10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDEDSeptember 30, 2016

OR

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

FOR THE TRANSITION PERIOD FROM ___________________TO _______________________

Commission File number 000-25001

FederatedNationalHoldingCompany

(Exact name of registrant as specified in its charter)

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

800-293-2532

(Registrant’s telephone number, including area code)

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☒No☐

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☒No☐

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. (Check one):

Largeacceleratedfiler☐	Acceleratedfiler☒	Non‑acceleratedfiler☐	Smallerreportingcompany☐
		(Do not check if a smaller reporting company)

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

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

As of November 4, 2016, the registrant had 13,801,757 shares of common stock outstanding.

FEDERATED NATIONAL HOLDING COMPANY

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION		PAGE
ITEM 1	Financial Statements	3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4	Controls and Procedures	37
PART II: OTHER INFORMATION
ITEM 1	Legal Proceedings	38
ITEM 1A	Risk Factors	38
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	38
ITEM 3	Defaults upon Senior Securities	38
ITEM 4	Mine Safety Disclosures	38
ITEM 5	Other Information	38
ITEM 6	Exhibits	39
SIGNATURES		39

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PART I: FINANCIAL INFORMATION

Item 1.  Financial Statements

FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	September 30,		December 31,
	2016		2015
ASSETS
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $370,881 and
$338,021, respectively)	$	378,879	$	339,178
Debt securities, held-to-maturity, at amortized cost		5,880		6,619
Equity securities, available-for-sale, at fair value (cost of $34,905 and $33,581, respectively)		41,334		38,534
Total investments (including $28,290 and $22,670 related to the VIE, respectively)		426,093		384,331
Cash and cash equivalents (including $14,753 and $14,616 related to the VIE, respectively)		106,200		53,038
Prepaid reinsurance premiums		58,763		120,771
Premiums receivable, net of allowance of  $57 and $302, respectively
(including $1,589 and $355 related to the VIE, respectively)		63,605		38,594
Reinsurance recoverable, net		25,151		12,714
Deferred acquisition costs		41,247		15,547
Income taxes receivable		16,706		2,691
Property and equipment, net		3,863		2,894
Other assets (including $1,269 and $1,037 related to the VIE, respectively)		7,829		7,605
TOTAL ASSETS	$	749,457	$	638,185
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Loss and loss adjustment expense reserves	$	127,485	$	97,340
Unearned premiums		309,283		253,960
Debt from consolidated variable interest entity		4,903		4,887
Deferred income taxes, net		12,912		5,627
Other liabilities		31,521		25,612
Total liabilities		486,104		387,426
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value: 1,000,000 shares authorized		—		—
Common stock, $0.01 par value: 25,000,000 shares authorized;
13,801,607 and 13,798,773shares issued and outstanding, respectively		138		138
Additional paid-in capital		136,359		131,998
Accumulated other comprehensive income		8,800		3,985
Retained earnings		99,336		96,461
Total Federated National Holding Company shareholders’ equity		244,633		232,582
Noncontrolling interest		18,720		18,177
Total shareholders’ equity		263,353		250,759
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	749,457	$	638,185

See accompanying notes to unaudited consolidated financial statements.

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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue:
Net premiums earned	$	69,405	$	62,286	$	184,447	$	156,298
Net investment income		2,164		1,907		6,398		5,154
Net realized investment gains		1,126		1,126		2,060		3,743
Other income		11,095		7,280		34,909		21,130
Total revenue		83,790		72,599		227,814		186,325
Costs and expenses:
Losses and loss adjustment expenses		43,613		28,412		120,183		75,510
Commissions and other underwriting expenses		34,512		21,610		75,408		47,934
General and administrative expenses		4,044		4,887		13,211		11,973
Interest expense		81		65		259		161
Total costs and expenses		82,250		54,974		209,061		135,578
Income before income taxes		1,540		17,625		18,753		50,747
Income taxes		102		7,054		6,594		19,519
Net income		1,438		10,571		12,159		31,228
Net income (loss) attributable to noncontrolling interest		44		(22)		239		(383)
Net income attributable to Federated National
Holding Company shareholders	$	1,394	$	10,593	$	11,920	$	31,611
Net income per share attributable to Federated National
Holding Company shareholders:
Basic	$	0.10	$	0.77	$	0.86	$	2.31
Diluted	$	0.10	$	0.76	$	0.85	$	2.26
Weighted average number of shares of common stock
outstanding:
Basic		13,780		13,749		13,807		13,710
Diluted		13,943		13,977		13,999		13,978
Dividends declared per share of common stock	$	0.08	$	0.04	$	0.17	$	0.13

See accompanying notes to unaudited consolidated financial statements.

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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income	$	1,438	$	10,571	$	12,159	$	31,228
Change in net unrealized (losses) gains on investments,
available-for-sale		(774)		(2,671)		8,316		(4,681)
Comprehensive income before income taxes		664		7,900		20,475		26,547
Income tax benefit (expense)  related to items of other
comprehensive income		152		1,083		(3,197)		1,734
Comprehensive income		816		8,983		17,278		28,281
Less: comprehensive income (loss) attributable to
noncontrolling interest		44		(17)		543		(494)
Comprehensive income attributable to Federated National
Holding Company shareholders	$	772	$	9,000	$	16,735	$	28,775

See accompanying notes to unaudited consolidated financial statements.

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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

												Total Shareholders'
								Accumulated				Equity Attributable to
			Common Stock			Additional		Other				Federated National				Total
	Preferred		Issued			Paid-in		Comprehensive		Retained		Holding Company		Noncontrolling		Shareholders'
	Stock		Shares	Amount		Capital		Income		Earnings		Shareholders		Interest		Equity
Balance as of December 31, 2015	$	—	13,798,773	$	138	$	131,998	$	3,985	$	96,461	$	232,582	$	18,177	$	250,759
Net income		—	—		—		—		—		11,920		11,920		239		12,159
Other comprehensive income		—	—		—		—		4,815		—		4,815		304		5,119
Dividends		—	—		—		—		—		(3,563)		(3,563)		—		(3,563)
Shares issued under share-
based compensation plans		—	288,815		—		360		—		—		360		—		360
Tax benefits from share-based		—	—		—		—		—		—		—		—		—
awards		—	—		—		843		—		—		843		—		843
Repurchases of common stock		—	(285,981)		—		—		—		(5,482)		(5,482)		—		(5,482)
Share-based compensation		—	—		—		3,158		—		—		3,158		—		3,158
Balance as of September 30, 2016	$	—	13,801,607	$	138	$	136,359	$	8,800	$	99,336	$	244,633	$	18,720	$	263,353

See accompanying notes to unaudited consolidated financial statements.

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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,
	2016		2015
	(in thousands)
Cash flow from operating activities:
Net income	$	12,159	$	31,228
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment gains		(2,060)		(3,743)
Amortization of investment premium or discount, net		3,910		3,795
Depreciation and amortization		620		495
Share-based compensation		4,001		3,175
Changes in operating assets and liabilities:
Prepaid reinsurance premiums		62,008		(40,967)
Premiums receivable, net		(25,011)		(7,653)
Reinsurance recoverable, net		(12,437)		4,186
Deferred acquisition costs		(25,699)		88
Income taxes receivable, net		(14,858)		(3,953)
Loss and loss adjustment expense reserves		30,146		13,343
Unearned premiums		55,323		57,973
Deferred income taxes, net of other comprehensive income		5,491		5,277
Other, net		5,676		16,970
Net cash provided by operating activities		99,269		80,214
Cash flow from investing activities:
Sales, maturities and redemptions of investment securities		151,884		134,918
Purchases of investment securities		(188,576)		(195,278)
Purchases of property and equipment		(1,573)		(1,500)
Net cash used in investing activities		(38,265)		(61,860)
Cash flow from financing activities:
Noncontrolling interest equity investment		—		18,498
Tax benefit related to share-based compensation		843		869
Purchases of FNHC common stock		(5,482)		—
Issuance of common stock for share-based awards		360		130
Dividends paid		(3,563)		(1,847)
Net cash (used in) provided by financing activities		(7,842)		17,650
Net increase in cash and cash equivalents		53,162		36,004
Cash and cash equivalents at beginning of period		53,038		40,157
Cash and cash equivalents at end of period	$	106,200	$	76,161

See accompanying notes to unaudited consolidated financial statements.

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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)

	Nine Months Ended
	September 30,
	2016		2015
	(in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	14,360	$	15,662
Non-cash investing and finance activities:
Accrued dividends payable	$	1,134	$	712

See accompanying notes to unaudited consolidated financial statements.

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1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Organization

Federated National Holding Company, (“FNHC,” the “Company,” “we,” or “us”), 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’”), personal automobile, commercial general liability, federal flood, and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents.

Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture, described below, and 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 to their policyholders.

On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”); and Transatlantic Reinsurance Company (“TransRe”).

The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware).  TransRe invested $5.0 million for a 15.2% non-voting interest in Monarch Delaware and advanced an additional $5.0 million in debt evidenced by a six-year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC.

Significant Customer

We entered into an Insurance Agency Master Agreement with Ivantage Select Agency, Inc., (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we are authorized by ISA to appoint Allstate agents to offer our homeowners’ and commercial general liability insurance products to consumers in Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended September 30, 2016 and 2015, 24.7%and 25.4%, respectively, were from Allstate’s network of Florida agents. For the nine months ended September 30, 2016 and 2015 23.9% and 23.3%, respectively, of the homeowners’ premiums we underwrote were from Allstate’s network of Florida agents.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest.  We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.

In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess the power to direct the activities of the VIE that most significantly impact its economic performance.  Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to Note 12 for additional information on the VIE.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements do not include all of the information and notes required by GAAP for

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complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.

This report should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K, as amended (the “2015 Form 10-K”).

2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Our significant accounting policies were described in Note 2 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2015 Form 10-K. There have been no significant changes in our significant accounting policies for the nine months ended September 30, 2016.

Accounting Estimates and Assumptions

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.

Similar to other property and casualty insurers, our liability for losses and loss adjustment expense reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. Refer to Note 6 accompanying our consolidated financial statements for a discussion of our liability for losses and loss adjustment expense reserves.

Reclassifications

Certain amounts in prior year’s consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no effect on the reported consolidated statements of operations, balance sheets, and cash flows. In the current period, the Company concluded it was appropriate to reclassify certain revenue accounts that do not have material balances and include them within other income in the consolidated statements of operations. In addition, during the current period, the Company reclassified certain costs and expenses, principally, operating and underwriting expenses, salaries and wages and amortization of deferred policy acquisition costs. These respective account balances are now included in commissions and other underwriting expenses and general and administrative expenses in the consolidated statements of operations. The Company believes these reclassifications provide greater clarity and insight into the consolidated financial statements for the periods presented.

Adjustments

During our third quarter 2015 analysis of actual experience to date under the July 1, 2014 quota share reinsurance contract, we re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions.  As a result of this re-evaluation, we concluded reinsurance contracts, which have retrospective rating provisions, should be accounted for under Accounting Standards Codification 944, Financial Services — Insurance (“ASC 944”), where amounts due to (from) the assuming companies are accrued based on estimated contract experience to date as though the contracts were terminated.  Refer to Note 2 in our Form 10-Q for the period ended September 30, 2015 for additional information.

The adjustments to our accounting for the July 1, 2014 quota share reinsurance treaty, inclusive of other adjustments, are not material in any prior quarter or annual period based on an analysis of quantitative and qualitative factors in accordance with SEC guidance.

As a result, we recorded these adjustments during the year ended December 31, 2015.  The prior period adjustments increased net income by $2.2 million for the three and nine months ended September 30, 2015, respectively.

Adopted Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the

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consolidation analysis of reporting entities that are involved with variable interest entities. We adopted the provisions of ASU 2015-02 effective January 1, 2016 and re-evaluated all legal entity investments under the revised consolidation model. The adoption of ASU 2015-02 did not have any impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest.  ASU 2015-03 reduces the complexity of disclosing debt issuance costs and debt discount and premium on the balance sheet by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts.  The Company adopted this ASU retrospectively as of January 1, 2016.  Other assets and debt from consolidated variable interest entity have been reclassified to be consistent with the adoption of this standard, which resulted in a reduction of $0.1million each.  There were no changes to shareholders’ equity as a result of this adoption.  There were no other impacts on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration-Contracts. The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services—Insurance. The amendments require insurance entities to disclose for annual reporting periods information on the liability for unpaid claims and claim adjustment expenses.  The amendments in this ASU are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. This new guidance affects disclosures only and will have no impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In addition, during 2016 the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment model. Additionally, the standard will require enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for interim and annual

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reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effects the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method  investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the effect that ASU 2015-16 will have on its consolidated financial statements and related disclosures.

3. FAIR VALUE

Fair value measurements are generally based upon observable and unobservable inputs.  Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information.  All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

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

Level 2 — Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques that use observable market data.  All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.

Level 3 — Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.  Currently, the Company has no level 3 investments.

The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:

	September 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	38,933	$	26,877	$	—	$	65,810
Obligations of states and political subdivisions		—		150,873		—		150,873
Corporate		—		149,210		—		149,210
International		—		12,986		—		12,986
		38,933		339,946		—		378,879
Equity securities		40,458		876		—		41,334
Total investments	$	79,391	$	340,822	$	—	$	420,213

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	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	34,733	$	26,820	$	—	$	61,553
Obligations of states and political subdivisions		—		110,702		—		110,702
Corporate		—		154,620		—		154,620
International		—		12,303		—		12,303
		34,733		304,445		—		339,178
Equity securities		38,012		522		—		38,534
Total investments	$	72,745	$	304,967	$	—	$	377,712

4. INVESTMENTS

Unrealized Gains and Losses

The following table details the difference between amortized cost or cost and estimated fair value, by major investment category, at September 30, 2016 and at December 31, 2015:

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(in thousands)
September 30, 2016
Debt securities  - available-for-sale:
United States government obligations and authorities	$	64,810	$	1,039	$	39	$	65,810
Obligations of states and political subdivisions		148,366		2,556		49		150,873
Corporate		144,990		4,305		85		149,210
International		12,715		273		2		12,986
		370,881		8,173		175		378,879
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,173		70		59		4,184
Corporate		1,636		47		—		1,683
International		71		2		—		73
		5,880		119		59		5,940
Equity securities		34,905		7,278		849		41,334
Total investments	$	411,666	$	15,570	$	1,083	$	426,153

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	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses			Fair Value
	(in thousands)
December 31, 2015
Debt securities  - available-for-sale:
United States government obligations and authorities	$	61,384	$	489	$	320	$	61,553
Obligations of states and political subdivisions		109,152		1,590		40		110,702
Corporate		154,957		1,153		1,490		154,620
International		12,528		18		243		12,303
		338,021		3,250		2,093		339,178
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,275		30		204		4,101
Corporate		2,253		14		20		2,247
International		91		—		—		91
		6,619		44		224		6,439
Equity securities		33,581		6,809		1,856		38,534
Total investments	$	378,221	$	10,103	$	4,173	$	384,151

Net Realized Gains and Losses

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Gross realized gains:
Debt securities	$	897	$	226	$	2,822	$	973
Equity securities		597		1,847		1,752		4,188
Total gross realized gains		1,494		2,073		4,574		5,161
Gross realized losses:
Debt securities		(20)		(178)		(614)		(504)
Equity securities		(348)		(769)		(1,900)		(914)
Total gross realized losses		(368)		(947)		(2,514)		(1,418)
Net realized gains on investments	$	1,126	$	1,126	$	2,060	$	3,743

During the three months ended September 30, 2016 and 2015, the proceeds from sales of available-for-sale investment securities were $30.1 million and $42.5 million, respectively. During the nine months ended September 30, 2016 and 2015, the proceeds from sales of available-for-sale investment securities were $129.5 million and $134.9 million, respectively.

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Contractual Maturity

The amortized cost and estimated fair value of debt securities as of September 30, 2016 and December 31, 2015 by contractual maturity are shown below.  Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2016				December 31, 2015
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Securities with maturity dates:	(in thousands)
Debt securities, available-for-sale:
One year or less	$	41,507	$	41,565	$	24,470	$	24,488
Over one through five years		182,129		185,001		170,797		171,113
Over five through ten years		145,639		150,694		142,728		143,545
Over ten years		1,606		1,619		26		32
		370,881		378,879		338,021		339,178
Debt securities, held-to-maturity:
One year or less		413		413		486		487
Over one through five years		1,887		1,949		1,899		1,915
Over five through ten years		3,580		3,578		4,234		4,037
		5,880		5,940		6,619		6,439
Total	$	376,761	$	384,819	$	344,640	$	345,617

Net Investment Income

The following table summarizes the Company’s net investment income for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Interest income	$	1,963	$	1,760	$	5,801	$	4,773
Dividends income		201		147		597		381
Net investment income	$	2,164	$	1,907	$	6,398	$	5,154

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Aging of Gross Unrealized Losses

As of September 30, 2016 and December 31, 2015, gross unrealized losses and related fair values for available-for-sale debt securities and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2016					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	8,995	$	38	$	121	$	1	$	9,116	$	39
Obligations of states and political subdivisions		28,481		47		1,015		2		29,496		49
Corporate		11,405		33		3,345		52		14,750		85
International		1,170		1		302		1		1,472		2
		50,051		119		4,783		56		54,834		175
Equity securities		5,590		679		2,179		170		7,769		849
Total investments	$	55,641	$	798	$	6,962	$	226	$	62,603	$	1,024

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2015					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	30,464	$	303	$	659	$	17	$	31,123	$	320
Obligations of states and political subdivisions		16,652		40		—		—		16,652		40
Corporate		87,176		1,420		3,590		70		90,766		1,490
International		8,660		191		281		52		8,941		243
		142,952		1,954		4,530		139		147,482		2,093
Equity securities		11,790		1,850		84		6		11,874		1,856
Total investments	$	154,742	$	3,804	$	4,614	$	145	$	159,356	$	3,949

The Company holds its equity securities and some of its debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company will write the security’s cost-basis or amortized cost-basis down to the fair value of the investment and recognizes an other than temporary impairment (“OTTI”) loss in our consolidated statement of operations. Additionally, any portion of such decline related to debt securities that is believed to arise from factors other than credit will be recorded as a component of other comprehensive income rather than charged against income.

The Company’s assessment of equity securities initially involves an evaluation of all securities that are in an unrealized loss position, regardless of the duration or severity of the loss, as of the applicable balance sheet date. Such initial review consists primarily of assessing whether: (i) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; and (ii) the Company has the ability and intent to hold an equity security for a period of time sufficient to allow for an anticipated recovery (generally considered to be one year from the balance sheet date).

To the extent that an equity security in an unrealized loss position is not impaired based on the initial review described above, the Company then evaluates such equity security by considering qualitative and quantitative factors. These factors include but are not limited to facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend

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payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, industry outlook and our ability and intent to hold each position until its forecasted recovery.

If the Company intends to sell, or it is more likely than not that, the Company will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in our consolidated statement of operations. To the extent a debt security in an unrealized loss position is not impaired based on the preceding; the Company will consider that security to be impaired when it believes collection of the amortized cost is not probable.

During the Company’s quarterly evaluation of its securities for impairment, there were noidentified OTTI losses in our investments in debt and equity securities during the three months ended September 30, 2016 and $0.3million OTTI losses in our investments in debt and equity securities during the nine months ended September 30, 2016. We did not have any OTTI losses in our investments in debt and equity securities that were in an unrealized loss position during the three and nine months ended September 30, 2015.

Collateral Deposits

As of September 30, 2016, investments with fair values of approximately $10.7million, the majority of which were debt securities, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations.

5. REINSURANCE

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

We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation.  In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually with the assistance of our reinsurance broker.

Significant Reinsurance Contracts

FNIC and MNIC operate primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. All of our reinsurance contracts do not relieve FNIC or MNIC from their direct obligations to the insured.

FNIC’s 2015-2016 catastrophe reinsurance program, which ran either from June 1 to May 31 or from July 1 to June 30, consists of the Florida Hurricane Catastrophe Fund (“FHCF”), excess of loss treaties placed with the private market and a 40%  property quota-share program. The property quota-share reinsurance is a form of proportional reinsurance that provides coverage for the homeowners’ property lines for wind related catastrophes in Florida. The FHCF treaty affords coverage for losses sustained in Florida and represents only a portion of the reinsurance coverage in Florida.

The excess of loss and FHCF treaties, which became effective on July 1, 2015 and June 1, 2015, respectively, insure for approximately $1.82 billion of aggregate catastrophic losses and loss adjustment expenses (“LAE”) with a maximum single event coverage totaling approximately $1.26 billion, with the Company retaining the first $12.9 million in Florida and $5.0 million in Louisiana, Alabama and South Carolina for losses and LAE from each event. Ceded premiums in connection with this program totaled approximately $149.7 million.

Additionally, the Company’s private market excess of loss treaties became effective July 1, 2016 and all private layers have prepaid automatic reinstatement protection, which affords us additional coverage against multiple catastrophic events in the same hurricane season. The Company obtained multiple year protection for a portion of its program; as a result, some of the coverage will expire on June 30, 2017, and a portion of the coverage will remain in-force one additional treaty year until June 30, 2018. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all private layers attach after $18.45 million in losses for FNIC’s Florida exposure. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted.

FNIC’s 2016-2017 reinsurance programs, costing approximately $179.5 million,include approximately $125.7 million for the private reinsurance for Federated National’s Florida exposure, including prepaid automatic premium reinstatement protection on all

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layers, along with approximately $53.8 million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford Federated National with approximately $2.22 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.58 billion, exclusive of retentions. FNIC maintained its FHCF participation at 75% for the 2016 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $18.45 million.In addition, FNIC purchases separate underlying reinsurance layers in Louisiana, Alabama, and South Carolina to cover losses and LAE outside of Florida for each catastrophic event from  $8.0 million to $18.45 million. Depending on the characteristics of the catastrophic event, and the states involved, FNIC’s single event pre-tax retention could be as low as $8.0 million. The maximum pre-tax retention of $18.45 million for Florida represents 7.01% of the Company’s shareholders’ equity as of September 30, 2016.

MNIC’s 2016-2017 catastrophe reinsurance program, which runs from either June 1 to May 31 or June 1 to June 30 (13 month period), consists of the FHCF and private market excess of loss treaties. All private layers have prepaid automatic reinstatement protection, which affords MNIC additional coverage, and have a cascading feature such that substantially all layers attach at $3.4 million for MNIC's Florida exposure.

The Company’s property quota share treaties, which are included in the reinsurance program, run for a two-year period from July 1 to July 1 of the following year.  The property quota-share treaties consist of two different treaties, one for 30% which became effective July 1, 2014, and the other for 10% which became effective July 1, 2015. The combined treaties provided a 40% quota-share reinsurance on the first $100 million of covered losses for the homeowners’ property insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.

On July 1, 2016, the 30% property quota-share treaty expired on a cut-off basis, which means as of that date the Company will retain 30% of its unearned premiums and losses. The reinsurers will remain liable for 30% of the paid losses occurring during the term of the treaty, until the treaty is commuted.

The Company’s private passenger automobile quota share treaties are typically one-year programs which become effective at different points in the year and cover auto policies across several states. These automobile quota share treaties cede 75% to 90% of all written premiums entered into by the Company.

Certain reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled $2.6million as of September 30, 2016 and $3.5 million as of December 31, 2015.

Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverables. The following table presents reinsurance recoverables as reflected in the consolidated balance sheets as of September 30, 2016 and December 31, 2015:

	September 30,		December 31,
	2016		2015
	(in thousands)
Reinsurance recoverable on paid losses	$	8,094	$	5,218
Reinsurance recoverable on unpaid losses		17,057		7,496
Reinsurance recoverable, net	$	25,151	$	12,714

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Premiums Written and Earned

The following table presents premiums written and earned for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Net premiums written:
Direct	$	161,137	$	129,840	$	468,379	$	368,560
Ceded		(96,327)		(119,985)		(259,307)		(231,046)
	$	64,810	$	9,855	$	209,072	$	137,514
Net premiums earned:
Direct	$	147,624	$	112,253	$	413,056	$	310,587
Ceded		(78,219)		(49,967)		(228,609)		(154,289)
	$	69,405	$	62,286	$	184,447	$	156,298

6.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

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

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

	Nine Months		Year
	Ended		Ended
	September 30,		December 31,
	2016		2015
	(in thousands)
Gross reserves, beginning of period	$	97,340	$	78,330
Less: reinsurance recoverable (1)		(7,496)		(10,394)
Net reserves, beginning of period		89,844		67,936
Incurred loss, net of reinsurance, related to:
Current year		109,237		113,819
Prior years		10,946		(9,466)
Total incurred loss and LAE, net of reinsurance		120,183		104,353
Paid loss, net of reinsurance, related to:
Current year		46,073		49,531
Prior years		53,526		32,914
Total paid loss and LAE, net of reinsurance		99,599		82,445
Net reserves, end of period		110,428		89,844
Plus: reinsurance recoverable (1)		17,057		7,496
Gross reserves, end of period	$	127,485	$	97,340

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

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

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During the nine months ended September 30, 2016, the Company experienced unfavorable loss and LAE reserve development on prior year accident years primarily in its all other peril homeowners’ coverage in Florida. The deficiency primarily relates to higher severity above the expected development factor anticipated at December 31, 2015 which was driven by the impact from assignment of benefits and other related adjusting expenses.

During the year ended December 31, 2015, the Company experienced a redundancy on prior year accident years primarily a result of continued favorable loss experience (mostly caused by decreased severity in reported claims) in the Company’s all other peril homeowners’ coverage caused in part by the absence of severe weather in Florida. Specifically, we have experienced better severity than expected on the 2014 and 2013 accident years.

7.  LONG-TERMDEBT

On March 17, 2015, MNHC, a wholly owned subsidiary of Monarch Delaware, and MNIC’s direct parent, our consolidated VIE, issued a promissory note with a principal amount of $5.0 million bearing 6% annual interest, due March 17, 2021 with interest payable on an annual basis due March 17 each year.  The debt was issued to TransRe, a related party, in connection with its investment in Monarch Delaware, and is being carried at the unpaid principal balance, net of debt issuance costs, and any accrued and unpaid interest is recognized in other liabilities in the consolidated balance sheet.  The Company recorded $0.1 million of debt issuance costs related to the 6% promissory note.

8.  INCOME TAXES

The provision for income tax expense for the three and nine months ended September 30, 2016 and 2015 is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Federal:
Current	$	(10,433)	$	5,040	$	(2,275)	$	11,016
Deferred		10,709		1,194		8,222		5,982
Federal income tax expense		276		6,234		5,947		16,998
State:
Current		(1,960)		665		(613)		1,760
Deferred		1,786		155		1,260		761
State income tax expense		(174)		820		647		2,521
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

The actual income tax expense differs from the “expected” income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense) as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Computed expected tax expense provision, at federal rate	$	552	$	6,374	$	6,604	$	17,761
State tax, net of federal tax benefit		(148)		578		396		1,685
Other		(302)		102		(406)		73
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

The Company files income tax returns in the U.S. federal jurisdiction and various states and local jurisdictions. As a matter of course, various taxing authorities, including the Internal Revenue Service (“IRS”), regularly audit us. As of September 30, 2016, no open tax years are under examination by the IRS or any material state and local jurisdictions.

As of September 30, 2016 and December 31, 2015, we have determined that there are no uncertain tax positions.

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9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

On a quarterly basis, the Company reviews these outstanding matters, if any.  Consistent with GAAP, the Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company does not establish reserves for identified legal matters when we believe that the likelihood of an unfavorable outcome is not probable. Based on our quarterly review, the Company believes that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial statements.

The Company is a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and FNIC.  In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on July 21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida.  Specifically, the Company seeks a declaration that its federally registered trademark "FEDNAT" does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark "FED" in connection with insurance services outside of Owatonna, Minnesota.  On July 26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association alleging a breach of the Co-Existence Agreement.  Both matters are in their preliminary stages and FNHC intends to vigorously defend against all of Mutual’s allegations, although there can be no assurances as to the outcome of either matter.

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: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Florida Joint Underwriters Insurance Association (“JUA”), Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Georgia Automobile Insurance Plan (“GAIP”), Property Insurance Association of Louisiana (“PIAL”), Louisiana Automobile Insurance Plan (“LAIP”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Texas Automobile Insurance Plan Association (“TAIPA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Underwriters Association (“AIUA”).. As a direct premium writer in Florida, we are required to participate in certain insurer solvency associations under Florida law, administered by FIGA. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.

FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. FNIC was not assessed by the JUA Plan. Future assessments by this association are undeterminable at this time.

Leases

FNHC and its subsidiaries lease certain facilities, furniture and equipment under long-term lease agreements. Additional information about leases can be found in Note 8 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data,” of the 2015 Form 10-K.

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10. SHAREHOLDERS’ EQUITY

Common Stock Repurchases

In March 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 31, 2017. Common stock repurchases are conducted in the open market. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors. This program may be modified, suspended or terminated by us at any time without notice.

Pursuant to our Board of Directors’ authorizations, the Company repurchased 285,981 shares of its common stock at a total cost of approximately $5.5 million, which is an average price per share of $19.22, during the nine months ended September 30, 2016.  As of September 30, 2016, the remaining availability for future repurchases of our common stock was $4.5 million.

Share-Based Compensation Expense

The following table provides certain information in connection with the Company’s share-based compensation arrangements for the three and nine months ended September 30, 2016 and 2015, respectively:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Restricted stock	$	525	$	936	$	3,158	$	2,277
Stock options		—		5		—		29
Total share-based compensation expense	$	525	$	941	$	3,158	$	2,306
Intrinsic value of options exercised	$	12,464	$	396	$	13,681	$	8,551
Fair value of restricted stock vested	$	10,685	$	24,444	$	39,607	$	36,216

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

At September 30, 2016, there was approximately $6.3 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to restricted stock awards, which is currently expected to be recognized over a weighted average period of approximately 1.85 years.

Stock Option Awards

A summary of the Company’s stock option activity for the period from January 1, 2016 to September 30, 2016 is as follows:

	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2016	174,633	$	3.79
Granted	—	$	—
Exercised	(93,899)	$	3.85
Cancelled	—	$	—
Outstanding at September 30, 2016	80,734	$	3.71

Restricted Stock Awards

The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by employees. The accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis.

During the first quarter of 2016 and 2015, the Board of Directors granted 128,472 and 116,140 RSAs, respectively, vesting over three or five years, to the Company’s directors,  executives and other key employees.

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The following table summarizes RSA activity during the nine months ended September 30, 2016:

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	418,807	$	20.14
Granted	128,472	$	19.16
Vested	(194,916)	$	20.32
Cancelled	(540)	$	19.16
Outstanding at September 30, 2016	351,823	$	19.68

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

Accumulated Other Comprehensive Income

The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	15,201	$	(5,596)	$	9,605	$	10,407	$	(4,048)	$	6,359
Other comprehensive income before reclassifications		690		(186)		504		(746)		284		(462)
Reclassification adjustment for realized gains included
in net income		(1,464)		338		(1,126)		(1,925)		799		(1,126)
		(774)		152		(622)		(2,671)		1,083		(1,588)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

	Nine Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	6,111	$	(2,247)	$	3,864	$	12,417	$	(4,699)	$	7,718
Other comprehensive income before reclassifications		11,296		(4,117)		7,179		1,601		(805)		796
Reclassification adjustment for realized gains included
in net income		(2,980)		920		(2,060)		(6,282)		2,539		(3,743)
		8,316		(3,197)		5,119		(4,681)		1,734		(2,947)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

11. EARNINGS PER SHARE

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

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The computations of diluted EPS available to our shareholders do not include approximately 0.2million stock options and RSAs for the three months ended September 30, 2016 and 2015, respectively, and 0.2million stock options and RSAs for the nine months ended September 30, 2016 and 2015, respectively, as the effect of their inclusion would have been antidilutive to earnings per share.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)				(in thousands, except per share data)
Net income attributable to Federated National Holding
Company shareholders	$	1,394	$	10,593	$	11,920	$	31,611
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Net income per share - basic	$	0.10	$	0.77	$	0.86	$	2.31
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Dilutive effect of stock compensation plans		163		228		192		268
Weighted average number of common shares outstanding -
diluted		13,943		13,977		13,999		13,978
Net income per share - diluted	$	0.10	$	0.76	$	0.85	$	2.26
Dividends per share	$	0.08	$	0.04	$	0.17	$	0.13

Dividends Declared

In February 2016, our Board of Directors declared a quarterly dividend payment of $0.05 per common share, paid in March 2016, amounting to $0.7 million. In May and June 2016, our Board of Directors declared quarterly dividend payments of $0.06per common share, respectively, paid in June and August 2016, respectively, totaling $1.7 million.

In September 2016, our Board of Directors declared a $0.08 per common share dividend payable December 1, 2016 to shareholders of record on November 1, 2016.

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12. VARIABLE INTEREST ENTITY

The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:

	September 30,		December 31,
	2016		2015
ASSETS	(in thousands)
Investments
Debt securities, available for sale, at amortized cost	$	26,710	$	21,312
Equity securities, available-for-sale, at fair value		1,580		1,358
Total investments		28,290		22,670
Cash and cash equivalents		14,753		14,616
Prepaid reinsurance premiums		—		34
Premiums receivable, net		1,589		355
Other assets		1,269		1,037
Total assets	$	45,902	$	38,712
LIABILITIES
Loss and loss adjustment expense reserves	$	822	$	237
Unearned premiums		6,426		1,448
Debt		4,903		4,887
Income taxes payable		—		8
Other liabilities		1,461		374
Total liabilities	$	13,612	$	6,954

13.  SUBSEQUENT EVENT

Hurricane Matthew impacted the east coast of Florida as a Category 4 hurricane and South Carolina as a Category 2 hurricane during the first week of October 2016.  The Company's initial gross catastrophic loss estimate in the state of Florida is $75 million and$2 million in the state of South Carolina. After taking into consideration our reinsurance treaties, including the Company’s 10% property quota-share treaty, the Company expects to incur the full retentionlimit $18.45 million.

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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 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

Overview

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q (the “Form 10-Q”). In addition, reference should be made to our audited consolidated financial statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 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 consolidated subsidiaries.

Forward-Looking Statements

Statements in this 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 “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology are intended to identify forward-looking statements.

Forward-looking statements might also include, but are not limited to, one or more of the following:

· Projections of revenues, income, earnings per share, dividends, capital structure or other financial items or measures;

· Descriptions of plans or objectives of management for future operations, insurance products/or services;

· Forecasts of future insurable events, economic performance, liquidity, need for funding and income; and

· Descriptions of assumptions or estimates underlying or relating to any of the foregoing.

The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for loss and loss adjustment expense (“LAE”); claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our potential failure to meet minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; the impact that the results of the Monarch joint venture may have on our results of operations; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in this report and other filings filed with the United States Securities and Exchange Commission, including the Company’s Form 10-K.

In addition, investors should be aware that U.S. generally accepted accounting principles (“GAAP”) prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

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GENERAL

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 automobile and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents.

Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture described below, and 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 to their policyholders.

Monarch National Insurance Company Joint Venture

On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”) and Transatlantic Reinsurance Company (“TransRe”).

The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings, LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware).  TransRe invested $5.0 million in debt evidenced by a six-year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC.

In connection with the organization of MNIC, the parties entered into the following agreements dated as of March 17, 2015:

· MNIC entered into a Managing General Agent and Claims Administration Agreement (the “Monarch MGA Agreement”) with FedNat Underwriters, Inc. (“FNU”), a wholly owned subsidiary of the Company, pursuant to which FNU provides underwriting, accounting, reinsurance placement and claims administration services to Monarch.  For its services under the Monarch MGA Agreement, FNU receives 4% of Monarch’s total written annual premium, excluding acquisition expenses payable to agents, for FNU’s managing general agent services; 3.6% of Monarch’s total earned annual premium for FNU’s claims administration services; and a per-policy administrative fee of $25 for each policy underwritten for Monarch.  The Company also receives an annual expense reimbursement for accounting and related services.

· MNIC, MNHC and Monarch Delaware (collectively, the “Monarch Entities”) entered into an Investment Management Agreement (the “Monarch Investment Agreement”) with Crosswinds AUM LLC, a wholly owned subsidiary of Crosswinds (“Crosswinds AUM”), pursuant to which Crosswinds AUM manages the investment portfolios of the Monarch Entities.  The management fee, on an annual basis, is 0.75% of assets under management up to $100 million; 0.50% of assets under management of more than $100 million but less than $200 million; and 0.30% of assets under management of more than $200 million.

· MNIC also entered into a Reinsurance Capacity Right of First Refusal Agreement with TransRe, pursuant to which TransRe has a right of first refusal for all quota share and excess of loss reinsurance that Monarch Insurance deems necessary in its sole discretion for so long as TransRe remains a member of Monarch Delaware or the MNHC debt remains outstanding.  Pursuant to this agreement, TransRe has the right to provide, at market rates and terms, a maximum of 15% of any reinsurance coverage obtained by Monarch Delaware in any individual reinsurance contract.

· The Company’s Chief Executive Officer and Interim Chief Financial Officer hold their respective positions with Monarch Entities while they remain employed by the Company.

The Monarch Entities are consolidated as a variable interest entity (“VIE”) in the accompanying unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

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Executive Offices

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

Overview of Insurance Lines of Business

Homeowners’ Property and Casualty Insurance

FNIC and MNIC underwrite homeowners’ insurance in Florida and FNIC also underwrites insurance in Alabama, Louisiana and South Carolina. Homeowners’ insurance generally protects an owner of real and personal property against covered causes of loss to that property. The Florida homeowners’ policies in-force totaled 271,461 and 242,702at September 30, 2016 and at December 31, 2015, respectively.

Our homeowners’ insurance products provide maximum dwelling coverage in the amount of approximately $3.8 million, with the aggregate maximum policy limit being approximately $6.5 million. We currently offer dwelling coverage “A” up to $4.0 million with an aggregate total insured value of $6.5 million. We continually subject these limits to review; during 2015, coverage “A” was increased by $1.0 million and total insured value increased by $1.5 million. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims.

Premium rates charged to our homeowners’ insurance policyholders are continually evaluated to assure that they meet the expectation that they are actuarially sound and produce a reasonable level of profit (neither excessive, inadequate or discriminatory). Premium rates in Florida and other states are regulated and approved by the respective states’ insurance regulators.  MNIC applied for and was approved by the Florida OIR for a rate decrease of 11.9% for Florida homeowners’ multiple-peril insurance policies, which became effective for new and renewals on April 15, 2016. Additionally, FNIC applied for and was approved by the Florida OIR for a rate increase of 5.6% for Florida homeowners’ multiple-peril insurance policies, which became effective for new and renewals on August 1, 2016. We continue to monitor and seek appropriate adjustment to our rates in order to remain competitive and profitable.

Other Lines of Business

Personal Automobile:Nonstandard personal automobile insurance is principally provided to insureds that are unable to obtain standard insurance coverage because of their driving record, age, vehicle type or other factors, including market conditions. We market this through licensed general agents in their respective territories.

Commercial General Liability: We underwrite for approximately 380 classes of skilled craft workers (excluding homebuilders and developers) and mercantile trades (such as owners, landlords and tenants). The limits of liability range from $100,000 per occurrence with a $200,000 policy aggregate to $1.0 million per occurrence with a $2.0 million policy aggregate. We market the commercial general liability insurance products through independent agents and a limited number of general agents unaffiliated with the Company.

Flood:FNIC writes flood insurance through the National Flood Insurance Program (“NFIP”). We write the policy for the NFIP, which assumes 100% of the flood risk while we retain a commission for our service.

See the discussion in Item 1: “Business” in our 2015 Form 10-K for additional information with respect to our business.

RESULTS OF OPERATIONS

Operating Results Overview - Three Months Ended September 30, 2016 Compared with Three Months Ended September 30, 2015

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders

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or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table summarizes our unaudited results of operations for the three months ended September 30, 2016 and 2015:

	Three Months Ended
	September 30,
	2016		% Change	2015
	(Dollars in thousands)
Revenue:
Gross premiums written	$	161,137	24.1%	$	129,840
Increase in unearned premiums		(13,513)	(23.2)%		(17,587)
Gross premiums earned		147,624	31.5%		112,253
Ceded premiums		(78,219)	56.5%		(49,967)
Net premiums earned		69,405	11.4%		62,286
Net investment income		2,164	13.5%		1,907
Net realized investment gains		1,126	—%		1,126
Other income		11,095	52.4%		7,280
Total revenue		83,790	15.4%		72,599
Costs and expenses:
Losses and loss adjustment expenses		43,613	53.5%		28,412
Commissions and other underwriting expenses		34,512	59.7%		21,610
General and administrative expenses		4,044	(17.2)%		4,887
Interest expense		81	24.6%		65
Total costs and expenses		82,250	49.6%		54,974
Income before income taxes		1,540	(91.3)%		17,625
Income taxes		102	(98.6)%		7,054
Net income		1,438	(86.4)%		10,571
Net loss attributable to noncontrolling interest		44	(300.0)%		(22)
Net income attributable to FNHC	$	1,394	(86.8)%	$	10,593
Ratios to net premiums earned:
Net loss ratio (1)		62.8%			45.6%
Net expense ratio(2)		55.7%			42.6%
Net combined ratio(3)		118.5%			88.3%

(1) The net loss ratio is calculated as losses and LAE divided by net premiums earned.

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

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

Revenue

Total revenue for the three months ended September 30, 2016 of $83.8 million increased $11.2 million, or 15.4%, compared to revenue of $72.6 million in 2015.

Gross Premiums Written

Gross premiums written increased $31.3 million, or 24.1%, to $161.1 million for the three months ended September 30, 2016, compared with $129.8 million for the same three-month period last year. The increase predominantly reflects market share growth in our homeowners’ and personal automobile lines of business. Homeowners’ gross premiums written increased $14.6 million, or 12.3%, to $133.5 million for the three months ended September 30, 2016, compared with $118.9 million for the same three-month period last year. Gross premiums written for our personal automobile line of business increased by $16.5 million to $21.5 million in the third quarter of 2016 compared to $5.0 million in the prior year period. These increases reflect management’s strategy to continue to grow market

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share in Florida as well as expand operations outside of Florida with the growth in our personal automobile line of business. With the expansion into areas outside of Florida, we are able to continue to leverage our personnel and, at the same time, diversify our insurance risk.

Ceded Premiums Earned

Ceded premiums earned increased by $28.3 million, or 56.5%, to $78.2 million for the three months ended September 30, 2016, compared with $50.0 million in the same three-month period last year. This increase is driven by the additional excess-of-loss reinsurance costs purchased for the 2016 – 2017 reinsurance program, which became effective on June 1, 2016 and July 1, 2016 and the additional ceded premiums related to premium growth in our personal automobile line of business from this current period compared to the same-period last year.

Additionally, during the third quarter of 2015, we re-evaluated the accounting treatment for quota-share reinsurance contracts which lead to a decrease in ceded premiums of $10.9 million in the prior year period. Refer to our 2015 Form 10-K for additional information regarding the ceded premiums adjustment. These items were offset by lower ceded premiums this quarter from the 30% property quota-share treaty which ended on July 1, 2016.

Net Premiums Earned

Net premiums earned increased $7.1 million, or 11.4%, to $69.4 million during the three months ended September 30, 2016, compared with $62.3 million during the three months ended September 30, 2015. This increase was primarily driven by an increase in our Florida homeowners’ in-force policy count to 271,461 as of September 30, 2016, compared with 231,828 in the prior year.

Net Investment Income

Total investments increased $41.8 million, to $426.1 million as of September 30, 2016, compared with $384.3 million as of December 31, 2015. As a result, net investment income increased $0.3 million, or 13.5%, to $2.2 million during the three months ended September 30, 2016, compared to $1.9 million during the three months ended September 30, 2015. This increase is mainly due to greater interest income earned, which is attributed to the year-over-year growth of our investment portfolio. Our debt securities investment yield, net, was 2.4% for the three months ended September 30, 2016 and 2015.

Net Realized Investment Gains

Net realized investment gains remained constant at $1.1 million for the three months ended September 30, 2016 and 2015, respectively. From time to time, our portfolio managers, under our control, move out of positions due to both macro and micro conditions; these movements generate both realized gains and losses.

Other Income

Other income increased $3.8 million, or 52.4%, to $11.1 million for the three months ended September 30, 2016, compared with $7.3 million in the prior year period. The following table represents the other income detail as follows:

	Three Months Ended
	September 30,
	2016		% Change	2015
	(Dollars in thousands)
Other income:
Direct written policy fees	$	4,318	55.2%	$	2,783
Commission income		3,921	110.5%		1,863
Brokerage		2,279	3.2%		2,209
Finance		577	35.8%		425
Total other income	$	11,095	52.4%	$	7,280

The increase in direct written policy fees is correlated to the increase in gross written premiums in our homeowners and personal automobile lines of business compared to the prior year. These fees are generated when the Company writes a policy and the fee varies from state to state and by line of business. Policy fees generated by the managing general agent are earned by the Company. All other policy fees are collected by us and passed through to the general agent as acquisition costs and recognized in commission and other underwriting expenses.

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The increase in commission income primarily reflects the growth in ceded commissions from personal automobile and the fees we receive for managing that business. These fees are received by FNIC and passed through to FNU for its services as a managing general agent. The commission income from personal automobile is designed to offset the commission and other acquisition costs incurred when the Company writes the policies, which are recognized in the commissions and other underwriting expenses account.  

Expenses

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses (“LAE”) increased $15.2 million, or 53.5%, to $43.6 million for the three months ended September 30, 2016, compared with $28.4 million for the same three-month period last year. The increase in losses and LAE was driven by approximately $9.0 million in additional losses related to increasing our Florida homeowners’ current year accident year attritional loss ratio, which is currently now at 36.1%, as compared to the same period in prior year. We believe this measure is useful to investors as the Company uses the attritional loss ratio to monitor losses associated with ordinary insurance operations. Additionally, the Company incurred $4.0 million in catastrophe losses, net of reinsurance, correlated with the impact of Hurricane Hermine, and $4.5 million of additional losses incurred related to higher premiums this quarter as compared to same period in prior year.

During the third quarter of 2015, we re-evaluated the accounting treatment for quota-share reinsurance contracts which led to an additional $4.5 million in losses and LAE in the prior year period. Refer to our 2015 Form 10-K for additional information regarding the losses and LAE adjustment.

Commissions and Other Underwriting Expenses

Commissions and other underwriting expenses increased $12.9 million, or 59.7%, to $34.5 million for the three months ended September 30, 2016, compared with $21.6 million for the three months ended September 30, 2015. The increase is driven by $6.0 million in prior year expense reduction related to the commission credit received as part of the 30% property quota share treaty for the three months ended September 30, 2015, and the remaining $7.0 million increase is primarily the additional acquisition costs related to the $35.3 million growth in gross premiums earned during this quarter as compared to the same period in prior year.  The gross premiums earned increase is driven from homeowners and personal automobile lines of business. Although personal automobile quota-share treaties cede 75% to 90% of all written premiums, the full expense for commissions and other acquisition costs are recognized in this line item and offset the related commission income within other income.

General and Administrative Expenses

General and administrative expenses decreased $0.8 million, or 17.2%, to $4.0 million for the three months ended September 30, 2016, compared with $4.9 million for the three months ended September 30, 2015.  The decrease is primarily driven by lower executive and employee bonus expense which fluctuates based on the Company’s performance.

Income Taxes

Income taxes decreased $7.0 million, or 98.6%, to $0.1 million for the three months ended September 30, 2016, compared with $7.1 million for the three months ended September 30, 2015.The change was due to a decrease in taxable income and a decrease in our effective tax rate related to adjustments in our permanent items, including increased federal deductions in our state tax expense and return to provision adjustments.

Operating Results Overview - Nine Months Ended September 30, 2016 Compared with Nine Months Ended September 30, 2015

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders

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or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table reports our unaudited results of operations for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended
	September 30,
	2016		% Change	2015
Revenue:	(Dollars in thousands)
Gross premiums written	$	468,379	27.1%	$	368,560
Increase in unearned premiums		(55,323)	(4.6)%		(57,973)
Gross premiums earned		413,056	33.0%		310,587
Ceded premiums		(228,609)	48.2%		(154,289)
Net premiums earned		184,447	18.0%		156,298
Net investment income		6,398	24.1%		5,154
Net realized investment gains		2,060	(45.0)%		3,743
Other income		34,909	65.2%		21,130
Total revenue		227,814	22.3%		186,325
Expenses:
Losses and LAE		120,183	59.2%		75,510
Commissions and other underwriting expenses		75,408	57.3%		47,934
General and administrative expenses		13,211	10.3%		11,973
Interest expense		259	60.9%		161
Total costs and expenses		209,061	54.2%		135,578
Income before income taxes		18,753	(63.0)%		50,747
Income taxes		6,594	(66.2)%		19,519
Net income		12,159	(61.1)%		31,228
Net (income) loss attributable to noncontrolling interest		239	(162.4)%		(383)
Net income attributable to FNHC	$	11,920	(62.3)%	$	31,611
Ratios to net premiums earned:
Net loss ratio (1)		65.2%			48.3%
Net expense ratio(2)		48.2%			38.4%
Net combined ratio(3)		113.4%			86.7%

(1) The net loss ratio is calculated as losses and LAE divided by net premiums earned.

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

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

Revenue

Total revenue for the nine months ended September 30, 2016 of $227.8 million increased $41.5 million, or 22.3%, compared to revenue of $186.3 million in 2015.

Gross Premiums Written

Gross premiums written increased $99.8 million, or 27.1%, to $468.4 million for the nine months ended September 30, 2016, compared with $368.6 million for the same nine-month period last year. The increase predominantly reflects market share growth in our homeowners’ and personal automobile lines of business. Homeowners’ gross premiums written increased $53.6 million, or 15.8%, to $393.8 million for the nine months ended September 30, 2016, compared with $340.2 million for the same nine-month period in the prior year. Gross premiums written for the personal automobile line of business increased by $45.4 million to $56.2 million in the first nine months of 2016, compared to $10.8 million in the prior year period. These increases reflect management’s strategy to continue to grow market share in Florida as well as expand operations outside of Florida with the growth in the Company’s personal automobile

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line of business. With the expansion into areas outside of Florida, we are able to continue to leverage our personnel and, at the same time, diversify our insurance risk.

Ceded Premiums Earned

Ceded premiums earned increased by $74.3 million, or 48.2%, to $228.6 million for the nine months ended September 30, 2016, compared with $154.3 million in the same nine-month period last year. This increase is driven by additional excess-of-loss reinsurance costs during the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015 and additional ceded premiums from quota-share agreements in our homeowners’ and personal automobile lines of business. These items were offset by lower ceded premiums in the third quarter of 2016 from the 30% property quota-share treaty which ended on July 1, 2016.

Net Premiums Earned

Net premiums earned increased $28.1 million, or 18.0%, to $184.4 million during the nine months ended September 30, 2016, compared with $156.3 million during the nine months ended September 30, 2015. This increase was primarily driven by an increase in our Florida homeowners’ in-force policy count to 271,460 as of September 30, 2016, compared with 231,828 in the prior year.

Net Investment Income

Net investment income increased $1.2 million, or 24.1%, to $6.4 million during the nine months ended September 30, 2016, compared to $5.2 million in 2015. This increase is mainly due to greater interest income earned, which is attributed to the year-over-year growth of our investment portfolio. Our debt securities investment yield, net, was 2.4% for the nine months ended September 30, 2016 and 2015.

Net Realized Investment Gains

Net realized investment gains totaled $2.1 million for the first nine months of 2016, compared with $3.7 million for the same period in 2015. From time to time, our portfolio managers, under our direction, move out of positions due to both macro and micro conditions; these movements generate both realized gains and losses.

Other Income

Other income increased $13.8 million, or 65.2%, to $34.9 million for the nine months ended September 30, 2016, compared with $21.1 million in the prior year period. The following table represents the other income detail as follows:

	Nine Months Ended
	September 30,
	2016		% Change	2015
	(Dollars in thousands)
Other income:
Direct written policy fees	$	13,445	70.5%	$	7,887
Commission income		14,779	244.0%		4,296
Brokerage revenue		5,039	10.8%		4,548
Quota-share profit sharing		—	(100.0)%		3,077
Finance revenue		1,646	24.5%		1,322
Total other income	$	34,909	65.2%	$	21,130

The increase in direct written policy fees is correlated related to the increase in gross written premiums in our homeowners and personal automobile lines of business compared to prior year. The increase in direct written policy fees is directly related to the increase in gross written premiums in our homeowners and personal automobile lines of business compared to the prior year. These fees are generated when the Company writes a policy and varies from state to state, and by line of business. Policy fees generated by the managing general agent are earned by the Company. All other policy fees are collected by us and passed through to the general agent as acquisition costs and recognized in commission and other underwriting expenses.

The increase in commission income primarily reflects the growth in ceded commissions from personal automobile and the fees we receive for managing that business. The commission income from personal automobile is designed to offset the commission and other acquisition costs incurred when the Company writes the policies, which are recognized in the commissions and other underwriting expenses account.

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The decrease in quota-share profit sharing is the result of our re-evaluation, effective September 30, 2015, of the accounting treatment for the quota-share reinsurance contracts with retrospective rating provisions. At that time, we eliminated recording of future estimated quota-share profits in one line, ("Quota-share profit sharing") on the consolidated statement of operations.

Expenses

Losses and LAE

Losses and LAE increased $44.7 million, or 59.2%, to $120.2 million for the nine months ended September 30, 2016, compared with $75.5 million for the same nine-month period in the prior year. The increase in losses and LAE was driven by approximately $26.0 million in additional losses related to increasing our Florida homeowners’ current year accident year attritional loss ratio, which is currently now at 36.1%, and $10.4 million related to higher premiums this period as compared to same period in prior year, offset by higher ceded losses from the property quota-share treaties. The increase in the attritional loss ratio is a direct result of the continued impact from assignment of benefits and other related adjusting expenses, and the impact from the temporary discontinuation of our underwriting analytics.We believe this measure is useful to investors as the Company uses the attritional loss ratio to monitor losses associated with ordinary insurance operations.

Additionally, the Company incurred $11.9 million in gross catastrophe losses correlated with severe weather events that impacted the State of Florida (i.e., tornadoes, Tropical Storm Colin, and Hurricane Hermine) and $11.0 million in prior year development in the all other peril homeowners’ coverage in Florida relating to the 2015 accident year.

As of September 30, 2016, the Company recorded $127.5 million in losses and LAE expense reserves for all lines of business, which includes $76.7 million in incurred but not yet reported (“IBNR”) reserves. As of December 31, 2015, the Company recorded $97.3 million in losses and LAE expense reserves for all lines of business, which includes $51.1 million in IBNR reserves.

Commissions and Other Underwriting Expenses

Commissions and other underwriting expenses increased $27.5 million, or 57.3%, to $75.4 million for the nine months ended September 30, 2016, compared with $47.9 million for the nine months ended September 30, 2015.  The increase is driven by additional acquisition costs and underwriting expenses related to the growth in gross premiums earned during this period as compared to the same period in prior year.  The increase in gross premiums earned is driven by the homeowners’ and personal automobile lines of business.  Although personal automobile quota-share treaties cede 75% to 90% of all written premiums, the full expense for commissions and other acquisition costs are recognized in this line item and offset the related commission income with the other income line item.

Additionally, with the 30% quota share treaty ending on July 1, 2016, the Company did not receive the commission credit from the 30% quota share which increased expenses by approximately $9.0 million during the third quarter of 2016.

General and Administrative Expenses

General and administrative expenses increased $1.2 million, or 10.3%, to $13.2 million for the nine months ended September 30, 2016, compared with $12.0 million for the nine months ended September 30, 2015. The increase primarily reflects expenses incurred of $1.9 million in connection with the resignation of the Company’s former Chief Financial Officer during the second quarter of 2016.

Income Taxes

Income taxes decreased $12.9 million, or 66.2%, to $6.6 million for the nine months ended September 30, 2016, compared with $19.5 million for the nine months ended September 30, 2015. Our effective tax rate was 35.2% for the nine months ended September 30, 2016, compared with 38.5% for the nine months ended September 30, 2015.The change was due to a decrease in taxable income and a decrease in our effective tax rate related to adjustments in our permanent items, including increased federal deductions in our state tax expense and return to provision adjustments.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are net premiums, investment income, commissions and fee income. Our primary uses of funds are the payment of claims and operating expenses. As of September 30, 2016, FNHC held $426.1million in investments. Cash and cash equivalents increased $53.2million, to $106.2million as of September 30, 2016, compared with $53.0million as of December 31, 2015.

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Cash Flows Discussion

Operating Activities

Net cash provided by operating activities increased to $99.3 million in the nine months ended September 30, 2016 from $80.2million in the same period in2015. This increase primarily reflectsthe increase in prepaid reinsurance premiums, partly offset by decreases in the deferred acquisition costs andpremiums receivable. The decrease in deferred acquisition costs reflects the unwinding effect of the 30% quota-share treaty which expired on a cut-off basis on July 1, 2016.

Investing Activities

Net cash used in investing activities of $38.3 million in the nine months ended September 30, 2016 related to purchases of investment securities of $188.6 million, partly offset by sales, maturities and redemptions of our investment securities of $151.9 million. Net cash used in investing activities of $61.9 million in the nine months ended September 30, 2015 related to purchases of investment securities of $195.3 million, partly offset by sales, maturities and redemptions of our investment securities of $134.9million.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2016 of $7.8 million, primarily reflects repurchases of our common stock of $5.5 million and dividend payments of $3.6 million, partially offset by $0.8 million in tax benefits related to share-based compensation. Net cash provided by financing activities of $17.7 million for the nine months ended September 30, 2015 reflects $18.5 million related to the noncontrolling interest equity investment, partially offset by dividend payments of $1.8 million.

We believe that existing cash and investment balances, when combined with anticipated cash flows as noted above, will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future. We currently expect to continuedeclaring and payingdividends at comparable levels, subject to our future liquidity needs and reserve requirements. The Company also considers various opportunities, including common stock repurchases, to deploy its excess capital. Any future growth strategy may require external financing, and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us on favorable terms, or at all, or that any such financing would not negatively impact our results of operations.

Dividends and Common Stock Repurchases

In February 2016, our Board of Directors declared a quarterly dividend payment of $0.05 per common share, paid in March 2016, amounting to $0.7 million. In May and June 2016, our Board of Directors declared quarterly dividend payments of $0.06 per common share, respectively, paid in June and August 2016, respectively, totaling $1.7 million.  

In September 2016, our Board of Directors declared a $0.08 per common share dividend payable December 1, 2016 to shareholders of record on November 1, 2016.Based on the number of shares of common stock outstanding as of September 30, 2016, at a dividend of $0.08 per share, the anticipated cash outflow would be $1.1million in the fourth quarter of 2016. We currently expect to declare and pay quarterly dividends of similar amounts.

In March 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0million through March 31, 2017. Common stock repurchases are conducted in the open market. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors. This program may be modified, suspended or terminated by us at any time without notice.

During the first nine months of 2016, we repurchased 0.3million shares of common stock for $5.5million, including commissions. The remaining availability for future repurchases of our common stock was $4.5million.

Impact from Hurricane Matthew

Based on our preliminary estimate of the losses caused by Hurricane Matthew as described in Note 13 — “Subsequent Event” to our unaudited consolidated financial statements under Item 1 of this Form 10-Q, we do not believe there will be a significant impact on our future liquidity and financial position.

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Impact of Inflation and Changing Prices

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

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

Critical Accounting Policies

The preparation of consolidated 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.

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

There have been no significant changes to our critical accounting estimates during the nine months ended September 30, 2016.  Refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our 2015 Form 10-K for a more complete description of our critical accounting estimates.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

Our investment policy is established by the Board of Directors Investment Committee and is reviewed on a regular basis. Pursuant to this investment policy, as of September 30, 2016, approximately 92% 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 98% 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.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

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

Our management, with the participation of our Chief Executive Officer and Interim 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, 2016. Based upon their evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that our

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disclosure controls and procedures, as of September 30, 2016, 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 Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes during the three months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II: OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and Federated National Insurance Company.  In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on July 21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida.  Specifically, the Company seeks a declaration that its federally registered trademark "FEDNAT" does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark "FED" in connection with insurance services outside of Owatonna, Minnesota.  On July 26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association alleging a breach of the Co-Existence Agreement.  Both matters are in their preliminary stages and FNHC intends to vigorously defend against all of Mutual’s allegations, although there can be no assurances as to the outcome of either matter.

Refer to Note 9 to our consolidated financial statements set forth in Part I, “Financial Statements” for further information about legal proceedings.

Item 1A.  Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of the Company’s 2015 Form 10-K.  Please refer to that section for disclosures regarding what we believe are the most significant risks and uncertainties related to our business.

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

Issuer Purchases of Equity Securities. The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended September 30, 2016 by or on behalf of FNHC. All purchases were made in the open market in accordance with Rule 10b-18 of the Exchange Act.

				Total Number of	Approximate Dollar
	Total Number	Average		Shares Purchased	Value of Shares That
	of Shares	Price Paid		as Part of Publicly	May Yet Be Purchased
	Repurchased	Per Share		Announced Plans	Under the Plans (1)
July 2016	—	$	—	—	$	—
August 2016	112,565	$	18.02	112,565	$	5,592,911
September 2016	61,240	$	17.77	61,240	$	4,504,817

(1) In March 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 31, 2017.

Item 3.  Defaults upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

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Item 6.  Exhibits

Exhibit No.	Description
10.1	FHCF Supplemental Layer Reinsurance Contract, effective June 1, 2016 between Federated National Insurance Company and subscribing reinsurers.*
10.2	Multi-Year Excess Catastrophe Reinsurance Contract, effective July 1, 2016 between Federated National Insurance Company and subscribing reinsurers.*
10.3	Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2016 between Federated National Insurance Company and subscribing reinsurers.*
10.4	Non-Florida Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2016 between Federated National Insurance Company and subscribing reinsurers.*
10.5	Reinstatement Premium Protection Reinsurance Contract, effective July 1, 2016, between Federated National Insurance Company and subscribing reinsurers.*
10.6	Excess Catastrophe Reinsurance Contract, effective July 1, 2016 between Federated National Insurance Company and subscribing reinsurers.*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act**
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act**
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act**
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act**
101.INS	XBRL Instance Document***
101.SCH	XBRL Taxonomy Extension Schema Document***
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document***
101.LAB	XBRL Taxonomy Extension Label Linkbase Document***
101.PRE	XBRLTaxonomy Extension Presentation Linkbase Document***

________________________

*This exhibit is subject to a confidential treatment request filed with the SEC.

**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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SIGNATURES

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

FEDERATEDNATIONALHOLDINGCOMPANY
By:	/s/ Michael H. Braun
	Michael H. Braun, Chief Executive Officer
	(Principal Executive Officer)
	/s/ Erick A.  Fernandez
	Erick A. Fernandez, Interim Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: November8, 2016

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EX-10.1

FHCF Supplement Layer

Reinsurance Contract

Effective:  June 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1085

Reinsurer(s)	Participation(s)
American Standard Insurance Company of Wisconsin	*%
BGS Services (Bermuda) Limited  for and on behalf of Lloyd's Syndicate No. 2987	*%
Chubb Tempest Reinsurance Ltd.	*%
DaVinci Reinsurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Hamilton Re, Ltd.	*%
Horseshoe Re Limited on behalf of and for the benefit of its Separate Account CC0024**	*%
Partner Reinsurance Company Ltd.	*%
Renaissance Reinsurance Ltd.**	*%
Securis Re II Ltd. Bermuda  in respect of its segregated account designated "SRB205"**	*%
Securis Re III Ltd. Bermuda  in respect of its segregated account designated "SRB305"**	*%
Securis Re V Ltd. Bermuda  in respect of its segregated account designated "SRB505"**	*%
Securis Re VI Ltd. Bermuda  in respect of its segregated account designated "SRB605"**	*%
Tokio Millennium Re AG, Bermuda Branch (Elementum Advisors Business)* *	*%
Tokio Millennium Re AG (Bermuda Branch)	*%
Transatlantic Reinsurance Company	*%
XL Bermuda Ltd.**	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Ascot Underwriting (Bermuda) Limited  for and on behalf of American International Reinsurance Company, Ltd.	*%
General Insurance Corporation of India	*%
Länsförsäkringar Sak Forsäkringsaktiebolag (publ)	*%
Pioneer Underwriting Limited  for and on behalf of PICC Property and Casualty Company Limited	*%
Pioneer Underwriting Limited  for and on behalf of Taiping Reinsurance Co. Ltd.	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters and Companies  Per Signing Page(s)	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1085

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

16\F7V1085

FHCF Supplement Layer

Reinsurance Contract

Effective: June 1, 2016

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, June 1, 2016, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, June 1, 2017.

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

1
16\F7V1085 Page 1

statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

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

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

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

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

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

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

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

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

C.    The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2016 to 12:01 a.m., Eastern Standard Time, June 1, 2017.  However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2016 to the effective time and date of termination.

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

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Article 3 - Territory

This Contract shall only apply to risks located in 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.

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

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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.

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 ***** of ultimate net loss arising out of any one loss occurrence.  The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention, but the Reinsurer's liability for ultimate net loss (plus an allowance for loss adjustment expense)shall not exceed *****as respects all losses arising out of loss occurrences  commencing during the term of this Contract.

B.    Notwithstanding the provisions of paragraph A above, the following shall apply:

1.     When the Company experiences ultimate net loss from one or two covered events during the term of this Contract, the Company’s full *****retention shall be applied to each of the covered events; and

2.When the Company experiences ultimate net loss from more than two covered events during the term of this Contract, the Company’s full ***** retentionshall be applied to

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each of the two covered events causing the largest ultimate net loss for the Company.  For each other covered event resulting in ultimate net loss, the Company’s retention shall be reduced to one - third of its full retention ***** and applied to all other covered events.

C.    No claim will be made under this Contract in any one loss occurrence unless at least two risks insured or reinsured by the Company are involved in such loss occurrence.

D.    As part of the Reinsurer's limit of liability set forth in paragraph A above,the Reinsurer shall be liable for an amount equal to 5.0% of ultimate net loss paid or to be paid by the Reinsurer as an allowance for loss adjustment expense incurred by the Company.

Article 6 - Other Reinsurance

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

Article 7 - Definitions

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

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

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

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any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

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

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

Article 8 - Loss Occurrence

A.    "Loss occurrence" as used in this Contract shall mean the sum of individual insured losses incurred under Policies resulting from the same covered event.

B.    "Covered event" as used in this Contract shall mean any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida.  A covered event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall.  Any storm, including a tropical storm, which does not become a hurricane is not a covered event.

Article 9 - Loss Notices and Settlements

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

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

Article 10 - Cash Call

Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or

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settlements(including the associated allowance for loss adjustment expense) that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss.  Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer.

Article 11 - Salvage and Subrogation

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

Article 12 - Reinsurance Premium

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

1.An annual deposit premium of *****; 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, 2016, by (b) the original AAL of *****.

However, if the difference between annual deposit premium of *****, and the premium calculated in accordance with this paragraph A is less than a 10.0% increase or decrease, the premium due the Reinsurer will equal the annual deposit premium of *****.

The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) Touchstone v3.1 and Risk Management Solutions (RMS) RiskLink v15 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge.  It is understood that the calculation of the actual AAL shall be based on the Reinsurer's per occurrence limit of *****, net of the FHCF mandatory layer of coverage purchased by the Company using the current estimates of the mandatory FHCF coverage of ***** excess of *****.

B.    The Company shall pay the Reinsurer an annual deposit premium of *****, in four equal installments of ***** on July 1 and October 1 of 2016, and on January 1 and April 1 of 2017. 

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However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

C.    On or before May 31, 2017, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

Article 13 - Sanctions

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

Article 14 - Late Payments

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

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

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

2.1/365ths of the six-month United States Treasury Bill 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.

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

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

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

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

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

Article 15 - Offset

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

Article 16 - Access to Records

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

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Article 17 - Liability of the Reinsurer

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

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

Article 18 - Net Retained Lines (BRMA 32E)

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

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

Article 19 - Errors and Omissions (BRMA 14F)

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

Article 20 - Currency (BRMA 12A)

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

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

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Article 21 - Taxes (BRMA 50B)

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

Article 22 - Federal Excise Tax (BRMA 17D)

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

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

Article 23 - 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 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 return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event 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 shall reimburse the Reinsurer for such amounts.

Article 24 - Reserves

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

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

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

3.Cash advances;

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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 the allowance for loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

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

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

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

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

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Article 25 - 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 26 - 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 27 - 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 28 - 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 29 - Governing Law (BRMA 71B)

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

Article 30 - 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

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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 31 - 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 32 - 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

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"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 33 - 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

/s/ Michael H. Braun

*/s/ signed by all participating reinsurers

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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.

16\F7V1085

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

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

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

I.	Nuclear reactor power plants including all auxiliary property on the site, or
II.	Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or
III.	Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or
IV.	Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

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

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

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

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

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

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

7.Reassured to be sole judge of what constitutes:

(a)      substantial quantities, and

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

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

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

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

12/12/57

N.M.A. 1119

BRMA 35B

16\F7V1085

Terrorism Exclusion

(Property Treaty Reinsurance)

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

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

1.     Involves violence against one or more persons, or

2.     Involves damage to property; or

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

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

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

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

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

16\F7V1085

EX-10.2

Multi-Year Excess Catastrophe

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1088

First Excess Catastrophe
Reinsurer(s)	Participation(s)
Endurance Specialty Insurance Ltd.**	*%
Everest Reinsurance Company	*%
Hamilton Re, Ltd.	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

Second Excess Catastrophe
Reinsurer(s)	Participation(s)
American Standard Insurance Company of Wisconsin	*%
Arch Reinsurance Ltd.	*%
Ariel Re Bda Limited  for and on behalf of Ariel Syndicate No. 1910	*%
Chubb Tempest Reinsurance Ltd.**	*%
DaVinci Reinsurance Ltd.**	*%
Endurance Specialty Insurance Ltd.**	*%
Everest Reinsurance Company	*%
Fidelis Insurance Bermuda Limited	*%
Hamilton Re, Ltd.	*%
Hiscox Insurance Company (Bermuda) Limited	*%
Partner Reinsurance Company Ltd.	*%
Renaissance Reinsurance Ltd.**	*%
XL Bermuda Ltd	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)* *	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1088

Third Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd	*%
American Standard Insurance Company of Wisconsin	*%
Ariel Re Bda Limited  for and on behalf of Ariel Syndicate No. 1910	*%
Endurance Specialty Insurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Odyssey Reinsurance Company	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

Fourth Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd	*%
American Standard Insurance Company of Wisconsin	*%
Fidelis Insurance Bermuda Limited	*%
Odyssey Reinsurance Company	*%
Qatar Reinsurance Company Limited	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Taiping Reinsurance Co. Ltd.* *	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)* *	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1088

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	Florida Hurricane Catastrophe Fund	4
7	Other Reinsurance	5
8	Reinstatement	5
9	Definitions	7
10	Loss Occurrence	8
11	Loss Notices and Settlements	10
12	Cash Call	10
13	Salvage and Subrogation	11
14	Reinsurance Premium	11
15	Sanctions	13
16	Late Payments	14
17	Offset	15
18	Access to Records	15
19	Liability of the Reinsurer	15
20	Net Retained Lines (BRMA 32E)	16
21	Errors and Omissions (BRMA 14F)	16
22	Currency (BRMA 12A)	16
23	Taxes (BRMA 50B)	16
24	Federal Excise Tax (BRMA 17D)	16
25	Foreign Account Tax Compliance Act	17
26	Reserves	17
27	Insolvency	18
28	Arbitration	19
29	Service of Suit (BRMA 49C)	20
30	Severability (BRMA 72E)	20
31	Governing Law (BRMA 71B)	20
32	Confidentiality	21
33	Non-Waiver	22
34	Notices and Contract Execution	22
35	Intermediary	22
	Schedule A

16\F7V1088

Multi-Year Excess Catastrophe

Reinsurance Contract

Effective: July 1, 2016

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, 2016, 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, 2018.

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 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

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filed with regulatory authorities and available to the public as of the inception of any 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 Reserves Article.

C."Contract year" as used in this Contract shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2016 to 12:01 a.m., Eastern Standard Time, July 1, 2017, and each respective 12-month period thereafter that this Contract continues in force.  However, in the event this Contract or a Subscribing Reinsurer's share in this Contract is terminated, the final contract yearas respects the terminated share(s) shallbe the period from the beginning of the then current contract yearto the effective time and date of termination.

D.In the event a loss occurrence covered hereunder is in progress at the end of any contract year, the entire loss arising out of the loss occurrence will be charged to the contract year in which the loss occurrence commenced, subject to the other terms and conditions of this Contract.

E.Should this Contract expire or terminate while a loss occurrence covered hereunder is in progress, all losses arising from such loss occurrence will be deemed to have been incurred prior to the expiration or termination of this Contract, subject to the other conditions

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of this Contract, and provided that no part of said loss occurrence is claimed against any renewal or replacement of this Contract.

Article 3 - Territory

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

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, exceptbusiness 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 excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract  and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation.

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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.

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 - Florida Hurricane Catastrophe Fund

The Company has purchased 75.0% of the FHCF mandatory layer of coverage and 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.

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Article 6 - Other Reinsurance

A.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.

B.The Company will deem in place a FHCF Supplement Layer Reinsurance Contract, which shall be deemed to be placed at 15.0% for each contract year, recoveries of which shall be deemed to inure to the benefit of this Contract.

Article 7 - Retention and Limit

A.As respects the first contract year, the Company shall retain and be liable for the first $20,500,000 of ultimate net loss arising out of each loss occurrence. 

B.As respects the second contract year, the Company shall retain and be liable for the amount of ultimate net loss arising out of each loss occurrence, calculated as follows:

*****

C.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.

Whether a loss occurrence results in an 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 an amount equal to the applicable retention as set forth above, for the applicable contract year, of ultimate net loss arising out of such loss occurrence.

D.As respects each contract year, recoveries shall always be made, in the first instance, under the lowest excess layer that is not entirely exhausted.  If there is any amount of ultimate net loss arising out of a loss occurrence in excess of the Company's retention under the lowest excess layer that has not been recovered thereunder for that contract year, such amount shall be recovered under the next or subsequent excess layer or layers, as appropriate.  Recoveries under each excess layer set forth in Schedule A attached to and forming part of this Contract shall inure as follows (with such excess layers deemed placed at 100% prior to inuring):

1.100% recoveries under the First Excess layer shall inure to the benefit of the Second Excess layer;

2.100% recoveries under the First and Second Excess layers shall inure to the benefit of the Third Excess layer; and

3.100% recoveries under the First, Second and Third Excess layers shall inure to the benefit of the Fourth Excess layer.

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It is understood, however, that any fully exhausted excess layer or the exhausted portion of any excess layer during a contract year shall no longer inure to the benefit of any subsequent excess layer(s) for such contract year.

E.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 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

2.The earned reinsurance premium for the excess layer reinstated for the contract year (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 contract year 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 applicable contract year deposit premium for that excess layer, and shall be readjusted when the final adjusted reinsurance premium for that excess layer for the contract year 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 Reinsurerfor 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 ScheduleA attached hereto, as respects loss or losses arising out of any one loss occurrence; or

2.The amount, shown as "Reinsurer's  Contract Year Limit" for that excess layer in ScheduleA attached hereto, in all during any one contract year.

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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

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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:

*****

2.As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

3.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 96 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 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

4.As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence

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during the period of 168 consecutive hours may be included in the Company's loss occurrence.

5.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.

6.As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence.

B.For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, 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 or series of disasters, accidents, or losses.  Furthermore:

1.For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event.

2.As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 

3.As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period.

C.It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence.  Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above.

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

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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.

Article 14 - Reinsurance Premium

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

B.As respects the first contract year, 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 first contract year is less than 12 months), subject to an annual minimum premium of the amount, shown as "First Contract Year Minimum Premium" for that excess layer in Schedule A attached

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hereto (or a pro rata portion thereof in the event the first contract year is less than 12 months):

1.The amount, shown as "First Contract Year 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, 2016, by (b) the original AAL of the amount, shown as "AAL" for that excess layer in Schedule A attached hereto.

C.The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) Touchstone v3.1 catastrophe modeling software, in the long term perspective, including demand surge, but excluding storm surge, and Risk Management Solutions (RMS) RiskLink v15 catastrophe modeling software, in the long-term perspective, including 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 (1) the FHCF mandatory layer of coverage purchased by the Company for the first contract year, and of (2) the Company's FHCF Supplement Layer Reinsurance Contract,which shall be deemed to be placed at 15.0%.

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

E.As respects the second contract year, the Company shall pay the Reinsurer an annual deposit premium for each excess layer, as calculated below ("Second Contract Year Deposit Premium"), in four equal installments on July 1, October 1, January 1 and April 1 of that contract year.  However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

*****

F.As respects the second contract year, 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 final contract year is less than 12 months), subject to an annual minimum premium of the amount equal to 80.0% of the Second Contract Year Deposit Premium for each excess layer (or a pro rata portion thereof in the event the final contract year is less than 12 months):

***** 

"Actual Loss on Line" shall mean the Company's AAL determined by the Company's actual wind insurance in force on September 30, 2017, divided by the Reinsurer's Per Occurrence Limitfor that excess layer.

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H.As respects paragraphs E and G above, 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 (1) theFHCF 75% mandatory layer of coverage purchased by the Company for the applicable contract year, and of (2) the applicable renewal of the Company's FHCF Supplement Layer Reinsurance Contract, which shall be deemed to be placed at 15.0%.

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

J.On or before June 30 of each contract year, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the contract year, computed in accordance with paragraphs A and F above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer 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.

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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.

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.

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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.

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.

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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.

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 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 return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event 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 shall reimburse the Reinsurer for such amounts.

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

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unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by:

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

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

3.Cash advances;

if the Reinsurer:

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

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

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

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

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

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;

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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.

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

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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 - 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

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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.

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

19
16\F7V1088 Page 19

or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer.

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

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

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

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16\F7V1088 Page 20

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.

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

/s/ Michael H. Braun

/s/ signed by all participating reinsurers

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16\F7V1088 Page 21

Schedule A

Multi-Year Excess Catastrophe

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	First Excess	Second Excess	Third Excess	Fourth Excess
Reinsurer's Per Occurrence Limit	*****	*****	*****	*****
Reinsurer's Contract Year Limit	*****	*****	*****	*****
First Contract Year Minimum Premium	*****	*****	*****	*****
AAL	*****	*****	*****	*****
First Contract Year Deposit Premium	*****	*****	*****	*****
First Contract Year Deposit Premium Installments	*****	*****	*****	*****

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.

16\F7V1088 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.

16\F7V1088

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

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

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

I.	Nuclear reactor power plants including all auxiliary property on the site, or
II.	Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or
III.	Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or
IV.	Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

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

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

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

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

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

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

7.     Reassured to be sole judge of what constitutes:

(a)     substantial quantities, and

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

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

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

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

12/12/57

N.M.A. 1119

BRMA 35B

16\F7V1088

Pools, Associations and Syndicates Exclusion Clause

(Catastrophe)

It is hereby understood and agreed that:

A.    This Contract excludes loss or liability arising from:

1.Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities.  This subparagraph 1 shall not apply with respect to:

a.     Residual market mechanisms created by statute.  This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract).  For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism."

b.Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation.

2.     Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks.  This subparagraph 2 shall not apply:

a.If the total insured value over all interests of the risk is less than $250,000,000.

b.To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis.

c.     To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000.

B.    With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions:

1.Recovery is limited to perils otherwise protected hereunder.

2.In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct

16\F7V1088

Page 1 of 2

assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence.

3.The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence.

4.     The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence.

5.The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder.

6.The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment.

7.     If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment.

8/1/2012

16\F7V1088

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.

16\F7V1088

EX-10.3

Non-Florida Property Catastrophe

Excess of Loss Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1075

First Excess Catastrophe
Reinsurer(s)	Participation(s)
American Agricultural Insurance Company	*%
American Standard Insurance Company of Wisconsin	*%
AXIS Specialty Limited	*%
Everest Reinsurance Company	*%
Partner Reinsurance Company Ltd.	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
General Insurance Corporation of India	*%
Länsförsäkringar Sak Forsäkringsaktiebolag (publ)	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

Second Excess Catastrophe
Reinsurer(s)	Participation(s)
American Agricultural Insurance Company	*%
AXIS Specialty Limited	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement

16\F7V1075

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

16\F7V1075

Non-Florida Property Catastrophe

Excess of Loss Reinsurance Contract

Effective: July 1, 2016

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, 2016, 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, 2017.

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

1
16\F7V1075 Page 1

statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

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

4.The Subscribing Reinsurer has become, 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, 2016 to 12:01 a.m., Eastern Standard Time, July 1, 2017.  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, 2016 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.

2
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Article 3 - Territory

The territorial limits of this Contract shall be identical with those of the Company's policies, excluding risks located in 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.

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 excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract  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,

3
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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.

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 $8,000,000 of ultimate net loss 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 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.

Whether a loss occurrence results in an 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 $8,000,000 of ultimate net loss arising out of such loss occurrence.

4
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B.Recoveries shall always be made, in the first instance, under the lowest excess layer that is not entirely exhausted.  If there is any amount of ultimate net loss arising out of a loss occurrence in excess of the Company's retention under the lowest excess layer that has not been recovered thereunder, such amount shall be recovered under the next excess layer, if appropriate.  Recoveries under the First Excess layer set forth in Schedule A shall inure to the benefit of the Second Excess layer.

It is understood, however, that any fully exhausted excess layer or the exhausted portion of any excess layer shall no longer inure to the benefit of any subsequent excess layer(s).

C.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 - Other Reinsurance

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

Article 7 - 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 Reinsurerunder that excess layer); times

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

B.Whenever the Company requests payment by the Reinsurer of any ultimate net lossunder 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

5
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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 8 - Definitions

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

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

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

1."Loss in excess of policy limits" shall mean 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

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not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.  Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss.

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

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

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

Article 9 - Loss Occurrence

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

*****

2.As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

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3.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 96 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 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

4.As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) 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.

5.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.

6.As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence.

B.For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, 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 or series of disasters, accidents, or losses.  Furthermore:

1.For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event.

2.As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 

3.As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period.

C.It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence.  Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded

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as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above.

Article 10 - Loss Notices and Settlements

A.Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's retention 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 11 - 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 12 - Salvage and Subrogation

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

Article 13 - Reinsurance Premium

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

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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, 2016, by (b) the original AAL of the amount, shown as "AAL" for that excess layer in Schedule A attached hereto.

The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) Touchstone v3.1 and Risk Management Solutions (RMS) RiskLink v15 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.

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 2016, and on January 1 and April 1 of 2017.  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, 2017, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

Article 14 - 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 15 - 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

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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.

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

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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 16 - 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 17 - 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 18 - 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 19 - 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

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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 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.

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 allow such deduction and withholding from the premium payable under this Contract.

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B.In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event 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 shall reimburse the Reinsurer for such amounts.

Article 25 - Reserves

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

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

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

3.Cash advances;

if the Reinsurer:

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

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

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

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

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

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

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

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

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

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

Article 26 - 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

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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 27 - 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 28 - 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 29 - 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 30 - Governing Law (BRMA 71B)

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

Article 31 - 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,

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underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. 

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

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

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

F.The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential 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 32 - 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

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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 33 - 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 34 - 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

/s/ Michael H. Braun/s/ signed by all participating reinsurers

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Schedule A

Non-Florida Property Catastrophe

Excess of Loss Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	First Excess	Second Excess
Reinsurer's Per Occurrence Limit	*****	*****
Reinsurer's Term Limit	*****	*****
Minimum Premium	*****	*****
AAL	*****	*****
Annual Deposit Premium	*****	*****
Deposit Premium Installments	*****	*****

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.

16\F7V1075 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.

16\F7V1075

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

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

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

I.	Nuclear reactor power plants including all auxiliary property on the site, or
II.	Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or
III.	Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or
IV.	Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

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

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

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

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

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

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

7.Reassured to be sole judge of what constitutes:

(a)substantial quantities, and

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

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

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

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

12/12/57

N.M.A. 1119

BRMA 35B

16\F7V1075

Pools, Associations and Syndicates Exclusion Clause

(Catastrophe)

It is hereby understood and agreed that:

A.This Contract excludes loss or liability arising from:

1.Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities.  This subparagraph 1 shall not apply with respect to:

a.Residual market mechanisms created by statute.  This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract).  For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism."

b.Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation.

2.     Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks.  This subparagraph 2 shall not apply:

a.If the total insured value over all interests of the risk is less than $250,000,000.

b.To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis.

c.To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000.

B.With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions:

1.Recovery is limited to perils otherwise protected hereunder.

2.In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct

16\F7V1075

Page 1 of 2

assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence.

3.The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence.

4.The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence.

5.The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder.

6.The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment.

7.If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment.

8/1/2012

16\F7V1075

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.

16\F7V1075

EX-10.4

Non-Florida Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1072

First Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Allianz Risk Transfer AG (Bermuda Branch)**	*%
Total	*%

Second Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
AXIS Specialty Limited	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1072

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)	6
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
	Schedule A
	Schedule B

16\F7V1072

Non-Florida Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

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 Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2016 (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, 2016, 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, 2017.

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

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statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

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

4.The Subscribing Reinsurer has become, 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.

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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 2016, and January 1 and April 1 of 2017.  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.

Article 6 - Loss Notices and Settlements

A.Whenever reinstatement premium settlements made by the Company underthe Original Contract appear likely to result in a claim hereunder, the Company shall notify the

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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.

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

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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.

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.

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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 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 return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event 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 shall reimburse the Reinsurer for such amounts.

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

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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;

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;

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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.

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

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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 Reinsureris involved in the same dispute, all such Subscribing Reinsurersshall, 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 Reinsurersconstituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurersto assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurersparticipating 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.

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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. 

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.

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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.

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

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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

/s/ Michael H. Braun

/s/ signed by all participating reinsurers

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Schedule A

Non-Florida Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	Original Contract FirstExcess	Original Contract SecondExcess
Reinsurer's Per Occurrence Limit	*****	*****
Reinsurer's Term Limit	*****	*****
Minimum Premium	*****	*****
AAL	*****	*****
Annual Deposit Premium	*****	*****
Deposit Premium Installments	*****	*****

16\F7V1072 Schedule A  

Schedule B

Non-Florida Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	First RPP Layer	Second RPP Layer
Reinstatement Factor	*****	*****
Annual Deposit Premium	*****	*****
Deposit Premium Installments	*****	*****

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.

16\F7V1072 Schedule B

EX-10.5

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1055

First Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Chubb Tempest Reinsurance Ltd.**	*%
Hannover Rück SE**	*%
Horseshoe Re Limited  for and on behalf of Hudson Structured Capital Management Ltd.**	*%
Securis Re I Ltd. Bermuda in respect of its segregated account designated "SRB105 Account" **	*%
Securis Re IV Ltd. Bermuda in respect of its segregated account designated "SRB405 Account" **	*%
Total	*%

Second Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Hannover Rück SE**	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Collateralised Re Ltd.**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

Third Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Chubb Tempest Reinsurance Ltd.**	*%
Hannover Rück SE**	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Collateralised Re Ltd.**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

16\F7V1055

Fourth Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Collateralised Re Ltd.**	*%
Total	*%

Fifth Reinstatement Premium Protection Reinsurance
Reinsurer(s)	Participation(s)
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Collateralised Re Ltd.**	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1055

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

16\F7V1055

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

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, 2016 (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, 2016, 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, 2017.

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

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statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

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

4.The Subscribing Reinsurer has become, 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.

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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 2016, and January 1 and April 1 of 2017.  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.

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Article 6 - Loss Notices and Settlements

A.Whenever reinstatement premium settlements made by the Company underthe OriginalContract 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

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payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

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

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

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

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

Article 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.

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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 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 return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event the Company or its agent recovers such premium

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deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts.

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;

7
16\F7V1055 Page 7

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 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

8
16\F7V1055 Page 8

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.

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.

9
16\F7V1055 Page 9

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,

10
16\F7V1055 Page 10

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.

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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16\F7V1055 Page 11

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

/s/ Michael H. Braun/s/ signed by all participating reinsurers

12
16\F7V1055 Page 12

Schedule A

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

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
Reinsurer's Per Occurrence Limit	*****	*****	*****	*****	*****
Reinsurer's Term Limit	*****	*****	*****	*****	*****
Minimum Premium	*****	*****	*****	*****	*****
AAL	*****	*****	*****	*****	*****
Annual Deposit Premium	*****	*****	*****	*****	*****
Deposit Premium Installments	*****	*****	*****	*****	*****

16\F7V1055 Schedule A

Schedule B

Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	First RPP Layer	Second RPP Layer	Third RPP Layer	Fourth RPP Layer	Fifth RPP Layer
Reinstatement Factor	*****	*****	*****	*****	*****
Annual Deposit Premium	*****	*****	*****	*****	*****
Deposit Premium Installments	*****	*****	*****	*****	*****

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.

16\F7V1055 Schedule B

EX-10.6

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

_______________________

*****Portions of this document omitted pursuant to an application for an order for confidential treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this document have been filed separately with the Securities and Exchange Commission.

16\F7V1054

First Excess Catastrophe
Reinsurer(s)	Participation(s)
Aeolus Re Ltd. in respect of Keystone Segregated Account**	*%
Arch Reinsurance Ltd.	*%
Endurance Specialty Insurance Ltd.**	*%
Hamilton Re, Ltd.	*%
RLI Insurance Company	*%
Tokio Millennium Re AG, Bermuda Branch (Securis Investments Business)	*%
Transatlantic Reinsurance Company	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
China Reinsurance (Group) Corporation**	*%
General Insurance Corporation of India**	*%
MS Amlin AG Bermuda Branch**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1054

Second Excess Catastrophe
Reinsurer(s)	Participation(s)
Arch Reinsurance Ltd.	*%
Ariel Re Bda Limited  for and on behalf of Ariel Syndicate No. 1910	*%
Chubb Tempest Reinsurance Ltd.**	*%
DaVinci Reinsurance Ltd.**	*%
Endurance Specialty Insurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Hamilton Re, Ltd.	*%
Hiscox Insurance Company (Bermuda) Limited	*%
Partner Reinsurance Company Ltd.	*%
Renaissance Reinsurance Ltd.**	*%
The Cincinnati Insurance Company	*%
Transatlantic Reinsurance Company	*%
XL Bermuda Ltd	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Ascot Underwriting (Bermuda) Limited  for and on behalf of American International Reinsurance Company, Ltd.**	*%
China Reinsurance (Group) Corporation**	*%
General Insurance Corporation of India**	*%
Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of  Lloyd's Syndicate No. 4472**	*%
MS Amlin AG Bermuda Branch**	*%
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters and Companies**  Per Signing Page(s)	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1054

Third Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd	*%
Argo Re Ltd.	*%
Ariel Re Bda Limited  or and on behalf of Ariel Syndicate No. 1910	*%
Aspen Bermuda Limited	*%
Endurance Specialty Insurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Hamilton Re, Ltd.	*%
Odyssey Reinsurance Company	*%
QBE Reinsurance Corporation	*%
The Cincinnati Insurance Company	*%
XL Bermuda Ltd	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Ascot Underwriting (Bermuda) Limited  for and on behalf of American International Reinsurance Company, Ltd.**	*%
China Reinsurance (Group) Corporation**	*%
General Insurance Corporation of India**	*%
Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of  Lloyd's Syndicate No. 4472**	*%
MS Amlin AG Bermuda Branch**	*%
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters and Companies**  Per Signing Page(s)	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1054

Fourth Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd	*%
American Agricultural Insurance Company	*%
Arch Reinsurance Ltd.	*%
Aspen Bermuda Limited	*%
BGS Services (Bermuda) Limited  for and on behalf of Lloyd's Syndicate No. 2987	*%
Chubb Tempest Reinsurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Hamilton Re, Ltd.	*%
Odyssey Reinsurance Company	*%
Qatar Reinsurance Company Limited	*%
QBE Reinsurance Corporation	*%
Transatlantic Reinsurance Company	*%
XL Bermuda Ltd	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Ascot Underwriting (Bermuda) Limited  for and on behalf of American International Reinsurance Company, Ltd.**	*%
China Reinsurance (Group) Corporation**	*%
Fubon Insurance Co., Ltd.**	*%
General Insurance Corporation of India**	*%
Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of  Lloyd's Syndicate No. 4472**	*%
MS Amlin AG Bermuda Branch**	*%
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Taiping Reinsurance Co. Ltd.**	*%
Pioneer Underwriting Limited  for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters and Companies**   Per Signing Page(s)	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1054

Fifth Excess Catastrophe
Reinsurer(s)	Participation(s)
Allied World Assurance Company, Ltd	*%
Arch Reinsurance Ltd.	*%
Chubb Tempest Reinsurance Ltd.**	*%
DaVinci Reinsurance Ltd.**	*%
Fidelis Insurance Bermuda Limited	*%
Odyssey Reinsurance Company	*%
Partner Reinsurance Company Ltd.	*%
Qatar Reinsurance Company Limited	*%
Renaissance Reinsurance Ltd.**	*%
Swiss Reinsurance America Corporation  By: Swiss Re Underwriters Agency Inc., its authorized representative**	*%
Transatlantic Reinsurance Company	*%
XL Bermuda Ltd	*%
Through Aon UK Limited trading as Aon Benfield (Placement Only)
Ascot Underwriting (Bermuda) Limited  for and on behalf of American International Reinsurance Company, Ltd.**	*%
China Reinsurance (Group) Corporation**	*%
Liberty Syndicates LIB 4472, Paris Office Underwriting for and on behalf of  Lloyd's Syndicate No. 4472**	*%
MS Amlin AG Bermuda Branch**	*%
Peak Reinsurance Company Limited**	*%
Pioneer Underwriting Limited  for and on behalf of Taiping Reinsurance Co. Ltd.**	*%
Pioneer Underwriting Limited for and on behalf of Peak Reinsurance Company Limited**	*%
Through Aon UK Limited trading as Aon Benfield
Lloyd's Underwriters Per Signing Page(s)**	*%
Total	*%

**Both the Company and the Subscribing Reinsurer sign the Interests and Liabilities Agreement.

16\F7V1054

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

16\F7V1054

Excess Catastrophe Reinsurance Contract

Effective: July 1, 2016

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, 2016, 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, 2017.

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

1
16\F7V1054 Page 1

statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

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

4.The Subscribing Reinsurer has become, 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, 2016 to 12:01 a.m., Eastern Standard Time, July 1, 2017.  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, 2016 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.

2
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Article 3 - Territory

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

Article 4 - Exclusions

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

1.Reinsurance assumed by the Company under obligatory reinsurance agreements, exceptbusiness 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 excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract  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

3
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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.

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 $20,500,000 of ultimate net loss 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 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.

Whether a loss occurrence results in an 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 $20,500,000 of ultimate net loss arising out of such loss occurrence.

B.Recoveries shall always be made, in the first instance, under the lowest excess layer that is not entirely exhausted.  If there is any amount of ultimate net loss arising out of a loss

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occurrence in excess of the Company's retention under the lowest excess layer that has not been recovered thereunder, such amount shall be recovered under the next or subsequent excess layer or layers, as appropriate. Recoveries under each excess layer set forth in Schedule A attached to and forming part of this Contract shall inure as follows:

1.Recoveries under the First Excess layer shall inure to the benefit of the Second Excess layer;

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.

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

It is understood, however, that any fully exhausted excess layer or the exhausted portion of any excess layer shall no longer inure to the benefit of any subsequent excess layer(s).

C.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 Company has purchased 75.0% of the FHCF mandatory layer of coverage and 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

A.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.

B.Any loss reimbursement received under the Company's FHCF Supplement Layer Reinsurance Contract (16\F7V1085), which shall be deemed to be placed at 15.0%, shall be deemed to inure to the benefit of this Contract.

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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

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 Reinsurerfor 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

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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.

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. 

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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:

*****

2.As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

3.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 96 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 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

4.As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) 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.

5.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.

6.As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168consecutive hours within the area of one state of the United States or province of Canada and

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states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence.

B.For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, 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 or series of disasters, accidents, or losses.  Furthermore:

1.For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event.

2.As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 

3.As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period.

C.It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence.  Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above.

Article 11 - Loss Notices and Settlements

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

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

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Article 12 - 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 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, 2016, 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) Touchstone v3.1 and Risk Management Solutions (RMS) RiskLink v15 catastrophe modeling software, in the long-term perspective, including

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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 (1) the FHCF mandatory layer of coverage purchased by the Company using the current estimates of the mandatory FHCF coverage of 75% of ***** excess of *****, and of (2) the Company's FHCF Supplement Layer Reinsurance Contract (16\F7V1085), which shall be deemed to be placed at 15%.

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 2016, and on January 1 and April 1 of 2017.  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, 2017, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

Article 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.

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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.

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

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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.

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.

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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.

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 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 return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article.  In the event 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 shall reimburse the Reinsurer for such amounts.

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

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reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by:

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

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

3.Cash advances;

if the Reinsurer:

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

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

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

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

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

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;

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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.

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

16
16\F7V1054 Page 16

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 - 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

17
16\F7V1054 Page 17

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.

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

18
16\F7V1054 Page 18

or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer.

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

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

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

19
16\F7V1054 Page 19

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.

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

/s/ Michael H. Braun

/s/ signed by all participating reinsurers

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Schedule A

Excess Catastrophe Reinsurance Contract

Effective:  July 1, 2016

Federated National Insurance Company

Sunrise, Florida

	First Excess	Second Excess	Third Excess	Fourth Excess	Fifth Excess
Reinsurer's Per Occurrence Limit	*****	*****	*****	*****	*****
Reinsurer's Term Limit	*****	*****	*****	*****	*****
Minimum Premium	*****	*****	*****	*****	*****
AAL	*****	*****	*****	*****	*****
Annual Deposit Premium	*****	*****	*****	*****	*****
Deposit Premium Installments	*****	*****	*****	*****	*****

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.

16\F7V1054 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.

16\F7V1054

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

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

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

I.	Nuclear reactor power plants including all auxiliary property on the site, or
II.	Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or
III.	Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or
IV.	Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

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

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

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

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

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

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

7.Reassured to be sole judge of what constitutes:

(a)substantial quantities, and

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

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

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

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

12/12/57

N.M.A. 1119

BRMA 35B

16\F7V1054

Pools, Associations and Syndicates Exclusion Clause

(Catastrophe)

It is hereby understood and agreed that:

A.This Contract excludes loss or liability arising from:

1.Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities.  This subparagraph 1 shall not apply with respect to:

a.Residual market mechanisms created by statute.  This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract).  For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism."

b.Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation.

2.Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks.  This subparagraph 2 shall not apply:

a.If the total insured value over all interests of the risk is less than $250,000,000.

b.To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis.

c.To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000.

B.With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions:

1.Recovery is limited to perils otherwise protected hereunder.

2.In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct

16\F7V1054

Page 1 of 2

assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence.

3.The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence.

4.The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence.

5.The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder.

6.The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment.

7.If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment.

8/1/2012

16\F7V1054

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.

16\F7V1054

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Michael H. Braun, certify that:

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

Date:  November 8, 2016

/s/ Michael H. Braun

Michael H. Braun

Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Erick A. Fernandez, 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.

Date: November 8, 2016

/s/  Erick A. Fernandez

Erick A. Fernandez

Interim Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of Federated National Holding Company for the quarter ended September 30, 2016 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.

/s/ Michael H. Braun

Michael H. Braun

Chief Executive Officer (Principal Executive Officer)

November 8, 2016

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of Federated National Holding Company for the quarter ended September 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Erick A. Fernandez, Interim 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.

/s/  Erick A. Fernandez

Erick A. Fernandez

Interim Chief Financial Officer

(Principal Financial and Accounting Officer)

November 8, 2016

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 04, 2016
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 Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		13,801,757
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $370,881 and $338,021, respectively)	$ 378,879	$ 339,178
Debt securities, held-to-maturity, at amortized cost	5,880	6,619
Equity securities, available-for-sale, at fair value (cost of $34,905 and $33,581, respectively)	41,334	38,534
Total investments (including $28,290 and $22,670 related to the VIE, respectively)	426,093	384,331
Cash and cash equivalents (including $14,753 and $14,616 related to the VIE, respectively)	106,200	53,038
Prepaid reinsurance premiums	58,763	120,771
Premiums receivable, net of allowance of $57 and $302, respectively (including $1,589 and $355 related to the VIE, respectively)	63,605	38,594
Reinsurance recoverable, net	25,151	12,714
Deferred acquisition costs	41,247	15,547
Income taxes receivable	16,706	2,691
Property and equipment, net	3,863	2,894
Other assets (including $1,269 and $1,037 related to the VIE, respectively)	7,829	7,605
TOTAL ASSETS	749,457	638,185
LIABILITIES:
Loss and loss adjustment expense reserves	127,485	97,340
Unearned premiums	309,283	253,960
Debt from consolidated variable interest entity	4,903	4,887
Deferred income taxes, net	12,912	5,627
Other liabilities	31,521	25,612
Total liabilities	486,104	387,426
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value: 1,000,000 shares authorized
Common stock, $0.01 par value: 25,000,000 shares authorized; 13,801,607 and 13,798,773 shares issued and outstanding, respectively	138	138
Additional paid-in capital	136,359	131,998
Accumulated other comprehensive income	8,800	3,985
Retained earnings	99,336	96,461
Total Federated National Holding Company shareholders' equity	244,633	232,582
Noncontrolling interest	18,720	18,177
Total shareholders' equity	263,353	250,759
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 749,457	$ 638,185

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investments:
Debt securities, available-for-sale at amortized cost	$ 370,881	$ 338,021
Equity securities, available-for-sale at cost	34,905	33,581
Investments	426,093	384,331
Cash and cash equivalents	106,200	53,038
Premiums receivable, net	63,605	38,594
Premiums receivable, allowance for credit losses	57	302
Other Assets	$ 7,829	$ 7,605
SHAREHOLDERS' EQUITY:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	25,000,000	25,000,000
Common stock, shares issued (in shares)	13,801,607	13,798,773
Common stock, shares outstanding (in shares)	13,801,607	13,798,773
Monarch Delaware - Variable Interest Entity [Member]
Investments:
Debt securities, available-for-sale at amortized cost	$ 26,710	$ 21,312
Investments	28,290	22,670
Cash and cash equivalents	14,753	14,616
Premiums receivable, net	1,589	355
Other Assets	$ 1,269	$ 1,037

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenue:
Net premiums earned	$ 69,405	$ 62,286	$ 184,447	$ 156,298
Net investment income	2,164	1,907	6,398	5,154
Net realized investment gains	1,126	1,126	2,060	3,743
Other income	11,095	7,280	34,909	21,130
Total revenue	83,790	72,599	227,814	186,325
Costs and expenses:
Losses and loss adjustment expenses	43,613	28,412	120,183	75,510
Commissions and other underwriting expenses	34,512	21,610	75,408	47,934
General and administrative expenses	4,044	4,887	13,211	11,973
Interest expense	81	65	259	161
Total costs and expenses	82,250	54,974	209,061	135,578
Income before income taxes	1,540	17,625	18,753	50,747
Income taxes	102	7,054	6,594	19,519
Net income	1,438	10,571	12,159	31,228
Net income (loss) attributable to noncontrolling interest	44	(22)	239	(383)
Net income attributable to Federated National Holding Company shareholders	$ 1,394	$ 10,593	$ 11,920	$ 31,611
Net income per share attributable to Federated National Holding Company shareholders:
Basic (in dollars per share)	$ 0.10	$ 0.77	$ 0.86	$ 2.31
Diluted (in dollars per share)	$ 0.10	$ 0.76	$ 0.85	$ 2.26
Weighted average number of shares of common stock outstanding:
Basic (in shares)	13,780,000	13,749,000	13,807,000	13,710,000
Diluted (in shares)	13,943,000	13,977,000	13,999,000	13,978,000
Dividends declared per share of common stock (in dollars per share)	$ 0.08	$ 0.04	$ 0.17	$ 0.13

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract]
Net income	$ 1,438	$ 10,571	$ 12,159	$ 31,228
Change in net unrealized (losses) gains on investments, available-for-sale	(774)	(2,671)	8,316	(4,681)
Comprehensive income before income taxes	664	7,900	20,475	26,547
Income tax benefit (expense) related to items of other comprehensive income	152	1,083	(3,197)	1,734
Comprehensive income	816	8,983	17,278	28,281
Less: comprehensive income (loss) attributable to noncontrolling interest	44	(17)	543	(494)
Comprehensive income attributable to Federated National Holding Company shareholders	$ 772	$ 9,000	$ 16,735	$ 28,775

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]	Total Shareholders' Equity Attributable to Federated National Holding Company Shareholders [Member]	Noncontrolling Interest [Member]	Total
Balance, beginning of period at Dec. 31, 2015	$ 138	$ 131,998	$ 3,985	$ 96,461	$ 232,582	$ 18,177	$ 250,759
Balance (in shares) at Dec. 31, 2015	13,798,773
Net income				11,920	11,920	239	12,159
Other comprehensive income			4,815		4,815	304	5,119
Dividends				(3,563)	(3,563)		(3,563)
Shares issued under share-based compensation plans		360			360		360
Shares issued under share-based compensation plans (in shares)	288,815
Tax benefits from share-based awards		843			843		843
Repurchases of common stock				(5,482)	(5,482)		$ (5,482)
Repurchases of common stock (in shares)	(285,981)						(285,981)
Shares based compensation		3,158			3,158		$ 3,158
Balance, end of period at Sep. 30, 2016	$ 138	$ 136,359	$ 8,800	$ 99,336	$ 244,633	$ 18,720	$ 263,353
Balance (in shares) at Sep. 30, 2016	13,801,607

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flow from operating activities:
Net income	$ 12,159	$ 31,228
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized investment gains	(2,060)	(3,743)
Amortization of investment premium or discount, net	3,910	3,795
Depreciation and amortization	620	495
Share-based compensation	4,001	3,175
Changes in operating assets and liabilities:
Prepaid reinsurance premiums	62,008	(40,967)
Premiums receivable, net	(25,011)	(7,653)
Reinsurance recoverable, net	(12,437)	4,186
Deferred acquisition costs	(25,699)	88
Income taxes receivable, net	(14,858)	(3,953)
Loss and loss adjustment expense reserves	30,146	13,343
Unearned premiums	55,323	57,973
Deferred income taxes, net of other comprehensive income	5,491	5,277
Other, net	5,676	16,970
Net cash provided by operating activities	99,269	80,214
Cash flow from investing activities:
Sales, maturities and redemptions of investment securities	151,884	134,918
Purchases of investment securities	(188,576)	(195,278)
Purchases of property and equipment	(1,573)	(1,500)
Net cash used in investing activities	(38,265)	(61,860)
Cash flow from financing activities:
Noncontrolling interest equity investment		18,498
Tax benefit related to share-based compensation	843	869
Purchases of FNHC common stock	(5,482)
Issuance of common stock for share-based awards	360	130
Dividends paid	(3,563)	(1,847)
Net cash (used in) provided by financing activities	(7,842)	17,650
Net increase in cash and cash equivalents	53,162	36,004
Cash and cash equivalents at beginning of period	53,038	40,157
Cash and cash equivalents at end of period	106,200	76,161
Cash paid during the period for:
Income taxes	14,360	15,662
Non-cash investing and finance activities:
Accrued dividends payable	$ 1,134	$ 712

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ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2016

ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION [Abstract]

ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Organization

Federated National Holding Company, (“FNHC,” the “Company,” “we,” or “us”), 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’”), personal automobile, commercial general liability, federal flood, and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents.

Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture, described below, and 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 to their policyholders.

On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”); and Transatlantic Reinsurance Company (“TransRe”).

The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware).  TransRe invested $5.0 million for a 15.2% non-voting interest in Monarch Delaware and advanced an additional $5.0 million in debt evidenced by a six-year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC.

Significant Customer

We entered into an Insurance Agency Master Agreement with Ivantage Select Agency, Inc., (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we are authorized by ISA to appoint Allstate agents to offer our homeowners’ and commercial general liability insurance products to consumers in Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended September 30, 2016 and 2015, 24.7%and 25.4%, respectively, were from Allstate’s network of Florida agents. For the nine months ended September 30, 2016 and 2015 23.9% and 23.3%, respectively, of the homeowners’ premiums we underwrote were from Allstate’s network of Florida agents.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest.  We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.

In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess the power to direct the activities of the VIE that most significantly impact its economic performance.  Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to Note 12 for additional information on the VIE.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.

This report should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K, as amended (the “2015 Form 10-K”).

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SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

9 Months Ended

Sep. 30, 2016

SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES [Abstract]

SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Our significant accounting policies were described in Note 2 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2015 Form 10-K. There have been no significant changes in our significant accounting policies for the nine months ended September 30, 2016.

Accounting Estimates and Assumptions

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.

Similar to other property and casualty insurers, our liability for losses and loss adjustment expense reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. Refer to Note 6 accompanying our consolidated financial statements for a discussion of our liability for losses and loss adjustment expense reserves.

Reclassifications

Certain amounts in prior year’s consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no effect on the reported consolidated statements of operations, balance sheets, and cash flows. In the current period, the Company concluded it was appropriate to reclassify certain revenue accounts that do not have material balances and include them within other income in the consolidated statements of operations. In addition, during the current period, the Company reclassified certain costs and expenses, principally, operating and underwriting expenses, salaries and wages and amortization of deferred policy acquisition costs. These respective account balances are now included in commissions and other underwriting expenses and general and administrative expenses in the consolidated statements of operations. The Company believes these reclassifications provide greater clarity and insight into the consolidated financial statements for the periods presented.

Adjustments

During our third quarter 2015 analysis of actual experience to date under the July 1, 2014 quota share reinsurance contract, we re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions.  As a result of this re-evaluation, we concluded reinsurance contracts, which have retrospective rating provisions, should be accounted for under Accounting Standards Codification 944, Financial Services — Insurance (“ASC 944”), where amounts due to (from) the assuming companies are accrued based on estimated contract experience to date as though the contracts were terminated.  Refer to Note 2 in our Form 10-Q for the period ended September 30, 2015 for additional information.

The adjustments to our accounting for the July 1, 2014 quota share reinsurance treaty, inclusive of other adjustments, are not material in any prior quarter or annual period based on an analysis of quantitative and qualitative factors in accordance with SEC guidance.

As a result, we recorded these adjustments during the year ended December 31, 2015.  The prior period adjustments increased net income by $2.2 million for the three and nine months ended September 30, 2015, respectively.

Adopted Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the consolidation analysis of reporting entities that are involved with variable interest entities. We adopted the provisions of ASU 2015-02 effective January 1, 2016 and re-evaluated all legal entity investments under the revised consolidation model. The adoption of ASU 2015-02 did not have any impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest.  ASU 2015-03 reduces the complexity of disclosing debt issuance costs and debt discount and premium on the balance sheet by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts.  The Company adopted this ASU retrospectively as of January 1, 2016.  Other assets and debt from consolidated variable interest entity have been reclassified to be consistent with the adoption of this standard, which resulted in a reduction of $0.1million each.  There were no changes to shareholders’ equity as a result of this adoption.  There were no other impacts on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration-Contracts. The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services—Insurance. The amendments require insurance entities to disclose for annual reporting periods information on the liability for unpaid claims and claim adjustment expenses.  The amendments in this ASU are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. This new guidance affects disclosures only and will have no impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In addition, during 2016 the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment model. Additionally, the standard will require enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effects the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method  investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the effect that ASU 2015-16 will have on its consolidated financial statements and related disclosures.

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FAIR VALUE

9 Months Ended

Sep. 30, 2016

FAIR VALUE [Abstract]

FAIR VALUE

3. FAIR VALUE

Fair value measurements are generally based upon observable and unobservable inputs.  Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information.  All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

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

Level 2 — Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques that use observable market data.  All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.

Level 3 — Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.  Currently, the Company has no level 3 investments.

The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:

	September 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	38,933	$	26,877	$	—	$	65,810
Obligations of states and political subdivisions		—		150,873		—		150,873
Corporate		—		149,210		—		149,210
International		—		12,986		—		12,986
		38,933		339,946		—		378,879
Equity securities		40,458		876		—		41,334
Total investments	$	79,391	$	340,822	$	—	$	420,213

	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	34,733	$	26,820	$	—	$	61,553
Obligations of states and political subdivisions		—		110,702		—		110,702
Corporate		—		154,620		—		154,620
International		—		12,303		—		12,303
		34,733		304,445		—		339,178
Equity securities		38,012		522		—		38,534
Total investments	$	72,745	$	304,967	$	—	$	377,712

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INVESTMENTS

9 Months Ended

Sep. 30, 2016

INVESTMENTS [Abstract]

INVESTMENTS

4. INVESTMENTS

Unrealized Gains and Losses

The following table details the difference between amortized cost or cost and estimated fair value, by major investment category, at September 30, 2016 and at December 31, 2015:

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(in thousands)
September 30, 2016
Debt securities  - available-for-sale:
United States government obligations and authorities	$	64,810	$	1,039	$	39	$	65,810
Obligations of states and political subdivisions		148,366		2,556		49		150,873
Corporate		144,990		4,305		85		149,210
International		12,715		273		2		12,986
		370,881		8,173		175		378,879
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,173		70		59		4,184
Corporate		1,636		47		—		1,683
International		71		2		—		73
		5,880		119		59		5,940
Equity securities		34,905		7,278		849		41,334
Total investments	$	411,666	$	15,570	$	1,083	$	426,153

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses			Fair Value
	(in thousands)
December 31, 2015
Debt securities  - available-for-sale:
United States government obligations and authorities	$	61,384	$	489	$	320	$	61,553
Obligations of states and political subdivisions		109,152		1,590		40		110,702
Corporate		154,957		1,153		1,490		154,620
International		12,528		18		243		12,303
		338,021		3,250		2,093		339,178
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,275		30		204		4,101
Corporate		2,253		14		20		2,247
International		91		—		—		91
		6,619		44		224		6,439
Equity securities		33,581		6,809		1,856		38,534
Total investments	$	378,221	$	10,103	$	4,173	$	384,151

Net Realized Gains and Losses

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Gross realized gains:
Debt securities	$	897	$	226	$	2,822	$	973
Equity securities		597		1,847		1,752		4,188
Total gross realized gains		1,494		2,073		4,574		5,161
Gross realized losses:
Debt securities		(20)		(178)		(614)		(504)
Equity securities		(348)		(769)		(1,900)		(914)
Total gross realized losses		(368)		(947)		(2,514)		(1,418)
Net realized gains on investments	$	1,126	$	1,126	$	2,060	$	3,743

During the three months ended September 30, 2016 and 2015, the proceeds from sales of available-for-sale investment securities were $30.1 million and $42.5 million, respectively. During the nine months ended September 30, 2016 and 2015, the proceeds from sales of available-for-sale investment securities were $129.5 million and $134.9 million, respectively.

Contractual Maturity

The amortized cost and estimated fair value of debt securities as of September 30, 2016 and December 31, 2015 by contractual maturity are shown below.  Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2016				December 31, 2015
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Securities with maturity dates:	(in thousands)
Debt securities, available-for-sale:
One year or less	$	41,507	$	41,565	$	24,470	$	24,488
Over one through five years		182,129		185,001		170,797		171,113
Over five through ten years		145,639		150,694		142,728		143,545
Over ten years		1,606		1,619		26		32
		370,881		378,879		338,021		339,178
Debt securities, held-to-maturity:
One year or less		413		413		486		487
Over one through five years		1,887		1,949		1,899		1,915
Over five through ten years		3,580		3,578		4,234		4,037
		5,880		5,940		6,619		6,439
Total	$	376,761	$	384,819	$	344,640	$	345,617

Net Investment Income

The following table summarizes the Company’s net investment income for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Interest income	$	1,963	$	1,760	$	5,801	$	4,773
Dividends income		201		147		597		381
Net investment income	$	2,164	$	1,907	$	6,398	$	5,154

Aging of Gross Unrealized Losses

As of September 30, 2016 and December 31, 2015, gross unrealized losses and related fair values for available-for-sale debt securities and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2016					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	8,995	$	38	$	121	$	1	$	9,116	$	39
Obligations of states and political subdivisions		28,481		47		1,015		2		29,496		49
Corporate		11,405		33		3,345		52		14,750		85
International		1,170		1		302		1		1,472		2
		50,051		119		4,783		56		54,834		175
Equity securities		5,590		679		2,179		170		7,769		849
Total investments	$	55,641	$	798	$	6,962	$	226	$	62,603	$	1,024

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2015					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	30,464	$	303	$	659	$	17	$	31,123	$	320
Obligations of states and political subdivisions		16,652		40		—		—		16,652		40
Corporate		87,176		1,420		3,590		70		90,766		1,490
International		8,660		191		281		52		8,941		243
		142,952		1,954		4,530		139		147,482		2,093
Equity securities		11,790		1,850		84		6		11,874		1,856
Total investments	$	154,742	$	3,804	$	4,614	$	145	$	159,356	$	3,949

The Company holds its equity securities and some of its debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company will write the security’s cost-basis or amortized cost-basis down to the fair value of the investment and recognizes an other than temporary impairment (“OTTI”) loss in our consolidated statement of operations. Additionally, any portion of such decline related to debt securities that is believed to arise from factors other than credit will be recorded as a component of other comprehensive income rather than charged against income.

The Company’s assessment of equity securities initially involves an evaluation of all securities that are in an unrealized loss position, regardless of the duration or severity of the loss, as of the applicable balance sheet date. Such initial review consists primarily of assessing whether: (i) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; and (ii) the Company has the ability and intent to hold an equity security for a period of time sufficient to allow for an anticipated recovery (generally considered to be one year from the balance sheet date).

To the extent that an equity security in an unrealized loss position is not impaired based on the initial review described above, the Company then evaluates such equity security by considering qualitative and quantitative factors. These factors include but are not limited to facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, industry outlook and our ability and intent to hold each position until its forecasted recovery.

If the Company intends to sell, or it is more likely than not that, the Company will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in our consolidated statement of operations. To the extent a debt security in an unrealized loss position is not impaired based on the preceding; the Company will consider that security to be impaired when it believes collection of the amortized cost is not probable.

During the Company’s quarterly evaluation of its securities for impairment, there were no identified OTTI losses in our investments in debt and equity securities during the three months ended September 30, 2016 and $0.3million OTTI losses in our investments in debt and equity securities during the nine months ended September 30, 2016. We did not have any OTTI losses in our investments in debt and equity securities that were in an unrealized loss position during the three and nine months ended September 30, 2015.

Collateral Deposits

As of September 30, 2016, investments with fair values of approximately $10.7million, the majority of which were debt securities, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations.

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REINSURANCE

9 Months Ended

Sep. 30, 2016

REINSURANCE [Abstract]

REINSURANCE

5. REINSURANCE

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

We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation.  In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually with the assistance of our reinsurance broker.

Significant Reinsurance Contracts

FNIC and MNIC operate primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. All of our reinsurance contracts do not relieve FNIC or MNIC from their direct obligations to the insured.

FNIC’s 2015-2016 catastrophe reinsurance program, which ran either from June 1 to May 31 or from July 1 to June 30, consists of the Florida Hurricane Catastrophe Fund (“FHCF”), excess of loss treaties placed with the private market and a 40%  property quota-share program. The property quota-share reinsurance is a form of proportional reinsurance that provides coverage for the homeowners’ property lines for wind related catastrophes in Florida. The FHCF treaty affords coverage for losses sustained in Florida and represents only a portion of the reinsurance coverage in Florida.

The excess of loss and FHCF treaties, which became effective on July 1, 2015 and June 1, 2015, respectively, insure for approximately $1.82 billion of aggregate catastrophic losses and loss adjustment expenses (“LAE”) with a maximum single event coverage totaling approximately $1.26 billion, with the Company retaining the first $12.9 million in Florida and $5.0 million in Louisiana, Alabama and South Carolina for losses and LAE from each event. Ceded premiums in connection with this program totaled approximately $149.7 million.

Additionally, the Company’s private market excess of loss treaties became effective July 1, 2016 and all private layers have prepaid automatic reinstatement protection, which affords us additional coverage against multiple catastrophic events in the same hurricane season. The Company obtained multiple year protection for a portion of its program; as a result, some of the coverage will expire on June 30, 2017, and a portion of the coverage will remain in-force one additional treaty year until June 30, 2018. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all private layers attach after $18.45 million in losses for FNIC’s Florida exposure. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted.

FNIC’s 2016-2017 reinsurance programs, costing approximately $179.5 million,include approximately $125.7 million for the private reinsurance for Federated National’s Florida exposure, including prepaid automatic premium reinstatement protection on all layers, along with approximately $53.8 million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford Federated National with approximately $2.22 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.58 billion, exclusive of retentions. FNIC maintained its FHCF participation at 75% for the 2016 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $18.45 million.In addition, FNIC purchases separate underlying reinsurance layers in Louisiana, Alabama, and South Carolina to cover losses and LAE outside of Florida for each catastrophic event from  $8.0 million to $18.45 million. Depending on the characteristics of the catastrophic event, and the states involved, FNIC’s single event pre-tax retention could be as low as $8.0 million. The maximum pre-tax retention of $18.45 million for Florida represents 7.01% of the Company’s shareholders’ equity as of September 30, 2016.

MNIC’s 2016-2017 catastrophe reinsurance program, which runs from either June 1 to May 31 or June 1 to June 30 (13 month period), consists of the FHCF and private market excess of loss treaties. All private layers have prepaid automatic reinstatement protection, which affords MNIC additional coverage, and have a cascading feature such that substantially all layers attach at $3.4 million for MNIC's Florida exposure.

The Company’s property quota share treaties, which are included in the reinsurance program, run for a two-year period from July 1 to July 1 of the following year.  The property quota-share treaties consist of two different treaties, one for 30% which became effective July 1, 2014, and the other for 10% which became effective July 1, 2015. The combined treaties provided a 40% quota-share reinsurance on the first $100 million of covered losses for the homeowners’ property insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.

On July 1, 2016, the 30% property quota-share treaty expired on a cut-off basis, which means as of that date the Company will retain 30% of its unearned premiums and losses. The reinsurers will remain liable for 30% of the paid losses occurring during the term of the treaty, until the treaty is commuted.

The Company’s private passenger automobile quota share treaties are typically one-year programs which become effective at different points in the year and cover auto policies across several states. These automobile quota share treaties cede 75% to 90% of all written premiums entered into by the Company.

Certain reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled $2.6million as of September 30, 2016 and $3.5 million as of December 31, 2015.

Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverables. The following table presents reinsurance recoverables as reflected in the consolidated balance sheets as of September 30, 2016 and December 31, 2015:

	September 30,		December 31,
	2016		2015
	(in thousands)
Reinsurance recoverable on paid losses	$	8,094	$	5,218
Reinsurance recoverable on unpaid losses		17,057		7,496
Reinsurance recoverable, net	$	25,151	$	12,714

Premiums Written and Earned

The following table presents premiums written and earned for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Net premiums written:
Direct	$	161,137	$	129,840	$	468,379	$	368,560
Ceded		(96,327)		(119,985)		(259,307)		(231,046)
	$	64,810	$	9,855	$	209,072	$	137,514
Net premiums earned:
Direct	$	147,624	$	112,253	$	413,056	$	310,587
Ceded		(78,219)		(49,967)		(228,609)		(154,289)
	$	69,405	$	62,286	$	184,447	$	156,298

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LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

9 Months Ended

Sep. 30, 2016

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES [Abstract]

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

6.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

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

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

	Nine Months		Year
	Ended		Ended
	September 30,		December 31,
	2016		2015
	(in thousands)
Gross reserves, beginning of period	$	97,340	$	78,330
Less: reinsurance recoverable (1)		(7,496)		(10,394)
Net reserves, beginning of period		89,844		67,936
Incurred loss, net of reinsurance, related to:
Current year		109,237		113,819
Prior years		10,946		(9,466)
Total incurred loss and LAE, net of reinsurance		120,183		104,353
Paid loss, net of reinsurance, related to:
Current year		46,073		49,531
Prior years		53,526		32,914
Total paid loss and LAE, net of reinsurance		99,599		82,445
Net reserves, end of period		110,428		89,844
Plus: reinsurance recoverable (1)		17,057		7,496
Gross reserves, end of period	$	127,485	$	97,340

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

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

During the nine months ended September 30, 2016, the Company experienced unfavorable loss and LAE reserve development on prior year accident years primarily in its all other peril homeowners’ coverage in Florida. The deficiency primarily relates to higher severity above the expected development factor anticipated at December 31, 2015 which was driven by the impact from assignment of benefits and other related adjusting expenses.

During the year ended December 31, 2015, the Company experienced a redundancy on prior year accident years primarily a result of continued favorable loss experience (mostly caused by decreased severity in reported claims) in the Company’s all other peril homeowners’ coverage caused in part by the absence of severe weather in Florida. Specifically, we have experienced better severity than expected on the 2014 and 2013 accident years.

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LONG-TERM DEBT

9 Months Ended

Sep. 30, 2016

LONG-TERM DEBT [Abstract]

LONG-TERM DEBT

7.  LONG-TERMDEBT

On March 17, 2015, MNHC, a wholly owned subsidiary of Monarch Delaware, and MNIC’s direct parent, our consolidated VIE, issued a promissory note with a principal amount of $5.0 million bearing 6% annual interest, due March 17, 2021 with interest payable on an annual basis due March 17 each year.  The debt was issued to TransRe, a related party, in connection with its investment in Monarch Delaware, and is being carried at the unpaid principal balance, net of debt issuance costs, and any accrued and unpaid interest is recognized in other liabilities in the consolidated balance sheet.  The Company recorded $0.1 million of debt issuance costs related to the 6% promissory note.

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INCOME TAXES

9 Months Ended

Sep. 30, 2016

INCOME TAXES [Abstract]

INCOME TAXES

8.  INCOME TAXES

The provision for income tax expense for the three and nine months ended September 30, 2016 and 2015 is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Federal:
Current	$	(10,433)	$	5,040	$	(2,275)	$	11,016
Deferred		10,709		1,194		8,222		5,982
Federal income tax expense		276		6,234		5,947		16,998
State:
Current		(1,960)		665		(613)		1,760
Deferred		1,786		155		1,260		761
State income tax expense		(174)		820		647		2,521
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

The actual income tax expense differs from the “expected” income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense) as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Computed expected tax expense provision, at federal rate	$	552	$	6,374	$	6,604	$	17,761
State tax, net of federal tax benefit		(148)		578		396		1,685
Other		(302)		102		(406)		73
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

The Company files income tax returns in the U.S. federal jurisdiction and various states and local jurisdictions. As a matter of course, various taxing authorities, including the Internal Revenue Service (“IRS”), regularly audit us. As of September 30, 2016,  no open tax years are under examination by the IRS or any material state and local jurisdictions.

As of September 30, 2016 and December 31, 2015, we have determined that there are no uncertain tax positions.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

On a quarterly basis, the Company reviews these outstanding matters, if any.  Consistent with GAAP, the Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company does not establish reserves for identified legal matters when we believe that the likelihood of an unfavorable outcome is not probable. Based on our quarterly review, the Company believes that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial statements.

The Company is a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and FNIC.  In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on July 21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida.  Specifically, the Company seeks a declaration that its federally registered trademark "FEDNAT" does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark "FED" in connection with insurance services outside of Owatonna, Minnesota.  On July 26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association alleging a breach of the Co-Existence Agreement.  Both matters are in their preliminary stages and FNHC intends to vigorously defend against all of Mutual’s allegations, although there can be no assurances as to the outcome of either matter.

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: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Florida Joint Underwriters Insurance Association (“JUA”), Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Georgia Automobile Insurance Plan (“GAIP”), Property Insurance Association of Louisiana (“PIAL”), Louisiana Automobile Insurance Plan (“LAIP”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Texas Automobile Insurance Plan Association (“TAIPA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Underwriters Association (“AIUA”).. As a direct premium writer in Florida, we are required to participate in certain insurer solvency associations under Florida law, administered by FIGA. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.

FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. FNIC was not assessed by the JUA Plan. Future assessments by this association are undeterminable at this time.

Leases

FNHC and its subsidiaries lease certain facilities, furniture and equipment under long-term lease agreements. Additional information about leases can be found in Note 8 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data,” of the 2015 Form 10-K.

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SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

10. SHAREHOLDERS’ EQUITY

Common Stock Repurchases

In March 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 31, 2017. Common stock repurchases are conducted in the open market. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors. This program may be modified, suspended or terminated by us at any time without notice.

Pursuant to our Board of Directors’ authorizations, the Company repurchased 285,981 shares of its common stock at a total cost of approximately $5.5 million, which is an average price per share of $19.22, during the nine months ended September 30, 2016.  As of September 30, 2016, the remaining availability for future repurchases of our common stock was $4.5 million.

Share-Based Compensation Expense

The following table provides certain information in connection with the Company’s share-based compensation arrangements for the three and nine months ended September 30, 2016 and 2015, respectively:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Restricted stock	$	525	$	936	$	3,158	$	2,277
Stock options		—		5		—		29
Total share-based compensation expense	$	525	$	941	$	3,158	$	2,306
Intrinsic value of options exercised	$	12,464	$	396	$	13,681	$	8,551
Fair value of restricted stock vested	$	10,685	$	24,444	$	39,607	$	36,216

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

At September 30, 2016, there was approximately $6.3 million of unrecognized share-based compensation expense, net of estimated forfeitures, related to restricted stock awards, which is currently expected to be recognized over a weighted average period of approximately 1.85 years.

Stock Option Awards

A summary of the Company’s stock option activity for the period from January 1, 2016 to September 30, 2016 is as follows:

	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2016	174,633	$	3.79
Granted	—	$	—
Exercised	(93,899)	$	3.85
Cancelled	—	$	—
Outstanding at September 30, 2016	80,734	$	3.71

Restricted Stock Awards

The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by employees. The accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis.

During the first quarter of 2016 and 2015, the Board of Directors granted 128,472 and 116,140 RSAs, respectively, vesting over three or five years, to the Company’s directors, executives and other key employees.

The following table summarizes RSA activity during the nine months ended September 30, 2016:

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	418,807	$	20.14
Granted	128,472	$	19.16
Vested	(194,916)	$	20.32
Cancelled	(540)	$	19.16
Outstanding at September 30, 2016	351,823	$	19.68

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

Accumulated Other Comprehensive Income

The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	15,201	$	(5,596)	$	9,605	$	10,407	$	(4,048)	$	6,359
Other comprehensive income before reclassifications		690		(186)		504		(746)		284		(462)
Reclassification adjustment for realized gains included
in net income		(1,464)		338		(1,126)		(1,925)		799		(1,126)
		(774)		152		(622)		(2,671)		1,083		(1,588)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

	Nine Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	6,111	$	(2,247)	$	3,864	$	12,417	$	(4,699)	$	7,718
Other comprehensive income before reclassifications		11,296		(4,117)		7,179		1,601		(805)		796
Reclassification adjustment for realized gains included
in net income		(2,980)		920		(2,060)		(6,282)		2,539		(3,743)
		8,316		(3,197)		5,119		(4,681)		1,734		(2,947)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2016

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

11. EARNINGS PER SHARE

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

The computations of diluted EPS available to our shareholders do not include approximately 0.2million stock options and RSAs for the three months ended September 30, 2016 and 2015, respectively, and 0.2million stock options and RSAs for the nine months ended September 30, 2016 and 2015, respectively, as the effect of their inclusion would have been antidilutive to earnings per share.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)				(in thousands, except per share data)
Net income attributable to Federated National Holding
Company shareholders	$	1,394	$	10,593	$	11,920	$	31,611
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Net income per share - basic	$	0.10	$	0.77	$	0.86	$	2.31
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Dilutive effect of stock compensation plans		163		228		192		268
Weighted average number of common shares outstanding -
diluted		13,943		13,977		13,999		13,978
Net income per share - diluted	$	0.10	$	0.76	$	0.85	$	2.26
Dividends per share	$	0.08	$	0.04	$	0.17	$	0.13

Dividends Declared

In February 2016, our Board of Directors declared a quarterly dividend payment of $0.05 per common share, paid in March 2016, amounting to $0.7 million. In May and June 2016, our Board of Directors declared quarterly dividend payments of $0.06per common share, respectively, paid in June and August 2016, respectively, totaling $1.7 million.

In September 2016, our Board of Directors declared a $0.08 per common share dividend payable December 1, 2016 to shareholders of record on November 1, 2016.

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VARIABLE INTEREST ENTITY

9 Months Ended

Sep. 30, 2016

Variable Interest Entity [Abstract]

VARIABLE INTEREST ENTITY

12. VARIABLE INTEREST ENTITY

The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:

	September 30,		December 31,
	2016		2015
ASSETS	(in thousands)
Investments
Debt securities, available for sale, at amortized cost	$	26,710	$	21,312
Equity securities, available-for-sale, at fair value		1,580		1,358
Total investments		28,290		22,670
Cash and cash equivalents		14,753		14,616
Prepaid reinsurance premiums		—		34
Premiums receivable, net		1,589		355
Other assets		1,269		1,037
Total assets	$	45,902	$	38,712
LIABILITIES
Loss and loss adjustment expense reserves	$	822	$	237
Unearned premiums		6,426		1,448
Debt		4,903		4,887
Income taxes payable		—		8
Other liabilities		1,461		374
Total liabilities	$	13,612	$	6,954

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SUBSEQUENT EVENT

9 Months Ended

Sep. 30, 2016

SUBSEQUENT EVENT [Abstract]

SUBSEQUENT EVENTS

13.  SUBSEQUENT EVENT

Hurricane Matthew impacted the east coast of Florida as a Category 4 hurricane and South Carolina as a Category 2 hurricane during the first week of October 2016.  The Company's initial gross catastrophic loss estimate in the state of Florida is $75 million and $2 million in the state of South Carolina. After taking into consideration our reinsurance treaties, including the Company’s 10% property quota-share treaty, the Company expects to incur the full retention limit $18.45 million.

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ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2016

ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION [Abstract]

Significant Customer

Significant Customer

We entered into an Insurance Agency Master Agreement with Ivantage Select Agency, Inc., (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we are authorized by ISA to appoint Allstate agents to offer our homeowners’ and commercial general liability insurance products to consumers in Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended September 30, 2016 and 2015, 24.7%and 25.4%, respectively, were from Allstate’s network of Florida agents. For the nine months ended September 30, 2016 and 2015 23.9% and 23.3%, respectively, of the homeowners’ premiums we underwrote were from Allstate’s network of Florida agents.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest.  We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.

In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess the power to direct the activities of the VIE that most significantly impact its economic performance.  Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to Note 12 for additional information on the VIE.

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.

This report should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K, as amended (the “2015 Form 10-K”).

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SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Policies)

9 Months Ended

Sep. 30, 2016

SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES [Abstract]

Accounting Estimates and Assumptions

Accounting Estimates and Assumptions

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.

Similar to other property and casualty insurers, our liability for losses and loss adjustment expense reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. Refer to Note 6 accompanying our consolidated financial statements for a discussion of our liability for losses and loss adjustment expense reserves.

Reclassifications

Reclassifications

Certain amounts in prior year’s consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no effect on the reported consolidated statements of operations, balance sheets, and cash flows. In the current period, the Company concluded it was appropriate to reclassify certain revenue accounts that do not have material balances and include them within other income in the consolidated statements of operations. In addition, during the current period, the Company reclassified certain costs and expenses, principally, operating and underwriting expenses, salaries and wages and amortization of deferred policy acquisition costs. These respective account balances are now included in commissions and other underwriting expenses and general and administrative expenses in the consolidated statements of operations. The Company believes these reclassifications provide greater clarity and insight into the consolidated financial statements for the periods presented.

Adjustments

Adjustments

During our third quarter 2015 analysis of actual experience to date under the July 1, 2014 quota share reinsurance contract, we re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions.  As a result of this re-evaluation, we concluded reinsurance contracts, which have retrospective rating provisions, should be accounted for under Accounting Standards Codification 944, Financial Services — Insurance (“ASC 944”), where amounts due to (from) the assuming companies are accrued based on estimated contract experience to date as though the contracts were terminated.  Refer to Note 2 in our Form 10-Q for the period ended September 30, 2015 for additional information.

The adjustments to our accounting for the July 1, 2014 quota share reinsurance treaty, inclusive of other adjustments, are not material in any prior quarter or annual period based on an analysis of quantitative and qualitative factors in accordance with SEC guidance.

As a result, we recorded these adjustments during the year ended December 31, 2015.  The prior period adjustments increased net income by $2.2 million for the three and nine months ended September 30, 2015, respectively.

Adopted and Recent Accounting Pronouncements

Adopted Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the consolidation analysis of reporting entities that are involved with variable interest entities. We adopted the provisions of ASU 2015-02 effective January 1, 2016 and re-evaluated all legal entity investments under the revised consolidation model. The adoption of ASU 2015-02 did not have any impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest.  ASU 2015-03 reduces the complexity of disclosing debt issuance costs and debt discount and premium on the balance sheet by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts.  The Company adopted this ASU retrospectively as of January 1, 2016.  Other assets and debt from consolidated variable interest entity have been reclassified to be consistent with the adoption of this standard, which resulted in a reduction of $0.1million each.  There were no changes to shareholders’ equity as a result of this adoption.  There were no other impacts on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration-Contracts. The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services—Insurance. The amendments require insurance entities to disclose for annual reporting periods information on the liability for unpaid claims and claim adjustment expenses.  The amendments in this ASU are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. This new guidance affects disclosures only and will have no impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In addition, during 2016 the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment model. Additionally, the standard will require enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effects the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method  investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the effect that ASU 2015-16 will have on its consolidated financial statements and related disclosures.

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2016

FAIR VALUE [Abstract]

Financial Instruments Measured at Fair Value

	September 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	38,933	$	26,877	$	—	$	65,810
Obligations of states and political subdivisions		—		150,873		—		150,873
Corporate		—		149,210		—		149,210
International		—		12,986		—		12,986
		38,933		339,946		—		378,879
Equity securities		40,458		876		—		41,334
Total investments	$	79,391	$	340,822	$	—	$	420,213

	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Debt securities:
United States government obligations and authorities	$	34,733	$	26,820	$	—	$	61,553
Obligations of states and political subdivisions		—		110,702		—		110,702
Corporate		—		154,620		—		154,620
International		—		12,303		—		12,303
		34,733		304,445		—		339,178
Equity securities		38,012		522		—		38,534
Total investments	$	72,745	$	304,967	$	—	$	377,712

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INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2016

INVESTMENTS [Abstract]

Difference Between Amortized Cost or Cost and Estimated Fair Value, by Major Investment Category

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(in thousands)
September 30, 2016
Debt securities  - available-for-sale:
United States government obligations and authorities	$	64,810	$	1,039	$	39	$	65,810
Obligations of states and political subdivisions		148,366		2,556		49		150,873
Corporate		144,990		4,305		85		149,210
International		12,715		273		2		12,986
		370,881		8,173		175		378,879
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,173		70		59		4,184
Corporate		1,636		47		—		1,683
International		71		2		—		73
		5,880		119		59		5,940
Equity securities		34,905		7,278		849		41,334
Total investments	$	411,666	$	15,570	$	1,083	$	426,153

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses			Fair Value
	(in thousands)
December 31, 2015
Debt securities  - available-for-sale:
United States government obligations and authorities	$	61,384	$	489	$	320	$	61,553
Obligations of states and political subdivisions		109,152		1,590		40		110,702
Corporate		154,957		1,153		1,490		154,620
International		12,528		18		243		12,303
		338,021		3,250		2,093		339,178
Debt securities  - held-to-maturity:
United States government obligations and authorities		4,275		30		204		4,101
Corporate		2,253		14		20		2,247
International		91		—		—		91
		6,619		44		224		6,439
Equity securities		33,581		6,809		1,856		38,534
Total investments	$	378,221	$	10,103	$	4,173	$	384,151

Net Realized Gains (Losses) by Major Investment Category

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Gross realized gains:
Debt securities	$	897	$	226	$	2,822	$	973
Equity securities		597		1,847		1,752		4,188
Total gross realized gains		1,494		2,073		4,574		5,161
Gross realized losses:
Debt securities		(20)		(178)		(614)		(504)
Equity securities		(348)		(769)		(1,900)		(914)
Total gross realized losses		(368)		(947)		(2,514)		(1,418)
Net realized gains on investments	$	1,126	$	1,126	$	2,060	$	3,743

Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity

	September 30, 2016				December 31, 2015
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Securities with maturity dates:	(in thousands)
Debt securities, available-for-sale:
One year or less	$	41,507	$	41,565	$	24,470	$	24,488
Over one through five years		182,129		185,001		170,797		171,113
Over five through ten years		145,639		150,694		142,728		143,545
Over ten years		1,606		1,619		26		32
		370,881		378,879		338,021		339,178
Debt securities, held-to-maturity:
One year or less		413		413		486		487
Over one through five years		1,887		1,949		1,899		1,915
Over five through ten years		3,580		3,578		4,234		4,037
		5,880		5,940		6,619		6,439
Total	$	376,761	$	384,819	$	344,640	$	345,617

Summary of Net Investment Income

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Interest income	$	1,963	$	1,760	$	5,801	$	4,773
Dividends income		201		147		597		381
Net investment income	$	2,164	$	1,907	$	6,398	$	5,154

Gross Unrealized Losses and Related Fair Values for Available-For-Sale Debt Securities and Equity Securities, Grouped by Duration of Time in Continuous Unrealized Loss Position

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2016					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	8,995	$	38	$	121	$	1	$	9,116	$	39
Obligations of states and political subdivisions		28,481		47		1,015		2		29,496		49
Corporate		11,405		33		3,345		52		14,750		85
International		1,170		1		302		1		1,472		2
		50,051		119		4,783		56		54,834		175
Equity securities		5,590		679		2,179		170		7,769		849
Total investments	$	55,641	$	798	$	6,962	$	226	$	62,603	$	1,024

	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2015					(in thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	30,464	$	303	$	659	$	17	$	31,123	$	320
Obligations of states and political subdivisions		16,652		40		—		—		16,652		40
Corporate		87,176		1,420		3,590		70		90,766		1,490
International		8,660		191		281		52		8,941		243
		142,952		1,954		4,530		139		147,482		2,093
Equity securities		11,790		1,850		84		6		11,874		1,856
Total investments	$	154,742	$	3,804	$	4,614	$	145	$	159,356	$	3,949

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REINSURANCE (Tables)

9 Months Ended

Sep. 30, 2016

REINSURANCE [Abstract]

Reinsurance Recoverables

	September 30,		December 31,
	2016		2015
	(in thousands)
Reinsurance recoverable on paid losses	$	8,094	$	5,218
Reinsurance recoverable on unpaid losses		17,057		7,496
Reinsurance recoverable, net	$	25,151	$	12,714

Premiums Written and Earned

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Net premiums written:
Direct	$	161,137	$	129,840	$	468,379	$	368,560
Ceded		(96,327)		(119,985)		(259,307)		(231,046)
	$	64,810	$	9,855	$	209,072	$	137,514
Net premiums earned:
Direct	$	147,624	$	112,253	$	413,056	$	310,587
Ceded		(78,219)		(49,967)		(228,609)		(154,289)
	$	69,405	$	62,286	$	184,447	$	156,298

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LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES (Tables)

9 Months Ended

Sep. 30, 2016

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES [Abstract]

Activity in Liability for Loss and LAE Reserves

	Nine Months		Year
	Ended		Ended
	September 30,		December 31,
	2016		2015
	(in thousands)
Gross reserves, beginning of period	$	97,340	$	78,330
Less: reinsurance recoverable (1)		(7,496)		(10,394)
Net reserves, beginning of period		89,844		67,936
Incurred loss, net of reinsurance, related to:
Current year		109,237		113,819
Prior years		10,946		(9,466)
Total incurred loss and LAE, net of reinsurance		120,183		104,353
Paid loss, net of reinsurance, related to:
Current year		46,073		49,531
Prior years		53,526		32,914
Total paid loss and LAE, net of reinsurance		99,599		82,445
Net reserves, end of period		110,428		89,844
Plus: reinsurance recoverable (1)		17,057		7,496
Gross reserves, end of period	$	127,485	$	97,340

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

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2016

INCOME TAXES [Abstract]

Summary of Provision for Income Tax Expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Federal:
Current	$	(10,433)	$	5,040	$	(2,275)	$	11,016
Deferred		10,709		1,194		8,222		5,982
Federal income tax expense		276		6,234		5,947		16,998
State:
Current		(1,960)		665		(613)		1,760
Deferred		1,786		155		1,260		761
State income tax expense		(174)		820		647		2,521
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

Effective Federal and State Tax Rates to Income before Income Tax Expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Computed expected tax expense provision, at federal rate	$	552	$	6,374	$	6,604	$	17,761
State tax, net of federal tax benefit		(148)		578		396		1,685
Other		(302)		102		(406)		73
Total income tax expense	$	102	$	7,054	$	6,594	$	19,519

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SHAREHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2016

SHAREHOLDERS' EQUITY [Abstract]

Schedule of Share-based Compensation Arrangements

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)				(in thousands)
Restricted stock	$	525	$	936	$	3,158	$	2,277
Stock options		—		5		—		29
Total share-based compensation expense	$	525	$	941	$	3,158	$	2,306
Intrinsic value of options exercised	$	12,464	$	396	$	13,681	$	8,551
Fair value of restricted stock vested	$	10,685	$	24,444	$	39,607	$	36,216

Summary of Stock Option Activity

	Number of Shares	Weighted Average Option Exercise Price
Outstanding at January 1, 2016	174,633	$	3.79
Granted	—	$	—
Exercised	(93,899)	$	3.85
Cancelled	—	$	—
Outstanding at September 30, 2016	80,734	$	3.71

Summary of Restricted Stock Activity

	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	418,807	$	20.14
Granted	128,472	$	19.16
Vested	(194,916)	$	20.32
Cancelled	(540)	$	19.16
Outstanding at September 30, 2016	351,823	$	19.68

Reconciliation of Changes in Accumulated Other Comprehensive Income

	Three Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	15,201	$	(5,596)	$	9,605	$	10,407	$	(4,048)	$	6,359
Other comprehensive income before reclassifications		690		(186)		504		(746)		284		(462)
Reclassification adjustment for realized gains included
in net income		(1,464)		338		(1,126)		(1,925)		799		(1,126)
		(774)		152		(622)		(2,671)		1,083		(1,588)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

	Nine Months Ended September 30,
	2016						2015
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
	(in thousands)
Accumulated other comprehensive income,
beginning  of period	$	6,111	$	(2,247)	$	3,864	$	12,417	$	(4,699)	$	7,718
Other comprehensive income before reclassifications		11,296		(4,117)		7,179		1,601		(805)		796
Reclassification adjustment for realized gains included
in net income		(2,980)		920		(2,060)		(6,282)		2,539		(3,743)
		8,316		(3,197)		5,119		(4,681)		1,734		(2,947)
Accumulated other comprehensive income, end of period	$	14,427	$	(5,444)	$	8,983	$	7,736	$	(2,965)	$	4,771

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2016

EARNINGS PER SHARE [Abstract]

Schedule Of Calculation Of Basic And Diluted Net Income Per Common Share

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)				(in thousands, except per share data)
Net income attributable to Federated National Holding
Company shareholders	$	1,394	$	10,593	$	11,920	$	31,611
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Net income per share - basic	$	0.10	$	0.77	$	0.86	$	2.31
Weighted average number of common shares outstanding -
basic		13,780		13,749		13,807		13,710
Dilutive effect of stock compensation plans		163		228		192		268
Weighted average number of common shares outstanding -
diluted		13,943		13,977		13,999		13,978
Net income per share - diluted	$	0.10	$	0.76	$	0.85	$	2.26
Dividends per share	$	0.08	$	0.04	$	0.17	$	0.13

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VARIABLE INTEREST ENTITY (Tables)

9 Months Ended

Sep. 30, 2016

Variable Interest Entity [Abstract]

Carrying Amount of VIE Consolidated Assets and Liabilities

	September 30,		December 31,
	2016		2015
ASSETS	(in thousands)
Investments
Debt securities, available for sale, at amortized cost	$	26,710	$	21,312
Equity securities, available-for-sale, at fair value		1,580		1,358
Total investments		28,290		22,670
Cash and cash equivalents		14,753		14,616
Prepaid reinsurance premiums		—		34
Premiums receivable, net		1,589		355
Other assets		1,269		1,037
Total assets	$	45,902	$	38,712
LIABILITIES
Loss and loss adjustment expense reserves	$	822	$	237
Unearned premiums		6,426		1,448
Debt		4,903		4,887
Income taxes payable		—		8
Other liabilities		1,461		374
Total liabilities	$	13,612	$	6,954

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ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Mar. 17, 2015
Premiums Written, Net [Member] | Homeowners' Insurance Product Line [Member] | Customer Concentration Risk [Member] | ISA [Member]
Concentration risk, percentage	24.70%	25.40%	23.90%	23.30%
Monarch Delaware Holdings LLC [Member]
Capital contribution for voting interests	$ 14.0		$ 14.0
Ownership interest in Monarch Parent's equity	42.40%		42.40%
Voting interest held in Monarch Parent's equity	50.00%		50.00%
Long-term debt					$ 5.0
Interest rate percentage					6.00%
Transatlantic Reinsurance Company [Member] | Monarch Delaware Holdings LLC [Member]
Ownership interest in Monarch Parent's equity	15.20%		15.20%
Capital contribution for non-voting interests	$ 5.0		$ 5.0
Transatlantic Reinsurance Company [Member] | Monarch Delaware Holdings LLC [Member] | Senior Debt [Member]
Long-term debt	$ 5.0		$ 5.0
Maturity period of debt			6 years
Interest rate percentage	6.00%		6.00%

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SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Significant Accounting Policies And Practices [Line Items]
Net income	$ 1,438	$ 10,571	$ 12,159	$ 31,228
Adjustments for New Accounting Pronouncement [Member]
Significant Accounting Policies And Practices [Line Items]
Reduction in other assets amount			(100)
Accounting Standards Update 2015-03 [Member]
Significant Accounting Policies And Practices [Line Items]
Reduction in other debt amount			$ (100)
Change in Accounting Method Accounted for as Change in Estimate [Member]
Significant Accounting Policies And Practices [Line Items]
Net income		$ 2,200		$ 2,200

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FAIR VALUE (Financial Instruments Measured at Fair Value) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investments, Debt and Equity Securities [Abstract]
Debt securities	$ 378,879	$ 339,178
Equity securities	41,334	38,534
Total investments	420,213	377,712
United States Government Obligations and Authorities [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	65,810	61,553
Total investments	65,810	61,553
Obligations of States and Political Subdivisions [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	150,873	110,702
Total investments	150,873	110,702
Corporate [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	149,210	154,620
Total investments	149,210	154,620
International [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	12,986	12,303
Total investments	12,986	12,303
Level 1 [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	38,933	34,733
Equity securities	40,458	38,012
Total investments	79,391	72,745
Level 1 [Member] | United States Government Obligations and Authorities [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	38,933	34,733
Level 2 [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	339,946	304,445
Equity securities	876	522
Total investments	340,822	304,967
Level 2 [Member] | United States Government Obligations and Authorities [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	26,877	26,820
Level 2 [Member] | Obligations of States and Political Subdivisions [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	150,873	110,702
Level 2 [Member] | Corporate [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	149,210	154,620
Level 2 [Member] | International [Member]
Investments, Debt and Equity Securities [Abstract]
Debt securities	$ 12,986	$ 12,303

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INVESTMENTS (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INVESTMENTS [Abstract]
Proceeds from sales of available-for-sale investment securities	$ 30.1	$ 42.5	$ 129.5	$ 134.9
OTTI losses	0.0		0.3
Fair value of investments deposited with governmental authorities required by law	$ 10.7		$ 10.7

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INVESTMENTS (Difference Between Amortized Cost or Cost and Estimated Fair Value, by Major Investment Category) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Schedule of Investments [Line Items]
Available-for-sale securities, Fair Value	$ 420,213	$ 377,712
Held-to-maturity securities, Amortized Cost or Cost	5,880	6,619
Total investments, Amortized Cost or Cost	411,666	378,221
Total investments, Gross Unrealized Gain	15,570	10,103
Total investments, Gross Unrealized Loss	1,083	4,173
Total investments, Fair Value	426,153	384,151
Debt securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	370,881	338,021
Available-for-sale securities, Gross Unrealized Gain	8,173	3,250
Available-for-sale securities, Gross Unrealized Loss	175	2,093
Available-for-sale securities, Fair Value	378,879	339,178
Held-to-maturity securities, Amortized Cost or Cost	5,880	6,619
Held-to-maturity securities, Gross Unrealized Gains	119	44
Held-to-maturity securities, Gross Unrealized Losses	59	224
Held-to-maturity securities, Fair Value	5,940	6,439
United States Government Obligations and Authorities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	64,810	61,384
Available-for-sale securities, Gross Unrealized Gain	1,039	489
Available-for-sale securities, Gross Unrealized Loss	39	320
Available-for-sale securities, Fair Value	65,810	61,553
Held-to-maturity securities, Amortized Cost or Cost	4,173	4,275
Held-to-maturity securities, Gross Unrealized Gains	70	30
Held-to-maturity securities, Gross Unrealized Losses	59	204
Held-to-maturity securities, Fair Value	4,184	4,101
Obligations of States and Political Subdivisions [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	148,366	109,152
Available-for-sale securities, Gross Unrealized Gain	2,556	1,590
Available-for-sale securities, Gross Unrealized Loss	49	40
Available-for-sale securities, Fair Value	150,873	110,702
Corporate [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	144,990	154,957
Available-for-sale securities, Gross Unrealized Gain	4,305	1,153
Available-for-sale securities, Gross Unrealized Loss	85	1,490
Available-for-sale securities, Fair Value	149,210	154,620
Held-to-maturity securities, Amortized Cost or Cost	1,636	2,253
Held-to-maturity securities, Gross Unrealized Gains	47	14
Held-to-maturity securities, Gross Unrealized Losses		20
Held-to-maturity securities, Fair Value	1,683	2,247
International [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	12,715	12,528
Available-for-sale securities, Gross Unrealized Gain	273	18
Available-for-sale securities, Gross Unrealized Loss	2	243
Available-for-sale securities, Fair Value	12,986	12,303
Held-to-maturity securities, Amortized Cost or Cost	71	91
Held-to-maturity securities, Gross Unrealized Gains	2
Held-to-maturity securities, Fair Value	73	91
Equity Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, Amortized Cost or Cost	34,905	33,581
Available-for-sale securities, Gross Unrealized Gain	7,278	6,809
Available-for-sale securities, Gross Unrealized Loss	849	1,856
Available-for-sale securities, Fair Value	$ 41,334	$ 38,534

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INVESTMENTS (Net Realized Gains (Losses) by Major Investment Category (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Gross realized gains and losses [Abstract]
Total gross realized gains	$ 1,494	$ 2,073	$ 4,574	$ 5,161
Total gross realized losses	(368)	(947)	(2,514)	(1,418)
Net realized gains on investments	1,126	1,126	2,060	3,743
Debt securities [Member]
Gross realized gains and losses [Abstract]
Total gross realized gains	897	226	2,822	973
Total gross realized losses	(20)	(178)	(614)	(504)
Equity Securities [Member]
Gross realized gains and losses [Abstract]
Total gross realized gains	597	1,847	1,752	4,188
Total gross realized losses	$ (348)	$ (769)	$ (1,900)	$ (914)

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INVESTMENTS (Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Available-for-sale Securities, Debt maturities, Amortized cost [Abstract]
One year or less	$ 41,507	$ 24,470
Over one through five years	182,129	170,797
Over five through ten years	145,639	142,728
Over ten years	1,606	26
Amortized cost	370,881	338,021
Available-for-sale Securities, Debt maturities, Fair value [Abstract]
One year or less	41,565	24,488
Over one through five years	185,001	171,113
Over five through ten years	150,694	143,545
Over ten years	1,619	32
Amortized cost	378,879	339,178
Held-to-maturity Securities, Debt maturities, Amortized cost [Abstract]
One year or less	413	486
Over one through five years	1,887	1,899
Over five through ten years	3,580	4,234
Amortized cost	5,880	6,619
Held-to-maturity Securities, Debt Maturities, Fair value [Abstract]
One year or less	413	487
Over one through five years	1,949	1,915
Over five through ten years	3,578	4,037
Estimated fair value	5,940	6,439
Total Investments [Abstract]
Amortized cost	376,761	344,640
Estimated fair value	$ 384,819	$ 345,617

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INVESTMENTS (Summary of Net Investment Income) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net investment income [Abstract]
Interest income	$ 1,963	$ 1,760	$ 5,801	$ 4,773
Dividends income	201	147	597	381
Net investment income	$ 2,164	$ 1,907	$ 6,398	$ 5,154

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INVESTMENTS (Gross Unrealized Losses and Related Fair Values for Available-For-Sale Debt Securities and Equity Securities, Grouped by Duration of Time in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair value [Abstract]
Less than 12 months	$ 55,641	$ 154,742
12 months or longer	6,962	4,614
Total fair value	62,603	159,356
Gross unrealized losses [Abstract]
Less than 12 months	798	3,804
12 months or longer	226	145
Total gross unrealized losses	1,024	3,949
Debt securities [Member]
Fair value [Abstract]
Less than 12 months	50,051	142,952
12 months or longer	4,783	4,530
Total fair value	54,834	147,482
Gross unrealized losses [Abstract]
Less than 12 months	119	1,954
12 months or longer	56	139
Total gross unrealized losses	175	2,093
United States Government Obligations and Authorities [Member]
Fair value [Abstract]
Less than 12 months	8,995	30,464
12 months or longer	121	659
Total fair value	9,116	31,123
Gross unrealized losses [Abstract]
Less than 12 months	38	303
12 months or longer	1	17
Total gross unrealized losses	39	320
Obligations of States and Political Subdivisions [Member]
Fair value [Abstract]
Less than 12 months	28,481	16,652
12 months or longer	1,015
Total fair value	29,496	16,652
Gross unrealized losses [Abstract]
Less than 12 months	47	40
12 months or longer	2
Total gross unrealized losses	49	40
Corporate [Member]
Fair value [Abstract]
Less than 12 months	11,405	87,176
12 months or longer	3,345	3,590
Total fair value	14,750	90,766
Gross unrealized losses [Abstract]
Less than 12 months	33	1,420
12 months or longer	52	70
Total gross unrealized losses	85	1,490
International [Member]
Fair value [Abstract]
Less than 12 months	1,170	8,660
12 months or longer	302	281
Total fair value	1,472	8,941
Gross unrealized losses [Abstract]
Less than 12 months	1	191
12 months or longer	1	52
Total gross unrealized losses	2	243
Equity Securities [Member]
Fair value [Abstract]
Less than 12 months	5,590	11,790
12 months or longer	2,179	84
Total fair value	7,769	11,874
Gross unrealized losses [Abstract]
Less than 12 months	679	1,850
12 months or longer	170	6
Total gross unrealized losses	$ 849	$ 1,856

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REINSURANCE (Narrative) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) agreement	Jul. 01, 2016	Dec. 31, 2015 USD ($)
Liability for Catastrophe Claims [Line Items]
Trust agreement for loss exposure	$ 2,600		$ 3,500
FNIC's 2016-2017 Reinsurance Programs [Member]
Liability for Catastrophe Claims [Line Items]
Amount payable under reinsurance program	$ 179,500
Quota Share Treaties [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share expired on cut off basis		30.00%
Percentage of unearned premiums and losses retained		30.00%
Quota Share Treaties [Member] | Private Passenger Automobile Insurance Product Line [Member]
Liability for Catastrophe Claims [Line Items]
Period of property quota share reinsurance treaty	1 year
Quota Share Treaties [Member] | Private Passenger Automobile Insurance Product Line [Member] | Minimum [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty	75.00%
Quota Share Treaties [Member] | Private Passenger Automobile Insurance Product Line [Member] | Maximum [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty	90.00%
Federated National's Florida [Member] | FNIC's 2016-2017 Reinsurance Programs [Member]
Liability for Catastrophe Claims [Line Items]
Amount payable under reinsurance program	$ 125,700
FHCF [Member] | FNIC's 2015-2016 Catastrophe Reinsurance Program [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share program	40.00%
Aggregate catastrophic loss coverage	$ 1,820,000
Maximum single event coverage	1,260,000
Ceded premiums in connection with catastrophe reinsurance program	149,700
FHCF [Member] | FNIC's 2016-2017 Reinsurance Programs [Member]
Liability for Catastrophe Claims [Line Items]
Amount payable under reinsurance program	$ 53,800
Percentage of property quota share reinsurance treaty	75.00%
Private and FHCF Reinsurance [Member] | FNIC's 2016-2017 Reinsurance Programs [Member]
Liability for Catastrophe Claims [Line Items]
Maximum single event coverage	$ 1,580,000
Total reinsurance coverage amount	2,220,000
Florida [Member] | Property Insurance Product Line [Member]
Liability for Catastrophe Claims [Line Items]
Covered losses for homeowners' insurance program	100,000
Florida [Member] | FNIC's 2016-2017 Reinsurance Programs [Member]
Liability for Catastrophe Claims [Line Items]
Pre-tax retention amount for catastrophic event	$ 18,450
Maximum pre-tax retention amount representing percentage of shareholder’s equity	7.01%
Florida [Member] | Quota Share Treaties [Member] | Property Insurance Product Line [Member]
Liability for Catastrophe Claims [Line Items]
Period of property quota share reinsurance treaty	2 years
Number of property quota share treaties | agreement	2
Percentage of property quota share reinsurance treaty	40.00%
Florida [Member] | Quota Share One [Member] | Property Insurance Product Line [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty	30.00%
Florida [Member] | Quota Share Two [Member] | Property Insurance Product Line [Member]
Liability for Catastrophe Claims [Line Items]
Percentage of property quota share reinsurance treaty	10.00%
Florida [Member] | FHCF [Member] | FNIC's 2015-2016 Catastrophe Reinsurance Program [Member]
Liability for Catastrophe Claims [Line Items]
Amount retained per loss	$ 12,900
Florida [Member] | FHCF [Member] | MNIC’s 2016-2017 Catastrophe Reinsurance Program [Member]
Liability for Catastrophe Claims [Line Items]
Term for loss treaties	13 months
Additional coverage amount	$ 3,400
Louisiana, Alabama and South Carolina [Member] | FNIC's 2016-2017 Reinsurance Programs [Member] | Minimum [Member]
Liability for Catastrophe Claims [Line Items]
Pre-tax retention amount for catastrophic event	8,000
Louisiana, Alabama and South Carolina [Member] | FNIC's 2016-2017 Reinsurance Programs [Member] | Maximum [Member]
Liability for Catastrophe Claims [Line Items]
Pre-tax retention amount for catastrophic event	18,450
Louisiana, Alabama and South Carolina [Member] | FHCF [Member] | FNIC's 2015-2016 Catastrophe Reinsurance Program [Member]
Liability for Catastrophe Claims [Line Items]
Amount retained per loss	$ 5,000

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REINSURANCE (Reinsurance Recoverables) (Details) - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
REINSURANCE [Abstract]
Reinsurance recoverable on paid losses		$ 8,094	$ 5,218
Reinsurance recoverable on unpaid losses	[1]	17,057	7,496	$ 10,394
Reinsurance recoverable, net		$ 25,151	$ 12,714

[1] Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

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REINSURANCE (Premiums Written and Earned) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Premiums written [Abstract]
Direct	$ 161,137	$ 129,840	$ 468,379	$ 368,560
Ceded	(96,327)	(119,985)	(259,307)	(231,046)
Net premiums written	64,810	9,855	209,072	137,514
Premiums earned [Abstract]
Direct	147,624	112,253	413,056	310,587
Ceded	(78,219)	(49,967)	(228,609)	(154,289)
Net premiums earned	$ 69,405	$ 62,286	$ 184,447	$ 156,298

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LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES (Activity in Liability for Loss and LAE Reserves) (Details) - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES [Abstract]
Gross reserves, beginning of period		$ 97,340	$ 78,330
Less: reinsurance recoverable	[1]	(7,496)	(10,394)
Net reserves, beginning of period		89,844	67,936
Incurred loss, net of reinsurance, related to:
Current year		109,237	113,819
Prior years		10,946	(9,466)
Total incurred loss and LAE, net of reinsurance		120,183	104,353
Paid loss, net of reinsurance, related to:
Current year		46,073	49,531
Prior years		53,526	32,914
Total paid loss and LAE, net of reinsurance		99,599	82,445
Net reserves, end of period		110,428	89,844
Plus: reinsurance recoverable	[1]	17,057	7,496
Gross reserves, end of period		$ 127,485	$ 97,340

[1] Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

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LONG-TERM DEBT (Narrative) (Details) - Monarch Delaware Holdings LLC [Member] - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2016	Mar. 17, 2015
Debt Instrument [Line Items]
Long-term debt		$ 5.0
Interest rate percentage		6.00%
Maturity period of debt	Mar. 17, 2021
Debt issuance cost	$ 0.1

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INCOME TAXES (Summary of Provision for Income Tax Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Federal:
Current	$ (10,433)	$ 5,040	$ (2,275)	$ 11,016
Deferred	10,709	1,194	8,222	5,982
Federal income tax expense	276	6,234	5,947	16,998
State:
Current	(1,960)	665	(613)	1,760
Deferred	1,786	155	1,260	761
State income tax expense	(174)	820	647	2,521
Total income tax expense	$ 102	$ 7,054	$ 6,594	$ 19,519

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INCOME TAXES (Effective Federal and State Tax Rates to Income before Income Tax Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
INCOME TAXES [Abstract]
Computed expected tax expense provision, at federal rate	$ 552	$ 6,374	$ 6,604	$ 17,761
State tax, net of federal tax benefit	(148)	578	396	1,685
Other	(302)	102	(406)	73
Total income tax expense	102	$ 7,054	6,594	$ 19,519
Uncertain tax positions	$ 0		$ 0		$ 0

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SHAREHOLDERS' EQUITY (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock repurchases, authorized amount			$ 10,000
Common stock repurchased during period (in shares)			285,981
Common stock repurchased during period, total cost			$ 5,482
Common stock repurchased during period, average price (in dollars per share)			$ 19.22
Remaining amount available for future repurchases of common stock			$ 4,500
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized share-based compensation expense			$ 6,300
Weighted average period for recognition of unrecognized share-based compensation expense			1 year 10 months 6 days
Shares granted	128,472	116,140	128,472
Minimum [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants vesting period			3 years
Maximum [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants vesting period			5 years

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SHAREHOLDERS' EQUITY (Schedule of Share-based Compensation Arrangements) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 525	$ 941	$ 3,158	$ 2,306
Intrinsic value of options exercised	12,464	396	13,681	8,551
Fair value of restricted stock vested	10,685	24,444	39,607	36,216
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 525	936	$ 3,158	2,277
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense		$ 5		$ 29

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SHAREHOLDERS' EQUITY (Summary of Stock Option Activity) (Details) - Stock Options [Member]	9 Months Ended
	Sep. 30, 2016 $ / shares shares
Stock Options, Number of Shares [Roll Forward]
Outstanding, beginning of period (in shares) | shares	174,633
Exercised (in shares) | shares	(93,899)
Outstanding, end of period (in shares) | shares	80,734
Stock Options, Weighted Average Option Exercise Price [Roll Forward]
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 3.79
Exercised (in dollars per share) | $ / shares	3.85
Outstanding, end of period (in dollars per share) | $ / shares	$ 3.71

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SHAREHOLDERS' EQUITY (Summary of Restricted Stock Activity) (Details) - Restricted Stock [Member] - $ / shares	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2016
Restricted Shares, Number of Shares [Roll Forward]
Outstanding, beginning of period (in shares)	418,807		418,807
Granted (in shares)	128,472	116,140	128,472
Vested (in shares)			(194,916)
Cancelled (in shares)			(540)
Outstanding, end of period (in shares)			351,823
Restricted Shares, Weighted Average Option Exercise Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 20.14		$ 20.14
Granted (in dollars per share)			19.16
Vested (in dollars per share)			20.32
Cancelled (in dollars per share)			19.16
Outstanding, end of period (in dollars per share)			$ 19.68

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SHAREHOLDERS' EQUITY (Reconciliation of Changes in Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Before Tax [Roll Forward]
Comprehensive income before income taxes	$ 664	$ 7,900	$ 20,475	$ 26,547
Income Tax [Roll Forward]
Other comprehensive income after reclassifications	152	1,083	(3,197)	1,734
Net [Roll Forward]
Accumulated other comprehensive income, beginning of period			3,985
Accumulated other comprehensive income, end of period	8,800		8,800
Accumulated Other Comprehensive Income [Member]
Before Tax [Roll Forward]
Accumulated other comprehensive income, beginning of period	15,201	10,407	6,111	12,417
Other comprehensive income before reclassifications	690	(746)	11,296	1,601
Reclassification adjustment for realized gains included in net income	(1,464)	(1,925)	(2,980)	(6,282)
Comprehensive income before income taxes	(774)	(2,671)	8,316	(4,681)
Accumulated other comprehensive income, end of period	14,427	7,736	14,427	7,736
Income Tax [Roll Forward]
Accumulated other comprehensive income, beginning of period	(5,596)	(4,048)	(2,247)	(4,699)
Other comprehensive income before reclassifications	(186)	284	(4,117)	(805)
Reclassification adjustment for realized gains included in net income	338	799	920	2,539
Other comprehensive income after reclassifications	152	1,083	(3,197)	1,734
Accumulated other comprehensive income, end of period	(5,444)	(2,965)	(5,444)	(2,965)
Net [Roll Forward]
Accumulated other comprehensive income, beginning of period	9,605	6,359	3,864	7,718
Other comprehensive income before reclassifications	504	(462)	7,179	796
Reclassification adjustment for realized gains included in net income	(1,126)	(1,126)	(2,060)	(3,743)
Other comprehensive income after reclassifications	(622)	(1,588)	5,119	(2,947)
Accumulated other comprehensive income, end of period	$ 8,983	$ 4,771	$ 8,983	$ 4,771

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EARNINGS PER SHARE (Narrative) (Details) - shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted earnings per share available to stockholders (in shares)	0.2	0.2	0.2	0.2
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted earnings per share available to stockholders (in shares)	0.2	0.2	0.2	0.2

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EARNINGS PER SHARE (Schedule of Calculation of Basic and Diluted Net Income Per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
EARNINGS PER SHARE [Abstract]
Net income attributable to Federated National Holding Company shareholders	$ 1,394	$ 10,593	$ 11,920	$ 31,611
Weighted average number of common shares outstanding - basic (in shares)	13,780,000	13,749,000	13,807,000	13,710,000
Net income per share - basic (in dollars per share)	$ 0.10	$ 0.77	$ 0.86	$ 2.31
Dilutive effect of stock compensation plans (in shares)	163,000	228,000	192,000	268,000
Weighted average number of common shares outstanding - diluted (in shares)	13,943,000	13,977,000	13,999,000	13,978,000
Net income per share - diluted (in dollars per share)	$ 0.10	$ 0.76	$ 0.85	$ 2.26
Dividends per share (in dollars per share)	$ 0.08	$ 0.04	$ 0.17	$ 0.13

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EARNINGS PER SHARE (Dividends Declared) (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended						3 Months Ended		9 Months Ended
	Sep. 30, 2016	Aug. 31, 2016	Jun. 30, 2016	May 31, 2016	Mar. 31, 2016	Feb. 29, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Dividends Payable [Line Items]
Dividends declared per share (in dollars per share)							$ 0.08	$ 0.04	$ 0.17	$ 0.13
Quarter One Dividends [Member]
Dividends Payable [Line Items]
Dividends declared date									Feb. 29, 2016
Dividends declared per share (in dollars per share)						$ 0.05
Dividends paid					$ 0.7
Dividends payable date									Mar. 31, 2016
Quarter Two Dividends [Member]
Dividends Payable [Line Items]
Dividends declared per share (in dollars per share)			$ 0.06	$ 0.06
Dividends paid		$ 1.7
Quarter Three Dividends [Member]
Dividends Payable [Line Items]
Dividends declared date									Sep. 30, 2016
Dividends declared per share (in dollars per share)	$ 0.08
Dividends payable date									Dec. 01, 2016
Dividends record date									Nov. 01, 2016

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VARIABLE INTEREST ENTITY (Carrying Amount of VIE Consolidated Assets and Liabilities) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Investments
Debt securities, available for sale, at amortized cost	$ 370,881	$ 338,021
Equity securities, available-for-sale, at fair value	41,334	38,534
Total investments (including $28,290 and $22,670 related to the VIE, respectively)	426,093	384,331
Cash and cash equivalents	106,200	53,038	$ 76,161	$ 40,157
Prepaid reinsurance premiums	58,763	120,771
Premiums receivable, net	63,605	38,594
Income taxes receivable	16,706	2,691
Deferred acquisition costs	41,247	15,547
Other asset	7,829	7,605
TOTAL ASSETS	749,457	638,185
LIABILITIES
Loss and loss adjustment expense reserves	127,485	97,340		$ 78,330
Unearned premiums	309,283	253,960
Debt	4,903	4,887
Other liabilities	31,521	25,612
Total liabilities	486,104	387,426
Monarch Delaware - Variable Interest Entity [Member]
Investments
Debt securities, available for sale, at amortized cost	26,710	21,312
Equity securities, available-for-sale, at fair value	1,580	1,358
Total investments (including $28,290 and $22,670 related to the VIE, respectively)	28,290	22,670
Cash and cash equivalents	14,753	14,616
Prepaid reinsurance premiums		34
Premiums receivable, net	1,589	355
Other asset	1,269	1,037
TOTAL ASSETS	45,902	38,712
LIABILITIES
Loss and loss adjustment expense reserves	822	237
Unearned premiums	6,426	1,448
Debt	4,903	4,887
Income taxes payable		8
Other liabilities	1,461	374
Total liabilities	$ 13,612	$ 6,954

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SUBSEQUENT EVENT (Narrative) (Details) - Subsequent Event [Member] - Hurricane Matthew [Member] $ in Thousands	1 Months Ended
	Oct. 31, 2016 USD ($)
Subsequent Event [Line Items]
Percentage of quota share reinsurance treaty	10.00%
Maximum [Member]
Subsequent Event [Line Items]
Amount payable under reinsurance program	$ 18,450
Florida [Member]
Subsequent Event [Line Items]
Initial gross loss estimate from hurricane disaster	75,000
South Carolina [Member]
Subsequent Event [Line Items]
Initial gross loss estimate from hurricane disaster	$ 2,000