the three months ended September 30, 2014, compared with $0.6 million for the three months ended September 30, 2013. 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.

Finance Revenue

Finance revenue increased $0.2 million, or 63.2%, to $0.4 million for the three months ended September 30, 2014, compared with $0.2 million for the three months ended September 30, 2013. The primary source of finance revenue is service fees and interest income from our direct billing program, wherein we accept receivables from our insureds.

Direct Written Policy Fees

Direct written policy fees increased $0.6 million, or 37.1%, to $2.2 million for the three months ended September 30, 2014, compared with $1.6 million for the three months ended September 30, 2013. The change is due to the increase in gross premiums written during this same period.

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Federated National Holding Company

Net Investment Income

Net investment income increased $0.6 million, or 81.2%, to $1.4 million for the three months ended September 30, 2014, compared with $0.8 million for the three months ended September 30, 2013.

Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.2% and 2.5%, respectively, for the three months ended September 30, 2014. Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 1.6% and 1.8%, respectively, for the three months ended September 30, 2013.

Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.3% and 2.6%, respectively, for the three months ended September 30, 2014. Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.0% and 2.2%, respectively, for the three months ended September 30, 2013.

See also “Analysis of Financial Condition as of September 30, 2014 Compared with December 31, 2013 – Investments” for a further discussion on our investment portfolio.

Net Realized Investment Gains

Net realized investment gains totaled $0.7 million for the three months ended September 30, 2014, compared with $0.8 million during the three months ended September 30, 2013. During the three months ended September 30, 2014, the investment committee directed new invested dollars to the fixed income portfolio.

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. During the three months ended September 30, 2014 and the three months ended September 30, 2013, in connection with the process, we have not charged operations with investment losses.

The table below depicts the net realized investment gains (losses) by investment category during the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014			2013
	(Dollars in Thousands)
Realized gains:
Debt securities	$	241		$	202
Equity securities		453			1,274
Total realized gains		694			1,476
Realized losses:
Debt securities		(20	)		(421	)
Equity securities		(15	)		(275	)
Total realized losses		(35	)		(696	)
Net realized gains on investments	$	659		$	780

Other Income

Other income increased to $1.0 million for the three months ended September 30, 2014, compared with $0.5 million for the three months ended September 30, 2013. The increase is primarily due to the commission sharing agreement with our reinsurance intermediary.

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Federated National Holding Company

Quota-Share Profit Sharing

Quota-share profit sharing totaled $1.7 million for the three months ended September 30, 2014, compared with nothing for the three months ended September 30, 2013. The deferred quota-share profit sharing was originally estimated and recorded at $14.0 million at the program’s July 1, 2014 inception, based upon the likely occurance of future catastrophic events and predefined non-catastrophic loss ratios. This estimate, subject to future adjustments, will continue to be amortized over the remaining life of the quota-share program.

Favorable adjustments to the deferred quota-share profit sharing total will increase the quarterly amount we recognize over the remaining life of the program. Unfavorable adjustments to the deferred quota-share profit sharing total will decrease the quarterly amount we recognize over the remaining life of the program and could result in a current period charge to operations for some or all of the previously recognized profit sharing.

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 $0.7 million, or 4.8%, to $15.1 million for the three months ended September 30, 2014, compared with $14.4 million for the three months ended September 30, 2013. The overall change includes a $4.1 million decrease in our homeowners’ program, a $4.9 million increase in our commercial general liability program and a $0.1 million decrease in connection with our automobile program.

The change to losses and LAE typically reflects the change to reserves in response to the change in the number of policies we wrote during the same period. Homeowners’ losses and LAE for the three months ended September 30, 2014, are net of a $5.0 million decrease relating to the quota-share program for which our actual net premiums earned were reduced by $16.5 million.

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.

	September 30, 2014						December 31, 2013
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	13,624	$	30,220	$	43,844	$	11,399	$	19,623	$	31,022
Commercial General Liability		5,697		12,676		18,373		3,503		13,231		16,734
Automobile		3,647		7,245		10,892		8,259		5,001		13,260
Total	$	22,968	$	50,141	$	73,109	$	23,161	$	37,855	$	61,016

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 losses 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 $2.1 million during the three months ended September 30, 2014. This overall change includes a $1.2 million increase in reserves for our homeowners’ program and a $0.9 million increase in reserves for our automobile program.

In accordance with GAAP and as discussed above, our loss ratio is computed as losses and LAE divided by net premiums earned. A lower loss ratio generally results in higher operating income. Our loss ratio for the three months ended September 30, 2014 was 43.8% compared with 52.8% for the same period in 2013. The favorable decrease to our loss ratio is due to the $0.7 million increase in losses and LAE measured against the $7.1 million increase in net premium earned during the three months ended September 30, 2014 as compared with the three months ended September 30, 2013.

Operating and Underwriting Expenses

Operating and underwriting expenses increased $3.3 million, or 97.3%, to $6.7 million for the three months ended September 30, 2014, compared with $3.4 million for the three months ended September 30, 2013. The change is primarily due to increases in premium tax, surveys and underwriting reports, marketing expenses and actuarial fees.

Salaries and Wages

Salaries and wages increased $1.3 million, or 48.5%, to $4.0 million for the three months ended September 30, 2014, compared with $2.7 million for the three months ended September 30, 2013 and is primarily due to an increased number of employees. The charge to operations for stock-based compensation, in accordance with FASB guidance, was approximately $367,000 during the three months ended September 30, 2014 compared with approximately $132,000 for the three months ended September 30, 2013.

Amortization of Deferred Policy Acquisition Costs

Amortization of deferred policy acquisition costs decreased $0.8 million, or 11.6%, to $5.8 million for the three months ended September 30, 2014, compared with $6.6 million for the three months ended September 30, 2013.

The change to amortization of deferred policy acquisition costs typically corresponds to the change in net premiums earned during the same period, and consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned, which during the three months ended September 30, 2014 totaled approximately $3.3 million. The $3.3 million increase was offset by a $4.1 million decrease relating to the quota-share program.

Provision for Income Tax Expense

The provision for income tax expense was $4.2 million for the three months ended September 30, 2014, compared with $1.5 million for the three months ended September 30, 2013. The effective rate for income taxes was 36.91% for the three months ended September 30, 2014, compared with 31.42% for the three months ended September 30, 2013.

Net Income

Net income increased $3.9 million, or 120.2%, to $7.2 million for the three months ended September 30, 2014, compared with $3.3 million for the three months ended September 30, 2013.

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Federated National Holding Company

Results of Operations

Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013

Gross Premiums Written

Gross premiums written increased $104.9 million, or 59.7%, to $280.5 million for the nine months ended September 30, 2014, compared with $175.6 million for the nine months ended September 30, 2013. The following table denotes gross premiums written by major product line. The increase in gross premiums written during the 2014 period is primarily due to the increase in the sale of homeowners’ policies. Beginning in 2013, our improved underwriting, risk management and product distribution enabled us to write more policies than in prior years.

	Nine Months Ended September 30,
	2014					2013
	(Dollars in Thousands)
	Amount		Percentage			Amount		Percentage
Homeowners'	$	255,858		91.21	%	$	156,378		89.06	%
Commercial General Liability		9,473		3.38	%		8,013		4.56	%
Federal Flood		6,192		2.21	%		4,889		2.78	%
Automobile		8,964		3.20	%		6,329		3.60	%
Gross written premiums	$	280,487		100.00	%	$	175,609		100.00	%

The increase in the sale of homeowners’ policies by $99.5 million, or 63.6%, to $255.9 million for the nine months ended September 30, 2014, compared with $156.4 million for the nine months ended September 30, 2013, 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 September 30, 2014, 76.9% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $312.8 million (a 50.1% reduction of in-force premium), while 80.9% of our in-force homeowners’ policyholders were receiving wind mitigation credits totaling approximately $170.8 million, (a 48.4% reduction of in-force premium), as of September 30, 2013.

During the nine months ended September 30, 2014, $49.4 million or 19.3% of the $255.9 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. The $49.4 million of homeowners’ premiums produced under this agreement with ISA represents 49.7% of the total increase in the sale of homeowners’ policies during the nine months ended September 30, 2014. During the nine months ended September 30, 2013, $19.1 million or 12.2% of the $156.4 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA.

During the nine months ended September 30, 2014 and September 30, 2013, the change to the cumulative wind mitigation credits afforded our policyholders totaled $96.0 million and $109.8 million, respectively. Our number of in-force homeowners’ policies increased by approximately 51,200 or 44.0%, to approximately 167,600 as of September 30, 2014, compared with approximately 116,400 as of December 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 $1.5 million, or 18.2%, to $9.5 million for the nine months ended September 30, 2014, compared with $8.0 million for the nine months ended September 30, 2013.

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Federated National Holding Company

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

	Nine Months Ended September 30,
	2014					2013
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
State
Alabama	$	124		1.31	%	$	73		0.91	%
Florida		8,730		92.16	%		7,390		92.23	%
Georgia		7		0.07	%		-		0.00	%
Louisiana		82		0.87	%		124		1.55	%
Texas		530		5.59	%		426		5.31	%
Total	$	9,473		100.00	%	$	8,013		100.00	%

The Company’s sale of auto insurance policies increased $2.7 million, or 41.6%, to $9.0 million for the nine months ended September 30, 2014, compared with $6.3 million for the nine months ended September 30, 2013.

We are currently rated by 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 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 $100.9 million, or 129.1%, to $179.1 million for the nine months ended September 30, 2014, compared with $78.2 million for the nine months ended September 30, 2013. The increase includes a $97.6 million increase to homeowners’ gross premiums ceded, a $2.0 million increase to automobile gross premiums ceded and a  $1.3 million increase to flood gross premiums ceded. The gross premiums ceded total of $179.1 million for the nine months ended September 30, 2014 primarily includes $164.9 million associated with our catastrophic reinsurance programs.

Increase in Prepaid Reinsurance Premiums

The increase in prepaid reinsurance premiums was $86.9 million for the nine months ended September 30, 2014, compared with $29.9 million for the nine months ended September 30, 2013. 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 $58.3 million for the nine months ended September 30, 2014, compared with $58.0 million for the nine months ended September 30, 2013. The increased charge to written premium was due to a $55.6 million increase in unearned homeowners’ insurance premiums, a $1.2 million increase in unearned flood insurance premiums, a $1.2 million increase in unearned commercial general liability insurance premiums and a $0.3 million increase in unearned automobile insurance premiums during the nine months ended September 30, 2014. 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.

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Federated National Holding Company

The $55.6 million change in unearned homeowners’ insurance premiums includes approximately $104.9 increase from gross premiums written during the nine months ended September 30, 2014, net of approximately $49.3 million of unearned premium ceded to the quota-share program.

Net Premiums Earned

Net premiums earned increased $60.7 million, or 87.5%, to $130.0 million for the nine months ended September 30, 2014, compared with $69.3 million for the nine months ended September 30, 2013. The $60.7 million increase is net of a $16.5 million decrease due to accounting for our quota-share program. The net impact of the quota-share program was $0.4 million.  The reduction in net premiums earned was offset by an estimated $6.1 million reduction in our reinsurance costs, a reduction in losses and LAE of $5.0 million, a reduction in amortization of deferred policy acquisition costs of $4.1 million, and the recognition of $1.7 million of the aforementioned accrued income resulting from the quota-share agreement.

The following table denotes net premiums earned by product line.

	Nine Months Ended September 30,
	2014					2013
	Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
Homeowners'	$	119,903		92.26	%	$	60,768		87.66	%
Commercial General Liability		7,869		6.06	%		6,978		10.07	%
Automobile		2,183		1.68	%		1,573		2.27	%
Net premiums earned	$	129,955		100.00	%	$	69,319		100.00	%

The $59.1 million increase in homeowners’ net premiums earned is due to a $99.5 million increase in gross written premium, a $97.6 million increase in gross premiums ceded and a $57.2 million change in the net change to prepaid reinsurance premiums and unearned premium.

The $0.9 million increase in commercial general liability net premiums earned is a result of a $1.5 million increase in gross written premium, a less than $0.1 million increase in gross premiums ceded and a $0.5 million change in the net change to prepaid reinsurance premiums and unearned premium.

The $0.6 million increase in automobile net premiums earned is a result of a $2.6 million increase in gross written premium, a $2.0 million increase in gross premiums ceded and a less than $0.1 million change in the net change to prepaid reinsurance premiums and unearned premium.

Commission Income

Commission income increased $1.3 million, or 68.4%, to $3.3 million for the nine months ended September 30, 2014, compared with $2.0 million for the nine months ended September 30, 2013. 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.

Finance Revenue

Finance revenue increased $0.5 million, or 80.2%, to $1.1 million for the nine months ended September 30, 2014, compared with $0.6 million for the nine months ended September 30, 2013. The primary source of finance revenue is service fees and interest income from our direct billing program, wherein we accept receivables from our insureds.

Direct Written Policy Fees

Direct written policy fees increased $1.8 million, or 39.7%, to $6.4 million for the nine months ended September 30, 2014, compared with $4.6 million for the nine months ended September 30, 2013. The change is due to the increase in gross premiums written during this same period.

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Federated National Holding Company

Net Investment Income

Net investment income increased $1.4 million, or 57.8%, to $3.8 million for the nine months ended September 30, 2014, compared with $2.4 million for the nine months ended September 30, 2013.

Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 2.1% and 2.4%, respectively, for the nine months ended September 30, 2014. Our investment yields, net and gross of investment expenses, excluding equities and including cash, were 1.8% and 2.0%, respectively, for the nine months ended September 30, 2013.

Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.1% and 2.5%, respectively, for the nine months ended September 30, 2014. Our investment yield, net and gross of investment expenses measured against debt securities, excluding equities and cash, were 2.1% and 2.3%, respectively, for the nine months ended September 30, 2013.

See also “Analysis of Financial Condition as of September 30, 2014 Compared with December 31, 2013 – Investments” for a further discussion on our investment portfolio.

Net Realized Investment Gains

Net realized investment gains totaled $4.0 million for the nine months ended September 30, 2014, compared with $2.5 million during the nine months ended September 30, 2013. During the nine months ended September 30, 2014, the investment committee decided to increase the fixed income asset allocation by directing new invested dollars and reducing our exposure to equities.

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. During the nine months ended September 30, 2014 and the nine months ended September 30, 2013, in connection with the process, we have not charged operations with investment losses.

The table below depicts the net realized investment gains (losses) by investment category during the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014			2013
	(Dollars in Thousands)
Realized gains:
Debt securities	$	533		$	1,595
Equity securities		4,013			2,437
Total realized gains		4,546			4,032
Realized losses:
Debt securities		(118	)		(922	)
Equity securities		(381	)		(630	)
Total realized losses		(499	)		(1,552	)
Net realized gains on investments	$	4,047		$	2,480

Other Income

Other income increased $0.9 million, or 149.1%, to $1.5 million for the nine months ended September 30, 2014, compared with $0.6 million for the nine months ended September 30, 2013. The increase is primarily due to the commission sharing agreement with our reinsurance intermediary.

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Federated National Holding Company

Quota-Share Profit Sharing

Quota-share profit sharing totaled $1.7 million for the nine months ended September 30, 2014, compared with nothing for the nine months ended September 30, 2013. The deferred quota-share profit sharing was originally estimated and recorded at $14.0 million at the program’s July 1, 2014 inception, based upon the likely occurance of future catastrophic events and predefined non-catastrophic loss ratios. This estimate, subject to future adjustments, will continue to be amortized over the remaining life of the quota-share program.

Favorable adjustments to the deferred quota-share profit sharing total will increase the quarterly amount we recognize over the remaining life of the program. Unfavorable adjustments to the deferred quota-share profit sharing total will decrease the quarterly amount we recognize over the remaining life of the program and could result in a current period charge to operations for some or all of the previously recognized profit sharing.

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 $23.9 million, or 65.3%, to $60.5 million for the nine months ended September 30, 2014, compared with $36.6 million for the nine months ended September 30, 2013. The overall change includes a $16.9 million increase in our homeowners’ program, a $6.9 million increase in our commercial general liability program and a $0.1 million increase in connection with our automobile program.

The change to losses and LAE typically reflects the change to reserves in response to the change in the number of policies we wrote during the same period. Homeowners’ losses and LAE for the nine months ended September 30, 2014, are net of a $5.0 million decrease relating to the quota-share program for which our actual net premiums earned were reduced by $16.5 million.

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.

	September 30, 2014						December 31, 2013
	Case		Bulk		Total		Case		Bulk		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Homeowners'	$	13,624	$	30,220	$	43,844	$	11,399	$	19,623	$	31,022
Commercial General Liability		5,697		12,676		18,373		3,503		13,231		16,734
Automobile		3,647		7,245		10,892		8,259		5,001		13,260
Total	$	22,968	$	50,141	$	73,109	$	23,161	$	37,855	$	61,016

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 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 losses 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 $12.1 million during the nine months ended September 30, 2014. This overall change includes a $12.8 million increase in reserves for our homeowners’ program, a $1.6 million increase in reserves for our commercial general liability program and a $2.3 million decrease in reserves for our automobile program.

In accordance with GAAP and as discussed above, our loss ratio is computed as losses and LAE divided by net premiums earned. A lower loss ratio generally results in higher operating income. Our loss ratio for the nine months ended September 30, 2014 was 46.5% compared with 52.8% for the same period in 2013. The favorable decrease to our loss ratio is due to the $23.9 million increase in losses and LAE measured against the $60.6 million increase in net premium earned during the nine months ended September 30, 2014 as compared with the nine months ended September 30, 2013.

Operating and Underwriting Expenses

Operating and underwriting expenses increased $4.5 million, or 45.0%, to $14.6 million for the nine months ended September 30, 2014, compared with $10.1 million for the nine months ended September 30, 2013. The change is primarily due to increases in premium tax, surveys and underwriting reports, marketing expenses, actuarial fees, postage and investment expenses.

Salaries and Wages

Salaries and wages increased $3.1 million, or 42.6%, to $10.5 million for the nine months ended September 30, 2014, compared with $7.4 million for the nine months ended September 30, 2013 and is primarily due to an increased number of employees. The charge to operations for stock-based compensation, in accordance with FASB guidance, was approximately $831,000 during the nine months ended September 30, 2014 compared with approximately $287,000 for the nine months ended September 30, 2013.

Amortization of Deferred Policy Acquisition Costs

Amortization of deferred policy acquisition costs, increased $7.7 million, or 50.3%, to $23.1 million for the nine months ended September 30, 2014, compared with $15.4 million for the nine months ended September 30, 2013. The change to amortization of deferred policy acquisition costs typically corresponds to the change in net premiums earned during the same period, and consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned.

The change to amortization of deferred policy acquisition costs typically corresponds to the change in net premiums earned during the same period, and consists of the actual policy acquisition costs, including commissions, payroll and premium taxes, less commissions earned on reinsurance ceded and policy fees earned, which during the nine months ended September 30, 2014 totaled approximately $11.8 million. The $11.8 million increase was offset by a $4.1 million decrease relating to the quota-share program.

Provision for Income Tax Expense

The provision for income tax expense was $16.0 million for the nine months ended September 30, 2014, compared with $4.4 million for the nine months ended September 30, 2013. The effective rate for income taxes was 36.99% for the nine months ended September 30, 2014, compared with 35.09% for the nine months ended September 30, 2013.

Net Income

Net income increased $19.0 million, or 233.4%, to $27.2 million for the nine months ended September 30, 2014, compared with $8.2 million for the nine months ended September 30, 2013.

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Federated National Holding Company

Liquidity and Capital Resources

During the nine months ended September 30, 2014, our primary sources of capital included proceeds from the sale of investment securities, increased unearned premiums, issuance of common stock, increased unpaid losses and LAE, decreased policy acquisition costs, increased premium deposits and customer credit balances and amortization of investment premium or discount, net. Additional sources of capital included decreased deferred income tax expense net of other comprehensive income, exercised stock options, increased accounts payable and accrued expenses, increased claims payments outstanding, depreciation and amortization, a tax benefit related to non-cash compensation and 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 nine months ended September 30, 2014 and 2013, operations provided net operating cash flow of $58.7 million and $63.1 million, respectively.

During the nine months ended September 30, 2014, operations generated $114.8 million of gross cash flow,due to a $58.3 million increase in unearned premiums, a $12.1 million increase in unpaid losses and LAE, a $5.7 million decrease in policy acquisition costs, a $3.3 million increase in premium deposits and customer credit balances and $2.9 million of amortization of investment premium or discount, net. Additional sources of cash included a $2.7 million decrease in deferred income tax expense, net of other comprehensive income, a $1.2 million increase in accounts payable and accrued expenses, a $1.0 million increase in claims payments outstanding, $0.3 million of depreciation and amortization and $0.1 million non-cash compensation, all in conjunction with $27.2 million of net income.

During the nine months ended September 30, 2014, operations used $56.0 million of gross cash flow, due to a $31.6 million increase in prepaid reinsurance premiums, a $6.5 million increase in reinsurance recoverable, net, a $5.7 million increase in premiums receivable and $4.0 million in net realized investment gains. Additional uses of cash included a $2.4 million decrease in income taxes payable, a $2.2 million increase in income taxes recoverable, a $1.9 million increase in other assets and a $1.7 million increase in contingent quota-share profit sharing.

During the nine months ended September 30, 2014 and 2013, net cash used by investing activities was $98.1 million and $36.8 million, respectively. Our available-for-sale investment portfolio is highly liquid as it consists entirely of readily marketable securities. During the nine months ended September 30, 2014, investingactivities generated $65.9 million and used $164.0 million.

During the nine months ended September 30, 2014 and 2013, net financing activities provided and used $43.8 million and $0.4 million, respectively. In 2014, the sources of cash in connection with financing activities included $43.1 million from issuance of common stock, $1.4 million from exercised stock options and $0.3 million from a tax benefit related to non-cash compensation and the uses included $1.0 million for dividends paid.

We offer direct billing in connection with our homeowners’ and commercial general liability 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.

As discussed above, we have experienced significant growth, as evidenced by the 59.7% increase in gross premiums written during the first nine months of 2014 as compared with the same period in 2013. We believe that our current capital resources will be sufficient to meet currently anticipated working capital requirements.

As of September 30, 2014, 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.

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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 September 30, 2014, approximately 86% 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 97% 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.

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Federated National Holding Company

The following table summarizes, by type, our investments as of September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	55,643		17.43	%	$	27,209		12.33	%
Obligations of states and political subdivisions		91,641		28.71	%		52,064		23.59	%
Corporate		117,150		36.70	%		91,941		41.66	%
International		10,953		3.43	%		3,698		1.68	%
		275,387		86.27	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,433		1.39	%		4,630		2.10	%
Corporate		2,673		0.84	%		2,475		1.12	%
International		246		0.08	%		109		0.05	%
		7,352		2.31	%		7,214		3.27	%
Total debt securities		282,739		88.58	%		182,126		82.53	%
Equity securities, at market:		36,463		11.42	%		38,584		17.47	%
Total investments	$	319,202		100.00	%	$	220,710		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 September  30, 2014 and December 31, 2013, 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.

	September 30, 2014						December 31, 2013
	Carrying Amount			Percent of Total			Carrying Amount			Percent of Total
	(Dollars in Thousands)
AAA		$	41,138		14.55	%		$	24,904		13.67	%
AA			119,245		42.18	%			67,374		36.99	%
A			65,352		23.11	%			46,338		25.44	%
BBB			57,004		20.16	%			42,979		23.60	%
Not rated			-		0.00	%			531		0.30	%
		$	282,739		100.00	%		$	182,126		100.00	%

The following table summarizes, by maturity, the debt securities as of September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Matures In:
One year or less	$	13,731		4.86	%	$	5,180		2.84	%
One year to five years		177,935		62.93	%		113,561		62.35	%
Five years to 10 years		91,040		32.20	%		62,511		34.32	%
More than 10 years		33		0.01	%		874		0.49	%
Total debt securities	$	282,739		100.00	%	$	182,126		100.00	%

At September 30, 2014, the duration of the debt portfolio was approximately 3.7 years.

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Federated National Holding Company

The following table provides information about the financial instruments as of September 30, 2014 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.

	2014			2015			2016			2017			2018			Thereafter			Total			Carrying Amount
Principal amount by expected maturity:
United States government obligations and authorities	$	-		$	3,186		$	2,714		$	5,857		$	6,298		$	27,833		$	45,888		$	46,147
Obligations of states and political subdivisions		200			7,365			10,900			17,335			10,635			34,775			81,210			91,641
Corporate securities		-			7,787			17,724			20,418			15,377			41,215			102,521			109,396
International securities		-			1,241			2,087			1,875			2,342			3,317			10,862			11,200
Collateralized mortgage obligations		-			1,854			3,879			3,872			2,449			10,949			23,003			24,355
Equity securities, at market		-			-			-			-			-			-			-			36,463
All investments	$	200		$	21,433		$	37,304		$	49,357		$	37,101		$	118,089		$	263,484		$	319,202
Weighted average interest rate by expected maturity:
United States government obligations and authorities		0.00	%		0.27	%		1.61	%		0.73	%		1.18	%		2.14	%		1.67	%
Obligations of states and political subdivisions		5.00	%		4.54	%		4.77	%		4.62	%		5.01	%		4.92	%		4.81	%
Corporate securities		0.00	%		4.09	%		3.96	%		3.62	%		4.65	%		4.54	%		4.24	%
International securities		0.00	%		0.85	%		2.15	%		2.52	%		2.89	%		3.25	%		2.56	%
Collateralized mortgage obligations		0.00	%		5.29	%		5.49	%		4.03	%		3.84	%		4.01	%		4.35	%
Equity securities, at market		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
All investments		5.00	%		3.59	%		4.08	%		3.62	%		4.00	%		4.00	%		3.91	%

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 September 30, 2014. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2014, 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 nine months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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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, 2013 or in Item 1A, Risk Factors, in the Company’s Form 10-Q for the quarter ended June 30, 2014.

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, 2013 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

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Federated National Holding Company

Item 6

Exhibits

10.1	Excess Catastrophe Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers. *
10.2	Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers. *
10.3	Homeowners Quota Share Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.4	Property Catastrophe Excess of Loss (Louisiana Only) Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.5	Reinstatement Premium Protection Reinsurance Contract (Louisiana Only), effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.6	Subscription Agreement, effective as of July 18, 2014, among C.A. Bancorp Inc., Federated National Holding Company, and Transatlantic Reinsurance Company. *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. *
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. *
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. *
101.INS-XBRL	Instance Document. **
101.SCH-XBRL	Taxonomy Extension Schema Document. **
101.CAL-XBRL	Taxonomy Extension Calculation Linkbase Document. **
101.LAB-XBRL	Taxonomy Extension Label Linkbase Document. **
101.PRE-XBRL	Taxonomy Extension Presentation Linkbase Document. **

*filed herewith

** 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.

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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: November 10, 2014

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Federated National Holding Company

EXHIBIT INDEX

10.1	Excess Catastrophe Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers. *
10.2	Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers. *
10.3	Homeowners Quota Share Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.4	Property Catastrophe Excess of Loss (Louisiana Only) Reinsurance Contract, effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.5	Reinstatement Premium Protection Reinsurance Contract (Louisiana Only), effective July 1, 2014, between Federated National Insurance Company and subscribing reinsurers.*
10.6	Subscription Agreement, effective as of July 18, 2014, among C.A. Bancorp Inc., Federated National Holding Company, and Transatlantic Reinsurance Company. *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. *
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. *
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. *
101.INS-XBRL	Instance Document. **
101.SCH-XBRL	Taxonomy Extension Schema Document. **
101.CAL-XBRL	Taxonomy Extension Calculation Linkbase Document. **
101.LAB-XBRL	Taxonomy Extension Label Linkbase Document. **
101.PRE-XBRL	Taxonomy Extension Presentation Linkbase Document. **

*filed herewith

** 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.

- 65 -

EX-10.1

Exhibit 10.1

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunset, Florida

First Excess Catastrophe
Reinsurer(s)	Participation(s)
Arch Reinsurance Ltd.		7.00	%
Argo Re Ltd.		1.25	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		1.50	%
Aspen Bermuda Limited		2.00	%
DaVinci Reinsurance Ltd.		1.00	%
Endurance Specialty Insurance Limited		20.00	%
Everest Reinsurance Company		12.00	%
Hamilton Re, Ltd.		3.75	%
Platinum Underwriters Bermuda, Ltd.		3.25	%
Renaissance Reinsurance Ltd.		1.50	%
RLI Insurance Company		1.50	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		5.00	%
China Reinsurance (Group) Corporation		0.50	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		6.25	%
SCOR Global P&C SE, Paris, Zurich Branch		3.50	%
Total		70.00	%

Page 1 of 5

Second Excess Catastrophe
Reinsurer(s)	Participation(s)
ACE Tempest Reinsurance Ltd.		10.00	%
American Standard Insurance Company of Wisconsin		2.50	%
Arch Reinsurance Ltd.		7.00	%
Argo Re Ltd.		1.00	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		5.00	%
Aspen Bermuda Limited		2.50	%
BGS Services (Bermuda) Limited for and on behalf of Lloyd's Syndicate No. 2987		2.50	%
DaVinci Reinsurance Ltd.		1.00	%
Endurance Specialty Insurance Limited		20.00	%
Everest Reinsurance Company		7.50	%
Hamilton Re, Ltd.		4.00	%
National Union Fire Insurance Company of Pittsburgh, Pa.		10.00	%
Partner Reinsurance Company Ltd.		8.75	%
Renaissance Reinsurance Ltd.		1.50	%
RLI Insurance Company		2.75	%
Transatlantic Reinsurance Company		5.00	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		1.00	%
China Reinsurance (Group) Corporation		1.00	%
Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of Lloyd's Syndicate No. 4472		1.00	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		6.00	%
Total		100.00	%

Page 2 of 5

Third Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd		8.00	%
American Agricultural Insurance Company		0.75	%
American Standard Insurance Company of Wisconsin		1.25	%
Argo Re Ltd.		4.50	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		5.00	%
Aspen Bermuda Limited		1.75	%
BGS Services (Bermuda) Limited for and on behalf of Lloyd's Syndicate No. 2987		4.50	%
DaVinci Reinsurance Ltd.		0.50	%
Hamilton Re, Ltd.		4.00	%
Hiscox Insurance Company (Bermuda) Limited		1.00	%
National Union Fire Insurance Company of Pittsburgh, Pa.		10.00	%
Odyssey Reinsurance Company		2.00	%
Qatar Reinsurance Company LLC		3.50	%
QBE Reinsurance Corporation		0.50	%
Renaissance Reinsurance Ltd.		0.75	%
Transatlantic Reinsurance Company		10.50	%
XL Re Ltd		10.00	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		3.25	%
China Reinsurance (Group) Corporation		1.00	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		27.25	%
Total		100.00	%

Page 3 of 5

Fourth Excess Catastrophe
Reinsurer(s)	Participation(s)
ACE Tempest Reinsurance Ltd.		7.50	%
Allied World Assurance Company, Ltd		7.00	%
Arch Reinsurance Ltd.		1.00	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		4.75	%
Aspen Bermuda Limited		0.50	%
BGS Services (Bermuda) Limited for and on behalf of Lloyd's Syndicate No. 2987		4.50	%
Hamilton Re, Ltd.		1.00	%
National Union Fire Insurance Company of Pittsburgh, Pa.		9.50	%
Odyssey Reinsurance Company		1.50	%
Qatar Reinsurance Company LLC		3.50	%
QBE Reinsurance Corporation		0.50	%
Transatlantic Reinsurance Company		9.75	%
XL Re Ltd		7.50	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		3.75	%
China Reinsurance (Group) Corporation		1.00	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		36.75	%
Total		100.00	%

Page 4 of 5

Fifth Excess Catastrophe
Reinsurer(s)	Participation(s)
ACE Tempest Reinsurance Ltd.		3.00	%
American Agricultural Insurance Company		0.40	%
American Standard Insurance Company of Wisconsin		5.00	%
Arch Reinsurance Ltd.		4.00	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		1.50	%
Aspen Bermuda Limited		1.00	%
BGS Services (Bermuda) Limited for and on behalf of Lloyd's Syndicate No. 2987		4.50	%
DaVinci Reinsurance Ltd.		6.00	%
Odyssey Reinsurance Company		2.00	%
Renaissance Reinsurance Ltd.		17.00	%
XL Re Ltd		10.00	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		2.00	%
China Reinsurance (Group) Corporation		1.00	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		11.75	%
SCOR Global P&C SE, Paris, Zurich Branch		15.00	%
Total		84.15	%

Page 5 of 5

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	Reinstatement	5
9	Definitions	6
10	Loss Occurrence	7
11	Loss Notices and Settlements	9
12	Cash Call	9
13	Salvage and Subrogation	9
14	Reinsurance Premium	10
15	Sanctions	11
16	Late Payments	11
17	Offset	12
18	Access to Records	12
19	Liability of the Reinsurer	12
20	Net Retained Lines (BRMA 32E)	13
21	Errors and Omissions (BRMA 14F)	13
22	Currency (BRMA 12A)	13
23	Taxes (BRMA 50B)	13
24	Federal Excise Tax (BRMA 17D)	14
25	Foreign Account Tax Compliance Act	14
26	Reserves	14
27	Insolvency	15
28	Arbitration	16
29	Service of Suit (BRMA 49C)	17
30	Severability (BRMA 72E)	17
31	Governing Law (BRMA 71B)	18
32	Confidentiality	18
33	Non-Waiver	19
34	Notices and Contract Execution	19
35	Intermediary	19
	Schedule A

Excess Catastrophe Reinsurance Contract

Effective: July 1, 2014

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

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

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, 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, 2015.

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

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

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

Page 1

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

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

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

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

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

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

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

10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article.

C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2014 to 12:01 a.m., Eastern Standard Time, July 1, 2015.  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, 2014 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.

Page 2

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.

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. The following shall apply as respects recoveries under each excess layer set forth in Schedule A attached hereto:

1. Recoveries under the First Excess layer ($84,000,000 in excess of $16,000,000 of ultimate net loss arising out of each loss occurrence and $168,000,000 of ultimate net loss arising out of all loss occurrences) shall inure to the benefit of the Second Excess layer;

Page 4

2. Recoveries under the First and Second Excess layers shall inure to the benefit of the Third Excess layer; and

3. Recoveries under the First, Second and Third Excess layers shall inure to the benefit of the Fourth Excess layer; and

4. Recoveries under the First, Second, Third, and Fourth Excess layers shall inure to the benefit of the Fifth Excess layer.

C. In the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

D. 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."

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 ultimate net 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 ultimate net loss paid by the Reinsurer under that excess layer); times

Page 5

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 ultimate net 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 ultimate net 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.

C. Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss 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.

Page 6

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 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its 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 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:

Page 7

1. As regards windstorm, hail, tornado, hurricane and cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 120 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.

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 120 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.

Page 8

D. No individual losses occasioned by an event that would be covered by a 120 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.

Article 12 - Cash Call

Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss.  Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer.

Article 13 - 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.

Page 9

Article 14 - 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, 2014, by (b) the original AAL of the amount, shown as "AAL" for that excess layer in Schedule A attached hereto.

However, if the difference between the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and the premium calculated in accordance with this paragraph A for the excess layer is less than a 10.0% increase or decrease, the premium due the Reinsurer will equal the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto.

The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) CLASIC\2 v15 and Risk Management Solutions (RMS) RiskLink v13.1 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 $607,000,000 excess of $227,000,000.

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 2014, and on January 1 and April 1 of 2015.  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, 2015, 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.

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Article 15 - Sanctions

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

Article 16 - 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 17 - 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 18 - 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 19 - 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.

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

Article 20 - 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 21 - 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 22 - 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 23 - 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.

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Article 24 - 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 25 - Foreign Account Tax Compliance Act

A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall pay and allow such deduction and withholding from the premium payable under this Contract.

B. The Company assumes no responsibility for recovering any such premium deductions and withholdings paid by the Company to the U.S. Internal Revenue Service.

Article 26 - 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.

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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 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 27 - 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.

Page 15

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

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

Article 28 - Arbitration

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

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

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

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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 29 - 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 30 - 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.

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Article 31 - Governing Law (BRMA 71B)

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

Article 32 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company.

B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law.  Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

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F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 33 - 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 34 - Notices and Contract Execution

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

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

1. Paper documents with an original ink signature;

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

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

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

Article 35 - 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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In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below:

This  day of  in the year .

Federated National Insurance Company

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Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,000,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,000,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,250,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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.

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, 2014

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:

0%	of the First Excess Catastrophe
10.00%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
7.50%	of the Fourth Excess Catastrophe
3.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. Subparagraph 4 of paragraph B of Article 5 - Retention and Limit - shall not apply.

2. In lieu of the provisions of paragraph C of Article 5 - Retention and Limit - the following shall apply:

"C. In the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply."

Page 1 of 2

3. In lieu of Schedule A attached to and forming part of the Contract, the Schedule A attached to and forming part of this Agreement shall apply.

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

ACE Tempest Reinsurance Ltd.

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,400,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,500,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,375,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Allied World Assurance Company, 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:

0%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
8.00%	of the Third Excess Catastrophe
7.00%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

American Agricultural Insurance Company

Indianapolis, 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
0.75%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0.40%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

American Standard Insurance Company of Wisconsin

Madison, Wisconsin

(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
2.50%	of the Second Excess Catastrophe
1.25%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
5.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 Standard Insurance Company of Wisconsin

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Amlin Bermuda, branch of Amlin AG

Zurich, 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:

5.00%	of the First Excess Catastrophe
1.00%	of the Second Excess Catastrophe
3.25%	of the Third Excess Catastrophe
3.75%	of the Fourth Excess Catastrophe
2.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

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:

7.00%	of the First Excess Catastrophe
7.00%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
1.00%	of the Fourth Excess Catastrophe
4.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. In lieu of the provisions of the paragraphs B and C of Article 32 - Confidentiality - the following shall apply:

"B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, and statistical rating organizations.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's in-house or outside legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer."

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2. In lieu of of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Arch Reinsurance Ltd.

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,400,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,500,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,375,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

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:

1.25%	of the First Excess Catastrophe
1.00%	of the Second Excess Catastrophe
4.50%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Ariel Re Bda Limited

for and on behalf of Ariel Syndicate No. 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:

1.50%	of the First Excess Catastrophe
5.00%	of the Second Excess Catastrophe
5.00%	of the Third Excess Catastrophe
4.75%	of the Fourth Excess Catastrophe
1.50%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of the provisions of paragraph C of Article 32 - Confidentiality - the following shall apply:

"C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, (4) the Reinsurer's legal counsel, or (5) the Reinsurer's agent, Asta Managing Agent; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer."

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Ariel Re Bda Limited

for and on behalf of Ariel Syndicate No. 1910

Page 2 of 2

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Aspen Bermuda Limited

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:

2.00%	of the First Excess Catastrophe
2.50%	of the Second Excess Catastrophe
1.75%	of the Third Excess Catastrophe
0.50%	of the Fourth Excess Catastrophe
1.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

Aspen Bermuda Limited

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

BGS Services (Bermuda) Limited

for and on behalf of Lloyd's Syndicate No. 2987

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:

0%	of the First Excess Catastrophe
2.50%	of the Second Excess Catastrophe
4.50%	of the Third Excess Catastrophe
4.50%	of the Fourth Excess Catastrophe
4.50%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

BGS Services (Bermuda) Limited

for and on behalf of Lloyd's Syndicate No. 2987

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

China Reinsurance (Group) Corporation

Beijing, China

(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:

0.50%	of the First Excess Catastrophe
1.00%	of the Second Excess Catastrophe
1.00%	of the Third Excess Catastrophe
1.00%	of the Fourth Excess Catastrophe
1.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

China Reinsurance (Group) Corporation

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

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:

1.00%	of the First Excess Catastrophe
1.00%	of the Second Excess Catastrophe
0.50%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
6.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

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.

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

DaVinci Reinsurance Ltd.

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,800,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	6,000,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,500,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, 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:

20.00%	of the First Excess Catastrophe
20.00%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard TIme, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. In lieu of the provisions of Article 8 - Reinstatement - the following shall apply:

"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 ultimate net loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon.  For each amount so reinstated the Company shall pay no additional premium.

Page 1 of 2

B. Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss 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.'

2. In lieu of of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Endurance Specialty Insurance Ltd.

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	27,216,000	$	22,606,000	$	4,856,000	$	3,897,600	$	4,000,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	34,020,000	$	28,257,500	$	6,070,000	$	4,872,000	$	5,000,000
Deposit Premium Installments	$	8,505,000	$	7,064,375	$	1,517,500	$	1,218,000	$	1,250,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Everest Reinsurance Company

A 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:

12.00%	of the First Excess Catastrophe
7.50%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Hamilton 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:

3.75%	of the First Excess Catastrophe
4.00%	of the Second Excess Catastrophe
4.00%	of the Third Excess Catastrophe
1.00%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

Hamilton Re, Ltd.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Hiscox Insurance Company (Bermuda) Limited

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:

0%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
1.00%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 Mendes & Mount, LLP, 750 Seventh Avenue, New York, New York  10019.

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 .

Hiscox Insurance Company (Bermuda) Limited

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Liberty Syndicates LIB 4472, Paris Office Underwriting

for and on behalf of Lloyd's Syndicate No. 4472

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:

0%	of the First Excess Catastrophe
1.00%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

National Union Fire Insurance Company

of Pittsburgh, Pa.

Pittsburgh, Pennsylvania

(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
10.00%	of the Second Excess Catastrophe
10.00%	of the Third Excess Catastrophe
9.50%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. In lieu of the provisions of subparagraph 8 of paragraph B of Article 2 - Commencement and Termination - the following shall apply:

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

2. In lieu of the provisions of Article 32 - Confidentiality - the following shall apply:

Page 1 of 3

"Article 32 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as 'Confidential Information') are proprietary and confidential to the Company.

B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.  For the avoidance of doubt, the Reinsurer may provide Confidential Information to its subsidiaries and affiliates and their employees on a need-to-know basis.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer’s legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees, subject to applicable law, to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

E. Any disclosure of Non-Public Personally Identifiable Information by the Reinsurershall comply, to the extent applicable to the Reinsurer, with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. 'Non-Public Personally Identifiable Information' shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively 'Privilege') shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contractunless any Privilege asserted by the Company in respect of information sought by the Reinsurer is subject to the common interest or at issue doctrines.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

Page 2 of 3

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

National Union Fire Insurance Company of Pittsburgh, Pa.

Page 3 of 3

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Odyssey Reinsurance Company

Stamford, 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
2.00%	of the Third Excess Catastrophe
1.50%	of the Fourth Excess Catastrophe
2.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Odyssey Reinsurance Company

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,400,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,500,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,375,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

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:

0%	of the First Excess Catastrophe
8.75%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

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:

3.25%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Qatar Reinsurance Company LLC

Doha, Qatar

(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
3.50%	of the Third Excess Catastrophe
3.50%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

Qatar Reinsurance Company LLC

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

QBE Reinsurance Corporation

A Pennsylvania 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:

0%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
0.50%	of the Third Excess Catastrophe
0.50%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

QBE Reinsurance Corporation

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

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:

1.50%	of the First Excess Catastrophe
1.50%	of the Second Excess Catastrophe
0.75%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
17.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

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.

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Renaissance Reinsurance  Ltd.

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,800,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	6,000,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,500,000

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

RLI Insurance Company

An Illinois 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:

1.50%	of the First Excess Catastrophe
2.75%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

RLI Insurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

SCOR Global P&C SE, Paris, Zurich Branch

Zurich, 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:

3.50%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
15.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12: 01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. Subparagraph 4 of paragraph B of Article 5 - Retention and Limit - shall not apply.

2. In lieu of the provisions of paragraph C of Article 5 - Retention and Limit - the following shall apply:

"C. In the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply."

Page 1 of 2

3. In lieu of the provisions of the last subparagraph of paragraph A of Article 26 - Reserves - the following paragraph shall apply:

"The Reinsurer, at its sole option, may fund in other than cash (including the use of the Lloyd's Credit for Reinsurance Trust Funds as a funding instrument) if such method and form of funding are acceptable to the Company and to the insurance regulatory authorities involved, as the case may be."

4. In lieu of the provisions of the penultimate paragraph of Schedule A attached to and forming part of the Contract, the following shall apply:

"*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply."

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.

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

SCOR Global P&C SE, Paris, Zurich Branch

Page 2 of 2

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Transatlantic Reinsurance Company

New York, New York

(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
5.00%	of the Second Excess Catastrophe
10.50%	of the Third Excess Catastrophe
9.75%	of the Fourth Excess Catastrophe
0%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

Transatlantic Reinsurance Company

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

XL 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:

0%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
10.00%	of the Third Excess Catastrophe
7.50%	of the Fourth Excess Catastrophe
10.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of Schedule A attached to and forming part of this Contract, the Schedule A attached to and forming part of this Agreement shall apply.

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

XL Re Ltd

Page 2 of 2

Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,700,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,875,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,468,750

*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence.

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

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

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:

6.250%	of the First Excess Catastrophe
6.000%	of the Second Excess Catastrophe
27.250%	of the Third Excess Catastrophe
36.750%	of the Fourth Excess Catastrophe
10.750%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, unless earlier terminated in accordance with the provisions of the attached Contract.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of the provisions of the last subparagraph of paragraph A of Article 26 - Reserves - the following paragraph shall apply:

"The Reinsurer, at its sole option, may fund in other than cash (including the use of the Lloyd's Credit for Reinsurance Trust Funds as a funding instrument) if such method and form of funding are acceptable to the Company and to the insurance regulatory authorities involved, as the case may be."

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.

Page 1 of 2

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

This  day of  in the year .

Federated National Insurance Company

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

Page 2 of 2

Signing Page

attached to and forming part of the

Interests and Liabilities Agreement

with respect to the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

and

Certain Underwriting Members of Lloyd's

(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.

Interests and Liabilities Agreement

attached to and forming part of the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Kiln Syndicate No. 0510

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:

0%	of the First Excess Catastrophe
0%	of the Second Excess Catastrophe
0%	of the Third Excess Catastrophe
0%	of the Fourth Excess Catastrophe
1.00%	of the Fifth Excess Catastrophe

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, unless earlier terminated in accordance with the provisions of the attached Contract.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. Subparagraph 4 of paragraph B of Article 5 - Retention and Limit - shall not apply.

2. In lieu of the provisions of paragraph C of Article 5 - Retention and Limit - the following shall apply:

"C. In the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply."

3. In lieu of the provisions of the last subparagraph of paragraph A of Article 26 - Reserves - the following paragraph shall apply:

"The Reinsurer, at its sole option, may fund in other than cash (including the use of the Lloyd's Credit for Reinsurance Trust Funds as a funding instrument) if such method and form of funding are acceptable to the Company and to the insurance regulatory authorities involved, as the case may be."

Page 1 of 2

4. In lieu of the provisions of the penultimate paragraph of Schedule A attached to and forming part of the Contract, the following shall apply:

"*As set forth in the Retention and Limit Article, in the event any one loss occurrence results in ultimate net loss under one or more of the excess layers set forth above, the Company's retention will not exceed the first $16,000,000 of ultimate net loss arising out of such loss occurrence, except as respects the Fifth Excess layer, where a retention of $368,900,000 shall apply."

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  day of  in the year .

Federated National Insurance Company

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

Page 2 of 2

Signing Page

attached to and forming part of the

Interests and Liabilities Agreement

with respect to the

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

and

Kiln Syndicate No. 0510

(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, 2014

Federated National Insurance Company

Sunrise, Florida

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

First Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE		50.0	%
Total		50.0	%

Second Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE		50.0	%
Securis Re III Ltd./SRB305 Segregated Account		21.0	%
Securis Re IV Ltd./SRB405 Segregated Account		9.0	%
Total		80.0	%

Third Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE		50.0	%
Securis Re III Ltd./SRB305 Segregated Account		35.0	%
Securis Re IV Ltd./SRB405 Segregated Account		15.0	%
Total		100.0	%

1 of 2

Fourth Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE		50.0	%
Securis Re III Ltd./SRB305 Segregated Account		35.0	%
Securis Re IV Ltd./SRB405 Segregated Account		15.0	%
Total		100.0	%

Fifth Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE		50.0	%
Securis Re III Ltd./SRB305 Segregated Account		35.0	%
Securis Re IV Ltd./SRB405 Segregated Account		15.0	%
Total		100.0	%

2 of 2

Table of Contents

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

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

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

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, 2014 (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.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, 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, 2015.

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

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

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

Page 1

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

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

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

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

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

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

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

10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article.

C. 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.

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.

Page 2

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 2014, and January 1 and April 1 of 2015.  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 - Sanctions

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

Page 3

Article 6 - 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.

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 7 - 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.

Page 4

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

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

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

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

Article 8 - 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 9 - 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.

Page 5

Article 10 - 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 11 - 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 12 - 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 13 - 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 14 - Foreign Account Tax Compliance Act

A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall pay and allow such deduction and withholding from the premium payable under this Contract.

B. The Company assumes no responsibility for recovering any such premium deductions and withholdings paid by the Company to the U.S. Internal Revenue Service.”

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Article 15 - 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;

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;

Page 7

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 16 - 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 Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

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

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Article 17 - Arbitration

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

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

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

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

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

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Article 18 - 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 19 - 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 20 - Governing Law (BRMA 71B)

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

Article 21 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company.

B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.

Page 10

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, or (3) external auditors performing an audit of the Reinsurer's records in the normal course of business; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Reinsurer shall be responsible for any breach of this provision by any third-party representatives of the Reinsurer.  The Company requires that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law.  Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 22 - 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.

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Article 23 - Notices and Contract Execution

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

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

1. Paper documents with an original ink signature;

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

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

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

Article 24 - 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  day of  in the year .

Federated National Insurance Company

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Schedule A

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	Original Contract First Excess		Original Contract Second Excess		Original Contract Third Excess		Original Contract Fourth Excess		Original Contract Fifth Excess
Company's Retention*	$	16,000,000	$	100,000,000	$	227,000,000	$	287,700,000	$	368,900,000
Reinsurer's Per Occurrence Limit	$	84,000,000	$	127,000,000	$	60,700,000	$	81,200,000	$	100,000,000
Reinsurer's Term Limit	$	168,000,000	$	254,000,000	$	121,400,000	$	162,400,000	$	200,000,000
Minimum Premium	$	20,731,200	$	19,050,000	$	4,856,000	$	3,897,600	$	4,000,000
AAL	$	19,149,522	$	13,073,313	$	1,930,863	$	1,087,391	$	1,119,458
Annual Deposit Premium	$	25,914,000	$	23,812,500	$	6,070,000	$	4,872,000	$	5,000,000
Deposit Premium Installments	$	6,478,500	$	5,953,125	$	1,517,500	$	1,218,000	$	1,250,000

Schedule A

Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Reinstatement Factor		1.021		1.000		1.000		1.000		1.000
Annual Deposit Premium	$	8,162,910	$	4,464,844	$	607,000	$	292,320	$	250,000
Deposit Premium Installments	$	2,040,727.50	$	1,116,211	$	151,750	$	73,080	$	62,500

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 B

Interests and Liabilities Agreement

attached to and forming part of the

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Hannover Rück SE

Hannover, Germany

(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:

50.0%	of the First Reinstatement Premium Protection Reinsurance
50.0%	of the Second Reinstatement Premium Protection Reinsurance
50.0%	of the Third Reinstatement Premium Protection Reinsurance
50.0%	of the Fourth Reinstatement Premium Protection Reinsurance
50.0%	of the Fifth Reinstatement Premium Protection Reinsurance

This Agreement shall become effective on 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 Mendes & Mount, LLP, 750 Seventh Avenue, New York, New York  10019.

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 .

Hannover Rück SE

Interests and Liabilities Agreement

attached to and forming part of the

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Securis Re III Ltd. Bermuda

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:

Securis Re III Ltd. Bermuda - A Bermuda segregated accounts insurance company, in respect of its segregated account designated "SRB305 Account":

0%	of the First Reinstatement Premium Protection Reinsurance
21%	of the Second Reinstatement Premium Protection Reinsurance
35%	of the Third Reinstatement Premium Protection Reinsurance
35%	of the Fourth Reinstatement Premium Protection Reinsurance
35%	of the Fifth Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

It is Hereby Agreed, as respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. Paragraph B of Article 2 - Commencement and Termination - shall not apply.

2. Article 15 - Reserves - shall not apply.

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3. In lieu of the Schedule B attached to and forming part of this Contract, the Schedule B attached to and forming part of this Agreement shall apply.

4. The following Articles shall be added to and made part of this Contract:

Article 1 - "Article 25 - 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, 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, 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 15, 2014, 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;

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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.

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 26 - Collateral Release

A. As of December 15, 2014 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%

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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').

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."

It is Further Agreed, as respects the Subscribing Reinsurer's shares in the attached Contract, the following shall apply:

"Limited Recourse

A. Segregated Account: This Interests & Liabilities Agreement is entered into by Securis Re III Ltd. on behalf and in respect of the segregated account entitled 'SRB305' (the 'Segregated Account') for the purposes of section 11(3) of the Segregated Accounts Companies Act 2000 of Bermuda (the 'SAC Act').  Each party acknowledges that the Subscribing Reinsurer is a segregated accounts company under the SAC Act and agrees that its rights and obligations under this Agreement are subject to the provisions of the SAC Act.

B. Limited Recourse: Except as expressly provided in this Agreement and in accordance with the provisions of sections 11(4) and 17(5) of the SAC Act, the parties agree that their right to claim or proceed against the Segregated Account of the Subscribing Reinsurer in respect of this Agreement is confined to the assets linked to such Segregated Account and, where a claim, liability or obligation of the Subscribing Reinsurer arises from or in connection with this Agreement, recourse shall be limited to the assets linked to such Segregated Account as evidenced in the books and records of the Subscribing Reinsurer.  No such claim, liability or obligation shall extend, and no party shall have recourse, to any asset of the Subscribing Reinsurer linked to any other segregated account established by the Subscribing Reinsurer pursuant to the SAC Act or to the general account (as defined in the SAC Act) of the Subscribing Reinsurer or otherwise. In addition, no asset shall be transferred at any time from the general account of the Subscribing Reinsurer to any segregated account in connection with satisfying any such claim, liability or obligation unless otherwise expressly agreed in writing by the parties hereto in accordance with the requirements of the SAC Act.

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C. No Further Action: If the assets linked to the Segregated Account are insufficient to meet the obligations of the Subscribing Reinsurer under this Agreement, the Subscribing Reinsurer's obligations shall be limited to such assets and the parties shall not be entitled to take any further steps against the Subscribing Reinsurer to recover any further sum and no debt shall be owed to the parties by the Subscribing Reinsurer.

D. Governing Law: The effect of this clause and the rights and obligations of any party pursuant to this clause shall, notwithstanding the terms of Article 20 - Governing Law (BRMA 71B) as it appears in the attached Contract, be governed by the laws of Bermuda with reference to the SAC Act and, for such purpose only, the parties hereto irrevocably submit to the jurisdiction of the Supreme Court of Bermuda.  Except as otherwise defined herein or unless the context otherwise requires, terms and expressions defined in this clause have the same meanings given to them in the SAC Act.  Each party agrees that, if there is an inconsistency between the provisions of this clause and any other provisions of this Agreement, this clause shall prevail."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Securis Re III Ltd., in respect of its segregated account designated "SRB305 Account"

Page 5 of 5

Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Reinstatement Factor		1.021		1.000		1.000		1.000		1.000
Annual Deposit Premium	$	8,162,910	$	4,464,844	$	607,000	$	292,320	$	275,000
Deposit Premium Installments	$	2,040,727.50	$	1,116,211	$	151,750	$	73,080	$	68,750

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, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Securis Re IV Ltd. Bermuda

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:

Securis Re IV Ltd. Bermuda - A Bermuda segregated accounts insurance company, in respect of its segregated account designated "SRB405 Account":

0%	of the First Reinstatement Premium Protection Reinsurance
9%	of the Second Reinstatement Premium Protection Reinsurance
15%	of the Third Reinstatement Premium Protection Reinsurance
15%	of the Fourth Reinstatement Premium Protection Reinsurance
15%	of the Fifth Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

It is Hereby Agreed, as respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. Paragraph B of Article 2 - Commencement and Termination - shall not apply.

2. Article 15 - Reserves - shall not apply.

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3. In lieu of the Schedule B attached to and forming part of this Contract, the Schedule B attached to and forming part of this Agreement shall apply.

4. The following Articles shall be added to and made part of this Contract:

Article 1 - "Article 25 - 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, 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, 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 15, 2014, 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;

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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.

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 26 - Collateral Release

A. As of December 15, 2014 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%

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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').

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."

It is Further Agreed, as respects the Subscribing Reinsurer's shares in the attached Contract, the following shall apply:

"Limited Recourse

A. Segregated Account: This Interests & Liabilities Agreement is entered into by Securis Re IV Ltd. on behalf and in respect of the segregated account entitled 'SRB405' (the 'Segregated Account') for the purposes of section 11(3) of the Segregated Accounts Companies Act 2000 of Bermuda (the 'SAC Act').  Each party acknowledges that the Subscribing Reinsurer is a segregated accounts company under the SAC Act and agrees that its rights and obligations under this Agreement are subject to the provisions of the SAC Act.

B. Limited Recourse: Except as expressly provided in this Agreement and in accordance with the provisions of sections 11(4) and 17(5) of the SAC Act, the parties agree that their right to claim or proceed against the Segregated Account of the Subscribing Reinsurer in respect of this Agreement is confined to the assets linked to such Segregated Account and, where a claim, liability or obligation of the Subscribing Reinsurer arises from or in connection with this Agreement, recourse shall be limited to the assets linked to such Segregated Account as evidenced in the books and records of the Subscribing Reinsurer.  No such claim, liability or obligation shall extend, and no party shall have recourse, to any asset of the Subscribing Reinsurer linked to any other segregated account established by the Subscribing Reinsurer pursuant to the SAC Act or to the general account (as defined in the SAC Act) of the Subscribing Reinsurer or otherwise. In addition, no asset shall be transferred at any time from the general account of the Subscribing Reinsurer to any segregated account in connection with satisfying any such claim, liability or obligation unless otherwise expressly agreed in writing by the parties hereto in accordance with the requirements of the SAC Act.

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C. No Further Action: If the assets linked to the Segregated Account are insufficient to meet the obligations of the Subscribing Reinsurer under this Agreement, the Subscribing Reinsurer's obligations shall be limited to such assets and the parties shall not be entitled to take any further steps against the Subscribing Reinsurer to recover any further sum and no debt shall be owed to the parties by the Subscribing Reinsurer.

D. Governing Law: The effect of this clause and the rights and obligations of any party pursuant to this clause shall, notwithstanding the terms of Article 20 - Governing Law (BRMA 71B) as it appears in the attached Contract, be governed by the laws of Bermuda with reference to the SAC Act and, for such purpose only, the parties hereto irrevocably submit to the jurisdiction of the Supreme Court of Bermuda.  Except as otherwise defined herein or unless the context otherwise requires, terms and expressions defined in this clause have the same meanings given to them in the SAC Act.  Each party agrees that, if there is an inconsistency between the provisions of this clause and any other provisions of this Agreement, this clause shall prevail."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Securis Re IV Ltd., in respect of its segregated account designated "SRB405 Account"

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Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

	First Excess		Second Excess		Third Excess		Fourth Excess		Fifth Excess
Reinstatement Factor		1.021		1.000		1.000		1.000		1.000
Annual Deposit Premium	$	8,162,910	$	4,464,844	$	607,000	$	292,320	$	275,000
Deposit Premium Installments	$	2,040,727.50	$	1,116,211	$	151,750	$	73,080	$	68,750

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

EX-10.3

EXHIBIT 10.3

Homeowners Quota Share

Reinsurance Contract

Effective:  July 1, 2014

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	5
6	Loss in Excess of Policy Limits/Extra-Contractual Obligations	7
7	Other Reinsurance	8
8	Claims and Loss Adjustment Expenses	8
9	Salvage and Subrogation	9
10	Original Conditions	9
11	Commission (BRMA 10A)	9
12	Reinsurer's Expense	9
13	Experience Account	10
14	Commutation	10
15	Reports and Remittances	11
16	Sanctions	11
17	Late Payments	11
18	Offset	13
19	Access to Records	13
20	Errors and Omissions (BRMA 14F)	13
21	Currency (BRMA 12A)	13
22	Taxes (BRMA 50B)	13
23	Federal Excise Tax (BRMA 17D)	14
24	Foreign Account Tax Compliance Act	14
25	Unauthorized Reinsurers	14
26	Special Funding	15
27	Insolvency	16
28	Arbitration	17
29	Confidentiality	17
30	Service of Suit (BRMA 49C)	19
31	Governing Law (BRMA 71B)	19
32	Severability (BRMA 72E)	19
33	Assignment and Assumption	19
34	Non-Waiver	19
35	Notices and Contract Execution	20
36	Intermediary	20

Homeowners Quota Share

Reinsurance Contract

Effective:  July 1, 2014

entered into by and among

Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to collectively 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 Company obligates itself to cede to the Reinsurer and the Reinsurer obligates itself to accept quota share reinsurance of the Company's Net Liability under policies, contracts, and binders of insurance or reinsurance (hereinafter called "Policies") in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Homeowners Multiple Peril (Sections I and II) and Dwelling Fire business located in the State of Florida.

B. "Net Liability" as used in this Contract shall mean the Company's gross liability (including Loss in Excess of Policy Limits, Extra Contractual Obligations, and Loss Adjustment Expenses) reinsured under this Contract remaining after cessions, if any, to other inuring reinsurance.

C. The liability of the Reinsurer with respect to each cession hereunder shall commence obligatorily and simultaneously with that of the Company, subject to the terms, conditions and limitations hereinafter set forth.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, with respect to losses arising out of Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2016.

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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 beginning of any Contract Year has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during any Contract Year has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the beginning of that Contract Year; 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, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or

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

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

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

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

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

10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Unauthorized Reinsurers Article.

C. As promptly as possible after termination or expiration of this Contract, the Reinsurer shall return the ceded unearned premium (less any ceding commission thereon) on business in force at the effective time and date of termination or expiration, and whereby the Reinsurer shall have no liability for losses occurring subsequent to the effective time and date of termination or expiration of this Contract.

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D. Notwithstanding the provisions of paragraph C above, if the Company is prohibited or precluded by the appropriate regulatory authorities, or by law (in those states where applicable), from arranging mid-term cancellation or non-renewal of any Policies subject to this Contract beyond their natural expiry, the Reinsurer agrees to extend coverage under this Contract until such Policies may be terminated or non-renewed by the Company, but in no event beyond 33 months after the effective date of termination or expiration.

E. "Contract Year" as used in this Contract shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2014, to 12:01 a.m., Eastern Standard Time, July 1, 2015, and each respective 12-month period (or portion thereof) thereafter that this Contract continues in force.

Article 3 - Territory

The territorial limits of this Contract shall be identical with those of the Company's Policies, but is limited to risks located within the State of Florida.

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.

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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" and the "Nuclear Incident Exclusion Clause - Liability - Reinsurance" 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.

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.

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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 business subject to this Contract, the Company shall retain and be liable for 70.0% of its Net Liability. The Company shall cede to the Reinsurer and the Reinsurer agrees to accept 30.0% of the Company's Net Liability.

B. Notwithstanding the provisions above, the liability (including Loss in Excess of Policy Limits, Extra-Contractual Obligations and/or Loss Adjustment Expenses) of the Reinsurer shall not exceed the following, as respects Homeowners Multiple Peril (Section I) and Dwelling Fire business:

1. 30.0% of $100,000,000 any one Occurrence;

2. 30.0% of $200,000,000 as respects all Occurrences during any one Contract Year;

3. 30.0% of $400,000,000 in all during the Term of this Contract.

C. In no event shall the liability of the Reinsurer for loss and Loss Adjustment Expense exceed 115% of Premiums Earned.

The liability of the Reinsurer for loss and Loss Adjustment Expense shall be provisionally limited to $179,670,057, and shall be adjusted after the Premiums Earned for the Term of this Contract have been finally determined.

D. "Premiums Earned" as used in this Contract shall mean 30.0% of the Company's unearned premium at the inception of this Contract (after deduction of the allowance for Catastrophe Excess of Loss Protection in accordance with the provisions of paragraph B of the Reinsurer's Expense Article), plus 30.0% of the Company's Net Written Premium during the Term of this Contract (after deduction of the allowance for Catastrophe Excess of Loss Protection in accordance with the provisions of paragraph B of the Reinsurer's Expense Article), less the 30% of the Company's unearned portion thereof as of the effective date of calculation (after deduction of the allowance for Catastrophe Excess of Loss Protection in accordance with the provisions of paragraph B of the Reinsurer's Expense Article), it being understood and agreed that the unearned reinsurance premium (less previously allowed ceding commission) as of the date of termination or expiration shall be returned by the Reinsurer to the Company.

E. As respects Homeowners Multiple Peril (Section I) and Dwelling Fire business, "Occurrence" as used in this Contract 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 "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 "Occurrence" shall be further defined as follows:

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1. As regards windstorm, hail, tornado, hurricane and cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 120 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.

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 "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 "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 "Occurrence."

Except for those "Occurrences" referred to in subparagraph 2 of paragraph E 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 "Occurrence" referred to in subparagraph 1 of paragraph E above where only one such period of 120 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

However, as respects those "Occurrences" referred to in subparagraph 2 of paragraph E 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 "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.

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No individual losses occasioned by an event that would be covered by a 120 or 72 hours clause may be included in any "Occurrence" claimed under a 168 hours provision.

F. As respects Homeowners Multiple Peril (Section II), "Occurrence" as used in this Contract shall mean an accident or loss or a series of accidents or losses arising out of or caused by one event.

G. The Company shall be the sole judge of what constitutes one "risk."

H. "Term of this Contract" as used in this Contract shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2014, to 12:01 a.m., Eastern Standard Time, July 1, 2016.  If, however, this Contract is terminated, the "Term of this Contract" as used in this Contract shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2014, to the effective time and date of the termination.

Article 6 - Loss in Excess of Policy Limits/Extra-Contractual Obligations

A. In the event that the Company pays or is held liable to pay an amount of Loss in Excess of its Policy Limit, but otherwise within the terms of its Policy (hereinafter called "Loss in Excess of Policy Limits") or any punitive, exemplary, compensatory, or consequential damages or other amounts, including payments pursuant to applicable statutes, other than Loss in Excess of Policy Limits (hereinafter called "Extra-Contractual Obligations") because of alleged or actual bad faith or negligence on its part in rejecting a settlement within Policy limits, or in discharging its duty to defend or prepare the defense in the trial of an action against its policyholder, or in discharging its duty to prepare or prosecute an appeal consequent upon such an action, or in otherwise handling a claim under a Policy subject to this Contract, 100% of the Loss in Excess of Policy Limits and/or 100% of the Extra-Contractual Obligations shall be added to the Company's loss, if any, under the Policy involved, and the sum thereof shall be subject to the provisions of the Retention and Limit Article.

B. An Extra-Contractual Obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C. 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 Executive Officer or member of the Board of Directors 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 (as determined by the final decision by a court of competent jurisdiction).  "Executive Officer" as used herein shall mean any senior executive who performs a policy-making function.

D. Recoveries from any form of insurance or reinsurance that protects the Company against claims the subject matter of this Article shall inure to the benefit of this Contract.

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E. Savings Clause (applicable only if the Subscribing Reinsurer is domiciled in the State of New York):  In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

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 - Claims and Loss Adjustment Expenses

A. Losses shall be reported by the Company in summary form as hereinafter provided, but the Company shall notify the Reinsurer immediately when a specific case involves unusual circumstances or large loss possibilities.  The Reinsurer shall have the right to participate, at its own expense, provided that it shall cooperate fully with the Company, in the defense of any claim or suit or proceeding involving this reinsurance.

B. All loss settlements made by the Company, whether under strict Policy conditions or by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its proportion of each such settlement in accordance with the Reports and Remittances Article.  It is agreed, however, that if the Reinsurer's share of any loss is equal to or greater than $100,000, the Reinsurer will pay its share of such loss as promptly as possible after receipt of reasonable evidence of the amount paid by the Company.  Inadvertent omission in dispatching the aforementioned notices will in no way affect the obligation of the Reinsurer under this Contract, provided that the Company informs the Reinsurer of such omission promptly upon discovery.

C. In the event of a claim under a Policy subject hereto, the Reinsurer shall be liable for its proportionate share of Loss Adjustment Expenses (as defined herein) incurred by the Company in connection therewith, and shall be credited with its proportionate share of any recoveries of such expense.

D. "Loss Adjustment Expenses" as used in this Contract shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes.  Loss Adjustment Expenses shall include, but not be limited to, interest on judgments, expenses of outside adjusters, other extraordinary communication expenses incurred as a result of a covered Occurrence, costs of supersedeas and appeal bonds, monitoring counsel expenses, expenses and a pro rata share of salaries of the Company's field employees, and expenses of other employees of the Company who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract, and declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto.  Loss Adjustment Expenses shall not include normal office expenses or salaries of the Company's officers.

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Article 9 - Salvage and Subrogation

The Reinsurer shall be credited with its proportionate share of salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officers 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.  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 10 - Original Conditions

A. All reinsurance under this Contract shall be subject to the same rates, terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company.  The Reinsurer shall be credited with its exact proportion of the original premiums received by the Company, prior to disbursement of any dividends, but after deduction of premiums, if any, ceded by the Company for inuring reinsurance.

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.

C. It is the intent of the parties that the Reinsurer shall follow the fortunes of the Company, provided that the loss(es) within the applicable time period are within the terms, conditions and limits of the original Policies.

D. However, in no event shall anything contained in this Article be construed in any way to provide coverage outside the terms, conditions and limitations set forth in this Contract.

Article 11 - Commission (BRMA 10A)

A. The Reinsurer shall allow the Company a 33.84% commission on all premiums ceded to the Reinsurer hereunder.  The Company shall allow the Reinsurer return commission on return premiums at the same rate.

B. It is expressly agreed that the ceding commission allowed the Company includes provision for all dividends, commissions, taxes, assessments, and all other expenses of whatever nature, except Loss Adjustment Expenses.

Article 12 - Reinsurer's Expense

A. "Reinsurer's Expense" as used in this Contract shall mean an amount equal to 9.14% of the net unearned premium at inception, plus an amount equal to 9.14% of Net Written Premium for the Term of this Contract.  The Reinsurer's Expense shall be deducted from, not in addition to, the ceded premium.

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B. "Net Written Premium" as used in this Contract shall mean Company's gross written premium for the classes of business reinsured hereunder, less cancellations and return premiums, and less premiums, if any, ceded by the Company for reinsurance which inures to the benefit of this Contract and less an allowance for premium ceded by the Company for Catastrophe Excess of Loss Protection, which allowance shall be equal to 26.13% of the total gross written premium for the classes of business reinsured hereunder, less cancellations and return premiums, for the Term of this Contract.

C. "Catastrophe Excess of Loss Protection" as used herein includes any catastrophe excess of loss reinsurance and/or protection purchased by the Company.

Article 13 - Experience Account

A. The Reinsurer shall maintain a notional experience account from the effective date of this Contract until the full and final release of each party's known or unknown obligations and liabilities under this Contract.

B. The experience account is defined on a cumulative basis as:

1. Ceded net unearned premium applicable to subject business in force at the effective date of this Contract plus ceded Net Written Premium (and less net unearned premium applicable to subject business in force at the termination or expiration date of this Contract); less

2. Ceding commission thereon; less

3. Reinsurer's Expense on (1) above; less

4. Paid losses and paid Loss Adjustment Expenses.

Article 14 - Commutation

A. The Company has the unilateral right to commute this entire Contract at any time after June 30, 2016, provided that the balance of the Experience Account on the proposed date of commutation is positive.

B. Commutation of this Contract represents a full and final release of each party's known or unknown obligations and liabilities under this Contract.  The Company shall receive 100% of the positive balance of the Experience Account, if any, upon commutation.

C. If the balance of the Experience Account is negative, this Contract may be commuted upon the mutual agreement of the Company and the Reinsurer and for an amount to be mutually agreed.

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Article 15 - Reports and Remittances

A. Within 30 days after the effective date of this Contract, the Company shall remit the Reinsurer's share of the unearned premium (less commission thereon) applicable to subject business in force at the effective date of this Contract.

B. Within 30 days after the end of each month, the Company shall report to the Reinsurer:

1. Ceded Net Written Premium for the month;

2. Commission thereon;

3. Ceded losses and Loss Adjustment Expenses paid during the month (net of any recoveries during the month under the "cash call" provisions of the Claims and Loss Adjustment Expenses Article).

The positive balance of (1) less (2) less (3) shall be remitted by the Company with its report.  Any balance shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company's report.

C. Within 60 days after the end of each calendar quarter, the Company shall report to the Reinsurer the ceded unearned premiums and ceded outstanding loss reserves as of the end of the calendar quarter.

D. The Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

Article 16 - Sanctions

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

Article 17 - 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

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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. 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.

2. As respects a "cash call" made in accordance with the penultimate sentence of paragraph B of the Claims and Loss Adjustment Expenses Article, payment shall be deemed due thirty 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 on which the proof of loss or demand for payment was transmitted to the Reinsurer.

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

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

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

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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 18 - 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 19 - 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 20 - 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 21 - 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 22 - 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.

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Article 23 - 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 24 - Foreign Account Tax Compliance Act

A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall pay and allow such deduction and withholding from the premium payable under this Contract.

B. In the event of any return of premium becoming due hereunder, the Reinsurer will not deduct any percentage from the return premium payable hereon.  To the extent the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent will reimburse the Reinsurer for such amounts.

Article 25 - Unauthorized Reinsurers

A. If the Reinsurer is unauthorized in any state of the United States of America or the District of Columbia, the Reinsurer agrees to fund its share of the Company's United States ceded unearned premium and outstanding loss and Loss Adjustment Expenses reserves (including incurred but not reported loss reserves) 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. Trust accounts for the benefit of the Company; and/or

3. Cash advances;

if, without such funding, a penalty or other negative consequence, including without limitation loss of credit for such reinsurance, either as an admitted asset or as a deduction from liability on account of reinsurance ceded, would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved.  The Reinsurer, at its option, may fund in other than cash if its method and form of funding are acceptable to the Company and the insurance regulatory authorities involved.

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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 thirty days prior to such expiration date.  The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

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

2. To reimburse itself for the Reinsurer's share of losses and/or Loss Adjustment Expenses 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 any ceded unearned premium and/or outstanding loss and Loss Adjustment Expenses reserves (including incurred but not reported loss reserves) funded by means of a letter of credit which is under non-renewal notice, if such letter of credit has not been renewed or replaced by the Reinsurer ten days or more 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 the Company's ceded unearned premium and/or outstanding loss and Loss Adjustment Expenses reserves (including incurred but not reported loss reserves), if so requested by the Reinsurer.

In the event that 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 26 - Special Funding

(This Article does not apply to any Subscribing Reinsurer (i) with a rating of A+ or higher at the time of inception from A.M. Best Company or Standard & Poor's, (ii) that is an Underwriter at Lloyd's of London, or (iii) that is unauthorized in any state of the United States of America or the District of Columbia or any province or jurisdiction of Canada.)

A. If, during the Term of this Contract or thereafter, as respects any outstanding liabilities hereunder, the Subscribing Reinsurer experiences any of the events or circumstances set forth in paragraph B of the Commencement and Termination Article, the Subscribing Reinsurer shall fund known outstanding losses and Loss Adjustment Expenses (including incurred but not reported loss reserves) related thereto and uncollected paid losses and Loss Adjustment Expenses (including incurred but not reported loss reserves) within fifteen business days from the date of written demand by the Company to so fund.

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B. The Subscribing Reinsurer shall have the option of determining the method of funding referred to in paragraph A above, provided it is acceptable to the Company and the insurance regulatory agency involved.  If the Subscribing Reinsurer elects to fund the aforesaid loss by a letter of credit, the procedures set forth in the Unauthorized Reinsurers Article as respects letters of credit shall apply.

C. If, during the Term of this Contract or thereafter, the Subscribing Reinsurer subsequently remedies the applicable trigger(s) described in subparagraphs 1 and 2 of paragraph A above which brought rise to the funding, the Company agrees to release those funds within thirty days of the Company receiving proof of said remedy.

Article 27 - 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 Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

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

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Article 28 - Arbitration

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

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

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

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

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

Article 29 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company.

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B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, or (3) external auditors performing an audit of the Reinsurer's records in the normal course of business; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Reinsurer shall be responsible for any breach of this provision by any third-party representatives of the Reinsurer.  The Company requires that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law.  Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.’

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Article 30 - 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 31 - Governing Law (BRMA 71B)

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

Article 32 - 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 33 - Assignment and Assumption

The obligations and duties of the Reinsurer under this Contract shall not be assigned to or assumed by another reinsurer or other entity without the prior written consent of the Company.

Article 34 - 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.

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Article 35 - Notices and Contract Execution

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

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

1. Paper documents with an original ink signature;

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

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

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

Article 36 - 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  day of  in the year .

Federated National Insurance Company

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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.

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

(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operation of paragraph (1) of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II of this paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

I. It is agreed that the policy does not apply under any liability coverage, to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II. Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III. The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

(a) become effective on or after 1st May, 1960, or

(b) become effective before that date and contain the Limited Exclusion Provision set out above;

provided this paragraph (2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(3) Except for those classes of policies specified in Clause II of paragraph (2) and without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

I. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

(a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

(b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

Page 1 of 2

II. Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to

(immediate medical or surgical relief

(first aid,

to expenses incurred with respect to

(bodily injury, sickness, disease or death

(bodily injury

resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

III. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

resulting from the hazardous properties of nuclear material, if

(a) the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;

(b) the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

(c) the

(injury, sickness, disease, death or destruction

(bodily injury or property damage

arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to

(injury to or destruction of property at such nuclear facility

(property damage to such nuclear facility and any property thereat.

IV. As used in this endorsement:

"hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or byproduct material; "source material", "special nuclear material", and "byproduct material" have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; "nuclear facility" means

(a) any nuclear reactor,

(b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling processing or packaging waste,

(c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

(d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word "injury" or "destruction,"

("property damage" includes all forms of radioactive contamination of property,

(includes all forms of radioactive contamination of property.

V. The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

(i) Garage and Automobile Policies issued by the Reassured on New York risks, or

(ii) statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(4) Without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that paragraphs (2) and (3) above are not applicable to original liability policies of the Reassured in Canada and that with respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters' Association or the Independent Insurance Conference of Canada.

*NOTE. The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

Page 2 of 2

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

Homeowners Quota Share

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Everest Reinsurance Company

A Delaware Corporation

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts an 85.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2016, 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

Homeowners Quota Share

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Tokio Millennium Re AG (Bermuda Branch)

Zurich, Switzerland

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 15.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2016, 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 .

Tokio Millennium Re AG (Bermuda Branch)

EX-10.4

EXHIBIT 10.4

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

Federated National Insurance Company

Sunset, Florida

Reinsurer(s)	Participation(s)
ACE Tempest Reinsurance Ltd.		10.0	%
Allied World Assurance Company, Ltd		5.0	%
American Standard Insurance Company of Wisconsin		8.2	%
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		15.0	%
AXIS Specialty Limited		27.3	%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Amlin Bermuda, branch of Amlin AG		5.0	%
Länsförsäkringar Sak Forsäkringsaktiebolag (publ)		2.0	%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)		27.5	%
Total		100.0	%

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	Reinstatement	5
9	Definitions	6
10	Loss Occurrence	7
11	Loss Notices and Settlements	8
12	Cash Call	9
13	Salvage and Subrogation	9
14	Reinsurance Premium	9
15	Sanctions	10
16	Late Payments	10
17	Offset	11
18	Access to Records	11
19	Liability of the Reinsurer	12
20	Net Retained Lines (BRMA 32E)	12
21	Errors and Omissions (BRMA 14F)	12
22	Currency (BRMA 12A)	12
23	Taxes (BRMA 50B)	13
24	Federal Excise Tax (BRMA 17D)	13
25	Foreign Account Tax Compliance Act	13
26	Reserves	13
27	Insolvency	15
28	Arbitration	15
29	Service of Suit (BRMA 49C)	16
30	Severability (BRMA 72E)	17
31	Governing Law (BRMA 71B)	17
32	Confidentiality	17
33	Non-Waiver	18
34	Notices and Contract Execution	18
35	Intermediary	19

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective: July 1, 2014

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

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

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, 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, 2015.

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

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

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

Page 1

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

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

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

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

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

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

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

10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article.

C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2014 to 12:01 a.m., Eastern Standard Time, July 1, 2015.  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, 2014 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.

Page 2

Article 3 - Territory

This Contract shall only apply to risks located in the State of Louisiana.

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. The Company shall retain and be liable for the first $3,000,000 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 $13,000,000 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 is exhausted by ultimate net 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 reinstated (based on the ultimate net loss paid by the Reinsurer); times

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

B. Whenever the Company requests payment by the Reinsurer of any ultimate net loss hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer.  If the earned reinsurance premium 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 shall be based on the amount of the annual deposit premium and shall be readjusted when the earned reinsurance premium for the term of this Contract has been finally determined.  Any reinstatement premium shown to be due the Reinsurer as reflected by any such statement (less prior payments, if any) shall be payable by the Company concurrently with payment by the Reinsurer of the requested ultimate net loss.  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.

C. Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss hereunder shall not exceed $13,000,000 as respects loss or losses arising out of any one loss occurrence, nor shall it exceed $26,000,000 in all during the term of this Contract.

Page 5

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 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its 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.

Page 6

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

D. "Total Insured Value" as used in this Contract shall mean the sum of the following coverages (for wind covered policies only):

Coverage A - Structure

Coverage B - Appurtenant Structures

Coverage C - Contents

Coverage D - Loss of Use

E. "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 and cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 120 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.

Page 7

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 120 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 120 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 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.

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 - Cash Call

Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss.  Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer.

Article 13 - 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 14 - 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 $598,000 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

1. $747,500; times

2. The percentage calculated by dividing (a) the Company's Total Insured Value ("TIV") applicable to wind endorsed policies in force on September 30, 2014, by (b) the Company TIV applicable wind endorsed policies projected to September 30, 2014 of $988,636,513.

However, if the difference between the Company’s projected TIV applicable to wind endorsed policies in force on September 30, 2014 of $988,636,513 and the Company’s actual TIV applicable to wind endorsed policies in force on September 30, 2014 is less than a 5.0% increase or decrease, there shall be no premium adjustment.

B. The Company shall pay the Reinsurer an annual deposit premium of $747,500 in four equal installments of $186,875 on July 1 and October 1 of 2014, and on January 1 and April 1 of 2015.  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, 2015, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

Article 15 - Sanctions

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

Article 16 - 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.

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

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

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

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

Article 17 - 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 18 - 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.

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Article 19 - Liability of the Reinsurer

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

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

Article 20 - 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 21 - 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 22 - 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.

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Article 23 - 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 24 - 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 25 - Foreign Account Tax Compliance Act

A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall pay and allow such deduction and withholding from the premium payable under this Contract.

B. The Company assumes no responsibility for recovering any such premium deductions and withholdings paid by the Company to the U.S. Internal Revenue Service.

Article 26 - 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;

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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 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.

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Article 27 - 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 Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

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

Article 28 - 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 Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint.

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

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

Article 29 - 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.

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Article 30 - 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 31 - Governing Law (BRMA 71B)

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

Article 32 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company.

B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

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E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law.  Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 33 - 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 34 - 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.

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

Article 35 - 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  day of  in the year .

Federated National Insurance Company

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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.

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

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

ACE Tempest Reinsurance 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

Allied World Assurance Company, Ltd

Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 5.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

American Standard Insurance Company of Wisconsin

Madison, Wisconsin

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts an 8.2% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 Standard Insurance Company of Wisconsin

Interests and Liabilities Agreement

attached to and forming part of the

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

Amlin Bermuda, branch of Amlin AG

Zurich, Switzerland

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 5.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

Ariel Re Bda Limited

for and on behalf of Ariel Syndicate No. 1910

London, England

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 15.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, the following shall apply:

1. In lieu of the provisions of Article 14 - Reinsurance Premium - the following shall apply:

"Article 14 - 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 $728,000 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

1. $910,000; times

2. The percentage calculated by dividing (a) the Company's Total Insured Value ('TIV') applicable to wind endorsed policies in force on September 30, 2014, by (b) the Company TIV applicable wind endorsed policies projected to September 30, 2014 of $988,636,513.

Page 1 of 2

However, if the difference between the Company’s projected TIV applicable to wind endorsed policies in force on September 30, 2014 of $988,636,513 and the Company’s actual TIV applicable to wind endorsed policies in force on September 30, 2014 is less than a 5.0% increase or decrease, there shall be no premium adjustment.

B. The Company shall pay the Reinsurer an annual deposit premium of $910,000 in four equal installments of $227,500 on July 1 and October 1 of 2014, and on January 1 and April 1 of 2015.  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, 2015, 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."

2. In lieu of the provisions of paragraph C of Article 32 - Confidentiality - the following shall apply:

"C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, (4) the Reinsurer's legal counsel, or (5) the Reinsurer's agent, Asta Managing Agent; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Ariel Re Bda Limited

for and on behalf of Ariel Syndicate No. 1910

Page 2 of 2

Interests and Liabilities Agreement

attached to and forming part of the

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

AXIS Specialty Limited

Pembroke, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 27.3% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of the provisions of Article 14 - Reinsurance Premium - the following shall apply:

"Article 14 - 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 $728,000 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

1. $910,000; times

2. The percentage calculated by dividing (a) the Company's Total Insured Value ('TIV') applicable to wind endorsed policies in force on September 30, 2014, by (b) the Company TIV applicable wind endorsed policies projected to September 30, 2014 of $988,636,513.

Page 1 of 2

However, if the difference between the Company’s projected TIV applicable to wind endorsed policies in force on September 30, 2014 of $988,636,513 and the Company’s actual TIV applicable to wind endorsed policies in force on September 30, 2014 is less than a 5.0% increase or decrease, there shall be no premium adjustment.

B. The Company shall pay the Reinsurer an annual deposit premium of $910,000 in four equal installments of $227,500 on July 1 and October 1 of 2014, and on January 1 and April 1 of 2015.  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, 2015, 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."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

AXIS Specialty Limited

Page 2 of 2

Interests and Liabilities Agreement

attached to and forming part of the

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, Florida

and

Länsförsäkringar Sak Forsäkringsaktiebolag (publ)

Stockholm, Sweden

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 2.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

Länsförsäkringar Sak Forsäkringsaktiebolag (publ)

Interests and Liabilities Agreement

attached to and forming part of the

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunset, 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 a 27.5% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, unless earlier terminated in accordance with the provisions of the attached Contract.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of the provisions of the last subparagraph of paragraph A of Article 26 - Reserves - the following paragraph shall apply:

"The Reinsurer, at its sole option, may fund in other than cash (including the use of the Lloyd's Credit for Reinsurance Trust Funds as a funding instrument) if such method and form of funding are acceptable to the Company and to the insurance regulatory authorities involved, as the case may be."

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  day of  in the year .

Federated National Insurance Company

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

Property Catastrophe Excess of Loss

(Louisiana Only)

Reinsurance Contract

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

and

Certain Underwriting Members of Lloyd's

(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-10.5

Exhibit 10.5

Reinstatement Premium Protection

Reinsurance Contract

(Louisiana Only)

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

Reinstatement Premium Protection

Reinsurance Contract

(Louisiana Only)

Effective:  July 1, 2014

Federated National Insurance Company

Sunrise, Florida

Reinsurer(s)	Participation(s)
Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910		15.0	%
AXIS Specialty Limited		85.0	%
Total		100.0	%

Table of Contents

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

Reinstatement Premium Protection

Reinsurance Contract

(Louisiana Only)

Effective:  July 1, 2014

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

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 Property Catastrophe Excess of Loss (Louisiana Only) Reinsurance Contract, effective July 1, 2014 (hereinafter referred to as the "Original Contract"), subject to the terms, conditions and limitations hereinafter set forth.

Article 2 - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2014, 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, 2015.

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

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

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

Page 1

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

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

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

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

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

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

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

10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article.

C. 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.

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.

Page 2

Article 4 - Premium

A. As premium for the reinsurance coverage provided hereunder 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. 1.217; times

2. The Final Adjusted Rate on Line for the Original Contract; times

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

"Final Adjusted Rate on Line" as used herein shall mean an amount equal to a 100% reinsurance placement percentage under the Original Contract of the final adjusted premium paid by the Company for the Original Contract divided by the Reinsurer's Per Occurrence Limit under the Original Contract.

B. The Company shall pay the Reinsurer a deposit premium of $57,137 in four equal installments of $14,284.25 on July 1 and October 1 of 2014, and January 1 and April 1 of 2015.  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 the term of this Contract, computed in accordance with paragraph A., and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

Article 5 - Sanctions

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

Article 6 - 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.

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.

Page 3

Article 7 - 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.

Page 4

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 8 - 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 9 - 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 10 - 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 11 - 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.

Page 5

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 12 - 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 13 - 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 14 - Foreign Account Tax Compliance Act

A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall pay and allow such deduction and withholding from the premium payable under this Contract.

B. The Company assumes no responsibility for recovering any such premium deductions and withholdings paid by the Company to the U.S. Internal Revenue Service.

Article 15 - 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

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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;

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 16 - 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 Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

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

Article 17 - 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 Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint.

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

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

Article 18 - 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.

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Article 19 - 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 20 - Governing Law (BRMA 71B)

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

Article 21 - Confidentiality

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company.

B. Except as provided for in paragraph C. below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations.

C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, or (3) external auditors performing an audit of the Reinsurer's records in the normal course of business; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Reinsurer shall be responsible for any breach of this provision by any third-party representatives of the Reinsurer.  The Company requires that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.

D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law.  Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company.

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F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.

G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 22 - 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 23 - 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 24 - 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  day of  in the year .

Federated National Insurance Company

Page 12

Interests and Liabilities Agreement

attached to and forming part of the

Reinstatement Premium Protection

Reinsurance Contract

(Louisiana Only)

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Ariel Re Bda Limited

for and on behalf of Ariel Syndicate No. 1910

London, England

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 15.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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.

As respects the Subscribing Reinsurer's share in the attached Contract, in lieu of the provisions of paragraph C of Article 21 - Confidentiality - the following shall apply:

"C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, (4) the Reinsurer's legal counsel, or (5) the Reinsurer's agent, Asta Managing Agent; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality.  The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer."

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

This  day of  in the year .

Federated National Insurance Company

This  day of  in the year .

Ariel Re Bda Limited for and on behalf of Ariel Syndicate No. 1910

Page 2

Interests and Liabilities Agreement

attached to and forming part of the

Reinstatement Premium Protection

Reinsurance Contract

(Louisiana Only)

Effective:  July 1, 2014

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

AXIS Specialty Limited

Pembroke, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts an 85.0% 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, 2014, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2015, 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 .

AXIS Specialty Limited

EX-10.6

Exhibit 10.6

THE SECURITIES REPRESENTED BY THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATES OR OTHER JURISDICTIONS, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION AND QUALIFICATION REQUIREMENTS OF SUCH LAWS.  THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH LAWS PURSUANT TO REGISTRATION, QUALIFICATION OR EXEMPTION THEREFROM AND IN ACCORDANCE WITH THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT OF MONARCH DELAWARE HOLDINGS LLC, AS AMENDED FROM TIME TO TIME.  THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE OR OTHER SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS, AND ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

SUBSCRIPTION AGREEMENT

Monarch Delaware Holdings LLC

This subscription agreement (the “Agreement”) is entered into by and among C.A. Bancorp Inc., an Alberta corporation (“CAB”), Federated National Holding Company, a Florida corporation (“FNHC”), and Transatlantic Reinsurance Company, a New York corporation (“TransRe” and, each of CAB, FNHC, and TransRe, an “Investor”), effective as of July 18, 2014.

WHEREAS, the Investors desire to subscribe for the number and class of limited liability company interests of the Monarch Delaware Holdings LLC, a to-be-formed Delaware limited liability company (the “Company”), set forth on the signature page to this Agreement opposite such Investors’ name (the “Company Units”).

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

The Subscription

1.Each of CAB, FNHC and TransRe, desiring to become an Investor in the Company and subject to the conditions set forth in this Agreement, hereby irrevocably subscribes for and agrees to purchase such Investor’s Company Units for an aggregate purchase price in the amount set forth on the signature page to this Agreement opposite such Investor’s name (the “Purchase Price”).

2.Upon signing the signature page of this Agreement by or on behalf of each named Investor, this Agreement shall be validly executed and delivered by such Investor and shall be valid, binding and enforceable against such Investor in accordance with the terms and subject to the conditions set forth in this Agreement, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization and similar laws affecting creditors’ rights generally and equitable principles of general applicability.

3.The Investor acknowledges and agrees that its subscription for Company Units is in connection with the formation of Monarch National Insurance Company, a to-be-formed Florida corporation (“Monarch National”), and Monarch National Holding Company, a to-be-formed Florida corporation (“Monarch Holdco” and, together with the Company and Monarch National, the “Monarch Entities”), both of which will become direct and indirect wholly owned subsidiaries of the Company upon the issuance by the Florida Office of Insurance Regulation (the “Florida OIR”) of a certificate of authority to Monarch National  to write homeowners’ multi-peril and other property and casualty insurance in the State of Florida (the “Proposed Business”), the approval of Monarch Holdco to operate as an insurance holding company in the State of Florida, and such other approvals of the Florida OIR as are necessary or advisable for Monarch National to operate the Proposed Business and for Monarch Holdco to be an insurance holding company in the State of Florida  in each case on the terms and conditions set forth in the LLC Agreement and the OIR Application (each as defined below) (collectively, the “Florida OIR Approvals”).

4.The parties have negotiated drafts of the following agreements and instruments to be entered into prior to or on the Closing Date (as defined below): (a) a Limited Liability Company Agreement of the Company (the “LLC Agreement”); (b) a note in the principal amount of $5,000,000 to be payable by Monarch Holdco to TransRe(the “Note”); (c) a Managing General Agency and Claims Administration Agreement (the “MGA Agreement”) to be entered into between Monarch National and Federated National Underwriters, Inc. (a wholly owned subsidiary of FNHC); (d) an investment management agreement (the “Investment Management Agreement”) to be entered into between CAB or a CAB affiliate and any or all of the Monarch Entities; and (e) a Reinsurance Right of First Refusal Agreement (the “ROFR Agreement”) to be entered into between Monarch National and TransRe (collectively, all of these agreements and instruments, the “Company Documents”).

5.As soon as practicable following the effective date of this Agreement, CAB and FNHC shall, for the benefit of the Investors, cause the formation of the Company, and thereafter cause the Company to submit to the Florida OIR an application for permission for the Monarch Entities to form a Florida insurance company and holding company (the “Application”).  CAB and FNHC shall use their commercially reasonable efforts to cause the Company (a) to ensure that the Application and all supporting documentation, when filed, is complete and accurate and (b) to respond promptly to all requests for further information from the Florida OIR.  Each Investor agrees to make commercially reasonable efforts to (i) cooperate with the Company and the other Investors in connection with the Application and (ii) provide or cause to be provided, as promptly as possible, all such information, documents, certificates and affidavits as such Investor, or its officers, directors or other affiliates, may be required or requested to provide in connection with the Application by the Company, CAB, FNHC or the Florida OIR. The Company shall, at all times during the pendency of the Application, keep the Investors appraised of the progress of the Application and promptly provide them with copies of any correspondence to or from the Florida OIR and any material change, actual or contemplated, in the Application, affairs of the Company or in any information provided to the Florida OIR or the Investors.

6.Upon receipt of the Florida OIR Approvals, the Company shall deliver to each Investor a notice, that sets forth the date (the “Closing Date”) of the purchase of Company Units by each of CAB, FNHC and TransRe pursuant to this Agreement (the “Closing”).  The Closing Date will be five business days after the date of such notice.

Conditions to Closing.  The obligations of an Investor to purchase the Company Units are subject to the fulfillment on or before the Closing Date of each of the conditions set forth below, unless waived in whole or in part by such Investor in writing.

7.As of the Closing Date, the Company shall have been duly organized as a limited liability company and be validly existing and in good standing under the laws of the State of Delaware; and each of Monarch Holdco and Monarch National shall have been duly incorporated as a corporation under the laws of the State of Florida and be validly existing and in good standing under the laws of the State of Florida.  The Monarch Entities shall have full right, power and authority to enter into the Company Documents and all documents and instruments to be executed and delivered in connection therewith to which they are parties, and to perform their respective obligations thereunder.  CAB, FNHC and TransRe shall each have executed their counterparts to the LLC Agreement.

8.The Company shall have received the Florida OIR Approvals without the imposition of any non-customary terms and conditions.

9.Each of the Company Documents and all agreements, documents and instruments to be executed in connection herewith and therewith, at the time of execution will be authorized by the Monarch Entities parties thereto, as applicable, and, when executed and delivered by the Monarch Entities, as applicable, will constitute a valid and binding obligation of the applicable Monarch Entities enforceable against them, as applicable, in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization and similar laws affecting creditors’ rights generally and equitable principles of general applicability.

10.Upon receipt of the Purchase Price from an Investor, such Investor’s Company Units will be duly authorized and validly issued, and no holder thereof is or will be subject to personal liability by reason of being such a holder.

11.On or prior to Closing, (a) Monarch National and Federated National Underwriters, Inc. shall enter into the MGA Agreement, in the form as reasonably approved by the parties hereto, as approved by the Florida OIR, and on economic terms agreed to by the parties as of the date of this Agreement; (b) CAB or an affiliate of CAB shall enter into the Investment Management Agreement with any or all of the Monarch Entities, in the form as reasonably approved by parties hereto, as approved by the Florida OIR, and on economic terms agreed to by the parties as of the date of this Agreement; (c) Monarch Holdco shall execute and deliver the Note to TransRe in the form substantially agreed to on the date of this Agreement; and (d) Monarch Holdco and TransRe shall execute and deliver a ROFR Agreement in the form substantially agreed to by the parties on the date of this Agreement, as approved by the Florida OIR and on economic terms agreed to by the parties as of the date of this Agreement.

12.None of the other Investors shall have given notice or be reasonably expected to give notice of its intention not to complete, or shall it have become conclusive that any Investor will not be completing, its subscription for Company Units.

Optional Advance Purchase. At the election of any Investor, such Investor shall have the right, but not the obligation, to purchase all, but not less than all, of such Investor’s Company Units prior to the Closing Date (an “Optional Closing”) subject to the fulfillment on or before an Optional Closing of each of the conditions set forth below, unless waived in whole or in part by such Investor in writing (any Investor participating in an Optional Closing, an “Advance Investor”).  An Optional Closing will be on such date as may be agreed between the Company and any Advance Investor. For the avoidance of doubt, any Investor that does not exercise its option to purchase its Company Units at an Optional Closing will purchase its Company Units at the Closing.

13.The Company shall have been duly organized as a limited liability company and be validly existing and in good standing under the laws of the State of Delaware.

14.FNHC and CAB shall have agreed upon investment committee guidelines for the Monarch Entities.

15.Each Advance Investor shall have agreed upon and executed an interim limited liability company operating agreement for the Company (the “Interim Operating Agreement”) that provides for each Advance Investor to take all action within their respective power (including having all of their interests in the Company represented in person or by proxy at all meetings of the members of the Company, voting such interests, acting by written consent, and using all reasonable efforts to cause any manager of the Company designated by such Advance Investor not to take any action inconsistent with this Agreement) required to cause the Company to replace the Interim Operating Agreement with the LLC Agreement upon receipt of the Florida OIR Approvals.

16.No Advance Investor shall have permitted the Company to assume any material debt or material obligation other than one arising under the Company Agreements in such form as approved and agreed to by each of CAB, FNHC, and TransRe.

Representations, Warranties and Covenants of each Investor. Each Investor, severally and not jointly, hereby represents, warrants and covenants that:

17.Such Investor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and the person signing this Agreement on the Investor’s behalf is a duly elected, qualified and acting officer of the Investor and has the necessary authorization to act on behalf of the Investor and to execute and deliver this Agreement and all documents and instruments to be executed and delivered in connection herewith.  The Investor has full right, power and authority to enter into this Agreement and to perform its obligations hereunder.

18.Any information furnished by the Investor pursuant to this Agreement, including with respect to the Investor’s financial position, background and investment experience, is or will be, as the case may be, true, correct and complete in all material respects as of the date of this Agreement and as of the Closing.

19.The execution and delivery by the Investor of, and the performance by the Investor of its obligations under, this Agreement will not contravene any provision of applicable law, the organizational documents of the Investor, any agreement or other instrument binding upon the Investor, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Investor.  Other than the Florida OIR Approvals, no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Investor of its obligations under this Agreement, except where failure to do so could not be expected to have a material adverse effect on the Company.

20.The Investor certifies that it is either (a) an “accredited investor” as such term is defined in Regulation D under the Securities Act or (b) not a “U.S. person” as such term is defined in Regulation S under the Securities Act.  Annex A, as completed by the Investor, sets forth the basis on which the Investor satisfies accredited investor status, if applicable.  The Investor is a “qualified purchaser” as defined for purposes of Section 3(c)(7) of the Investment Company Act of 1940, as amended.  Annex B, as completed by the Investor, sets forth the basis on which the Investor satisfies qualified purchaser status.   The Investor is not subject to and is not aware of any facts that would cause the Investor to be subject to any of the “Bad Actor” disqualifications as described in Rule 506(d)(1)(i) to (viii) of the Securities Act.

21.The Investor is knowledgeable, sophisticated and experienced in business and financial matters, and it fully understands the limitations on ownership, sale, transfer or other disposition of the Company Units and is capable of evaluating an investment in the Company Units.  The Investor is able to bear the economic risk of its investment in the Company Units and is currently able to afford the complete loss of such investment.  The Investor acknowledges that the Company, when formed, will be a newly formed entity that has not conducted any business operations and, therefore, there are substantial risks incident to its investment in the Company Units.

22.The Investor has received, read carefully in their entirety and understands the LLC Agreement and  the Note.

23.Unless specifically identified to the Company, no portion of the assets used to purchase the Company Units or any beneficial interest therein constitutes or will constitute the assets of an “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) that is subject to Title 1 of ERISA, a plan, individual retirement account or other arrangement that is subject to Section 4975 of the Internal Revenue Code of 1986, as amended, or any other state, local, non-U.S. or other laws or regulations that would have the same effect as the regulations promulgated under ERISA.

24.Each Investor shall, on or prior to Closing, execute and deliver the LLC Agreement.

25.At the Closing, each Investor shall deliver the Purchase Price applicable to such Investor and TransRe shall deliver the principal amount of the Note by wire transfer to the Company to an account designated by the Company.

Transfer Restrictions

26.Each Investor understands and agrees that (a) the Company Units are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act; (b) the Company Units have not been, and will not be, registered under the Securities Act; and (c) the Company Units may not be transferred except as permitted by the Interim Operating Agreement or the LLC Agreement, as applicable.  The Investor agrees that, if in the future it decides to offer, resell, pledge or otherwise transfer such Company Units or any interest therein, such Company Units or interest therein will be offered, resold, pledged or otherwise transferred only as permitted by the Interim Operating Agreement or the LLC Agreement, as applicable, and only in a transaction exempt from, or not subject to, the registration requirements of the Securities Act or pursuant to a registration statement declared effective by the Securities and Exchange Commission (the “SEC”).

27.Each Investor agrees that any certificate or Company record representing or reflecting Company Units shall bear a legend or notation stating the foregoing transfer restrictions, which restrictions shall terminate only in accordance with the terms of such legend.

28.Each of the foregoing restrictions is subject to any requirement of law that the disposition of the Investor’s property, be at all times within the control of the Investor and to compliance with any applicable federal and state securities laws.

The Offering

29.Each Investor acknowledges that none of the materials relating to the sale of the Company Units have been subject to review, comment or approval by the staff of the SEC or any U.S. state or foreign securities commission.

30.Except as set forth in Section 39, each Investor is acquiring the Company Units for its own account, for investment, and is not purchasing the Company Units with a view to, or for offer or sale in connection with, any resale or distribution thereof (within the meaning of the Securities Act) that would violate the securities laws of the United States or any state thereof.

31.Each Investor has had access to all information that it believes is necessary, sufficient or appropriate in connection with the Company, it has been afforded an opportunity to ask questions concerning the terms and conditions of the offering of the Company Units and the LLC Agreement, it has had all such questions answered to its satisfaction, it has been supplied all additional information that it has requested and, after being advised by persons deemed appropriate by such Investor concerning this Agreement, the LLC Agreement and the transactions contemplated hereby, has made an independent decision to purchase the Company Units based on information it has determined to be adequate to verify the accuracy of any other information that the Investor deems relevant to making an investment decision to purchase the Company Units.

32.The Investors did not become aware of the offering of the Company Units, nor were the Company Units offered to the Investors, by any form of general solicitation or general advertising.  In making the decision to purchase the Company Units, the Investors relied solely on information obtained by the Investor directly from the Company as a result of any inquiries by the Investor or one or more of the Investor’s advisors.

General

33.Each Investor acknowledges that the Company and its affiliates and others will rely on the acknowledgments, representations and warranties contained in this Agreement as a basis for exemption from registration of the issuance of the Company Units under the Securities Act and under the securities laws of all applicable states and for other purposes.  The Investor agrees to notify the Company promptly if any of the acknowledgments, representations or warranties set forth in this Agreement are no longer accurate.

34.The Company and its affiliates are irrevocably authorized to produce this Agreement or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

35.All notices, requests, demands and other communications hereunder shall be in writing and must be delivered in person, registered, electronic or certified mail or express courier at the address set forth on the signature page to this Agreement or at such other address as may be designated by the addressee thereof upon written notice to the other parties hereto.

36.This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements or understandings among the parties related to such matters.

37.This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

38.Each Investor agrees to provide to the Company, on or prior to Closing, together with this completed and signed Agreement, including Annex A and Annex B, a completed and signed Substitute IRS Form W-9 or W-8BEN.

39.This Agreement is not transferable or assignable by the Investor, but CAB may transfer or assign this Agreement to an affiliate that is majority-owned by CAB and the Company and Investors acknowledge that CAB currently intends to do so.

40.This Agreement may be executed in two or more counterparts, each of which together shall be deemed an original, but all of which together shall constitute one and the same instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

41.This Agreement shall be terminated if any of the conditions to Closing set forth in this Agreement shall not have been fulfilled or waived by each of the Investors by December 31, 2014.

[The remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

140 Class A Units	C.A. BANCORP INC.
Purchase Price: US$14,000,000
	By: /s/ Colin King
	Name:  Colin King
	Title: In Capacity of Chief Executive Officer
	Address: 225a Macpherson Avenue, Suite 201
	Toronto, ON M4V 1A1
140 Class A Units	FEDERATED NATIONAL HOLDING COMPANY
Purchase Price: US$14,000,000
	By: /s/ Michael H. Braun
	Name: Michael H. Braun
	Title: Chief Executive Officer & President
	Address: 14050 Northwest 14th Street, Suite 180
	Sunrise, Florida 33323
50 Class B Units	TRANSATLANTIC REINSURANCE COMPANY
Purchase Price: US$5,000,000
	By: /s/ Ken Yapp
	Name: Ken Yapp
	Title: Vice President and Assistant General Counsel
	Address: One Liberty Plaza, 165 Broadway
	New York, NY 10006

[Signature Page to Subscription Agreement of Monarch Delaware Holdings LLC]

ANNEX A

ACCREDITED INVESTOR STATUS

Accredited Investor Status.  Please mark the appropriate box next to each description applicable:

[]     A natural person whose individual net worth (as defined in Rule 501(a)(5)(i) of Regulation D promulgated under the Securities Act), or joint net worth with that person's spouse, exceeds $1,000,000.

[]      A natural person who had individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year.

[]      A director or executive officer (as defined in Rule 501(f) of Regulation D promulgated under the Securities Act) of the Company.

[]      A bank (as defined in Section 3(a)(2) of the Securities Act) or a savings and loan association or other institution (as defined in Section 3(a)(5)(A) of the Securities Act), whether acting in its individual or fiduciary capacity.

[]      A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended.

[]An insurance company (as defined in Section 2(13) of the Securities Act).

[]An investment company registered under the Investment Company Act of 1940, as amended, or a business development company (as defined in Section 2(a)(48) of the Investment Company Act of 1940, as amended).

[]A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended.

[]A plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000.

[]An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), if (A) the investment decision is made by a plan fiduciary (as defined in Section 3(21) of ERISA) which is either a bank, savings and loan association, insurance company or registered investment advisor,  (B) the employee benefit plan has total assets in excess of $5,000,000 or (C) if the plan is a self directed plan, its investment decisions are made solely by persons who are accredited investors.

[]A private business development company (as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended).

[       ]      A corporation, a partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or a Massachusetts or similar business trust, not formed for the specific purpose of acquiring securities, with total assets in excess of $5,000,000.

[       ]A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring securities, whose acquisition is directed by a person who, either alone or with his or her purchaser representative(s), has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of acquiring securities.

[       ]An entity in which all of the equity owners meet the requirements of at least one of the above subparagraphs for accredited investors.

ANNEX B

QUALIFIED PURCHASER STATUS

Qualified Purchaser Status.  Please mark the appropriate box next to each description applicable:

(1) [] A natural person (including any person who will hold a joint, community property, or other similar shared ownership interest in the Company with that person’s qualified purchaser spouse) who owns at least $5,000,000 in Investments (as defined in Rule 2a51-1 under the Investment Company Act).

(2) [] A company^* that owns at least $5,000,000 in Investments and that is owned directly or indirectly by or for two or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such persons (a “Family Company”).

(3) [] A trust that is not covered by clause (2) above, and that was not formed for the specific purpose of investing in the Company, as to which the trustee or other person authorized to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, is a person described in clause (1), (2), or (4).

(4) [] A person (including a company), acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in Investments.

(5) [] A “Qualified Institutional Buyer” as defined in Rule 144A under the Securities Act (as that term is modified by the limitations imposed thereon by Rule 2a51-1(g)(1) under the Investment Company Act);

(6) [] A company, regardless of the amount of its Investments, where each of the beneficial owners of securities issued by such company is a person described in clause (1), (2), (3) or (4) of this Annex C.  (If this item is checked, please contact the Company.  Additional requirements may apply.)

^* For purposes of this Question, “company” includes a corporation, a partnership, an association, a joint-stock company, a trust or a fund.  In order to be a “qualified purchaser” any company that both (i) would, but for an exception provided in Sections 3(c)(1) or 3(c)(7) of the Investment Company Act, be an investment company and (ii) was in existence prior to May 1, 1996, must have complied with the consent provisions of Section 2(a)(51)(C) of the Investment Company Act.

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: November 10, 2014

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: November 10, 2014

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 September 30, 2014 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)

November 10, 2014

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 September 30, 2014 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)

November 10, 2014

XML

Stockholders' Equity (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
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, issued (in shares)	13,594,962	10,901,716

XML

Organization and Business (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Carrier Agent	Sep. 30, 2013
Business Organization [Line Item]
Years in business (minimum)			20 years
Number of independent agents			3,600
Number of agents that actively sell and service the entity's products			2,100
Percentage of entire homeowners' book the entity agreed to maintain its homeowners' policies within Tri-county area (in hundredths)			35.00%
Percentage of homeowners' policies located within Tri-County Area (in hundredths)			19.00%
Percentage of gross written premium the managing general agency fees were 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 premiums the claims service fees were traditionally (in hundredths)			4.50%
Percentage of gross earned premiums the claims service fees are currently (in hundredths)			3.60%
Ratio of homeowners' premiums underwritten to total premiums underwritten (in hundredths)	90.50%	89.10%	91.20%	89.00%
Ratio of commercial general liability premiums underwritten to total premiums underwritten (in hundredths)	3.40%	4.30%	3.40%	4.60%
Ratio of federal flood premiums underwritten to total premiums underwritten (in hundredths)	2.50%	2.90%	2.20%	2.80%
Ratio of automobile insurance premiums underwritten to total premiums underwritten (in hundredths)	3.60%	3.70%	3.20%	3.60%
Portion of Homeowners' Gross Premium Written Produced Under the Agreement With "ISA"	$ 19,000,000	$ 10,900,000	$ 49,400,000	$ 19,100,000
Percentage of Homeowners' Gross Premium Written Produced Under the Agreement With "ISA" (in hundredths)	22.80%	20.10%	19.30%	12.20%
Homeowners' Gross Premiums Written	83,300,000	54,100,000	255,900,000	156,400,000
Percentage of total increase in sale of Homeowners' policy related to ISA (in hundredths)	65.10%		49.70%
Fees earned per policy			$ 25
Percentage commission fee from its affiliate (in hundredths)			6.00%
Number of carriers the entity provides insurance through			40
Minimum [Member]
Business Organization [Line Item]
Percentage commission fee from its affiliate			2.00%
Maximum [Member]
Business Organization [Line Item]
Percentage commission fee from its affiliate			4.00%

XML

Summary of Significant Accounting Policies and Practices

9 Months Ended

Sep. 30, 2014

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, and (iii) 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, 2013,which we included in the Company’s Annual Report on Form 10-K which was filed with the SEC on March 17, 2014.

We believe that there were no significant changes in those critical accounting policies and estimates duringthe nine months ended September 30, 2014.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 weigh 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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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.”

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 September 30, 2014 and December 31, 2013.Changes in interest rates subsequent to September 30, 2014 and December 31, 2013 may affect the fair value of our investments.

The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2014 and December 31, 2013 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 June 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-12: Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, a consensus of the FASB Emerging Issues Task Force.  The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period.  That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target (for example, an initial public offering or a profitability target) could be achieved and still be eligible to vest in the award if and when the performance target is achieved.  The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award.  The amendments in this ASU provide explicit guidance for those awards.    The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and, earlier adoption is permitted.  The adoption of the amendments in this ASU will not have a material impact on our financial position, results of operations or cash flows.

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 did 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 did 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 did 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 did not have a material impact on our financial condition, results of operations or cash flows.

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 thenine months ended September 30, 2014 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 material reclassification of the 2013 financial statements was necessary to conform to the 2014 presentation.

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Fair Value Disclosure (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Debt securities [Abstract]
Debt securities	$ 275,387	$ 174,912
Equity securities [Abstract]
Equity securities	36,463	38,584
Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	55,643	27,209
Obligations of states and political subdivisions	91,641	52,064
Corporate	117,150	91,941
International	10,953	3,698
Debt securities	275,387	174,912
Equity securities [Abstract]
Common stocks	36,463	38,584
Equity securities	36,463	38,584
Total debt and equity securities	311,850	213,496
Level 1 [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	36,463	38,584
Equity securities	36,463	38,584
Total debt and equity securities	36,463	38,584
Level 2 [Member] | Recurring [Member]
Debt securities [Abstract]
United States government obligations and authorities	55,643	27,209
Obligations of states and political subdivisions	91,641	52,064
Corporate	117,150	91,941
International	10,953	3,698
Debt securities	275,387	174,912
Equity securities [Abstract]
Common stocks	0	0
Equity securities	0	0
Total debt and equity securities	275,387	174,912
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

XML

Investments (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Investments [Abstract]
Increase in total investments			$ 98,500,000
Percentage increase in investments (in hundredths)			44.60%
Total investments	319,202,000		319,202,000		220,710,000
Increase in gross premiums written			99,500,000
Percentage increase in gross premiums written (in hundredths)			63.60%
Homeowners' Gross Premiums Written	83,300,000	54,100,000	255,900,000	156,400,000
Increase in homeowners gross written transferred to investment accounts			59,000,000
Ratio of available-for-sale securities to total investments (in hundredths)	98.00%		98.00%		98.00%
Debt securities at amortized cost [Line Items]
Debt maturities, held to maturity, at amortized cost	7,352,000		7,352,000		7,214,000
Bond portfolio reclassified between available-for-sale and held-to-maturity			0	100,000
Debt securities, at market [Abstract]
Debt securities, at market	275,387,000		275,387,000		174,912,000
Percent of debt securities at market to total investments (in hundredths)			86.27%		79.26%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	7,352,000		7,352,000		7,214,000
Percent of debt securities at amortized cost to total investments (in hundredths)			2.31%		3.27%
Total debt securities	282,739,000		282,739,000		182,126,000
Percent of debt securities to total investments (in hundredths)			88.58%		82.53%
Equity securities, at market	36,463,000		36,463,000		38,584,000
Percentage of equity securities to total investments (in hundredths)			11.42%		17.47%
Total investments	319,202,000		319,202,000		220,710,000
Total investments (in hundredths)			100.00%		100.00%
Realized gains (losses) [Abstract]
Total realized gains	694,000	1,476,000	4,546,000	4,032,000
Fair Value at Sale of securities with realized gains	18,055,000	11,802,000	51,252,000	46,981,000
Total realized losses	(35,000)	(696,000)	(499,000)	(1,552,000)
Fair Value at Sale of securities with realized losses	1,745,000	15,933,000	9,972,000	40,542,000
Net realized gains (losses) on investments	659,000	780,000	4,047,000	2,480,000
Fair Value of Investments at Sale	19,800,000	27,735,000	61,224,000	87,523,000
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	272,710,000		272,710,000		174,511,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	3,230,000		3,230,000		1,727,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	553,000		553,000		1,326,000
Debt Securities - Available-For-Sale, Estimated Fair Value	275,387,000		275,387,000		174,912,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	7,352,000		7,352,000		7,214,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	65,000		65,000		54,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	246,000		246,000		344,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	7,171,000		7,171,000		6,924,000
Equity securities - common stocks, Amortized Cost	29,220,000		29,220,000		29,423,000
Equity securities - common stocks, Gross Unrealized Gains	7,886,000		7,886,000		9,436,000
Equity securities - common stocks, Gross Unrealized Loss	643,000		643,000		275,000
Equity securities - common stocks, Estimated Fair Value	36,463,000		36,463,000		38,584,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	1,196,000		1,196,000		1,601,000
Debt/Equity securities, Less than 12 months	943,000		943,000		1,460,000
Debt/Equity securities, 12 months or longer	253,000		253,000		141,000
Amortized Cost [Abstract]
Due in one year or less, Amortized Cost	13,702,000		13,702,000		5,161,000
Due after one through five years, Amortized Cost	176,615,000		176,615,000		113,027,000
Due after five through ten years, Amortized Cost	89,719,000		89,719,000		62,656,000
Due after ten years, Amortized Cost	26,000		26,000		881,000
Total Amortized Cost	280,062,000		280,062,000		181,725,000
Estimated Fair Value [Abstract]
Due in one year or less, Estimated Fair Value	13,734,000		13,734,000		5,181,000
Due after one through five years, Estimated Fair Value	177,950,000		177,950,000		113,561,000
Due after five through ten years, Estimated Fair Value	90,841,000		90,841,000		62,220,000
Due after ten years, Estimated Fair Value	33,000		33,000		874,000
Total Estimated Fair Value	282,558,000		282,558,000		181,836,000
Treasury notes maturity date, maturing in one through five years			Dec. 31, 2016		Dec. 31, 2016
Treasury notes maturity date, maturing in five through ten years			Dec. 31, 2022		Dec. 31, 2022
Investment income [Abstract]
Interest on debt securities	1,328,000	691,000	3,432,000	2,059,000
Dividends on equity securities	121,000	108,000	324,000	320,000
Interest on cash and cash equivalents	1,000	1,000	2,000	3,000
Total investment income	1,450,000	800,000	3,758,000	2,382,000
Net realized gains	659,000	780,000	4,047,000	2,480,000
Proceeds from sales and maturity of marketable securities	21,800,000	28,700,000	65,869,000	93,079,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	659,000	780,000	4,047,000	2,480,000
Net unrealized gains			9,920,000		9,562,000
Diverse Industries Debt Securities [Member]
Debt securities at amortized cost [Line Items]
Percentage of debt securities to total debt portfolio (in hundredths)			79.00%		83.00%
United States Government Bonds [Member]
Debt securities at amortized cost [Line Items]
Percentage of debt securities to total debt portfolio (in hundredths)			21.00%		17.00%
Diverse Industries Equity Securities [Member]
Debt securities at amortized cost [Line Items]
Percentage of equity holdings to total equity portfolio (in hundredths)			87.00%		91.00%
Mutual Funds [Member]
Debt securities at amortized cost [Line Items]
Percentage of equity holdings to total equity portfolio (in hundredths)			13.00%		9.00%
United States Government Obligations and Authorities [Member]
Debt securities at amortized cost [Line Items]
Debt maturities, held to maturity, at amortized cost	4,433,000		4,433,000		4,630,000
Debt securities, at market [Abstract]
Debt securities, at market	55,643,000		55,643,000		27,209,000
Percent of debt securities at market to total investments (in hundredths)			17.43%		12.33%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	4,433,000		4,433,000		4,630,000
Percent of debt securities at amortized cost to total investments (in hundredths)			1.39%		2.10%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	55,371,000		55,371,000		27,422,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	469,000		469,000		186,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	197,000		197,000		399,000
Debt Securities - Available-For-Sale, Estimated Fair Value	55,643,000		55,643,000		27,209,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	4,433,000		4,433,000		4,630,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	31,000		31,000		32,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	243,000		243,000		326,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	4,221,000		4,221,000		4,336,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	197,000		197,000		399,000
Debt/Equity securities, Less than 12 months	89,000		89,000		391,000
Debt/Equity securities, 12 months or longer	108,000		108,000		8,000
Obligations of States and Political Subdivisions [Member]
Debt securities, at market [Abstract]
Debt securities, at market	91,641,000		91,641,000		52,064,000
Percent of debt securities at market to total investments (in hundredths)			28.71%		23.59%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	90,597,000		90,597,000		51,883,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	1,091,000		1,091,000		303,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	47,000		47,000		122,000
Debt Securities - Available-For-Sale, Estimated Fair Value	91,641,000		91,641,000		52,064,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	47,000		47,000		122,000
Debt/Equity securities, Less than 12 months	39,000		39,000		122,000
Debt/Equity securities, 12 months or longer	8,000		8,000		0
Corporate [Member]
Debt securities at amortized cost [Line Items]
Debt maturities, held to maturity, at amortized cost	2,673,000		2,673,000		2,475,000
Debt securities, at market [Abstract]
Debt securities, at market	117,150,000		117,150,000		91,941,000
Percent of debt securities at market to total investments (in hundredths)			36.70%		41.66%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	2,673,000		2,673,000		2,475,000
Percent of debt securities at amortized cost to total investments (in hundredths)			0.84%		1.12%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	115,833,000		115,833,000		91,475,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	1,613,000		1,613,000		1,233,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	296,000		296,000		767,000
Debt Securities - Available-For-Sale, Estimated Fair Value	117,150,000		117,150,000		91,941,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	2,673,000		2,673,000		2,475,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	33,000		33,000		22,000
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	2,000		2,000		17,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	2,704,000		2,704,000		2,480,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	296,000		296,000		767,000
Debt/Equity securities, Less than 12 months	188,000		188,000		761,000
Debt/Equity securities, 12 months or longer	108,000		108,000		6,000
Debt Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	241,000	202,000	533,000	1,595,000
Fair Value at Sale of securities with realized gains	16,413,000	6,183,000	38,657,000	36,918,000
Total realized losses	(20,000)	(421,000)	(118,000)	(922,000)
Fair Value at Sale of securities with realized losses	1,627,000	14,462,000	8,333,000	37,493,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	553,000		553,000		1,326,000
Debt/Equity securities, Less than 12 months	329,000		329,000		1,312,000
Debt/Equity securities, 12 months or longer	224,000		224,000		14,000
Investment income [Abstract]
Net realized gains	221,000	(219,000)	415,000	673,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	221,000	(219,000)	415,000	673,000
Net unrealized gains			2,677,000		401,000
Equity Securities [Member]
Realized gains (losses) [Abstract]
Total realized gains	453,000	1,274,000	4,013,000	2,437,000
Fair Value at Sale of securities with realized gains	1,642,000	5,619,000	12,595,000	10,063,000
Total realized losses	(15,000)	(275,000)	(381,000)	(630,000)
Fair Value at Sale of securities with realized losses	118,000	1,471,000	1,639,000	3,049,000
Investment income [Abstract]
Net realized gains	438,000	999,000	3,632,000	1,807,000
Net realized and unrealized investment gains (losses) [Abstract]
Net realized gains	438,000	999,000	3,632,000	1,807,000
Net unrealized gains			7,243,000		9,161,000
International [Member]
Debt securities at amortized cost [Line Items]
Debt maturities, held to maturity, at amortized cost	246,000		246,000		109,000
Debt securities, at market [Abstract]
Debt securities, at market	10,953,000		10,953,000		3,698,000
Percent of debt securities at market to total investments (in hundredths)			3.43%		1.68%
Debt securities, at amortized cost [Abstract]
Debt securities, at amortized cost	246,000		246,000		109,000
Percent of debt securities at amortized cost to total investments (in hundredths)			0.08%		0.05%
Debt Securities - Available-For-Sale [Abstract]
Debt Securities - Available-For-Sale, Amortized Cost	10,909,000		10,909,000		3,731,000
Debt Securities - Available-For-Sale, Gross Unrealized Gains	57,000		57,000		5,000
Debt Securities - Available-For-Sale, Gross Unrealized Losses	13,000		13,000		38,000
Debt Securities - Available-For-Sale, Estimated Fair Value	10,953,000		10,953,000		3,698,000
Debt Securities - Held-To-Maturity [Abstract]
Debt Securities - Held-To-Maturity, Amortized Cost	246,000		246,000		109,000
Debt Securities - Held-To-Maturity, Gross Unrealized Gains	1,000		1,000		0
Debt Securities - Held-To-Maturity, Gross Unrealized Losses	1,000		1,000		1,000
Debt Securities - Held-To-Maturity, Estimated Fair Value	246,000		246,000		108,000
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	13,000		13,000		38,000
Debt/Equity securities, Less than 12 months	13,000		13,000		38,000
Debt/Equity securities, 12 months or longer	0		0		0
Common Stock [Member]
Continuous unrealized loss position [Abstract]
Debt/Equity securities, Unrealized (Losses)	643,000		643,000		275,000
Debt/Equity securities, Less than 12 months	614,000		614,000		148,000
Debt/Equity securities, 12 months or longer	29,000		29,000		127,000
United States Treasury Notes [Member] | Federated National [Member]
Estimated Fair Value [Abstract]
Due after one through five years, Estimated Fair Value	61,727		61,727		62,490
Due after five through ten years, Estimated Fair Value	$ 2,220,344		$ 2,220,344		$ 2,193,814

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Reinsurance Agreements (Details) (USD $)	9 Months Ended
	Sep. 30, 2014 Structure	Sep. 30, 2013	Jul. 01, 2014	Dec. 31, 2013
Reinsurance Agreements [Abstract]
Number of types of reinsurance structures	3
Liability for Catastrophe Claims [Line Items]
Prepaid reinsurance premiums	$ 39,202,000			$ 7,592,000
Percentage of quota share reinsurance treaty (in hundredths)	30.00%
Deferred quota profit share	12,300,000		14,000,000
Number of years quota share reinsurance treaty	2 years
Aggregate catastrophe coverage per year with maximum single event coverage	100,000,000
Aggregate cost of quota share is projected	6,700,000
Increase in total insured value	5,400,000,000	8,700,000,000
Percentage increase in total insured value (in hundredths)	8.20%	25.30%
Increase reinsurance premiums for total insured value		8,300,000
Percentage increase in reinsurance premiums for total insured value (in hundredths)		13.30%
Trust agreement for loss exposure	4,800,000			4,900,000
Florida [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	200,000,000
Aggregate catastrophic loss coverage of Florida	200,000,000
2013-2014 Hurricane Season [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	562,700,000
Maximum single event coverage	420,400,000
Amount retained per Loss	7,000,000
Coverage afforded by FHCF	278,100,000
Percentage of FHCF coverage to total coverage (in hundredths)	49.40%
Reinsurance premium	21,700,000
Prepaid reinsurance premiums	67,900,000
Aggregate catastrophic loss coverage of Florida	562,700,000
2014-2015 Hurricane Season [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	1,490,000,000
Maximum single event coverage	1,000,000,000
Reinsurance premium	41,000,000
Prepaid reinsurance premiums	117,400,000
Aggregate catastrophic loss coverage of Florida	1,490,000,000
2014-2015 Hurricane Season [Member] | Florida [Member]
Liability for Catastrophe Claims [Line Items]
Aggregate catastrophic loss coverage	1,460,000,000
Amount retained per Loss	7,000,000
Percentage of Florida coverage to total coverage (in hundredths)	98.50%
Coverage afforded by FHCF	546,300,000
Percentage of FHCF coverage to total coverage (in hundredths)	37.40%
Aggregate catastrophic loss coverage of Florida	1,460,000,000
2014-2015 Hurricane Season [Member] | Louisiana [Member]
Liability for Catastrophe Claims [Line Items]
Amount retained per Loss	$ 3,000,000

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Unpaid losses and LAE (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Unpaid losses and LAE [Abstract]
Unpaid losses and LAE, period start	$ 61,016,000	$ 49,908,000
Less reinsurance recoverables	(2,742,000)	(3,503,000)
Unpaid Losses and LAE, net, period start	58,274,000	46,405,000
Incurred related to Unpaid losses and LAE [Abstract]
Current year	56,818,000	56,209,000
Prior years	3,658,000	201,000
Total incurred losses and LAE	60,476,000	56,410,000
Paid Related to Unpaid losses And LAE [Abstract]
Current year	24,153,000	22,695,000
Prior years	30,723,000	21,846,000
Total paid	54,876,000	44,541,000
Unpaid Losses and LAE, net, period end	63,874,000	58,274,000
Plus reinsurance recoverables	9,235,000	2,742,000
Unpaid losses and LAE, period end	73,109,000	61,016,000
Increased liabilitity for losses	$ 3,700,000	$ 200,000

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Basis of Presentation

9 Months Ended

Sep. 30, 2014

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 September 30, 2014 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, 2014. 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, 2013 included in the Company’s Form 10-K, which was filed with the SEC on March 17, 2014.

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 material reclassifications have been made to the prior-period balances to conform to the current-period presentation.

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Stock Compensation Plans (Details) (USD $)	3 Months Ended		9 Months Ended			12 Months Ended		9 Months Ended	12 Months Ended		0 Months Ended				9 Months Ended	12 Months Ended		0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Employee Stock Option [Member]	Dec. 31, 2013 Employee Stock Option [Member]	Dec. 31, 2012 Employee Stock Option [Member]	Sep. 30, 2014 2002 Stock Option Plan [Member]	Dec. 31, 2013 2002 Stock Option Plan [Member]	Dec. 31, 2012 2002 Stock Option Plan [Member]	Sep. 09, 2014 2012 Stock Incentive Plan [Member]	Mar. 04, 2014 2012 Stock Incentive Plan [Member]	Aug. 05, 2013 2012 Stock Incentive Plan [Member]	Mar. 04, 2013 2012 Stock Incentive Plan [Member]	Sep. 30, 2014 2012 Stock Incentive Plan [Member]	Dec. 31, 2013 2012 Stock Incentive Plan [Member]	Dec. 31, 2012 2012 Stock Incentive Plan [Member]	Sep. 09, 2014 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Mar. 04, 2014 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Aug. 05, 2013 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Mar. 04, 2013 2012 Stock Incentive Plan [Member] Chief Executive Officer and President [Member]	Sep. 09, 2014 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Mar. 04, 2014 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Aug. 05, 2013 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Mar. 04, 2013 2012 Stock Incentive Plan [Member] Chief Financial Officer [Member]	Sep. 09, 2014 2012 Stock Incentive Plan [Member] Director [Member]	Mar. 04, 2014 2012 Stock Incentive Plan [Member] Director [Member]	Mar. 04, 2013 2012 Stock Incentive Plan [Member] Director [Member]	Sep. 09, 2014 2012 Stock Incentive Plan [Member] Other Employees [Member]	Mar. 04, 2014 2012 Stock Incentive Plan [Member] Other Employees [Member]	Mar. 04, 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, Number of Shares [Abstract]
Outstanding (in shares)					3,000	78,500	89,750	523,521	702,597	624,700
Granted (in shares)					0	0	0	0	0	181,500
Exercised (in shares)					(3,000)	(500)	0	(268,984)	(165,577)	(33,104)
Cancelled (in shares)					0	(75,000)	(11,250)	(4,234)	(13,499)	(70,499)
Outstanding (in shares)					0	3,000	78,500	250,303	523,521	702,597
Stock Options, Weighted Average Option Exercise Price [Abstract]
Outstanding (in dollars per share)					$ 8.67	$ 12.73	$ 12.83	$ 4.54	$ 5.17	$ 6.15
Granted (in dollars per share)					$ 0	$ 0	$ 0	$ 0	$ 0	$ 4.40
Exercised (in dollars per share)					$ 8.67	$ 8.67	$ 0	$ 5.31	$ 7.15	$ 3.86
Cancelled (in dollars per share)					$ 0	$ 12.92	$ 13.54	$ 3.50	$ 5.41	$ 12.45
Outstanding (in dollars per share)					$ 0	$ 8.67	$ 12.73	$ 3.73	$ 4.54	$ 5.17
Other Than Stock Option Plans, Number of Shares [Abstract]
Outstanding (in shares)															249,500	0	0
Granted (in shares)											130,000	88,648	150,000	100,000	218,648	250,000	0	45,000	43,997	100,000	25,000	15,000	16,341	50,000	15,000	50,000	15,710	20,000	20,000	12,600	40,000
Exercised (in shares)															(68,988)	0	0
Cancelled (in shares)															(846)	(500)	0
Outstanding (in shares)															398,314	249,500	0
Other Than Stock Options, Fair Market Value at Grant [Abstract]
Outstanding (in dollars per share)															$ 8.24	$ 0	$ 0
Granted (in dollars per share)															$ 21.66	$ 8.23	$ 0
Exercised (in dollars per share)															$ 18.67	$ 0	$ 0
Cancelled (in dollars per share)															$ 7.73	$ 5.54	$ 0
Outstanding (in dollars per share)															$ 13.80	$ 8.24	$ 0
Options Exercisable at [Abstract]
March 31, 2014 (in shares)					0			181,603
December 31, 2014 (in shares)					0			1,000
December 31, 2015 (in shares)					0			67,700
December 31, 2016 (in shares)					0			0
December 31, 2017 (in shares)					0			0
December 31, 2018 (in shares)					0			0
Thereafter (in shares)					0			0
Total options exercisable (in shares)					0			250,303
Options Weighted Average Option Exercise Price at [Abstract]
March 31, 2014 (in dollars per share)					$ 0			$ 3.73
December 31, 2014 (in dollars per share)					$ 0			$ 3.73
December 31, 2015 (in dollars per share)					$ 0			$ 3.73
December 31, 2016 (in dollars per share)					$ 0			$ 3.73
December 31, 2017 (in dollars per share)					$ 0			$ 3.73
December 31, 2018 (in dollars per share)					$ 0			$ 3.73
Thereafter (in dollars per share)					$ 0			$ 3.73
Decrease in income from continuing operations due to change in accounting pronouncement	$ 367,000	$ 132,000	$ 831,000	$ 287,000
Decrease in net income due to change in accounting pronouncement	$ 228,000	$ 82,000	$ 518,000	$ 179,000
Net income (loss) per share after change in accounting pronouncement, basic (in dollars per share)	$ 0.59	$ 0.42	$ 2.39	$ 1.04
Net income (loss) per share after change in accounting pronouncement, diluted (in dollars per share)	$ 0.58	$ 0.40	$ 2.32	$ 1.01
Net income (loss) per share - basic (in dollars per share)	$ 0.57	$ 0.41	$ 2.35	$ 1.02
Net income per share - diluted (in dollars per share)	$ 0.56	$ 0.39	$ 2.28	$ 0.99
Summary information about stock options outstanding [Abstract]
Range of Exercise Price, Minimum (in dollars per share)								$ 2.45
Range of Exercise Price, Maximum (in dollars per share)					$ 0			$ 4.59
Options Outstanding (in shares)					0			250,303
Weighted Average Contractual Periods in Years					0 years			6 years 6 months 22 days
Weighted Average Exercise Price (in dollars per share)					$ 0			$ 3.73
Options Exercisable (in shares)					0			181,603

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investments
Debt maturities, available for sale, at fair value	$ 275,387	$ 174,912
Debt maturities, held to maturity, at amortized cost	7,352	7,214
Equity securities, available for sale, at fair value	36,463	38,584
Total investments	319,202	220,710
Cash and short term investments	45,926	41,446
Prepaid reinsurance premiums	39,202	7,592
Premiums receivable, net of allowance for credit losses of $143 and $143, respectively	28,112	22,414
Reinsurance recoverable, net	9,235	2,742
Deferred policy acquisition costs	10,980	16,708
Deferred income taxes, net	0	1,006
Income taxes receivable	2,130	0
Property, plant and equipment, net	1,670	929
Other assets	5,135	3,194
Contingent quota-share profit sharing	14,000	0
Total assets	475,592	316,741
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and LAE	73,109	61,016
Unearned premiums	186,638	128,343
Premiums deposits and customer credit balances	7,094	3,833
Claims payments outstanding	7,182	6,203
Income taxes payable	0	2,379
Deferred income taxes, net	1,964	0
Accounts payable and accrued expenses	7,631	6,473
Deferred quota-share profit sharing	12,250	0
Total liabilities	295,868	208,247
Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000 shares; issued and outstanding13,594,962 and 10,901,716, respectively	136	109
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued or outstanding	0	0
Additional paid-in capital	125,433	80,525
Accumulated other comprehensive income
Unrealized net gains on investments, available for sale	6,093	5,964
Total accumulated other comprehensive income	6,093	5,964
Retained earnings	48,062	21,896
Total shareholders' equity	179,724	108,494
Total liabilities and shareholders' equity	$ 475,592	$ 316,741

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flow from operating activities:
Net income	$ 27,204	$ 8,161
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premium or discount, net	2,909	1,135
Depreciation and amortization of property plant and equipment, net	334	190
Net realized investment gains	(4,047)	(2,480)
Recovery for uncollectible premiums receivable	0	(34)
Non-cash compensation	72	188
Changes in operating assets and liabilities:
Premiums receivable	(5,698)	(12,053)
Prepaid reinsurance premiums	(31,610)	5,339
Reinsurance recoverable, net	(6,494)	818
Income taxes recoverable	(2,130)	(829)
Deferred income tax expense, net of other comprehensive income	2,741	3,361
Policy acquisition costs, net of amortization	5,728	(5,881)
Other assets	(1,941)	171
Contingent quota-share profit sharing	(1,750)	0
Unpaid losses and LAE	12,093	2,042
Unearned premiums	58,295	57,981
Premium deposits and customer credit balances	3,261	1,383
Income taxes payable	(2,379)	0
Claims payments outstanding	979	(1,177)
Accounts payable and accrued expenses	1,158	4,785
Net cash provided by operating activities	58,725	63,100
Cash flow used by investing activities:
Proceeds from sale of investment securities	65,869	93,079
Purchases of investment securities available for sale	(162,864)	(129,349)
Purchases of property and equipment	(1,074)	(542)
Net cash used by investing activities	(98,069)	(36,812)
Cash flow provided (used) by financing activities:
Exercised stock options	1,433	358
Dividends paid	(1,038)	(903)
Issuance of common stock	43,116	0
Tax benefit related to non-cash compensation	313	108
Net cash provided (used) by financing activities	43,824	(437)
Net increase in cash and short term investments	4,480	25,851
Cash and short term investments at beginning of period	41,446	21,143
Cash and short term investments at end of period	45,926	46,994
Cash paid during the period for:
Income taxes	18,185	1,870
Non-cash investing and finance activities:
Accrued dividends payable	$ 350	$ 250

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Reinsurance Agreements (Tables)

9 Months Ended

Sep. 30, 2014

Reinsurance Agreements [Abstract]

Private reinsurance companies

The 2014-2015 private reinsurance companies and their respective A.M. Best Company (“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
American Standard Insurance Company of Wisconsin		A			NR
AIG (National Union Fire Insurance Company of Pittsburgh, PA)		A			A+
Everest Reinsurance Company		A+			A+
Odyssey Reinsurance Company		A			A-
QBE Reinsurance Corporation		A			A+
RLI Insurance Company		A+			A+
Transatlantic Reinsurance Company		A			A+
BERMUDA
ACE Tempest Reinsurance Limited		A++			AA-
Allied World Assurance Company, Limited		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-			A+
Aspen Bermuda Limited		A			A
AXIS Specialty Limited		A+			A+
BGS Services (Bermuda) Limited/Lloyds Syndicate 2987		A			A+
DaVinci Reinsurance Ltd		A			AA-
Endurance Specialty Insurance Limited		A			A
Hamilton Re, Limited		A-			NR
Hiscox Insurance Company (Bermuda) Limited		A			NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance, Limited		A+			AA-
Securis Re III Limited Bermuda		NR	*	**	NR
Securis Re IV Limited Bermuda		NR	*	**	NR
Tokio Millennium Re AG, Bermuda Branch		A++			AA-
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+
Antares Syndicate No. 1274 (AUL)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 4020 (ARK)		A			A+
Ascot Syndicate No. 1414 (ASC)		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+
Chaucer Syndicate No. 1084 (CSL)		A			A+
Dale Underwriting Syndicate No. 1729 (DUW)		A			A+
Faraday Syndicate No. 435 (FDY)		A			A+
Hiscox Syndicate No. 0033 (HIS)		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)		A			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+
S.J.O, Catlin & Others No. 2003 (SJC)		A			A+
EUROPE
Amlin AG, Switzerland, Bermuda Branch		A			A
Hannover Rueck SE (obo Pillar Capital Management)		NR	*	**	NR
Lansforsakringar Sak Forsakringsaktiebolag (publ)		NR			A
SCOR Global P&C SE, Paris, Zurich Branch		A			A
ASIA
China Reinsurance (Group) Corporation		A			NR
Qatar Reinsurance Company LLC		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 2013-2014 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			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+
Ascot Syndicate No. 1414 (ASC)		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.

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Stock Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2014

Stock Compensation Plans [Abstract]

Activity in stock option plans

Activity in our stock option and incentive plans for the period from January 1, 2012 to September 30, 2014 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, 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		-		$	-		-		$	-		250,000		$	8.23
Exercised		(500	)	$	8.67		(165,577	)	$	7.15		-		$	-
Cancelled		(75,000	)	$	12.92		(13,499	)	$	5.41		(500	)	$	5.54
Outstanding at January 1, 2014		3,000		$	8.67		523,521		$	4.54		249,500		$	8.24
Granted		-		$	-		-		$	-		218,648		$	21.66
Exercised		(3,000	)	$	8.67		(268,984	)	$	5.31		(68,988	)	$	18.67
Cancelled		-		$	-		(4,234	)	$	3.50		(846	)	$	7.73
Outstanding at September 30, 2014		-		$	-		250,303		$	3.73		398,314		$	13.80

Maturity schedule of exercisable options outstanding

Options outstanding as of September 30, 2014 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
September 30, 2014		-	$	-		181,603	$	3.73
December 31, 2014		-	$	-		1,000	$	3.73
December 31, 2015		-	$	-		67,700	$	3.73
December 31, 2016		-	$	-		-	$	3.73
December 31, 2017		-	$	-		-	$	3.73
December 31, 2018		-	$	-		-	$	3.73
Thereafter		-	$	-		-	$	3.73
Total options exercisable		-				250,303

Summary of information about the stock option plans

Summary information about the Company’s stock option plans at September 30, 2014 is as follows.

	Range of Exercise Price		Outstanding at September 30, 2014		Weighted Average Contractual Periods in Years		Weighted Average Exercise Price		Exercisable at September 30, 2014
1998 Plan	$	-		-		-	$	-		-
2002 Plan	$	2.45 - $4.59		250,303		6.56	$	3.73		181,603

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Organization and Business

9 Months Ended

Sep. 30, 2014

Organization and Business [Abstract]

Organization and Business

(1) Organization and Business

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

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

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

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 department of insurance giving the company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to 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. Through contractual relationships with a network of approximately 3,600 independent agents, of which approximately 2,100 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 licensed as an admitted carrier in Alabama, Louisiana, Georgia and Texasand underwrites commercial general liability insurance in those states. Federated National also underwrites  homeowners’ insurance in Louisiana and Alabama, commencing in October of 2014. Additionally, we underwrite personal automobile insurance in Georgia and Texas.

FNIC is also licensed as a non-admitted carrier in Nevada and South Carolina and can underwrite commercial general liability insurance in these states. Currently there are no operations in Nevada or South Carolina. 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.

We have entered into a Coexistence Agreement effective August 30, 2013 (the "Coexistence Agreement") with Federated Mutual Insurance Company ("Federated Mutual") pursuant to which, among other things, we may continue to use "Federated" until at least August 30, 2020, after which time we have agreed to either cease using "Federated" in commerce or otherwise adopt and use trade names that are not confusingly similar to Federated Mutual's trademarks. We continue to develop our brand under the "FedNat" name, which is the name by which agents generally know us.

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 September 30, 2014, the Company had approximately 19.0% 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 premiums 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 September 30, 2014,90.5%, 3.4%, 2.5% and 3.6%of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the three months ended September 30, 2013, 89.1%, 4.3%, 2.9% and 3.7% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the nine months ended September 30, 2014, 91.2%, 3.4%, 2.2% and 3.2% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively. During the nine months ended September 30, 2013, 89.0%, 4.6%, 2.8% and 3.6% of the premiums we underwrote were for homeowners’, commercial general liability, federal flood, and automobile insurance, respectively.

During the three months ended September 30, 2014, $19.0 million or 22.8% of the $83.3 million of the homeowners’ premiums we underwrote were produced under an agency agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company, that grants Allstate agents the authority to offer certain FNIC products. The $19.0 million of homeowners’ premiums produced under this agreement with ISA represents 65.1% of the total increase in the sale of homeowners’ policies during the three months ended September 30, 2014. During the three months ended September 30, 2013, $10.9 million or 20.1% of the $54.1 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. This network of agents began writing for FNIC in March 2013.

During the nine months ended September 30, 2014, $49.4 million or 19.3% of the $255.9 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA. The $49.4 million of homeowners’ premiums produced under this agreement with ISA represents 49.7% of the total increase in the sale of homeowners’ policies during the nine months ended September 30, 2014. During the nine months ended September 30, 2013, $19.1 million or 12.2% of the $156.4 million of the homeowners’ premiums we underwrote were produced under the agreement with ISA.

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, Nevada, South Carolina and Texas.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%. 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.

During the three months ended June 30, 2014, the Florida OIR approved an application to allow the claims administration operations of FNA to be assumed by FNU. Under the amended managing general agency agreement between FNU and FNIC, FNU will provide the same claims administration services under the same fee structure. The combination of these services in FNU had no affect on consolidated net income.

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 forty different carriers.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Premiums receivable, allowance for credit losses	$ 143	$ 143
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)	13,594,962	10,901,716
Common stock, outstanding (in shares)	13,594,962	10,901,716
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0

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Subsequent Events

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

(11) Subsequent Events

Operations to selectively distribute homeowners’ insurance to targeted coastal counties in Alabama began in October of 2014. These operations, in conjunction with the on-going homeowners’ operations in Florida and Louisiana, reflect FNIC’s intentions to manage a well-balanced regional portfolio of homeowners’ risks. 

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 30, 2014
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		14,008,844
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014

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Summary of Significant Accounting Policies and Practices (Policies)

9 Months Ended

Sep. 30, 2014

Summary of Significant Accounting Policies and Practices [Abstract]

Critical Accounting Policies

(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, and (iii) 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, 2013,which we included in the Company’s Annual Report on Form 10-K which was filed with the SEC on March 17, 2014.

We believe that there were no significant changes in those critical accounting policies and estimates duringthe nine months ended September 30, 2014.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 weigh 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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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.”

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 September 30, 2014 and December 31, 2013.Changes in interest rates subsequent to September 30, 2014 and December 31, 2013 may affect the fair value of our investments.

The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2014 and December 31, 2013 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.

Impact of New Accounting Pronouncements

(B) Impact of New Accounting Pronouncements

In June 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-12: Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, a consensus of the FASB Emerging Issues Task Force.  The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period.  That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target (for example, an initial public offering or a profitability target) could be achieved and still be eligible to vest in the award if and when the performance target is achieved.  The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award.  The amendments in this ASU provide explicit guidance for those awards.    The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and, earlier adoption is permitted.  The adoption of the amendments in this ASU will not have a material impact on our financial position, results of operations or cash flows.

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 did 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 did 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 did 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 did not have a material impact on our financial condition, results of operations or cash flows.

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 thenine months ended September 30, 2014 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 material reclassification of the 2013 financial statements was necessary to conform to the 2014 presentation.

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue:
Gross premiums written	$ 92,032	$ 60,741	$ 280,487	$ 175,609
Gross premiums ceded	(129,298)	(49,936)	(179,137)	(78,179)
Net premiums written	(37,266)	10,805	101,350	97,430
Increase in prepaid reinsurance premiums	80,013	29,318	86,900	29,870
Increase in unearned premiums	(8,229)	(12,762)	(58,295)	(57,981)
Net change in prepaid reinsurance premiums and unearned premiums	71,784	16,556	28,605	(28,111)
Net premiums earned	34,518	27,361	129,955	69,319
Commission income	1,173	637	3,350	1,989
Finance revenue	392	241	1,051	584
Direct written policy fees	2,238	1,632	6,417	4,594
Net investment income	1,450	800	3,758	2,382
Net realized investment gains	659	780	4,047	2,480
Other income	970	466	1,540	618
Quota-share profit sharing	1,750	0	1,750	0
Total revenue	43,150	31,917	151,868	81,966
Expenses:
Losses and LAE	15,126	14,436	60,476	36,583
Operating and underwriting expenses	6,732	3,411	14,600	10,066
Salaries and wages	4,022	2,709	10,520	7,375
Amortization of deferred policy acquisition costs	5,815	6,576	23,095	15,370
Total expenses	31,695	27,132	108,691	69,394
Income before provision for income tax expense	11,455	4,785	43,177	12,572
Provision for income tax expense	4,228	1,504	15,973	4,411
Net income	$ 7,227	$ 3,281	$ 27,204	$ 8,161
Net income per share - basic (in dollars per share)	$ 0.57	$ 0.41	$ 2.35	$ 1.02
Net income per share - diluted (in dollars per share)	$ 0.56	$ 0.39	$ 2.28	$ 0.99
Weighted average number of common shares outstanding - basic (in shares)	12,624,746	8,066,773	11,562,709	8,023,505
Weighted average number of common shares outstanding - diluted (in shares)	12,956,407	8,345,924	11,934,057	8,260,435
Dividends paid per share (in dollars per share)	$ 0.03	$ 0.03	$ 0.09	$ 0.08

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Fair Value Disclosure

9 Months Ended

Sep. 30, 2014

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 or 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 September 30, 2014, presented in accordance with this guidance, are as follows.

	As of September 30, 2014
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	55,643	$	-	$	55,643
Obligations of states and political subdivisions		-		91,641		-		91,641
Corporate		-		117,150		-		117,150
International		-		10,953		-		10,953
		-		275,387		-		275,387
Equity securities:
Common stocks		36,463		-		-		36,463
		36,463		-		-		36,463
Total debt and equity securities	$	36,463	$	275,387	$	-	$	311,850

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

	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	27,209	$	-	$	27,209
Obligations of states and political subdivisions		-		52,064		-		52,064
Corporate		-		91,941		-		91,941
International		-		3,698		-		3,698
		-		174,912		-		174,912
Equity securities:
Common stocks		38,584		-		-		38,584
		38,584		-		-		38,584
Total debt and equity securities	$	38,584	$	174,912	$	-	$	213,496

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Investments

9 Months Ended

Sep. 30, 2014

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. We account for our investment securities consistent with FASB issued guidance that requires our securities to be classified into one of three categories: (i) held-to-maturity, (ii) trading securities or (iii) available-for-sale.

Investments classified as held-to-maturity include debt securities wherein the Company’s intent and ability are to hold the investment until maturity and are carried 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 sale in the near term and are carried 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 and are carried 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 $98.5 million, or 44.6%, to $319.2 million as of September 30, 2014, compared with $220.7 million as of December 31, 2013. The change is due primarily to our homeowners’ gross written premium, which increased by $99.5 million, or 63.6%, to $255.9 million for the nine months ended September 30, 2014, compared with $156.4 million for the nine months ended September 30, 2013. The increased homeowners’ gross written premium generated additional cash available for investment, of which approximately $59.0 million was transferred to the investment accounts during the nine months ended September 30, 2014.

The debt and equity securities that are available-for-sale and carried at fair value represent 98% of total investments as of September 30, 2014 and December 31, 2013.

We did not hold any trading investment securities during the nine months ended September 30, 2014.

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. During the nine months ended September 30, 2014 and 2013, respectively, in connection with the process, we have not charged operations with investment losses.

As of September 30, 2014 and December 31, 2013, respectively, all of our securities are in good standing and not impaired as defined by FASB issued guidance.

As of September 30, 2014 and December 31, 2013, our investments consisted primarily of corporate bonds held in various industries, municipal bonds and United States government bonds. As of September 30, 2014, 79% of our debt portfolio was in diverse industries and 21% was in United States government bonds. As of September 30, 2014, approximately 87% of our equity holdings were in equities related to diverse industries and 13%were in mutual funds. As of December 31, 2013, 83% of our debt portfolio was in diverse industries and 17% was in United States government bonds. As of December 31, 2013, approximately 91% of our equity holdings were in equities related to diverse industries and 9% were in mutual funds.

As of September 30, 2014 and December 31, 2013, we have classified $7.4 million and $7.2 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 nine months ended September 30, 2014, we did not re-classify any of our bond portfolio between available-for-sale and held-to-maturity. During the nine months ended September 30, 2013, we re-classified $0.1 million of our bond portfolio between available-for-sale and held-to-maturity.

 (A) Debt and Equity Securities

The following table summarizes, by type, our investments as of September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	55,643		17.43	%	$	27,209		12.33	%
Obligations of states and political subdivisions		91,641		28.71	%		52,064		23.59	%
Corporate		117,150		36.70	%		91,941		41.66	%
International		10,953		3.43	%		3,698		1.68	%
		275,387		86.27	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,433		1.39	%		4,630		2.10	%
Corporate		2,673		0.84	%		2,475		1.12	%
International		246		0.08	%		109		0.05	%
		7,352		2.31	%		7,214		3.27	%
Total debt securities		282,739		88.58	%		182,126		82.53	%
Equity securities, at market:		36,463		11.42	%		38,584		17.47	%
Total investments	$	319,202		100.00	%	$	220,710		100.00	%

The following table shows the realized gains (losses) for debt and equity securities for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	241		$	16,413	$	202		$	6,183
Equity securities		453			1,642		1,274			5,619
Total realized gains		694			18,055		1,476			11,802
Debt securities		(20	)		1,627		(421	)		14,462
Equity securities		(15	)		118		(275	)		1,471
Total realized losses		(35	)		1,745		(696	)		15,933
Net realized gains on investments	$	659		$	19,800	$	780		$	27,735

Net realized investment gains totaled $0.7 million for the three months ended September 30, 2014,compared with $0.8 million during the three months ended September 30, 2013. During the three months ended September 30, 2014, the investment committee directed new invested dollars to the fixed income portfolio.

The following table shows the realized gains (losses) for debt and equity securities for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	533		$	38,657	$	1,595		$	36,918
Equity securities		4,013			12,595		2,437			10,063
Total realized gains		4,546			51,252		4,032			46,981
Debt securities		(118	)		8,333		(922	)		37,493
Equity securities		(381	)		1,639		(630	)		3,049
Total realized losses		(499	)		9,972		(1,552	)		40,542
Net realized gains on investments	$	4,047		$	61,224	$	2,480		$	87,523

Net realized investment gains totaled $4.0 million for the nine months ended September 30, 2014, compared with $2.5 million during the nine months ended September 30, 2013.During the nine months ended September 30, 2014, the investment committee decided to increase the fixed income asset allocation by directing new invested dollars and reducing our exposure to equities.

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at September 30, 2014 and December 31, 2013 is as follows.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)
September 30, 2014
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	55,371	$	469	$	197	$	55,643
Obligations of states and political subdivisions		90,597		1,091		47		91,641
Corporate		115,833		1,613		296		117,150
International		10,909		57		13		10,953
	$	272,710	$	3,230	$	553	$	275,387
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,433	$	31	$	243	$	4,221
Corporate		2,673		33		2		2,704
International		246		1		1		246
	$	7,352	$	65	$	246	$	7,171
Equity securities - common stocks	$	29,220	$	7,886	$	643	$	36,463
December 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	27,422	$	186	$	399	$	27,209
Obligations of states and political subdivisions		51,883		303		122		52,064
Corporate		91,475		1,233		767		91,941
International		3,731		5		38		3,698
	$	174,511	$	1,727	$	1,326	$	174,912
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,630	$	32	$	326	$	4,336
Corporate		2,475		22		17		2,480
International		109		-		1		108
	$	7,214	$	54	$	344	$	6,924
Equity securities - common stocks	$	29,423	$	9,436	$	275	$	38,584

The table below reflects our unrealized investment losses by investment class, aged for length of time in a continuous unrealized loss position as of September 30, 2014.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	197	$	89	$	108
Obligations of states and political subdivisions		47		39		8
Corporate		296		188		108
International		13		13		-
		553		329		224
Equity securities:
Common stocks		643		614		29
Total debt and equity securities	$	1,196	$	943	$	253

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, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	399	$	391	$	8
Obligations of states and political subdivisions		122		122		-
Corporate		767		761		6
International		38		38		-
		1,326		1,312		14
Equity securities:
Common stocks		275		148		127
Total debt and equity securities	$	1,601	$	1,460	$	141

Below is a summary of debt securities at September 30, 2014 and December 31, 2013, 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.

	September 30, 2014				December 31, 2013
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	13,702	$	13,734	$	5,161	$	5,181
Due after one through five years		176,615		177,950		113,027		113,561
Due after five through ten years		89,719		90,841		62,656		62,220
Due after ten years		26		33		881		874
Total	$	280,062	$	282,558	$	181,725	$	181,836

United States Treasury notes with a book value of $61,727 and $2,220,344, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as ofSeptember 30, 2014, as required by law for FNIC, and are included with other investments held until maturity.

United States Treasury notes with a book value of $62,490 and $2,193,814, maturing in 2016 and 2022, respectively, were on deposit with the Florida OIR as of December 31, 2013, 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 September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	1,328	$	691
Dividends on equity securities		121		108
Interest on cash and cash equivalents		1		1
Total investment income	$	1,450	$	800
Net realized gains	$	659	$	780

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the three months ended September 30, 2014 and 2013, were approximately $21.8million and $28.7 million, respectively.

The table below sets forth investment results for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	3,432	$	2,059
Dividends on equity securities		324		320
Interest on cash and cash equivalents		2		3
Total investment income	$	3,758	$	2,382
Net realized gains	$	4,047	$	2,480

Proceeds from sales, pay downs and maturities of debt securities and proceeds from sales of equity securities during the nine months ended September 30, 2014 and 2013, were approximately $65.9 million and $93.1 million, respectively.

The table below sets forth a summary of net realized investment gains (losses) during the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	221	$	(219	)
Equity securities		438		999
Total	$	659	$	780

The table below sets forth a summary of net realized investment gainsduring the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains
Debt securities	$	415	$	673
Equity securities		3,632		1,807
Total	$	4,047	$	2,480

The table below sets forth a summary of net unrealized investment gains as of September 30, 2014 and December 31, 2013.

	Unrealized Gains
	September 30, 2014		December 31, 2013
	(Dollars in Thousands)
Net unrealized gains
Debt securities	$	2,677	$	401
Equity securities		7,243		9,161
Total	$	9,920	$	9,562

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Unpaid losses and LAE (Tables)

9 Months Ended

Sep. 30, 2014

Unpaid losses and LAE [Abstract]

Summary of activity in the liability for unpaid losses and LAE

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

	Period Ending
	September 30, 2014			December 31, 2013
	(Dollars in Thousands)
Balance at January 1	$	61,016		$	49,908
Less reinsurance recoverables		(2,742	)		(3,503	)
Net balance at January 1	$	58,274		$	46,405
Incurred related to
Current year	$	56,818		$	56,209
Prior years		3,658			201
Total incurred	$	60,476		$	56,410
Paid related to
Current year	$	24,153		$	22,695
Prior years		30,723			21,846
Total paid	$	54,876		$	44,541
Net balance at period end	$	63,874		$	58,274
Plus reinsurance recoverables		9,235			2,742
Balance as of period end	$	73,109		$	61,016

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2014

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)
2014		171
2015		694
2016		708
2017		722
2018		736
2019		499
Total	$	3,530

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Stock Compensation Plans

9 Months Ended

Sep. 30, 2014

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 September 30, 2014 and December 31, 2013, we had outstanding exercisable options to purchase zero and 3,000 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 September 30, 2014 and December 31, 2013, we had outstanding exercisable options to purchase 250,303and 523,521 shares, respectively.

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

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

On August 5, 2013, a total of 150,000 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, 100,000 shares were granted to the Company's Chief Executive Officer and President and 50,000 shares were granted to the Company's Chief Financial Officer. 

On March 4, 2014, a total of 88,648 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, 43,997 shares were granted to the Company's Chief Executive Officer and President and 16,341 shares were granted to the Company's Chief Financial Officer. An aggregate of 15,710 shares were granted to the Company's directors and the remaining 12,600 shares were granted to other employees of the Company.

On September 9, 2014, a total of 130,000 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, 45,000 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 50,000 shares were granted to the Company's directors and the remaining 20,000 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, 2012 to September 30, 2014 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, 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		-		$	-		-		$	-		250,000		$	8.23
Exercised		(500	)	$	8.67		(165,577	)	$	7.15		-		$	-
Cancelled		(75,000	)	$	12.92		(13,499	)	$	5.41		(500	)	$	5.54
Outstanding at January 1, 2014		3,000		$	8.67		523,521		$	4.54		249,500		$	8.24
Granted		-		$	-		-		$	-		218,648		$	21.66
Exercised		(3,000	)	$	8.67		(268,984	)	$	5.31		(68,988	)	$	18.67
Cancelled		-		$	-		(4,234	)	$	3.50		(846	)	$	7.73
Outstanding at September 30, 2014		-		$	-		250,303		$	3.73		398,314		$	13.80

Options outstanding as of September 30, 2014 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
September 30, 2014		-	$	-		181,603	$	3.73
December 31, 2014		-	$	-		1,000	$	3.73
December 31, 2015		-	$	-		67,700	$	3.73
December 31, 2016		-	$	-		-	$	3.73
December 31, 2017		-	$	-		-	$	3.73
December 31, 2018		-	$	-		-	$	3.73
Thereafter		-	$	-		-	$	3.73
Total options exercisable		-				250,303

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 2014 and 2013 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 September 30, 2014 are lower by approximately $367,000 and $228,000, 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 September 30, 2013 are lower by approximately $132,000 and $82,000, 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 nine months ended September 30, 2014are lower by approximately $831,000 and $518,000, 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 nine months ended September 30, 2013 are lower by approximately$287,000 and $179,000, 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 September 30, 2014 would have been$0.59 and $0.58, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.57 and $0.56, respectively. Basic and diluted earnings per share for the three months ended September 30, 2013 would have been $0.42 and $0.40, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $0.41 and $0.39, respectively.

Basic and diluted earnings per share for the nine months ended September 30, 2014 would have been $2.39 and $2.32, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $2.35 and $2.28, respectively.  Basic and diluted earnings per share for the nine months ended September 30, 2013 would have been$1.04 and $1.01, respectively, if the Company had not adopted FASB issued guidance, compared with reported basic and diluted earnings per share of $1.02 and $0.99, respectively.

Because the change in income taxes payable 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.

Summary information about the Company’s stock option plans at September 30, 2014 is as follows.

	Range of Exercise Price		Outstanding at September 30, 2014		Weighted Average Contractual Periods in Years		Weighted Average Exercise Price		Exercisable at September 30, 2014
1998 Plan	$	-		-		-	$	-		-
2002 Plan	$	2.45 - $4.59		250,303		6.56	$	3.73		181,603

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Reinsurance Agreements

9 Months Ended

Sep. 30, 2014

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.

Quota share reinsurance is a pro rata agreement among the primary insurer and one or more reinsurers where each party shares a fixed and predetermined percentage of the program's premiums and losses. Excess of loss risk transfer agreements involve the transfer of premium in exchange for reimbursement for claims, if they occur, as a result of specific events such as severe catastrophic weather. For quota share and excess of loss reinsurance, coverage is generally afforded based on meeting predetermined risk characteristics. In contrast, facultative reinsurance is negotiated between the primary insurer and the reinsurer(s) on a case-by-case basis with no obligation on either part to cede or assume share the risk.

 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 2014–2015 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $1.49 billion of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $1.00 billion, with the Company retaining the first $7.0 million in Florida and $3.0 million in Louisiana for losses and LAE from each event. Florida risks represent 98.5%, or $1.46 billion of the $1.49 billion of total aggregate catastrophic losses and LAE. 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. The FHCF only affords coverage for losses sustained in Florida. Coverage afforded by the FHCF totals approximately $546.3 million, or 37.4% of Florida’s $1.46 billion 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 2014–2015 hurricane season, inclusive of approximately $41.0 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $117.4 million.

Included in this year’s program is a 30% quota share reinsurance treaty for the Company’s in-force new and renewal homeowners’ insurance program in the State of Florida. This two-year quota share reinsurance treaty provides 30% of $200 million of aggregate catastrophe coverage per year with maximum single event coverage of 30% of $100 million per year. The approximate cost of this quota share is projected to be $6.7 million per year, net of ceding commissions, and it is included in the $117.4 million amount referenced above. The quota share treaty contains commutation provisions for the Company to share profits based on loss experience during the term of the treaty.

The 30% quota share reinsurance treaty described above contains profit sharing provisions that will adjust over its two-year term depending on the Company’s loss experience from catastrophic and non-catastrophic events during the term. The frequency and severity of catastrophic events, coupled with non-catastrophic loss experience, will determine the ultimate profit share, if any. In accordance with GAAP, the Company will initially recognize an asset and liability and the resultant net income or loss. For example, deferred quota-share profit sharing totaled $12.3 million as of September 30, 2014. The deferred quota-share profit sharing was originally recorded at $14.0 million at the program's July 1, 2014 inception and will continue to amortize over the life of the program. Subsequently, the Company will adjust the value of the asset and liability based on information available at the time of valuation. Upward and downward adjustments to the asset’s value will affect the Company’s results of operations by increasing or decreasing net income in the period of the adjustment.

The 2014-2015 private reinsurance companies and their respective A.M. Best Company (“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
American Standard Insurance Company of Wisconsin		A			NR
AIG (National Union Fire Insurance Company of Pittsburgh, PA)		A			A+
Everest Reinsurance Company		A+			A+
Odyssey Reinsurance Company		A			A-
QBE Reinsurance Corporation		A			A+
RLI Insurance Company		A+			A+
Transatlantic Reinsurance Company		A			A+
BERMUDA
ACE Tempest Reinsurance Limited		A++			AA-
Allied World Assurance Company, Limited		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-			A+
Aspen Bermuda Limited		A			A
AXIS Specialty Limited		A+			A+
BGS Services (Bermuda) Limited/Lloyds Syndicate 2987		A			A+
DaVinci Reinsurance Ltd		A			AA-
Endurance Specialty Insurance Limited		A			A
Hamilton Re, Limited		A-			NR
Hiscox Insurance Company (Bermuda) Limited		A			NR
Partner Reinsurance Company Limited		A+			A+
Platinum Underwriters Bermuda Limited		A			A-
Renaissance Reinsurance, Limited		A+			AA-
Securis Re III Limited Bermuda		NR	*	**	NR
Securis Re IV Limited Bermuda		NR	*	**	NR
Tokio Millennium Re AG, Bermuda Branch		A++			AA-
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+
Antares Syndicate No. 1274 (AUL)		A			A+
Ariel Syndicate No. 1910 (ARE)		A			A+
ARK Syndicate No. 4020 (ARK)		A			A+
Ascot Syndicate No. 1414 (ASC)		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+
Chaucer Syndicate No. 1084 (CSL)		A			A+
Dale Underwriting Syndicate No. 1729 (DUW)		A			A+
Faraday Syndicate No. 435 (FDY)		A			A+
Hiscox Syndicate No. 0033 (HIS)		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)		A			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+
S.J.O, Catlin & Others No. 2003 (SJC)		A			A+
EUROPE
Amlin AG, Switzerland, Bermuda Branch		A			A
Hannover Rueck SE (obo Pillar Capital Management)		NR	*	**	NR
Lansforsakringar Sak Forsakringsaktiebolag (publ)		NR			A
SCOR Global P&C SE, Paris, Zurich Branch		A			A
ASIA
China Reinsurance (Group) Corporation		A			NR
Qatar Reinsurance Company LLC		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 2013–2014 hurricane season, the excess of loss and FHCF treaties insured the property lines for approximately $562.7 million of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $420.4 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 $278.1 million, or 49.4% of the $562.7 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 $21.7 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $67.9 million.

The 2013-2014 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			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+
Ascot Syndicate No. 1414 (ASC)		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.

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, 2014 change to total insured value was an increase of $5.4 billion or 8.2% and the change to reinsurance premiums are not yet available. The September 30, 2013 change to total insured value was an increase of $8.7 billion or 25.3% and the change to reinsurance premiums was an increase of $8.3 million or 13.3%. These adjustments are amortized over the remaining underlying policy term.

To date, we have made no claims asserted against our reinsurers in connection with the 2014–2015 and 2013–2014 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 and $4.9 million as of September 30, 2014 and December 31, 2013.

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

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Unpaid losses and LAE

9 Months Ended

Sep. 30, 2014

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.

	Period Ending
	September 30, 2014			December 31, 2013
	(Dollars in Thousands)
Balance at January 1	$	61,016		$	49,908
Less reinsurance recoverables		(2,742	)		(3,503	)
Net balance at January 1	$	58,274		$	46,405
Incurred related to
Current year	$	56,818		$	56,209
Prior years		3,658			201
Total incurred	$	60,476		$	56,410
Paid related to
Current year	$	24,153		$	22,695
Prior years		30,723			21,846
Total paid	$	54,876		$	44,541
Net balance at period end	$	63,874		$	58,274
Plus reinsurance recoverables		9,235			2,742
Balance as of period end	$	73,109		$	61,016

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

Our review of the liability for losses and LAE 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 $3.7 million during thenine months ended September 30, 2014. This development is attributable to adverse decisions on matters beyond the insurance company policy limits. These matters are resolved and further development is unlikely. We increased the liability for losses and LAE for claims occurring in prior years by $0.2 million during the year ended December 31, 2013.

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

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Stockholders' Equity

9 Months Ended

Sep. 30, 2014

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 September 30, 2014, there were no preferred shares issued or outstanding and there were 13,594,962 shares of common stock outstanding.

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Fair Value Disclosure (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosure [Abstract]

Assets measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis as of September 30, 2014, presented in accordance with this guidance, are as follows.

	As of September 30, 2014
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	55,643	$	-	$	55,643
Obligations of states and political subdivisions		-		91,641		-		91,641
Corporate		-		117,150		-		117,150
International		-		10,953		-		10,953
		-		275,387		-		275,387
Equity securities:
Common stocks		36,463		-		-		36,463
		36,463		-		-		36,463
Total debt and equity securities	$	36,463	$	275,387	$	-	$	311,850

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

	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	-	$	27,209	$	-	$	27,209
Obligations of states and political subdivisions		-		52,064		-		52,064
Corporate		-		91,941		-		91,941
International		-		3,698		-		3,698
		-		174,912		-		174,912
Equity securities:
Common stocks		38,584		-		-		38,584
		38,584		-		-		38,584
Total debt and equity securities	$	38,584	$	174,912	$	-	$	213,496

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Summary of Significant Accounting Policies and Practices (Details)	9 Months Ended
	Sep. 30, 2014 Category
Summary of Significant Accounting Policies and Practices [Abstract]
Number of categories securities are classified	3

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 7,227	$ 3,281	$ 27,204	$ 8,161
Change in net unrealized (losses) gains on investments available for sale	(1,883)	2,658	359	331
Comprehensive income before tax	5,344	5,939	27,563	8,492
Income tax benefit (expense) related to items of other comprehensive income	615	(1,000)	(229)	(125)
Comprehensive income	$ 5,959	$ 4,939	$ 27,334	$ 8,367

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

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 losses 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.

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 assessed approximately $27,000 by the JUA Plan during 2014 and nothing during 2013. Future assessments by this association are undeterminable at this time.

(C) Operational Matters

The Company files federal income tax returns as well as multiple state and local tax returns. The Company’s consolidated federal and state income tax returns for 2010 - 2013 are open for review by the Internal Revenue Service (“IRS”) and the various state taxing authorities. The Company’s 2011 federal tax return was reviewed by the IRS and a “no change” report was issued indicating that the IRS is in agreement with the tax positions presented on the 2011 return. The 2013 federal and state income tax returns were timely filed by the extended filing deadline of September 15, 2014.  The Company does not have any known uncertain tax positions and all tax positions are evaluated in accordance with FIN 48.  Any change to or resolution of tax reserves 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.

The Company has recorded a net deferred tax liability of $2.0million as of September 30, 2014 and a net deferred tax asset of $1.0 million as of December 31, 2013, respectively.

The calculation of current and deferred income taxes presents management’s assessment of the amount of current and future taxes to be paid. The calculation of deferred tax assets and liabilities is in accordance with ASC 740. These assets and liabilities may be impacted if new information not previously available is considered in future analysis and calculations. Because of the unpredictability and complexity of these future uncertainties the ultimate resolution of the tax payment may be an amount that is materially different from the current estimate of the tax liabilities. As of September 30, 2014 the Company has recorded a net deferred tax liability of $2.0 million. The primary reasons for the shift from a deferred tax asset to a deferred tax liability include the tax impact of the appreciation in the market value of the available-for-sale securities, the resolution of an accrued legal settlement, and the decrease in the unearned premium balance related to the ceding of 30% of policies under a homeowners quota share reinsurance agreement.  Any change in circumstances leading to a change in the tax liability would be recorded in the period that the change in circumstances occurs.

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. Our original lease for this office space was scheduled to expire in May 2017. During March 2014, we extended our lease term to expire in August 2019 and expanded the leased premises to include an additional 13,642 square feet.All of our operations are consolidated within these facilities. 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.

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

Fiscal Year	Payments
	(Dollars in Thousands)
2014		171
2015		694
2016		708
2017		722
2018		736
2019		499
Total	$	3,530

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

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Commitments and Contingencies (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended	12 Months Ended
	Sep. 30, 2014 sqft	Sep. 30, 2013	Sep. 30, 2014 Category sqft	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 JUA Plan [Member]	Dec. 31, 2013 JUA Plan [Member]
Insurance apportionment plan [Line Items]
Number of major categories the entity commitments and contingencies are grouped into			3
Deferred Tax Liabilities, Net	$ 1,964,000		$ 1,964,000		$ 0
Net deferred tax asset	0		0		1,006,000
Square footage of office facility	18,500		18,500
Original lease expiration date			May 31, 2017
Extended lease expiration date			Aug. 31, 2019
Increase in area of real estate property	13,642		13,642
Net premiums written	(37,266,000)	10,805,000	101,350,000	97,430,000		27,000	0
Percentage ceded under quota share (in hundredths)			30.00%
Expected future lease payments [Abstract]
2014	171,000		171,000
2015	694,000		694,000
2016	708,000		708,000
2017	722,000		722,000
2018	736,000		736,000
2019	499,000		499,000
Total	$ 3,530,000		$ 3,530,000

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Investments (Tables)

9 Months Ended

Sep. 30, 2014

Investments [Abstract]

Schedule of investments

The following table summarizes, by type, our investments as of September 30, 2014 and December 31, 2013.

	September 30, 2014					December 31, 2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars in Thousands)
Debt securities, at market:
United States government obligations and authorities	$	55,643		17.43	%	$	27,209		12.33	%
Obligations of states and political subdivisions		91,641		28.71	%		52,064		23.59	%
Corporate		117,150		36.70	%		91,941		41.66	%
International		10,953		3.43	%		3,698		1.68	%
		275,387		86.27	%		174,912		79.26	%
Debt securities, at amortized cost:
United States government obligations and authorities		4,433		1.39	%		4,630		2.10	%
Corporate		2,673		0.84	%		2,475		1.12	%
International		246		0.08	%		109		0.05	%
		7,352		2.31	%		7,214		3.27	%
Total debt securities		282,739		88.58	%		182,126		82.53	%
Equity securities, at market:		36,463		11.42	%		38,584		17.47	%
Total investments	$	319,202		100.00	%	$	220,710		100.00	%

Realized gains (losses) for debt and equity securities

The following table shows the realized gains (losses) for debt and equity securities for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	241		$	16,413	$	202		$	6,183
Equity securities		453			1,642		1,274			5,619
Total realized gains		694			18,055		1,476			11,802
Debt securities		(20	)		1,627		(421	)		14,462
Equity securities		(15	)		118		(275	)		1,471
Total realized losses		(35	)		1,745		(696	)		15,933
Net realized gains on investments	$	659		$	19,800	$	780		$	27,735

The following table shows the realized gains (losses) for debt and equity securities for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014					2013
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
	(Dollars in Thousands)
Debt securities	$	533		$	38,657	$	1,595		$	36,918
Equity securities		4,013			12,595		2,437			10,063
Total realized gains		4,546			51,252		4,032			46,981
Debt securities		(118	)		8,333		(922	)		37,493
Equity securities		(381	)		1,639		(630	)		3,049
Total realized losses		(499	)		9,972		(1,552	)		40,542
Net realized gains on investments	$	4,047		$	61,224	$	2,480		$	87,523

Summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities

A summary of the amortized cost, estimated fair value and gross unrealized gains and losses of debt and equity securities at September 30, 2014 and December 31, 2013 is as follows.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)
September 30, 2014
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	55,371	$	469	$	197	$	55,643
Obligations of states and political subdivisions		90,597		1,091		47		91,641
Corporate		115,833		1,613		296		117,150
International		10,909		57		13		10,953
	$	272,710	$	3,230	$	553	$	275,387
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,433	$	31	$	243	$	4,221
Corporate		2,673		33		2		2,704
International		246		1		1		246
	$	7,352	$	65	$	246	$	7,171
Equity securities - common stocks	$	29,220	$	7,886	$	643	$	36,463
December 31, 2013
Debt Securities  - Available-For-Sale:
United States government obligations and authorities	$	27,422	$	186	$	399	$	27,209
Obligations of states and political subdivisions		51,883		303		122		52,064
Corporate		91,475		1,233		767		91,941
International		3,731		5		38		3,698
	$	174,511	$	1,727	$	1,326	$	174,912
Debt Securities  - Held-To-Maturity:
United States government obligations and authorities	$	4,630	$	32	$	326	$	4,336
Corporate		2,475		22		17		2,480
International		109		-		1		108
	$	7,214	$	54	$	344	$	6,924
Equity securities - common stocks	$	29,423	$	9,436	$	275	$	38,584

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 September 30, 2014.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	197	$	89	$	108
Obligations of states and political subdivisions		47		39		8
Corporate		296		188		108
International		13		13		-
		553		329		224
Equity securities:
Common stocks		643		614		29
Total debt and equity securities	$	1,196	$	943	$	253

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, 2013.

	Unrealized Losses		Less than 12 months		12 months or longer
	(Dollars in Thousands)
Debt securities:
United States government obligations and authorities	$	399	$	391	$	8
Obligations of states and political subdivisions		122		122		-
Corporate		767		761		6
International		38		38		-
		1,326		1,312		14
Equity securities:
Common stocks		275		148		127
Total debt and equity securities	$	1,601	$	1,460	$	141

Investments classified by contractual maturity date

Below is a summary of debt securities at September 30, 2014 and December 31, 2013, 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.

	September 30, 2014				December 31, 2013
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	13,702	$	13,734	$	5,161	$	5,181
Due after one through five years		176,615		177,950		113,027		113,561
Due after five through ten years		89,719		90,841		62,656		62,220
Due after ten years		26		33		881		874
Total	$	280,062	$	282,558	$	181,725	$	181,836

Investment income

The table below sets forth investment results for the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	1,328	$	691
Dividends on equity securities		121		108
Interest on cash and cash equivalents		1		1
Total investment income	$	1,450	$	800
Net realized gains	$	659	$	780

The table below sets forth investment results for the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Interest on debt securities	$	3,432	$	2,059
Dividends on equity securities		324		320
Interest on cash and cash equivalents		2		3
Total investment income	$	3,758	$	2,382
Net realized gains	$	4,047	$	2,480

Net realized and unrealized investment gains

The table below sets forth a summary of net realized investment gains (losses) during the three months ended September 30, 2014 and 2013.

	Three Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains (losses)
Debt securities	$	221	$	(219	)
Equity securities		438		999
Total	$	659	$	780

The table below sets forth a summary of net realized investment gainsduring the nine months ended September 30, 2014 and 2013.

	Nine Months Ended September 30,
	2014		2013
	(Dollars in Thousands)
Net realized gains
Debt securities	$	415	$	673
Equity securities		3,632		1,807
Total	$	4,047	$	2,480

The table below sets forth a summary of net unrealized investment gains as of September 30, 2014 and December 31, 2013.

	Unrealized Gains
	September 30, 2014		December 31, 2013
	(Dollars in Thousands)
Net unrealized gains
Debt securities	$	2,677	$	401
Equity securities		7,243		9,161
Total	$	9,920	$	9,562