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The Monarch Entities and Crosswinds AUM, a wholly owned subsidiary of Crosswinds Holdings, entered into an investment management agreement, pursuant to which Crosswinds AUM will manage 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 and TransRe also entered into a reinsurance capacity right of first refusal agreement, pursuant to which TransRe has a right of first refusal for all quota share and excess of loss reinsurance agreements that MNIC deems necessary in its sole discretion for so long as TransRe remains a member of Monarch Delaware or the MNHC debt remains outstanding. TransRe also has the right to provide, at market rates and terms, a maximum of 15% of any reinsurance coverage obtained by MNIC in any individual reinsurance contract.

~~Our Chief Executive Officer holds his respective position and our Chief Accounting Officer holds the position of Chief Financial Officer with the Monarch Entities while each remain employed by us.~~

On November 27, 2017, we entered into a purchase and sale agreement with Crosswinds Investor and TransRe, whereby we agreed to purchase Crosswinds Investor’s 42.4% Class A membership interest and 50.0% voting interest for $12.3 million, and TransRe’s 15.2% non-voting membership interest in Monarch Delaware for $4.4 million. We completed this transaction on February 21, 2018 for the agreed upon purchase price and repaid the outstanding principal balance and interest due on the $5.0 million promissory note to TransRe. Following the closing, Monarch Delaware and Monarch Holdings were dissolved and merged into FNIC. With the completion of these transaction, FNIC owns 100% of MNIC.

Crosswinds AUM ~~continues~~continued to serve as a consultant to FNHC for a quarterly fee of $75,000 through December 31, 2018, and a subsidiary of Crosswinds Holdings and TransRe each ~~have~~had a right of first refusal through December 31, 2018 to participate in our catastrophe excess of loss reinsurance program, at market rates and terms, up to a placement of $10.0 million in reinsurance limit in the aggregate from Crosswinds Holdings and up to a placement of $10.0 million in reinsurance limit in excess of its placement on our current catastrophe excess of loss reinsurance program from TransRe.program.

Refer to Note ~~14. Variable Interest Entity, in~~14 of the ~~Notes~~notes to our Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, for additional information regarding the accounting and consolidation of the joint ~~venture.~~

~~Southeast Catastrophe Consulting Company, LLC~~

~~The Company owns 33%~~venture, prior to our acquisition of Southeast Catastrophe Consulting Company, LLC (“SECCC”), based in Mobile, Alabama. The Company has an agreement with SECCC in which it provides claims adjusting services for FNIC and MNIC, primarily in the ~~event of catastrophes, such as Hurricane Irma and Matthew.~~non-controlling interest.

Material Distribution Relationships

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

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

Executive Offices

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

Available Information

Our internet web site is www.FedNat.com for policy holders, agents and investors. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available, free of charge, through our website as soon as reasonably practicable after we electronically file or furnish such material to the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

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INSURANCE OPERATIONS AND RELATED SERVICES

Business Strategy

We expect that in ~~2018~~2019 we will advance our enterprise value through:

completing our announced pending acquisition of the Maison Companies, subject to regulatory approvals;

successfully integrating the operations of the Maison Companies into those of the Company in pursuit of geographic diversification as well as operational and expense synergies upon closing of this acquisition;

focusing on our core operations, the Homeowners line of business, while ~~withdrawing~~furthering our withdrawal from our non-core Automobile and ~~Commercial General Liability~~commercial general liability coverages;

leveraging ~~our recently attained 100% ownership of~~ MNIC by developing and implementing a plan ~~in 2018~~ to expand upon MNIC’s pricing and product offerings in 2019 to increase market share in the risk-adjusted portion of the Florida homeowners market;

focusing on operational efficiencies in our homeowners operations to reduce expenses in conjunction with our continued investment in, and ~~increase our~~ use of, technology;

enhancing our property analytical metrics, such as an increased geographical dispersion of risks, while managing our underwriting appetite, whether new or renewal, to ensure a balanced book of business;

continued growth in our existing markets plus expansion of our homeowners products into other ~~states;~~southeastern states, with an initial focus on Mississippi and Georgia;

maintaining a commitment to provide high quality customer service to our agents and insureds;

strengthening of our marketing efforts by retaining key personnel and implementing direct marketing technologies;

offering attractive incentives to our agents to place a high volume of quality business with our companies;

continuing with our strong catastrophe reinsurance programs; and

additional strategies that may include possible mergers, acquisitions and joint ventures or dispositions of assets.

Overview of Insurance Lines of Business

Homeowners Property and Casualty Insurance

FNIC and MNIC underwrite homeowners insurance in Florida and FNIC also underwrites homeowners insurance in Louisiana, Texas, South Carolina and Alabama. Homeowners insurance generally protects an owner of real and personal property against covered causes of loss to that property. As of December 31, 2018, the total homeowners policies in-force was 291,098, of which 246,619 were in Florida and 44,479 were outside of Florida. As of December 31, 2017, the total homeowners policies in-force was 302,925, of which 272,346 were in Florida and 30,579 were outside of Florida. ~~As of December 31, 2016, the total homeowners policies in-force was 299,512, of which 279,109 were in Florida and 20,403 were outside of Florida.~~

Florida

Our homeowners insurance products provide maximum dwelling coverage of approximately ~~$3.5~~$3.6 million, with the aggregate maximum policy limit being approximately $6.3 million. We currently offer dwelling coverage “A” up to $4.0 million with an aggregate total insured value of $6.5 million. We continually review and update these ~~limits; during 2015, coverage “A” and total insured value were increased by $1.0 million and $1.5 million, respectively, each of which has remained unchanged to date.~~limits. The approximate average premium on the policies currently in-force is ~~$1,785,~~$1,873, as compared with ~~$1,716~~$1,785 for ~~2016.~~2017. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims.

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

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The following are our rate actions that we have taken across our two insurance subsidiaries:

In 2018, FNIC applied for a statewide average rate increase of 4.6% for Florida homeowners multiple-peril insurance policies, which was approved by the Florida OIR and is expected to be become effective for new and renewal policies on April 20, 2019.

In 2017, FNIC applied for a statewide average rate increase of 6.5% for Florida homeowners multiple-peril insurance policies only, which was ~~approved~~subsequently, increased and ~~increased~~approved by the Florida OIR to a statewide average rate increase of 10.0% and became effective for new and renewal policies on August 1, 2017.

In 2016, FNIC applied for a rate increase of 5.6% for Florida homeowners multiple-peril insurance policies, which was approved by the Florida OIR and became effective for new and renewal policies on August 1, 2016.

In 2017, MNIC applied for a statewide rate increase of 2.0% for Florida homeowners multiple-peril insurance policies, which was approved by the Florida OIR and became effective for new and renewal policies on October 1, 2017.

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~~Also~~Lastly, in 2016, MNIC applied for a statewide rate decrease of 11.9% for Florida homeowners multiple-peril insurance policies, which was approved by the Florida OIR and became effective for new and renewal policies on April 15, 2016. Lastly, in 2017, MNIC applied for a statewide rate increase of 2.0% for Florida homeowners multiple-peril insurance policies, which was approved by the Florida OIR and became effective for new and renewal policies on October 1, 2017.

Non-Florida

Our non-Florida homeowners insurance products, produced through our partnership with SageSure, provide maximum dwelling coverage ~~of approximately~~“A” up to $1.8 million, with the aggregate maximum policy limit being approximately ~~$3.5 million. We currently offer dwelling coverage “A” up to $2.0 million with an aggregate total insured value of $3.5~~$3.6 million. The approximate average premium on the policies currently in-force is ~~$1,803,~~$1,758, as compared with ~~$1,868~~$1,803 for ~~2016.~~2017. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims.

As part of our partnership with SageSure, we entered into a profit share agreement, whereby we share 50% of net profits of this line of business, as calculated per the terms of the agreement, subject to certain limitations.

Other Lines of Business

~~Personal Automobile:~~On December 19, 2017, we announced our decision to undergo an orderly withdrawal from this line of business and began the appropriate steps, including submitting all required regulatory filings and obtaining regulatory approvals. Subject to such approvals, we expect our personal automobile line of business to materially cease by the fourth quarter of 2018. We provide nonstandard personal automobile insurance principally to insureds who were unable to obtain standard insurance coverage due to such factors such as driving record, age, vehicle type or other, including market conditions. FNIC offered this line of business as an admitted carrier in Florida, Texas, Georgia and Alabama, and marketed the insurance through licensed general agents in their respective territories.

~~Commercial General Liability:~~ On March 13, 2018, we announced our decision to undergo an orderly withdrawal from this line of business and will begin the appropriate steps, including submitting all required regulatory filings and obtaining regulatory approvals. We underwrite for approximately 380 classes of skilled craft workers (excluding home-builders 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 unaffiliated general agencies.

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. FNIC offers this line of business in Florida, Louisiana, Texas, South Carolina and Alabama. FNIC plans to file an admitted flood endorsement as an alternative to the NFIP program.

MARKETING AND DISTRIBUTION

Our independent agents and general agents have the authority to sell and bind insurance coverage in accordance with procedures established by FNU. FNU ~~reviews all coverage bound by the agents promptly and~~ generally accepts all coverage that falls within stated underwriting criteria. For all policies issued, FNU also has the right, within a period that varies by state between 60 days and 120 days from a policy’s inception, to cancel any policy, upon an advanced notice provided in accordance with statutory specific guidelines, even if the risk falls within our underwriting criteria. We are focusing our marketing efforts on continuing to expand our distribution network while maintaining our commitment to long-term relationships. We market our products and services throughout Florida by establishing relationships with independent agents and general agents, and in other states, ~~by establishing relationships~~through our partnership with ~~additional independent agents and general agents.~~SageSure. There can be no assurance, however, that we will be able to obtain the required regulatory approvals to offer additional insurance products or expand into other states.

We believe that our integrated computer systems, which allow for rapid automated premium quotation and policy issuance by our agents, are key elements in providing quality service to both our agents and insureds for our various lines of business.

LIABILITY FOR LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

We are directly liable for loss and loss adjustment expense (“LAE”) payments under the terms of the insurance policies that are underwritten by our insurance companies. In many cases, there may be a time lag between the occurrence and reporting of an insured loss and our payment of that loss. As required by insurance regulations and accounting rules, we reflect the liability for the ultimate payment of all incurred losses and LAE by establishing a liability for those unpaid losses and LAE for both reported and unreported claims, which represent estimates of future amounts needed to pay claims and related expenses.

When a claim involving a probable loss is reported, we establish a liability for the estimated amount of our ultimate loss and LAE payments. We based our estimate upon such factors as the type of loss, jurisdiction of the occurrence, knowledge of the circumstances

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surrounding the claim, severity of injury or damage, potential for ultimate exposure, estimate of liability on the part of the insured, past experience with similar claims and the applicable policy provisions.

We also establish a liability on an aggregate basis to provide for incurred but not ~~yet~~ reported (“IBNR”). The estimates of the liability for loss and LAE reserves are subject to the effect of trends in claims severity and frequency and are continually reviewed. As part of this

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process, we review historical data and consider various factors, including known and anticipated legal developments, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in an increase or decrease of the existing liability for loss and LAE reserves. Adjustments are reflected in results of operations in the period in which they are made and the liability may deviate substantially from prior estimates.

Among our classes of insurance, the automobile and homeowners liability claims historically tend to have longer time lapses between the occurrence of the event, the reporting of the claim and the final settlement, than do automobile physical damage and homeowners property claims. These liability claims often involve parties filing suit and therefore may result in litigation. By comparison, property damage claims tend to be reported in a relatively shorter period of time and settled in a shorter time frame with less occurrence of litigation.

REINSURANCE

Reinsurance is used to mitigate the insurance loss exposure related to certain events such as natural and man-made catastrophes, manage overall capital adequacy and protect capital resources. We reinsure (cede) a portion of written premiums on an excess of loss or a ~~quota share~~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.

Reinsurance markets include:

Traditional local and global reinsurance markets including those in the United States (“U.S.”), Bermuda, London and Europe, accessed directly and through reinsurance intermediaries;

Capital markets through insurance-linked securities and collateralized reinsurance transactions, such as catastrophe bonds, sidecars and similar vehicles; and

Other insurers that engage in both direct and assumed reinsurance.

The form of reinsurance that we may choose from time to time will generally depend on whether we are seeking:

Proportional reinsurance, whereby we cede a specified percentage of premium and losses to reinsurers;

Non-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of a specified amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis; or

Facultative contracts that reinsure individual policies.

Significant Reinsurance Contracts

FNIC and MNIC operate primarily by underwriting and accepting risks for their direct accounts 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. Our reinsurance contracts do not relieve FNIC or MNIC from their direct obligations to the insured.

While it is not always possible to reinsure every known and unknown risk to our company, an effective reinsurance program substantially mitigates our exposure to potentially significant losses. There is a credit risk exposure with respect to ceded losses to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. The collectability of reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. The availability and amount of ceded premiums and losses associated with the acquisition of reinsurance will vary year to year. Our reinsurance program is subject to approval primarily by the Florida OIR and other regulators in states where we do business, and subject to review by Demotech, Inc. (“Demotech”). Demotech provides Financial Stability Ratings (“FSR”) for property and casualty insurance companies throughout the United States.

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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. As of December 31, ~~2017~~2018 and ~~2016,~~2017, we had over 75 reinsurance companies on our program which are required to have at least an “A-” or better rating by A.M. Best Company (“A.M. Best”) or the agreement would need to be fully collateralized.

~~2016-2017 Reinsurance Programs~~

FNIC’s 2016-2017 reinsurance programs, costing $179.5 million, included $125.6 million for the private reinsurance for FNIC’s Florida exposure, including prepaid automatic premium reinstatement protection on all layers, along with $53.9 million payable to the Florida Hurricane Catastrophe Fund (“FHCF”). The combination of private and FHCF reinsurance treaties afforded FNIC with $2.2 billion of aggregate coverage with a maximum single event coverage totaling $1.6 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 was $18.5 million. In addition, FNIC purchased separate underlying reinsurance layers in Louisiana, Texas, South Carolina and Alabama to cover losses and LAE outside of Florida for each catastrophic event from $8.0 million to $18.5 million. Depending on the characteristics of the catastrophic event, and the states involved, FNIC’s single event pre-tax retention could have been as low as $8.0 million. The maximum pre-tax retention was $18.5 million.

Additionally, our private market excess of loss treaties became effective June 1, 2016 and July 1, 2016, and all private layers, except the FHCF supplemental layer reinsurance contract, have prepaid automatic reinstatement protection, which afforded us with additional coverage against multiple catastrophic events in the same hurricane season. We obtained multiple year protection for a portion of its program; as a result, some of the coverage expired 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 $18.5 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.

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

~~2017-2018 Reinsurance Programs~~

FNIC’s 2017-2018 reinsurance programs costing $173.9 million, including $124 million for the private reinsurance for FNIC’s Florida exposure including prepaid automatic premium reinstatement protection on all layers, along with $49.9 million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford FNIC with $2.2 billion of aggregate coverage with a maximum single event coverage totaling $1.5 billion, exclusive of retentions. FNIC maintained its FHCF participation at 75% for the 2017 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $18.0 million, down slightly from the 2016-2017 reinsurance programs.

FNIC’s private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective June 1, 2017 and July 1, 2017. All private layers have prepaid automatic reinstatement protection, except the FHCF supplemental layer reinsurance contract, which affords FNIC additional coverage for subsequent events. The reinsurance program includes multiple year protection with $89.0 million of new multiple year protection this year and $156.0 million of renewing multiple year protection from last year.

As in our 2016-2017 program, these private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all layers attach after $25.1 million in losses for FNIC’s exposure. FNIC purchased an underlying limit of protection for $7.1 million excess of $18.0 million with prepaid automatic reinstatement protection. These treaties are with reinsurers that currently have an A.M. Best or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

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~~FNIC’s non-Florida excess~~

Refer to Note 5 of ~~loss reinsurance treaties affords us up~~the notes to ~~an additional $21.0 million~~our Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of ~~aggregate coverage with first event coverage totaling $5.0 million and second event coverage up to $16.0 million. The non-Florida retention is lowered to $13.0 million~~this Annual Report, for the first event and $2.0 million for the second event (for hurricane losses only) on a gross basis, though the retention is reduced to $6.5 million and to $1.0 million on a net basis after taking into account the profit share agreement that FNIC has with our non-affiliated managing general underwriter that writes our non-Florida property business. FNIC’s non-Florida reinsurance program cost includes $1.7 million for this private reinsurance, including prepaid automatic premium reinstatement protection.

MNIC’s 2017-2018 reinsurance program costing $5.0 million, including $3.2 million for the private reinsurance for MNIC’s Florida exposure including prepaid automatic premium reinstatement protection on all layers, along with $1.8 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords MNIC with $109.0 million of aggregate coverage with a maximum single event coverage of $64.9 million, exclusive of retentions. MNIC maintained its FHCF participation at 75% for the 2017 hurricane season.

MNIC’s private market excess of loss treaties became effective July 1, 2017, and all private layers have prepaid automatic reinstatement protection, which affords MNIC additional coverage for subsequent events, and have a cascading feature such that substantially all layers attach at $3.4 million for MNIC’s Florida exposure. These treaties are with reinsurers that currently have an A.M. Best or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts.

~~In addition to the excess of loss coverages described above,~~further information regarding our reinsurance program also includes property quota-share treaties. One such treaty for 30% became effective July 1, 2014, and another for 10% became effective July 1, 2015 with each running for two years. The combined treaties provided up to a 40% quota-share reinsurance on all non-catastrophe homeowners property insurance claims in Florida, and 40% quota share coverage on the first $100 million of covered catastrophe losses for the homeowners property insurance program in Florida per occurrence; $200 million any one contract year. The treaties embodied an experience account and 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 we retained~~ ~~an incremental 30% of the underlying unearned premiums and losses.~~ On July 1, 2017, the 10% property quota-share treaty expired on a cut-off basis, which means as of that date we retained an incremental 10% of the underlying unearned premiums and losses. The reinsurers remain liable for ~~30%~~ ~~and 10%of the paid losses occurring during the terms of the treaties, until each treaty is commuted.~~

~~On July 1, 2017, FNIC bound a new 10% quota-share on its Florida homeowners book of business, which excludes named storms. This treaty is not subject to accounting as a retrospectively rated contract.~~

Our private passenger automobile quota share treaties are typically one year programs which become effective at different points in the year and cover automobile policies across several states. These automobile quota share treaties cede approximately 75% of all written premiums entered into by the Company, subject to certain limitations including but not limited to premium and other caps.

Certain reinsurance agreements require FNIC and MNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks for FNIC were $2.6 million as of December 31, 2017 and 2016. Fully funded trust agreements securing these risks for MNIC were $0.3 million as of December 31, 2017 and 2016.programs.

EMPLOYEES

As of December 31, ~~2017,~~2018, we had ~~419~~318 employees. We are not a party to any collective bargaining agreement and we have not experienced work stoppages or strikes as a result of labor disputes. We consider relations with our employees to be satisfactory.

COMPETITION

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

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In Florida, more than 50 companies compete with us in the homeowners insurance market. Three of our larger competitors are Citizens Property Insurance Corporation (“Citizens”), Universal Property and Casualty Insurance Company and Security First Insurance Company.

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

REGULATION

Overview

Our current insurance operations are subject to the laws and regulations of Florida, Georgia, Louisiana, Texas, South Carolina, and Alabama. We are subject to employment regulations of ~~California,~~ Florida ~~Louisiana, Massachusetts, Nevada, North Carolina~~ and potentially to other states in which we may seek to conduct business in the future. The regulations cover all aspects of our business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of shareholders. Such regulations relate to authorized lines of business, capital and surplus requirements, allowable rates and forms, investment parameters, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, market conduct, maximum amount allowable for premium financing service charges and a variety of other financial and non-financial components of our business. Our failure to comply with certain provisions of applicable insurance laws and regulations could have a material adverse effect on our business, results of operations or financial condition. In addition, any changes in such laws and regulations, including the adoption of consumer initiatives regarding rates charged for coverage, could materially and adversely affect our operations or our ability to expand.

Most states’ laws restrict an insurer’s underwriting discretion, such as the ability to terminate policies, terminate agents or reject insurance coverage applications, and many state regulators have the power to reduce, or to disallow, increases in premium rates. In addition, state laws generally require that rate schedules and other information be filed with the state’s insurance regulatory authority, either directly or through a rating organization with which the insurer is affiliated. The regulatory authority may disapprove a rate filing if it finds that the rates are inadequate, excessive or unfairly discriminatory. Rates, which are not necessarily uniform for all insurers, vary by class of business, hazard covered, and size of risk. Certain states, including Florida, as discussed above, have adopted laws or are considering proposed legislation which, among other things, limit the ability of insurance companies to effect rate increases or to cancel, reduce or non-renew insurance coverage with respect to existing policies, particularly personal automobile insurance.

Most states require licensure or regulatory approval prior to the marketing of new insurance products. Typically, licensure review is comprehensive and includes a review of a company’s business plan, solvency, financial projections, reinsurance, character of its officers and directors, rates, forms and other financial and non-financial aspects of a company. The regulatory authorities may prohibit entry into a new market by not granting a license or by withholding approval.

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

Various states routinely require deposits of assets for the protection of policyholders either in those states or for all policyholders. As of December 31, ~~2017,~~2018, FNIC and MNIC held investment securities with a fair value of approximately ~~$12.9~~$10.3 million, as deposits with the state of Florida, Texas, Georgia, South Carolina and Alabama.

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Insurance Holding Company Regulation

FNHC, as the parent holding company, is subject to laws governing insurance holding companies in Florida where FNIC and MNIC are domiciled. Among other things, these laws: (i) require us to file periodic information with the Florida OIR, including information concerning our capital structure, ownership, financial condition and general business operations; (ii) regulate certain transactions between us and our affiliates, including the amount of dividends and other distributions, the terms of surplus notes and amounts that our affiliates can charge the holding company for services such as management fees or commissions; and (iii) restrict the ability of any one person to acquire certain levels of our voting securities without prior regulatory approval. Any purchaser of 10% or more of the outstanding shares of our common stock will be presumed to have acquired control of FNIC or MNIC ~~unless~~and is required to file an application with the Florida OIR ~~upon application, determines otherwise.~~to obtain approval of such acquisition.

Restrictions in Payments of Dividends by Domestic Insurance Companies

Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its shareholders except out of that part of its available and accumulated capital surplus funds which is derived from realized net operating profits on its business and net realized capital gains. A Florida domestic insurer may not make dividend payments or distributions to shareholders without prior approval of the Florida OIR if the dividend or distribution would exceed the larger of (i) the lesser of (a) 10.0% of its ~~capital~~ surplus or (b) net income, not including realized capital gains, plus a two-year carryforward, (ii) 10.0% of ~~capital~~ surplus with dividends payable constrained to unassigned funds minus 25.0% of unrealized capital gains or (iii) the lesser of (a) 10.0% of ~~capital~~ surplus or (b) net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25.0% of unrealized capital gains.

Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida OIR: (i) if the dividend is equal to or less than the greater of: (a) 10.0% of the insurer’s ~~capital~~ surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year; (ii) the insurer will have policy holder ~~capital~~ surplus equal to or exceeding 115.0% of the minimum required statutory ~~capital~~ surplus after the dividend or distribution; (iii) the insurer files a notice of the dividend or distribution with the Florida OIR at least ten business days prior to the dividend payment or distribution; and (iv) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115.0% of required statutory ~~capital~~ surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution: (i) subject to prior approval by the Florida OIR; or (ii) 30 days after the Florida OIR has received notice of such dividend or distribution and has not disapproved it within such time.

No dividends were paid by FNIC or MNIC in 2018, 2017 ~~2016~~ and ~~2015,~~2016, and none are anticipated in ~~2018.~~2019. Although we believe that amounts required to meet our financial and operating obligations will be available from sources other than dividends from our insurance subsidiaries, there can be no assurance in this regard. Further, there can be no assurance that, if requested, the Florida OIR will allow any dividends to be paid by FNIC or MNIC to ~~us,~~FNHC, the parent company, in the future. The maximum dividends permitted by state law are not necessarily indicative of an insurer’s actual ability to pay dividends or other distributions to a parent company, which also may be constrained by business and regulatory considerations, such as the impact of dividends on ~~capital~~ surplus, which could affect an insurer’s competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, state insurance laws and regulations require that the statutory ~~capital~~ surplus of an insurance company following any dividend or distribution by it be reasonable in relation to its outstanding liabilities and adequate for its financial needs.

While the non-insurance company subsidiaries (FNU and any other affiliate) are not subject directly to the dividend and other distribution limitations, insurance holding company regulations govern the amount that any affiliate within the holding company structure may charge any of the insurance companies for service (e.g., management fees and commissions).

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Underwriting and Marketing Restrictions

During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing. These regulations include: (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages; (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term; (iii) advance notice requirements or limitations imposed for certain policy non-renewals; and (iv) limitations upon or decreases in rates permitted to be charged.

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National Association of Insurance Commissioners Risk-Based Capital Requirements

In order to enhance the regulation of insurer solvency, the National Association of Insurance Commissioners (“NAIC”), established risk-based capital (“RBC”) requirements for insurance companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policy holders. These requirements measure ~~three~~four major areas of risk facing property and casualty insurers: (i) underwriting risks, which encompass the risk of adverse loss ~~developments~~development and inadequate pricing; (ii) declines in asset values arising from credit risk; (iii) other business risks from investments; and (iv) catastrophe risk. Insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The Florida OIR, which follows these requirements, could require FNIC or MNIC to cease operations in the event they fail to maintain the required statutory capital.

Based upon the ~~2017~~2018 and ~~2016~~2017 statutory financial statements for FNIC and MNIC, statutory surplus exceeded the regulatory action levels established by the NAIC’s RBC requirements.

Based on RBC requirements, the extent of regulatory intervention and action increases as the ratio of an insurer’s statutory surplus to its Authorized Control Level (“ACL”), as calculated under the NAIC’s requirements, decreases. The first action level, the Company Action Level, requires an insurer to submit a plan of corrective actions to the insurance regulators if statutory surplus falls below 200.0% of the ACL amount. The second action level, the Regulatory Action Level, requires an insurer to submit a plan containing corrective actions and permits the insurance regulators to perform an examination or other analysis and issue a corrective order if statutory surplus falls below 150.0% of the ACL amount. The third action level, ACL, allows the regulators to rehabilitate or liquidate an insurer in addition to the aforementioned actions if statutory surplus falls below the ACL amount. The fourth action level is the Mandatory Control Level, which requires the regulators to rehabilitate or liquidate the insurer if statutory surplus falls below 70.0% of the ACL amount. FNIC’s ratio of statutory surplus to its ACL was ~~301.9%~~329.9% and ~~307.5%~~301.9% as of December 31, ~~2017~~2018 and ~~2016,~~2017, respectively. MNIC’s ratio of statutory surplus to its ACL was ~~1,070.1%~~774.4% and ~~2,419.8%~~1,070.1% as of December 31, ~~2017~~2018 and ~~2016,~~2017, respectively.

Industry Ratings Services

Third-party rating agencies assess and rate the ability of insurers to pay their claims. The insurance industry uses financial strength ratings to assess the financial strength and quality of insurers. Ratings are based upon criteria established by the rating agencies and reflect evaluations of each insurer’s profitability, debt and cash levels, customer base, adequacy and soundness of reinsurance, quality and estimated market value of assets, adequacy of reserves and management. Ratings are also based upon factors of concern to agents, reinsurers and policyholders and are not directed toward the protection of investors, such as purchasers of our common stock.

As of December 31, ~~2017~~2018 and ~~2016,~~2017, FNIC and MNIC are rated by Demotech as “A” (“Exceptional”), which is the third of seven ratings, and defined as “Regardless of the severity of a general economic downturn or deterioration in the insurance cycle, insurers earning an FSR of “A” possess “Exceptional” financial stability related to maintaining surplus as regards to policyholders.” Demotech’s ratings are based upon factors of concern to agents, reinsurers and policyholders and are not primarily directed toward the protection of investors. Our Demotech rating could be jeopardized by factors including adverse development and various surplus related ratio exceptions. On ~~February 9,~~November 21, 2018, Demotech reaffirmed the FSR of “A” (“Exceptional”) for FNIC and MNIC.

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ITEM 1A. RISK FACTORS

We are subject to various risks in our business operations as described below. The risks and uncertainties described below are the

known risk factors we consider material. Additional risks and uncertainties not currently known, or currently deemed immaterial, may also impair our business operations. Investors should carefully consider these risks before making an investment decision.

Risks Related to Our Business

Our financial condition could be adversely affected by the occurrence of natural and man-made disasters.

We write insurance policies that cover homeowners, business owners and automobile owners for losses that result from, among other things, catastrophes and sinkholes. Catastrophic losses can be caused by natural events such as hurricanes, tropical storms, tornadoes, wind, hail, fires, explosions and other events. The incidence and severity of these events are inherently unpredictable. Catastrophic losses can also be caused by terrorist attacks, war, riots, political instability and other man-made events. The extent of losses from a catastrophe is a function of two factors: the total amount of the insurance company’s exposure in the area affected by the event and the severity of the event. Our homeowners policyholders are disbursed throughout the southeast United States, although the majority of our policyholders are located in Florida. Further, a substantial portion of our Florida homeowners policyholders, are located in southeastern Florida, and therefore are especially subject to adverse weather conditions such as hurricanes and tropical storms.

The occurrence of claims from catastrophic events can result in substantial volatility in our results of operations or financial condition for any fiscal quarter or years as seen in 2018, 2017 and 2016. An elevation in the values and concentrations of insured property may increase the severity of the occurrence of claims in the future. Although we attempt to manage our exposure to such events through the use of underwriting controls and the purchase of third-party reinsurance, catastrophic events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events could have a material adverse effect on our results of operations or financial condition.

Florida, South Carolina and Texas, all states in which we write homeowners policies, experienced several significant hurricanes in 2016, 2017 and ~~2017,~~2018, which some weather analysts believe is consistent with a period of greater hurricane activity. WeExposure risk management alternatives are ~~exploring alternatives to reduce our exposure to these types of storms, which alternatives~~carefully evaluated as they may increase operating expenses and may not be successful in protecting long-term profitability. If our loss experience is more adverse than is contemplated by our loss reserves, the related increase in our loss reserves may have a material adverse effect on our results of operations in the period in which the increase occurs.

Our loss reserves are estimates and may be inadequate to cover our actual liability for losses, causing our results of operations to be adversely affected.

We maintain reserves to cover our estimated ultimate liabilities for losses and LAE. These reserves are estimates based on historical data and statistical projections of what we believe the settlement and administration of claims will cost based on facts and circumstances then known to us. Actual loss and LAE reserves, however, may vary significantly from our estimates. Factors that affect loss and LAE reserves include the estimates made on a claim-by-claim basis known as “case reserves” coupled with bulk estimates known as IBNR. Periodic estimates by management of the ultimate costs required to settle all claim files are based on our analysis of historical data and estimations of the impact of numerous factors such as:

• per-claim information;

• company and industry historical loss experience, including the impact of trends such as the assignment of benefits (“AOB”) by insureds;

• legislative enactments, judicial decisions, legal developments in the awarding of damages, and changes in political attitudes; and

• trends in general economic conditions, including the effects of inflation.

Management revises its estimates based on the results of its analysis. This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for estimating the ultimate settlement of all claims. There is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of the reserves, because the eventual redundancy or deficiency is affected by multiple factors. Because of the uncertainties that surround estimated loss reserves, we cannot be certain that our reserves will be adequate to cover our actual losses. If our loss and LAE reserves are less than actual losses and LAE, we will be required to increase our reserves with a corresponding reduction in our net income in the

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period in which the deficiency is identified. Future loss experience, substantially in excess of our loss and LAE reserves, could substantially harm our results of operations and financial condition.

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Although we follow the industry practice of reinsuring a portion of our risks, our costs of obtaining reinsurance fluctuates and we may not be able to successfully alleviate risk through reinsurance arrangements.

We have a reinsurance structure that is a combination of private reinsurance and the FHCF. Our reinsurance structure is composed of several reinsurance companies with varying levels of participation providing coverage for losses and LAE at pre-established minimum and maximum amounts. Losses incurred in connection with a catastrophic event below the minimum and above the maximum are the responsibility of FNIC and MNIC.

The availability and costs associated with the acquisition of reinsurance varies year to year. We are not able to control these fluctuations which may be significant and may limit our ability to purchase adequate coverage. The recovery of increased reinsurance costs through rate increases is not immediate and cannot be presumed, as rate increases are subject to approval of the Florida OIR.

We face a risk of non-collectability of reinsurance, which could materially and adversely affect our business, results of operations and financial condition.

As is common practice within the insurance industry, we transfer a portion of the risks insured under our policies to other companies through the purchase of reinsurance. This reinsurance is maintained to protect our insurance subsidiary against the severity of losses on individual claims, unusually serious occurrences in which a number of claims produce an aggregate extraordinary loss and other catastrophic events. Although reinsurance does not discharge our insurance subsidiary from its primary obligation to pay for losses insured under the policies it issues, reinsurance does make the assuming reinsurer liable to the insurance subsidiary for the reinsured portion of the risk. A credit exposure exists with respect to ceded losses to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. The collectability of reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. A reinsurer’s insolvency or inability to make payments under the terms of a reinsurance contract could have a material adverse effect on our business, results of operations and financial condition.

Our reinsurance structure has significant risks, including the fact that the FHCF or our other reinsurers may not have available capital resources to pay their claims or that their ability to pay their claims in a timely manner may be impaired. This could result in significant financial, legal and operational challenges to our company. Therefore, in the event of a catastrophic loss, we may become dependent upon the FHCF’s and our other reinsurers’ ability to pay their claims. With respect to the FHCF, we may, in turn, be dependent upon the ability of the State Board of Administration of Florida (“SBA”) to issue bonds in amounts that would be required to meet its reinsurance obligations in the event of such a catastrophic loss.

We may face difficulties related to our pending acquisition of the Maison Companies, which could harm our growth or operating results.

On February 25, 2019, we entered into an agreement to acquire the Maison Companies from PIH, which remains subject to receipt of required regulatory approvals and satisfaction of other conditions to closing.

If we are able to complete the acquisition of the Maison Companies, we will face the substantial risks associated with acquisitions of existing businesses. These risks include, but are not limited to, the risk that we may not be able to integrate the operations, personnel, services or technologies of the business acquired; the risks associated with determining adequate loss reserves for the business acquired; the potential disruption of our ongoing businesses; the diversion of management attention because of the substantial management time and resources required; the difficulty in developing or maintaining controls and procedures; and the dilution of our existing shareholders resulting from the issuance of shares of our common stock as part of the acquisition consideration.

Completing the integration of the Maison Companies, if the acquisition is closed, may require us to use cash resources, incur contingent liabilities, amortize intangible assets, or write-off acquisition-related expenses. We may also be faced with material liabilities not disclosed to us as part of our due diligence process. If we are not able to address these liabilities and otherwise successfully integrate the acquired business, we may not receive the intended benefits of this acquisition. As a result, our ongoing business, financial condition and results of operations could be materially adversely affected. In addition, we cannot predict the market reactions to the completion of this acquisition.

If we are unable to ~~continue our growth~~grow because our capital must be used to pay greater than anticipated claims, our financial results may suffer.

Our ability to grow in the future will depend on our ability to expand the types of insurance products we offer and the geographic markets in which we do business, both balanced by the business risks we choose to assume and cede. We believe that our company is sufficiently capitalized to operate our business as it now exists and as we currently plan to expand it. Our existing sources of funds include issuance

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of debt securities, possible sales of our investment securities, and our earnings from operations and investments. Unexpected catastrophic events in our market areas, such as the hurricanes experienced in Florida, South Carolina and Texas in 2016, 2017 and ~~2017,~~2018, have resulted and may result in greater claims losses than anticipated, which could require us to limit or halt ~~our~~ growth while we redeploy our capital to pay these unanticipated claims.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.

Various provisions of our policies, such as limitations or exclusions from coverage which have been negotiated to limit our risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of exclusions to our policies that limit exposure to known risks, including, but not limited to, exclusions relating to certain named liabilities, types of vehicles and specific artisan activities. In addition, the policies we issue contain conditions requiring the prompt reporting of claims to us and our right to decline coverage in the event of a violation of that condition. While we believe our insurance product exclusions and limitations reduce the loss exposure to us and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or that legislation could be enacted modifying or barring the use of such endorsements and limitations in a way that would adversely affect our loss experience, which could have a material adverse effect on our financial condition or results of operations.

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Trends in claims and coverage issues have had, and may continue to have, a material adverse impact on our business.

As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage emerge. These issues adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance policies that are affected by the changes. As a result, the full extent of liability under our insurance policies may not be known for many years after a policy is issued.

An example of an existing trend, particularly in Florida homeowners insurance, is the assignment of ~~homeowner~~ benefits for a claim where a service provider agrees to make a repair that may be covered by an insurance policy in exchange for the policyholder’s right to sue the insurance carrier directly. The assignment of the insurance benefits has substantially increased, and may continue to increase, our exposure to inflated claims, attorney’s fees and costs. Although legislative actions in the State of Florida to limit the effect of AOB on insurance companies are being contemplated, there can be no assurances that any such legislative actions will become law or, if enacted, that such actions will have the effect of limiting the impact on us of assignments of benefits by insureds.

MNIC, which is now a wholly owned subsidiary of FNIC, has focused on the Florida homeowners insurance market since its formation, which has increased our exposure to the factors that impact the Florida insurance market generally, such as the occurrence of hurricanes, trends in claims experience, and the impact of changes in Florida insurance law and regulations.

MNIC is organized as a Florida property and casualty insurer and has initially focused on the Florida homeowners insurance market. As a result, the presence of MNIC in the Florida market increases our exposure to the factors that impact insurers in the Florida market generally, such as the occurrence of catastrophic events such as hurricanes, the trends experienced in administering and resolving claims resulting from the increased use of public adjusters, and the impact of changes in Florida’s insurance laws and regulations. To the extent that these factors may adversely affect our operations, the presence of MNIC in the Florida market will have the effect of magnifying the effect of those factors.

MNIC currently writes insurance policies that have a higher risk profile than those written by FNIC, allowing MNIC to reach a broader market and charge higher premiums. While MNIC’s underwriting standards attempts to avoid the highest risk policies, the occurrence of a catastrophic event would be likely to result in greater losses per policy for MNIC and have a material adverse effect on our results of operations, financial position and cash flows.

Our failure to comply with the covenants in our senior note indenture, including as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our financial condition and results of operations.

The indenture for our senior notes requires us to maintain certain financial ratios and to comply with various operational and other covenants, including limitations on our ability to incur additional debt without the approval of the existing noteholders. If there were an event of default under the indenture that was not cured or waived, the holders of the senior notes could cause all amounts outstanding with respect to the senior notes to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay the senior notes, either upon maturity or, if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments on the senior notes. This would have a material adverse impact on our liquidity, financial condition and results of operations.

~~We have recently issued debt securities, a portion of which bears interest at a floating rate, as a result of which we will have increased interest expense and exposure to rising interest rates.~~

In late December 2017, the Company issued $45 million of unsecured senior notes, $20 million of which bear interest at a fixed interest rate and $25 million of which bear interest at a floating rate of 7% above three-month LIBOR. As such, interest expense will increase substantially in 2018 and beyond (in the range of approximately $4 million, pre-tax) from historical levels (of approximately $350,000, pre-tax). In addition, the floating rate debt exposes the Company to the risk of further erosion of earnings if short-term interest rates rise, which they are likely to do in 2018, given the extended period of low interest rates experienced in the United States in recent years. Each 1% increase in the three-month LIBOR will increase the Company’s interest expense by $250,000, pre-tax.

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We may require additional capital in the future which may not be available or only available on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that our capital may be insufficient to meet future operating requirements and/or cover losses, we may need to raise additional funds through financings or curtail our growth. Many factors will affect the amount and timing of our capital needs, including our growth and profitability, our claims experience, and the availability of reinsurance, as well as possible acquisition opportunities, market disruptions and other unforeseeable developments.

If we were required to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders’ ownership could result, and in any case such securities may have rights, preferences and privileges that are senior to those of existing shareholders. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business or pay dividends. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of operations could be materially adversely affected.

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Our business is heavily regulated, and changes in regulation may reduce our profitability and limit our growth.

We are subject to extensive regulation in the states in which we conduct business. This regulation is generally designed to protect the interests of policyholders, as opposed to shareholders and other investors, and relates to authorization for lines of business, capital and surplus requirements, investment limitations, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and non-financial components of an insurance company’s business. These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. State regulatory authorities also conduct periodic examinations into insurers’ business practices. These reviews may reveal deficiencies in our insurance operations or differences between our interpretations of regulatory requirements and those of the regulators.

The NAIC and state insurance regulators are constantly reexamining existing laws and regulations, generally focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws.

From time to time, some states in which we conduct business have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. In other situations, states in which we conduct business have considered or enacted laws that impact the competitive environment and marketplace for property and casualty insurance. In addition, in recent years the state insurance regulatory framework has come under increased federal scrutiny. Changes in federal legislation and administrative policies in several areas, including changes in financial services regulation and federal taxation, can significantly impact the insurance industry and us.

We cannot predict with certainty the effect any enacted, proposed or future state or federal legislation or NAIC initiatives may have on the conduct of our business. Furthermore, there can be no assurance that the regulatory requirements applicable to our business will not become more stringent in the future or result in materially higher costs than current requirements. Changes in the regulation of our business may reduce our profitability, limit our growth or otherwise adversely affect our operations.

We may experience financial exposure from climate change.

A body of scientific evidence indicates that climate change may be occurring. Climate change, to the extent that it affects weather patterns, may cause an increase in the frequency and/or the severity of catastrophic events or severe weather conditions. Our financial exposure from climate change is most notably associated with losses in connection with the occurrence of hurricanes striking Florida. We mitigate the risk of financial exposure from climate change by restrictive underwriting criteria, sensitivity to geographic concentrations, and reinsurance.

Restrictive underwriting criteria can include, but are not limited to, higher premiums and deductibles and more specifically excluded policy risks such as fences and screened-in enclosures. New technological advances in computer generated geographical mapping afford us an enhanced perspective as to geographic concentrations of policyholders and proximity to flood prone areas. Our amount of maximum reinsurance coverage is determined by subjecting our homeowners exposures to statistical forecasting models that are designed to quantify a catastrophic event in terms of the frequency of a storm occurring once in every “n” years. If the statistical forecasting models fail to contemplate an emerging claim trend, such as the assignment of insurance benefits in Florida, then there is the risk we may not purchase adequate catastrophic wind coverage. Our reinsurance coverage contemplates the effects of a catastrophic event that occurs only once every 100 years. Our amount of losses retained (our deductible) in connection with a catastrophic event is determined by market capacity, pricing conditions and surplus preservation. There can be no assurance that

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our reinsurance coverage and other measures taken will be sufficient to mitigate losses resulting from one or more catastrophic events.

Our revenues and operating performance will fluctuate due to statutorily approved assessments that support property and casualty insurance pools and associations.

We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include, but are not limited to, the Florida ~~Joint Underwriters Association (“JUA”), the Florida~~ Insurance Guaranty Association (“FIGA”), Citizens, the FHCF, Texas Windstorm Insurance Association (“TWIA”) and ~~the FHCF.~~Louisiana Citizens Property Insurance (“LCPI”).

Insurance companies currently pass these assessments on to holders of insurance policies in the form of a policy surcharge, and reflect the collection of these assessments as fully earned credits to operations in the period collected. The collection of these fees, however, may adversely affect our overall marketing strategy due to the competitive landscape in Florida. As a result, the impact of possible future assessments on our balance sheet, results of operations or cash flow are indeterminable at this time.

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Our investment portfolio may suffer reduced returns, or losses, which would significantly reduce our earnings.

Like other insurance companies, we depend on income from our investment portfolio for a portion of our earnings. During the time that normally elapses between the receipt of insurance premiums and any payment of insurance claims, we invest the premiums received, together with our other available capital, primarily in debt securities and to a lesser extent in equity securities, in order to generate investment income.

Our investment portfolio contains interest rate sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates. A significant increase in interest rates or decrease in credit worthiness could have a material adverse effect on our financial condition or results of operations. Declines in interest rates could have an adverse effect on our investment income.

We are required to review our investment portfolio to evaluate and assess known and inherent risks associated with each investment type. We revise our evaluations and assessments as conditions change and new information becomes available. This may result in changes in an other-than-temporary impairment (“OTTI”) in our consolidated statements of income. We base our assessment of whether an OTTI has occurred on our case-by-case evaluation of the underlying reasons for the decline in fair value. Because historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future, no assurances can be provided that we have accurately assessed whether any such impairment is temporary or other-than-temporary or that we have accurately recorded amounts for an OTTI in our financial statements.

In addition, volatile and illiquid markets increase the likelihood that investment securities may not behave in historically predictable manners, resulting in fair value estimates that may be overstated compared with actual amounts that could be realized upon disposition or maturity of the security. The effects of market volatility and declining economic conditions may have unforeseen consequences on the credit quality, liquidity and financial stability of the issuers of securities we hold. Such deteriorations in financial condition can occur rapidly, leaving us unable to react to such a scenario in a prudent manner consistent with our historical practices in dealing with more orderly markets. This, in turn, could adversely and negatively affect our results of operations, liquidity or financial condition.

Our failure to pay claims accurately could adversely affect our business, financial results and capital requirements.

We must accurately evaluate and pay claims that are made under our policies. Many factors affect our ability to pay claims accurately, including the training and experience of our claims representatives, the culture of our claims organization and the effectiveness of our management, our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors. Our failure to pay claims accurately could lead to material litigation, undermine our reputation in the marketplace, impair our image and negatively affect our financial results.

In addition, if we are not able to handle an increasing number of claims as a result of a catastrophic event, or if we do not train new claims adjusting employees effectively or lose a significant number of experienced claims adjusting employees, our claims department’s ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, we could suffer decreased quality of claims work, which in turn could lower our operating margins.

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Our insurance companies are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

Our insurance companies are subject to RBC standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of the State of Florida. The RBC standards, based upon the Risk Based Capital Model Act adopted by the NAIC, require our insurance companies to report their results of RBC calculations to state departments of insurance and the NAIC. These RBC standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its ACL RBC.

If we fail to meet the applicable RBC or minimum statutory capital requirements imposed by the laws of Florida or other states where we do business, we would be required to raise additional capital and we could be subject to further examination or corrective action imposed by state regulators, including limitations on out writing of additional business, additional state supervision, or liquidation. Similarly, an increase in existing RBC requirements or minimum statutory capital requirements, such as the catastrophic risk component of RBC ~~that took effect in 2017,~~ may require us to increase our statutory capital levels.

Ratios calculated based on RBC tend to be a key criteria in the assignment of ratings by insurance rating agencies.

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Our revenues and operating performance may fluctuate with business cycles in the property and casualty insurance industry.

Historically, the financial performance of the property and casualty insurance industry has tended to fluctuate in cyclical patterns characterized by periods of significant competition in pricing and underwriting terms and conditions, which is known as a “soft” insurance market, followed by periods of lessened competition and increasing premium rates, which is known as a “hard” insurance market. Although an individual insurance company’s financial performance is dependent upon its own specific business characteristics, the profitability of most property and casualty insurance companies tends to follow this cyclical market pattern, with profitability generally increasing in hard markets and decreasing in soft markets. At present, on a consolidated basis, we ~~are experiencing~~continue to file and obtain rate ~~indications that support a hardening market in~~increases as the current Florida property and casualty ~~market.~~market continues to harden, but remains competitive. Elsewhere in the United States, we are experiencing a ~~softening~~stable market, ~~because of~~but increased competition. We cannot predict how long these market conditions will persist. Although we do not compete entirely on price or targeted market share, negative market conditions may impair our ability to write insurance at rates that we consider appropriate relative to the risk assumed. If we cannot write insurance at appropriate rates, our revenues and operating performance may be adversely affected.

We are beginning the process of exiting from the automobile and commercial general liability lines of business. As a result, we may experience increased costs as a result of these exit activities and will experience increased concentration of our business in homeowners insurance.

In the fourth quarter of 2017, we determined to exit from the automobile insurance business, and in the first quarter of 2018, we determined to exit from the commercial general liability business. We may experience increased costs in connection with our exit activities, which will include require regulatory filings and notices to policyholders. In addition, after our exit activities are complete, our business will be completely focused on homeowners insurance. Although we will attempt to diversify our risks through geographic and other market diversification, there can be no assurances that we will be able to do so.

If we determine to expand to additional states or to expand the types of insurance products we offer, we may incur additional costs and may not obtain the necessary regulatory approvals.

Although we ~~are currently exiting~~continue to exit our automobile and commercial general liability lines of insurance, we may determine to expand our product offerings in the future by underwriting additional insurance products and programs, and marketing them through our distribution network. Expansion of our product offerings will result in increases in expenses due to additional costs incurred in actuarial rate justifications, software and personnel. Offering additional insurance products may also require regulatory approval, further increasing our costs. Before we can write insurance in a new state, or a sell a new insurance product in a state, we must obtain a license or other approvals from the applicable state insurance regulators. These state insurance regulators may request additional information, add conditions to the license that we find unacceptable, or deny our application. This would delay or prevent us from operating in that state or offering that new product. There can be no assurance that we would be successful bringing new insurance products to our markets in a manner that is profitable.

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New homeowners insurance operations outside of Florida may not be profitable.

We plan to continue the expansion of admitted homeowners property and casualty programs into other states as opportunities arise. Expanding our operations to additional states present risks similar to those we currently face with our existing operations, including risks associated with the inability to market an adequately priced policy, inadequate commission structures, and overpriced or unavailable catastrophic reinsurance for wind events. Additionally, we would become subject to the insurance regulators in each state and the laws and regulations designed to regulate the insurance products and operations of new and existing insurance companies under their respective authority. As a result, there can be no guarantees that state regulators will allow us to do business in those states or, if we are approved to operate in a state, that our operations will be profitable in that state.

Our success depends on our ability to accurately price the risks we underwrite.

The results of operations and the financial condition of our insurance company depend on our ability to underwrite and set premium rates accurately for a wide variety of risks. Rate adequacy is necessary to generate sufficient premiums to pay losses, LAE and underwriting expenses and to earn a profit. In order to price our products accurately, we must collect and properly analyze a substantial amount of data; develop, test and apply appropriate rating formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully and price

our products accurately is subject to a number of risks and uncertainties, some of which are outside our control, including:

• the availability of sufficient reliable data and our ability to properly analyze available data;

• the uncertainties that inherently characterize estimates and assumptions;

• our selection and application of appropriate rating and pricing techniques;

• changes in legal standards, claim settlement practices, medical care expenses and restoration costs;

• regulatory restrictions, including, without limitation regulatory approval of rates sought; and

• legislatively imposed consumer initiatives.

Consequently, we could underprice risks, which would negatively affect our profit margins, or we could overprice risks, which could reduce our sales volume and competitiveness. In either event, the profitability of our insurance company could be materially and adversely affected.

-15-

Adverse ratings by insurance rating agencies may adversely impact our ability to write new policies, renew desirable policies or obtain adequate reinsurance, which could limit or halt our growth and harm our business.

Third-party rating agencies assess and rate the ability of insurers to pay their claims. The insurance industry uses financial strength ratings to assess the financial strength and quality of insurers. Ratings are based on criteria established by the rating agencies and reflect evaluations of each insurer’s profitability, debt and cash levels, customer base, adequacy and soundness of reinsurance, quality and estimated market value of assets, adequacy of reserves, capital and RBC ratios, and management. Ratings are also based upon factors of concern to agents, reinsurers and policyholders and are not directed toward the protection of investors, such as purchasers of our common stock.

Our ability to compete successfully in states outside of Florida to expand our business footprint may also be negatively affected by our lack of an A.M. Best company rating of our financial strength. Although our insurance subsidiaries have a Demotech rating of “A” (Exceptional), which is generally accepted in Florida and certain other states, a rating by A.M. Best is more widely accepted outside of Florida and may cause customers and agents to prefer a policy written by an A.M. Best-rated company over a policy written by us. In addition, some mortgage companies outside of Florida may require homeowners to obtain property insurance from an insurance company with a minimum A.M. Best rating.

The withdrawal or downgrade of our ratings could limit or prevent us from writing or renewing desirable insurance policies, from competing with insurers who have higher ratings, from obtaining adequate reinsurance, or from borrowing on a line of credit or cause us to default on financial covenants contained in certain of our debt financing agreements. The withdrawal or downgrade of our ratings could have a material adverse effect on our results of operations and financial position because our insurance products might no longer be acceptable to the secondary marketplace and mortgage lenders. Furthermore, a withdrawal or downgrade of our ratings could prevent independent agents from selling and servicing our insurance products or could increase the commissions we must pay to these agents.

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We rely on independent and general agents to write our insurance policies, and if we are not able to attract and retain independent and general agents, our revenues would be negatively affected.

We currently market and distribute our products and services through contractual relationships with a network of independent agents and a select number of general agents. Our independent agents are our primary source for our property and liability insurance policies. Many of our competitors also rely on independent agents. As a result, we must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products. A material reduction in the amount of our products that independent agents sell or a material reduction in the number of independent agents with whom we maintain a relationship could negatively affect our results of operations and financial condition.

We are a party to an insurance agency master agreement with ISA, an affiliate of 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. Since that time, our homeowners premiums and the percentage of homeowners premiums attributable to Allstate agents has increased rapidly. During the years ended December 31, 2018, 2017 and 2016, 23.8%, 23.8% and 24.1%, respectively, of the homeowners premiums we underwrote were from Allstate’s network of Florida agents, and this concentration may continue to increase. An interruption or change in our relationship with ISA could have a material adverse effect on the amount of premiums we are able to write, as well as our results of operations.

We are a party to a managing general underwriting agreement with SageSure to facilitate growth in our FNIC homeowners business outside of Florida. As a percentage of our total homeowners premiums, ~~10.2%~~15.0%, ~~6.9%~~10.2% and ~~5.0%~~6.9%, for the years ended December 31, 2018, 2017 ~~2016~~ and ~~2015,~~2016, respectively, were underwritten by SageSure. The profitability of the business we obtain outside of Florida through this agreement will depend substantially on the quality of underwriting performed by SageSure. An interruption in SageSure’s services for us, or issues with the quality of SageSure’s underwriting, could have a material adverse effect on the profitability of the business obtained through this relationship.

Certain of our agreements with agents provide that the renewal rights for policies written under those agreements belong to the agents, making it more difficult for us to maintain the policies written and the premium income generated through these relationships.

Our agreements with ISA and SageSure provide that ISA and SageSure, respectively, own the expirations of the policies underwritten under these agreements. This means that we do not have the right to solicit renewals of these policies. As a result, we may be less able to maintain the policies and the corresponding premium income from renewals of policies written by us under these agreements.

-16-

Cybersecurity breaches and other disruptions could compromise our information and expose us to loss of data or liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we store sensitive data, including our proprietary business information and personally identifiable information of our insureds and employees, on our networks. The secure processing and maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, or stolen. Any such access, disclosure or loss of information could result in legal claims against us, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, and damage our reputation, which could materially adversely affect our results of operations. Although we have implemented security measures to protect our systems from viruses and other intrusions by third parties, there can be no assurances that these measures will be effective. To mitigate these costs, we carry a cyber-liability insurance policy. Our insurance may not be sufficient to protect against all financial and other loss. Additionally, this policy will not cover us for security breaches, data loss, or cyber-attacks experienced by our third-party business partners who have access to our customer, agent, or employee data.

Our business could be materially and adversely affected by a security breach or other attack involving the systems of one or more of our business partners or vendors.

We conduct significant business functions and computer operations using the systems of third-party business partners and vendors, who provide software, hosting, communication, and other computer services to us. Our networks could be compromised by the errors or actions of our vendors and other business partners with legitimate access to our systems. If one of our vendors or other business partners are the subject of a security breach or cyber-attack, such breach or attack may result in improper or unauthorized access to our systems, and the loss, theft or unauthorized publication of our information or the confidential information of our customers,

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agents or employees, notwithstanding our substantial efforts to protect our systems and sensitive or confidential information. While we expend significant resources on these defensive measures, there can be no assurance that we will be successful in preventing attacks or detecting and stopping them once they have begun.

We rely on our information technology and telecommunications systems, and the failure of these systems could disrupt our operations.

Our business is highly dependent upon the successful and uninterrupted functioning of our current information technology and telecommunications systems. We rely on these systems to process new and renewal business, provide customer service, make claims payments and facilitate collections and cancellations, as well as to perform actuarial and other analytical functions necessary for pricing and product development. As a result, the failure of these systems could interrupt our operations and adversely affect our financial results.

Nonstandard automobile insurance historically has a higher frequency of claims than standard automobile insurance, thereby increasing our potential for loss exposure beyond what we would be likely to experience if we offered only standard automobile insurance.

Nonstandard automobile insurance is provided to insureds who are unable to obtain preferred or standard insurance coverage because of their payment histories, driving records, age, vehicle types, or prior claims histories. This type of automobile insurance historically has a higher frequency of claims than does preferred or standard automobile insurance policies, although the average dollar amount of the claim is usually smaller under nonstandard insurance policies. As a result, we are exposed to the possibility of increased loss exposure and higher claims experience than would be the case if we offered only standard automobile insurance.

Increased competition, competitive pressures, industry developments and market conditions could affect the growth of our business and adversely impact our financial results.

We operate in highly competitive markets and face competition from national, regional and residual market insurance companies in the homeowners, commercial general liability, and automobile markets, many of whom are larger, have greater financial and other resources, have higher financial strength ratings and offer more diversified insurance coverage. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers. Large national captive writers may have certain competitive advantages over independent agency writers, including increased name recognition, increased loyalty of their customer base and reduced policy acquisition costs. We may be forced to reduce our premiums or increase our commissions significantly to compete, which could make us less profitable and have a material adverse effect on our business, results of operations and financial condition. If we do not meet the prices offered by our competitors, we may lose business in the short term, which could also result in a material adverse effect on our business, results of operations and financial condition.

Our executive management team is critical to the strategic direction of our company. If there were an unplanned loss of service by any of our officers our business could be harmed.

We depend, and will continue to depend, on the services of our executive management team, which includes Michael H. Braun, Chief Executive Officer and President, ~~Ronald Jordan, Chief Financial Officer, Erick A. Fernandez, Chief Accounting Officer,~~ and others. Our success also will depend in part upon our ability to attract and retain qualified executive officers, experienced underwriting talent and other skilled employees who are knowledgeable about our business. If we were to lose the services of one or more members of our executive management team, our business could be adversely affected. Although we have employment agreements with certain of our executive officers, any unplanned loss of service could substantially harm our business.

~~The recently enacted U.S. tax reform legislation will have an impact on our results of operations and financial condition, which we are currently assessing.~~

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which significantly amends the Internal Revenue Code of 1986. Among other things, the Tax Act reduces the corporate tax rate from a statutory rate of 35% to 21%, imposes additional limitations on net operating losses and executive compensation, allows for the full expensing of certain capital expenditures, and enacts other changes impacting the insurance industry. While we expect the overall impact of the Tax Act to be favorable due to the decrease in the statutory tax rate, we are currently assessing the impact of other changes therein on our results of operations. -In addition, it is possible that state insurance regulators, including the OIR, may determine to take regulatory action, such as disapproving requested rate increases, because of the perception that the Tax Act has benefited insurance companies.17

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Risks Related to an Investment in Our Shares

Our stock price in recent years has been volatile and is likely to continue to be volatile. As a result, the market price of our common stock may drop below the price you pay, and you may not be able to resell your shares at a profit.

The market price of our common stock has experienced, and may continue to experience, significant volatility from time to time. Such volatility may be affected by various factors and events, such as:

our operating results, including a shortfall in operating revenue or net income from that expected by securities analysts and investors;

recognition of large unanticipated accounting charges, such as related to a loss reserve enhancement;

changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally;

Failure to successfully integrate the operations of the Maison Companies into those of the Company;

Demotech downgrade;

the announcement of a material event or anticipated event involving us or our industry or the markets in which we operate;

the issuance of a significant number of shares; and

the other risk factors described in this Annual Report, the accompanying notes and the documents incorporated by reference herein.

In recent years, the U.S. stock market has experienced extreme price and volume fluctuations, which have sometimes affected the market price of the securities issued by a particular company in a manner unrelated to the operational performance of the company. This type of market effect could impact our common stock price as well. The volatility of our common stock means that the price of our common stock may have declined substantially at such time as you may look to sell your shares of our common stock. If our share price decreases, the value of your investment could decline.

We have authorized but unissued preferred stock, which could affect rights of holders of common stock.

Our articles of incorporation authorize the issuance of preferred stock with designations, rights and preferences determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without shareholder approval, to issue preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. In addition, the preferred stock could be issued as a method of discouraging a takeover attempt. Although we do not intend to issue any preferred stock at this time, we may do so in the future.

~~Provisions in our articles of incorporation and our bylaws and the Florida Business Corporation Act could make it more difficult to acquire us and may reduce the market price of our common stock.~~

Our articles of incorporation and our bylaws contain certain provisions that may make it more difficult and time-consuming for shareholders or third parties to influence our management, policies or affairs, and may discourage, delay or prevent a transaction involving a change-in-control of our company and offering a premium over the current market price of our common stock. These provisions include those which:

~~prohibit cumulative voting in the election of our directors;~~

~~establish a classified board of directors with staggered three-year terms;~~

~~establish advance notice and disclosure procedures for shareholders to bring matters, including nominations for election to our board, before a meeting of our shareholders; and,~~

~~eliminate the ability of shareholders to take action by written consent in lieu of a shareholder meeting.~~

~~As a result, we may be less likely to receive unsolicited offers to acquire us that some of our shareholders might consider beneficial.~~

The Florida Business Corporation Act, as amended, contains provisions, which our directors have elected not to opt out of, that are designed to enhance the ability of our board of directors to respond to and potentially defer attempts to acquire control of our company. These provisions may discourage altogether takeover attempts that have not been approved by our board of directors. These provisions may also adversely affect the price that a potential purchaser would be willing to pay for our common stock and, therefore, deprive you of the opportunity to obtain a takeover premium for your shares. These provisions could make the removal of our incumbent directors and management more difficult. These provisions may enable a minority of our directors and the holders of a minority of our outstanding voting stock or the holders of an existing control block to prevent, delay, discourage or make more difficult a merger, tender offer or proxy contest, even though the transaction may be favorable to the interests of a majority of our non-affiliate shareholders. These provisions could also potentially adversely affect the market price of our common stock.

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As a holding company, we depend on the earnings of our subsidiaries and their ability to pay management fees and dividends to the holding company as the primary source of our income.

We are an insurance holding company whose primary assets are our subsidiaries. Our operations, and our ability to pay dividends or service our debt, are limited by the earnings of our subsidiaries and their payment of their earnings to us in the form of management fees, commissions, dividends, loans, advances or the reimbursement of expenses. These payments can be made only when our subsidiaries have adequate earnings. In addition, dividend payments made to us by our insurance subsidiaries are restricted by Florida law governing the insurance industry. Generally, Florida law limits the dividends payable by insurance companies under complicated formulas based on the subsidiaries’ available capital and earnings.

Payment of dividends in the future will depend upon our earnings and financial position and such other factors, as our board of directors deems relevant.

Future sales of our common stock by our existing shareholders in the public market, or the possibility or perception of such future sales, or sales of additional shares of common stock by us, could depress our stock price.

Investors currently known to be the beneficial owners of more than 5.0% of our common stock hold approximately 45% of our outstanding shares. Sales of a substantial number of shares of our common stock in the public market or otherwise by our existing shareholders, or the possibility or perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

At close of the acquisition of the Maison Companies, we will issue $25.5 million in shares of the Company’s common stock to PIH. The resale of these shares to be issued will be subsequently registered and will be subject to a five-year standstill agreement.

-18-

In addition, we may issue additional shares of our common stock from time to time in the future in amounts that may be significant. The sale of substantial amounts of our common stock by us, or the perception that these sales may occur, could adversely impact our stock price.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our executive offices are located at 14050 N.W. 14th Street, Suite 180, Sunrise, Florida 33323 in ~~an 18,554~~a 64,727 square foot office facility. Our lease for this office space is scheduled to expire in ~~December 2022.~~October 2028. Refer to Note ~~9. Commitments and Contingencies, in~~9 of the ~~Notes~~notes to our Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, for further information regarding our leases.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of conducting our business, we become involved in various legal actions and claims. Litigation is subject to many uncertainties and we may be unable to accurately predict the outcome of such matters, some of which could be decided unfavorably to us. Management does not believe the ultimate outcome of any pending matters of this nature would be material.

~~We have been~~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 wethe Company agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to ~~the Company~~FNHC and ~~FNIC.~~FedNat Insurance Company. In response to Mutual’s allegations that ~~our~~the Company’s use of the word “FED” as part of ~~our~~the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, inwhich the Company disputed, on July 21, 2016, wethe Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of ~~Florida seeking~~Florida. Specifically, the Company sought a declaration that ~~our~~its federally registered trademark ~~“FEDNAT”~~"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”~~"FED" in connection with insurance services outside of Owatonna, Minnesota. ~~In response to Mutual’s~~Mutual made a demand for arbitration ~~against us alleging a breach~~in July 2016, and the district court referred the dispute to arbitration under the terms of the Co-Existence ~~Agreement, on~~Agreement. On February 16, 2018, the arbitrator ~~agreed~~determined that ~~our~~the Company’s “FEDNAT” trademark does not infringe on Mutual’s ~~federal or common law trademark rights.~~trademarks and does not violate the Co-Existence Agreement. As a result, ~~we have begun~~the Company has continued the process of re-branding the Company and certain of its subsidiaries to use the ~~FEDNAT~~“FEDNAT” name. The arbitrator also required usthe Company to cease using the Federated National name within 90 days. ~~Unless~~FNHC has asserted that the ~~Company is able~~artibtrator exceeded his authority by ordering a name change within 90 days. FNHC attempted, but was unable, to reach agreement with Mutual ~~regarding~~as to the timing of the name change ordered by the arbitrator. Therefore, two proceedings have been filed as a result. Mutual filed a petition to confirm the award in federal court in the District of Minnesota. The Company ~~intends~~moved to ~~challenge~~dismiss that action on the bases that the Minnesota court does not have subject matter jurisdiction and may not exercise personal jurisdiction over FNHC. The Company also filed a motion to confirm the arbitration award in part and to vacate it in part in federal court in the Northern District of Illinois, which is where the arbitrator is located, to confirm that part of the award ruling that the Company’s “FEDNAT” trademark does not violate Mutual’s trademarks or the Co-Existence Agreement, and seeks to vacate that portion of the award that requires the Company to cease using the “Federated” in its name within 90 days on the basis that arbitrator exceeded his authority by requiring the Company to change its name in 90 days. The District Court in Minnesota affirmed the arbitration award, including the requirement for the name change in ~~federal court.~~

~~On March 2, 2017, we~~90 days. FNHC has filed ~~a complaint in Broward County, Florida court to enforce the terms~~an appeal of the ~~restrictive covenants~~order to the U.S. Court of Appeals for the Eighth Circuit; the parties have completed briefing the appeal, and the Eighth Circuit has set ~~forth~~oral argument for March 13, 2019. The Eighth Circuit will render a decision some time following oral argument. The District Court in the Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated August 5, 2013, as amended, entered into between Peter J. Prygelski, III and our company during Mr. Prygelski’s employment with us and set forth inNorthern District of Illinois has been asked to stay its proceedings pending the ~~separation agreement he entered into in connection with his separation from our company. We believe that he accepted employment with a competitor in contravention~~outcome of ~~these restrictive covenants and therefore we are seeking injunctive relief, declaratory relief and damages. Prygelski has also filed an arbitration seeking declaratory relief as~~the Company’s appeal to ~~his obligations under~~ the above-referenced agreements and to recover the remainder of his severance and health insurance premium reimbursements. Because we are seeking monetary relief, we have filed a counterclaim in the arbitration seeking damages and recovery of separation payments. The litigation seeking injunctive relief and the companion arbitration related to damages are ongoing. The final hearing on the arbitration is scheduled for May 14, 2018.Eighth Circuit. There can be no assurances as to the ultimate outcome of this matter.

Refer to Note ~~9. Commitments and Contingencies, in~~9 of the ~~Notes~~notes to our Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, for further information regarding our legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed for trading on the NASDAQ Global Market under the symbol “FNHC.” The following table sets forth quarterly high and low closing sale prices as reported on the NASDAQ Global Market. These reported prices reflect prices between dealers, without accounting for retail mark-ups, markdowns or commissions, and may not represent actual transactions.

໿

Quarter Ended: High Low
March 31, 2017 $ 21.19
$ 16.45
June 30, 2017 17.60
14.46
September 30, 2017 17.34
9.78
December 31, 2017 16.75
12.84

March 31, 2016 $ 29.08
$ 18.68
June 30, 2016 22.93
18.00
September 30, 2016 22.45
17.08
December 31, 2016 19.33
14.03

~~The closing price of our common stock on March 8, 2018 was $16.35.~~

HOLDERS

As of March ~~8, 2018,~~1, 2019, there were ~~120~~118 holders of record of our common stock. We believe that the number of beneficial owners of our common stock is in excess of ~~2,770.~~

~~DIVIDENDS~~

~~The Board of Directors of FNHC declared regular quarterly dividends as follows:~~

~~In November 2017, the Company’s Board of Directors declared a dividend of $0.08 per common share, paid in March 2018, totaling $1.0 million.~~

~~In September 2017, the Company’s Board of Directors declared a dividend of $0.08 per common share, paid in December 2017, totaling $1.1 million.~~

~~In June 2017, the Company’s Board of Directors declared a dividend of $0.08 per common share, paid in September 2017, totaling $1.1 million.~~

~~In March 2017, the Company’s Board of Directors declared a dividend of $0.08 per common share, paid in June 2017, totaling $1.1 million.~~

~~In December 2016, our Board of Directors declared a dividend of $0.08 per common share, paid in March 2017, totaling $1.1 million.~~

~~In September 2016, our Board of Directors declared a dividend of $0.08 per common share, paid in December 2016, totaling $1.1 million.~~

~~In June 2016, our Board of Directors declared dividends of $0.06 per common share, respectively, paid in September 2016, totaling $1.7 million.~~

~~In January 2016, our Board of Directors declared a dividend of $0.05 per common share, paid in March 2016, totaling $0.7 million.~~

Payment of dividends in the future will depend on our earnings and financial position and such other factors, as our Board of Directors deems relevant. Our ability to continue to pay dividends may be restricted by regulatory limits on the amount of dividends that FNIC and MNIC are permitted to pay to the parent company.

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2,500.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes our equity compensation plans as of December 31, ~~2017.~~2018. All equity compensation plans were approved by our shareholders. We have not granted any options, warrants or rights to our shareholders outside of these equity compensation plans.

Equity Compensation Plan Information

Number of securities

remaining available for

Number of securities to

Weighted-average

future issuance under

Number of securities to

Weighted-average

future issuance under

be issued upon exercise of

exercise price of

equity compensation plans

be issued upon exercise of

exercise price of

equity compensation plans

outstanding options,

(excluding securities

outstanding options,

(excluding securities

warrants and rights

reflected in column (a))

warrants and rights

reflected in column (a))

Plan category

(a)

(b)

(c)

(a)

(b)

(c)

Equity compensation plans approved by stockholders

50,351

3.72

142,905

Equity compensation plans approved by shareholders

39,017

3.80

262,334

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~~Federated National~~FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2017~~

up-front. Additionally, with this change, the timing of revenue recognition of direct written policy fees and fee income will be consistent with the timing of recognition of the related insurance costs, including commissions and other acquisition related expenses. This correction resulted in an after-tax net loss impact of $0.7 million and $1.4 million for the years ended December 31, 2016 and 2015, respectively.

~~Deferred acquisition costs:~~The Company corrected an error in the calculation of deferred acquisition costs related to the over-amortization of the costs, resulting in an overstatement of expenses. Consistent with above, the timing of expense recognition will be consistent with the timing of the recognition of the related premiums and policy fees and the underlying policy term. This correction resulted in an impact to commissions and other underwriting expenses for all periods presented. This correction resulted in an after-tax net income impact of $0.5 million and $0.7 million for the years ended December 31, 2016 and 2015, respectively.

~~Automobile reinsurance agreements:~~ The Company corrected errors on the accounting for certain terms in its reinsurance coverage related to the automobile line of business. This correction was related to limits on the amount of premiums that could be ceded and other terms. The primary impact of the correction resulted in a lower inception-to-date quota share percentage on the reinsurance treaties impacted, which resulted in an overstatement of ceded premiums earned, ceded loss and LAE and ceded commissions. This correction resulted in an after-tax net loss impact of $0.4 million for the year ended December 31, 2016.

~~Income taxes:~~ The Company corrected errors in its tax provision related to tax deductions on executive compensation, which resulted in an after-tax net loss of $0.4 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively. Additionally, a portion of the revisions includes a $2.2 million deferred tax adjustment which is part of the retained earnings beginning balance adjustment, as the item related to periods in 2014 and prior. This error was previously recorded as an out-of-period adjustment and disclosed in the 2016 financial statements.

~~Income statement reclassifications:~~ As previously disclosed and reclassified in the Company’s Quarterly Report on Form 10-Q (“Quarterly Report”) for the period ended June 30, 2017, the Company re-assessed the income statement classification of ceded commission income and salaries and wages from our claims department. As a result, the Company adjusted ceded commission from other income to commissions and other underwriting expenses and salaries and wages from the Company’s claims department from commissions and other underwriting expenses to loss and LAE. Refer to the Company’s Quarterly Report for the period ended June 30, 2017, for more detailed information.

~~Homeowners quota share agreements:~~As previously disclosed and corrected in the Company’s Quarterly Report for the period ended September 30, 2015, the Company re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions and other adjustments. As part of these revisions, the Company recorded these adjustments in the appropriate period. These adjustments resulted in an impact to revenue, loss and LAE, commissions and other underwriting expenses and general and administrative expenses, which had an after-tax net loss impact of $0.8 million for the year ended December 31, 2015.

The following table includes the effects of the adjustments on the retained earnings beginning balance as of January 1, 2015, which represents the cumulative impact of the revisions to periods prior to 2015.

As of January 1, 2015
As Reported Adjustments As Adjusted

Retained earnings $ 57,423
$ (3,018 ) $ 54,405

The following tables summarize the impact of the revisions to the Company’s previously reported consolidated balance sheet as of December 31, 2016, and the Company’s previously reported consolidated statements of operations for the years ended December 31, 2016 and 2015.

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~~Federated National Holding Company and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~

December 31, 2016
As Reported Adjustments As Adjusted
ASSETS (In thousands, except share and per share data)
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $376,644) $ 374,756
$ —
$ 374,756
Debt securities, held-to-maturity, at amortized cost 5,551
—
5,551
Equity securities, available-for-sale, at fair value (cost of $24,163) 29,375
—
29,375
Total investments (including $28,704 related to the VIE) 409,682
—
409,682

Cash and cash equivalents (including $15,668 related to the VIE) 74,593
—
74,593
Prepaid reinsurance premiums 156,932
—
156,932
Premiums receivable, net of allowance of $55 (including 1,584 related to the VIE) 54,854
—
54,854
Reinsurance recoverable, net 48,530
(667 ) 47,863
Deferred acquisition costs 38,962
2,930
41,892
Income taxes receivable 13,871
—
13,871
Property and equipment, net 4,194
—
4,194
Other assets (including $371 related to the VIE) 11,509
—
11,509
TOTAL ASSETS $ 813,127
$ 2,263
$ 815,390

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Loss and loss adjustment expense reserves $ 158,110
$ —
$ 158,110
Unearned premiums 294,022
—
294,022
Reinsurance payable 79,154
—
79,154
Long-term debt 4,909
—
4,909
Deferred revenue —
6,834
6,834
Deferred tax liabilities, net 1,433
(1,180 ) 253
Other liabilities 37,643
—
37,643
Total liabilities 575,271
5,654
580,925
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value: 1,000,000 shares authorized —
—
—
Common stock, $0.01 par value: 25,000,000 shares authorized; 13,473,120 shares
issued and outstanding
134
—
134
Additional paid-in capital 136,779
—
136,779
Accumulated other comprehensive income 1,941
—
1,941
Retained earnings 80,275
(3,391 ) 76,884
Total shareholders’ equity attributable to
Federated National Holding Company shareholders
219,129
(3,391 ) 215,738
Non-controlling interest 18,727
—
18,727
Total shareholders’ equity 237,856
(3,391 ) 234,465
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 813,127
$ 2,263
$ 815,390

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~~Table of Contents~~

~~Federated National Holding Company and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~

Year Ended December 31,
2016 2015
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
Revenue: (In thousands, except share and per share data)
Net premiums earned $ 259,872
$ 1,497
$ 261,369
$ 210,020
$ 3,000
$ 213,020
Net investment income 9,063
—
9,063
7,226
—
7,226
Net realized investment gains 3,045
—
3,045
3,616
—
3,616
Direct written policy fees 17,730
(1,111 ) 16,619
11,248
(1,508 ) 9,740
Other income (loss) 26,674
(9,245 ) 17,429
17,783
(7,914 ) 9,869
Total revenue 316,384
(8,859 ) 307,525
249,893
(6,422 ) 243,471

Costs and expenses:
Losses and loss adjustment expenses 187,341
10,469
197,810
104,353
8,357
112,710
Commissions and other underwriting expenses 108,776
(18,398 ) 90,378
64,868
(12,006 ) 52,862
General and administrative expenses 17,186
—
17,186
15,223
(525 ) 14,698
Interest expense 348
—
348
256
—
256
Total costs and expenses 313,651
(7,929 ) 305,722
184,700
(4,174 ) 180,526

Income before income taxes 2,733
(930 ) 1,803
65,193
(2,248 ) 62,945
Income taxes 2,683
(2,141 ) 542
24,753
(664 ) 24,089
Net income 50
1,211
1,261
40,440
(1,584 ) 38,856
Net income (loss) attributable to non-controlling interest 246
—
246
(445 ) —
(445 )
Net (loss) income attributable to Federated National
Holding Company shareholders $ (196 ) $ 1,211
$ 1,015
$ 40,885
$ (1,584 ) $ 39,301

Net (loss) income per share attributable to Federated
National Holding Company shareholders:
Basic $ (0.01 ) $ 0.08
$ 0.07
$ 2.98
$ (0.12 ) $ 2.86
Diluted $ (0.01 ) $ 0.08
$ 0.07
$ 2.92
$ (0.11 ) $ 2.81

Weighted average number of shares of common stock
outstanding:
Basic 13,758
—
13,758
13,729
—
13,729
Diluted 13,758
164
13,922
13,997
—
13,997

Dividends declared per share of common stock $ 0.27
$ —
$ 0.27
$ 0.18
$ —
$ 0.18

For the impacts of the revisions to the Company’s previously reported consolidated statements of operations for each of the quarterly periods ended March 31, 2017 to September 30, 2017, the six months ended June 30, 2017, and the nine months ended September 30, 2017, refer to Note 16. Quarterly Results of Operations (Unaudited), in these notes to the consolidated financial statements.

Certain prior period line items in the consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows, were affected by the revisions of previously issued financial statements. All of the changes in the consolidated statements of cash flows were included in cash flows from operating activities and all of the changes in the consolidated statements of comprehensive income were isolated to the net income line, which has been addressed through the preceding disclosures.

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~~Federated National Holding Company and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~2018

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Accounting Estimates and Assumptions

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

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

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Alternative valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or pay to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Our nonperformance or credit risk is considered in determining the fair value of liabilities. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

Refer to Note ~~3. Fair Value, in these notes to consolidated financial statements,~~3 below for additional information regarding fair value.

Investments

Investments consist of debt and equity securities. Debt securities consist of securities with an initial fixed maturity of more than ~~one year,~~three months, including corporate bonds, municipal bonds and United States government bonds. Equity securities generally consist of securities that represent ownership interests in an enterprise. The Company determines the appropriate classification of investments in debt and equity securities at the acquisition date and re-evaluates the classification at each balance sheet date.

Held-to-maturity ~~investments~~debt securities are recorded at the amortized cost, reflecting the ability and intent to hold the securities to maturity. All other debt securities are classified as available-for-sale and recorded at fair value. Unrealized gains and losses during the year, net of the related tax effect applicable to available-for-sale and periods prior to January 1, 2018 for equity securities, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders’ equity until realized. If a decline in fair value is deemed to be other-than-temporary, the investment is written down to its fair value and the amount of the write-down is recorded as an other-than-temporary impairment (“OTTI”) loss on the statement of operations. Any portion of such decline related to debt securities that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than against income. As a result of the adoption of Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) beginning on January 1, 2018 equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are measured at fair value with changes in fair value recognized in net income. Refer to Note 2 below for additional information related to ASU 2016-01.

When we invest in certain companies, such as limited partnerships and limited liability companies, and if we determine we are not the primary beneficiary, we account for them using the equity method to determine the carry value, which is included in other assets on our Consolidated Balance Sheets. Our maximum exposure to loss is limited to the capital we invest.

Net realized gains and losses on investments are determined in accordance with the specific identification method.

Net investment income consists primarily of interest income from debt securities, cash and cash equivalents, including any premium amortization or discount accretion and dividend income from equity securities; less expenses related to investments.

~~Refer to Note 4. Investments, in these notes to consolidated financial statements, for additional information regarding investments.~~

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~~Table of Contents~~

~~Federated National~~FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2017~~2018

Refer to Note 4 below for additional information regarding investments.

Cash and Cash Equivalents

Cash and cash equivalents consist of all deposit or deposit in transit balances with a bank that are available for withdrawal. The Company considers all highly liquid investments with an original maturity of three months or less at the date of the purchase to be cash equivalents.

Premiums and Unearned Premiums

The Company recognizes premiums as revenue on a pro-rata basis over the term of the insurance policy. Assumed reinsurance premiums written and earned are based on reports received from ceding companies for pro-rata treaty contracts and are generally recorded as written based on contract terms for excess-of-loss and quota share contracts. Premiums are earned ratably over the terms of the related coverage.

Unearned premiums represent the portion of gross premiums written, related to the unexpired terms of such coverage.

Premium receivable balances are reported net of an allowance for estimated uncollectible premium amounts. Such allowance is based upon an ongoing review of amounts outstanding, length of collection periods, the creditworthiness of the insured and other relevant factors. Amounts deemed to be uncollectible are written off against the allowance.

Reinsurance

Reinsurance is used to mitigate the exposure to losses, manage capacity and protect capital resources. Reinsuring loss exposures does not relieve a ceding entity from its obligations to policyholders and cedants. Reinsurance recoverables (including amounts related to claims incurred but not reported) and ceded unearned premiums are reported as assets. To minimize exposure to losses from a reinsurer’s inability to pay, the financial condition of such reinsurer is evaluated initially upon placement of the reinsurance and periodically thereafter. In addition to considering the financial condition of the reinsurer, the collectability of the reinsurance recoverables is evaluated (and where appropriate, whether an allowance for estimated uncollectible reinsurance recoverables is to be established) based upon a number of other factors. Such factors include the amounts outstanding, length of collection periods, disputes, any collateral or letters of credit held and other relevant factors. To the extent that an allowance for uncollectible reinsurance recoverable is established, amounts deemed to be uncollectible are written off against the allowance for estimated uncollectible reinsurance recoverables. As of December 31, ~~2017~~2018 and ~~2016,~~2017, the Company did have any allowances for uncollectible reinsurance recoverables.

Ceded premiums written are recorded in accordance with applicable terms of the various reinsurance contracts and ceded premiums earned are charged against revenue over the period of the various reinsurance contracts. This also generally applies to reinstatement premiums paid to a reinsurer, which arise when contractually-specified ceded loss triggers have been breached.

Ceded commissions reduce commissions, brokerage and other underwriting expenses and ceded losses incurred reduce net ~~loss~~losses and LAE incurred over the applicable periods of the various reinsurance contracts with third party reinsurers. If premiums or commissions are subject to adjustment (for example, retrospectively-rated or experience-rated), the Company records adjustments to the premiums or ceding commission revenue in the period that changes in the estimated losses are determined.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and consistent with the terms of the underlying reinsurance contract.

Deferred Acquisition Costs

Deferred acquisition costs represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts. The Company defers incremental costs that result directly from, and are essential to, the acquisition or renewal of an insurance contract. Such deferred acquisition costs generally include agent or broker commissions, referral fees, premium taxes, medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable.

The Company also defers a portion of the employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities, including costs associated with the time spent on underwriting, policy issuance and processing, and sales force contract selling.

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~~Federated National~~FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2017~~2018

The acquisition costs are deferred and amortized over the period in which the related premiums written are earned, generally twelve months for homeowners and commercial general liability policies and six months for automobile policies. It is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of deferred acquisition costs. The Company assesses the recoverability of deferred acquisition costs on an annual basis or more frequently if circumstances indicate impairment may have occurred.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using a straight-line method over the estimated useful lives, ranging from 35 to 15 years. Repairs and maintenance are charged to expense as incurred.

The Company accounts for internal-use software development costs in accordance with accounting guidelines which state that software costs, including internal payroll costs, incurred in connection with the development or acquisition of software for internal use is charged to expense as incurred until the project enters the application development phase. Costs incurred in the application development phase are capitalized and are depreciated using the straight-line method over an estimated useful life of 53 years, beginning when the software is ready for use.

Direct Written Policy Fees

Policy fees represent a non-refundable application fee for insurance coverage. These policy fees are deferred over the related policy term in a manner consistent with how the related premiums are earned.

Other Income

Other income represents brokerage, commission related income from the Company’s agency operations, ~~partnership income as well as~~ fees generated from the personal automobile line of ~~business.~~business as well as recognition of equity method investment results. Brokerage income is recognized over the term of the reinsurance period, typically one year. Commission income from ~~its~~ agency operations are recognized up-front upon policy inception. ~~The partnership income is the Company’s share of its equity method investment.~~ The fees associated with the personal automobile line of business are recognized ratably over the related policy term, generally six months.

The Company has a 33% partnership interest in Southeast Catastrophe Consulting Company, LLC (“SECCC”), based in Mobile, Alabama. The Company has an agreement in which SECCC provides claims adjusting services for FNIC and MNIC, primarily in the event of catastrophes, such as Hurricane Irma and Matthew. We use the equity method of accounting for this investment as we do not have the ability to exercise significant influence nor control operating or financial decisions. In applying the equity method, the Company ~~recorded~~records its initial investment at cost, and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or ~~losses. Any~~losses with any dividends or distributions received are recorded as a decrease in the carrying value of the investment. ~~The Company’s proportionate share of net income (loss) is reported as other income in the consolidated statements of operations.~~

Losses and Loss Adjustment Expenses

The reserves for ~~loss~~losses and LAE represent management’s best estimate of the ultimate cost of all reported and unreported losses incurred through the balance sheet date. Such liabilities are determined based upon the Company’s assessment of claims pending and the development of prior years’ loss liability, including liabilities based upon individual case estimates for reported ~~loss~~losses and LAE and estimates of such amounts that are incurred but not yet reported (“IBNR”). Changes in the estimated liability are charged or credited to operations as the losses and LAE are settled.

The estimates of the liability for loss and LAE reserves are subject to the effect of trends in claims severity and frequency and are continually reviewed. As part of this process, the Company review historical data and consider various factors, including known and anticipated legal developments, inflation and economic conditions. As experience develops and other data become available, these estimates are revised, as required, resulting in increases or decreases to the existing liability for loss and LAE reserves. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.

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~~Federated National~~FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2017~~2018

Long-Term Debt, Net of Deferred Financing Costs

The Company records long-term debt, net in the consolidated balance sheets at carrying value.

The Company incurs specific incremental costs, other than those paid to lenders, in connection with the issuance of the Company’s debt instruments. These deferred financing costs include loan origination costs, issue costs and other direct costs payable to third parties and are recorded as a direct deduction from the carrying value of the associated debt liability in the consolidated balance sheets, when the debt liability is recorded. The Company amortizes the deferred financing costs as interest expense over the term of the related debt using the effective interest method in the consolidated statements of operations.

Income Taxes

The Company applies the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss, capital loss and tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or expense in the period that includes the enactment date. The Company will establish a valuation allowance if management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established and the amount of such allowances.

The Company’s management makes assumptions, estimates and judgments, which are subject to change, in accounting for income taxes. The Company’s management also considers events and transactions on an on-going basis and the laws enacted as of the Company’s reporting date. The U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law on December 22, 2017, and the effect of changes in federal tax law and applicable statutory rates is recorded in the consolidated financial statements in the period of enactment. ~~The recent changes in~~As such, the ~~tax law have~~Tax Act affected the Company’s deferred income tax provision in the consolidated statement of operations for the year ended December 31, 2017 and the deferred income tax assets and liabilities balances in the consolidated balance sheet as of December 31, 2017. Both the current and deferred income tax provisions are affected for 2018. Refer to Note ~~8. Income Taxes, in these notes to consolidated financial statements,~~8 below for further information regarding income taxes.

Share-Based Compensation

~~The Company accounts for share-based~~We expense the fair value of stock awards included in our stock incentive compensation ~~based on the estimated grant date fair value.~~plans. The Company grants awards ~~with service only conditions~~ and ~~generally~~ amortizes them on a straight-line over the vesting term using the straight-line basis for service awards and over successive one-year requisite service ~~period of the award, which is the vesting term. The fair value of the~~periods for performance based awards. For all restricted stock ~~grants~~awards (“RSAs”), excluding relative total shareholder return ("TSR"), the fair value is determined based on the closing market price on the date of grant. The TSR grant date fair value are determined using a Monte Carlo simulation and, unlike the performance condition awards, the expense is not reversed if the performance condition is not met. Non-employee directors are treated as employees for accounting purposes. The non-cash share-based compensation expense is reflected in commissions and other underwriting and general and administrative expense on our Consolidated Statements of Operations and is recognized as an increase to additional paid-in capital on our Consolidated Balance Sheets.

Basic and Diluted Net Income (Loss) per Share

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares, while diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of such common shares and dilutive share equivalents result from the assumed exercise of employee stock options and vesting of restricted common stock and are calculated using the treasury stock method.

Recently Issued Accounting Pronouncements, Adopted

In ~~January 2016,~~May 2014, the Financial Accounting Standards Board (“FASB”) ~~issued Accounting Standards Update (“ASU”) 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~(“ASU 2016-01”)~~, 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. The effect of adopting this guidance was principally affected by the level of unrealized gains or losses associated with equity investments with readily determinable market values. Such unrealized gains or losses have been recognized upon adoption as a cumulative-effect adjustment with future unrealized gains or losses reflected in the statement of income and comprehensive income. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018. The primary impact will be

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~~Table of Contents~~

~~Federated National Holding Company and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~

~~based on the unrealized gains and losses on the Company’s equity securities, which will be recognized through net income instead of through other comprehensive income.~~

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~.The update simplifies several aspects of the accounting for share-based payment transactions, including, but not limited to, the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted these amendments effective January 1, 2017, resulting in $0.2 million of discrete income tax deficiencies reflected as a component of the income tax provision in the Company’s consolidated statements of operations. The update also requires excess tax benefits be presented within the statement of cash flows as an operating activity, rather than as a financing activity. The Company adopted this change on a prospective basis, which resulted in a $0.2 million decrease in cash provided by operating activities for the year ended December 31, 2017. The update also requires excess tax benefits and deficiencies to be prospectively excluded from the assumed future proceeds in the calculation of diluted shares, which increased the Company’s weighted average number of diluted common shares outstanding by 11,839 shares for the year ended December 31, 2017.

~~Recently Issued Accounting Pronouncements, Not Yet Adopted~~

~~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. The update replaces all general and most industry specific revenue recognition guidance (excluding insurance) currently prescribed by ~~U.S.~~ GAAP. The core principle is that an entity recognizes revenue to reflect the transfer of a promised good or service to customers in an amount that reflects that consideration to which the entity expects to be entitled in exchange for that good or service. The update also provides clarification on when an entity is a principal or an agent in a transaction. The guidance may be applied using one of the two following methods: (1) retrospectively to each prior reporting period presented, or (2) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. The FASB issued additional updated clarifying certain implementation guidance within ASU 2014-09, subsequent to the initial issuance to provide guidance to improve the operability and understandability of the implementation guidance included in ASU 2014-09. The Company adopted this update and the other related revenue standard clarifications and technical guidance

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FedNat Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2018

effective January 1, 2018, using the modified retrospective approach. The Company completed the analysis of its non-insurance revenues and has concluded that the implementation did not have any impact on the Company’s consolidated financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.Most notably, the combined new guidance required 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. The Company adopted the guidance effective January 1, 2018, by reflecting a cumulative adjustment, which increased retained earnings and decreased accumulated other comprehensive income by $1.0 million. This adjustment represented the level of net unrealized gains and losses associated with our equity investments with readily determinable market values as of January 1, 2018. The adoption also resulted in the recognition of $(1.2) million in our consolidated statements of operations and statements of comprehensive income (loss), which represented the change in net unrealized gains and losses on our equity securities for 2018. This new guidance increases our earnings volatility compared to the prior accounting rules.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The update allowed a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act of 2017 ("Tax Act"). Guidance had previously required the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to accumulated other comprehensive income. The Company adopted the guidance effective January 1, 2018, by reflecting a cumulative effect adjustment to retained earnings with an off-setting adjustment to accumulated other comprehensive income for less than $0.1 million.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases~~(Topic~~ (Topic 842). The update ~~will supersede~~superseded the ~~current~~prior lease guidance in Topic 840, Leases and lessees ~~will be~~were 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~~are 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. The ~~update is~~guidance has been adopted effective January 1, 2019, and we expect to reflect approximately an $6 million right-of-use asset, after-tax, and $6 million lease liability, after-tax, on our March 31, 2019 consolidated balance sheets 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~~our leases ~~existing at, or entered into after, the beginning~~in existence as of the earliest comparative periods presented in the financial statements. 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.that date. All of the ~~Company’s~~Company's leases ~~are~~were classified as operating leases and we elected the practical expedient, therefore no adjustment to comparative prior periods presented will be made. There will be no significant difference in our pattern of lease expense recognition on our consolidated statements of operations, under current lease accounting guidance. The Company expects to elect all of the standard’s available practical expedients upon adoption. The update requires the Company to add the operating leases to the Company’s consolidated balance sheets. The Company does not expect this ~~standard will have a material impact on the Company’s consolidated financial position or results of operations.~~ASU.

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments—Credit~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the ~~OTTI~~other-than-temporary impairment ("OTTI") model. The update also 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. The update is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is in the early stage of evaluating the impact that the update will have on the Company’s consolidated financial position or results of operations.

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~~Table of Contents~~

~~Federated National Holding Company and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~

In August ~~2016,~~2018, the FASB issued ASU ~~2016-15,~~2018-15, ~~Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts~~Intangibles - Goodwill and ~~Cash Payments~~Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a ~~consensus of~~Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the ~~Emerging Issues Task Force)~~ internal-use software guidance in Accounting Standards Codification 350-40 to ~~improve the diversity in practice in how certain cash receipts~~determine which implementation costs to defer and cash payments are presented and classified in the statement of cash flows. The update provides guidance on specific cash flow classification issues including the following: (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.recognize as an asset. The update is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted the guidance effective January 1, 2018. The provisions of this update is not expected to have a material impact on the Company’s consolidated statements of cash flows or results of operations.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ The update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to accumulated other comprehensive income. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Act related to items in accumulated other comprehensive income. The update is effective for reporting periods beginning after December 15, 2018, and is to be applied retrospectively to each period in which the effect of the Tax Act related to items remaining in accumulated other comprehensive income are recognized or at the beginning of the period of adoption,2019, with early adoption permitted. The Company is in the early stage of evaluating the impact that the update will have on the Company’s consolidated financial position or results of operations.

~~In February 2018, the FASB issued ASU 2018-03,~~ -~~Technical Corrections~~56-

FedNat Holding Company and ~~Improvements~~Subsidiaries

Notes to Consolidated Financial ~~Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~.~~The update provides corrections and improvements and clarifies certain aspects of the guidance issued in ASU 2016-01. The update is effective for annual reporting periods beginning after~~ Statements (Continued)

December ~~15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial position or results of operations.~~31, 2018

3. FAIR VALUE

Fair Value Disclosures of Financial Instruments

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

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

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

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

~~-64-~~

~~Table of Contents~~

~~Federated National Holding Company and Subsidiaries~~

~~Notes~~If the inputs used to ~~Consolidated Financial Statements (Continued)~~

~~December 31, 2017~~

~~The classification of assets and liabilities in the~~measure fair value fall within different levels of the hierarchy, the category level is based ~~upon~~on the lowest priority level input that is significant to the fair value ~~inputs consisted~~measurement of the ~~following:~~instrument.

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


	December 31, 2017								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)								(In thousands)
Debt securities - available-for-sale, at fair value:
United States government obligations and authorities	$	51,219	$	46,918	$	—	$	98,137	$	43,918	$	83,950	$	—	$	127,868
Obligations of states and political subdivisions	—		66,266		—		66,266		—		9,767		—		9,767
Corporate securities	—		240,919		—		240,919		—		268,731		—		268,731
International securities	—		17,916		—		17,916		—		22,275		—		22,275
Debt securities, at fair value	51,219		372,019		—		423,238		43,918		384,723		—		428,641

Equity securities, at fair value	15,434		—		—		15,434		16,037		1,721		—		17,758

Total investments, at fair value	$	66,653	$	372,019	$	—	$	438,672	$	59,955	$	386,444	$	—	$	446,399



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)



	Registrant’s telephone number, including area code: 800-293-2532
	Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		NASDAQ Global Market



Large accelerated filer ☐	Accelerated filer ☒þ	Non‑accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐		(Do not check if a smaller reporting company)



PART I

ITEM 1	BUSINESS	1

ITEM 1A	RISK FACTORS	1210

ITEM 1B	UNRESOLVED STAFF COMMENTS	2319

ITEM 2	PROPERTIES	2319

ITEM 3	LEGAL PROCEEDINGS	2319

ITEM 4	MINE SAFETY DISCLOSURES	2319

PART II

ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	2420

ITEM 6	SELECTED FINANCIAL DATA	2722

ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2823

ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4541

ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	4642

ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	9888

ITEM 9A	CONTROLS AND PROCEDURES	9888

ITEM 9B	OTHER INFORMATION	9989

PART III

ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	9989

ITEM 11	EXECUTIVE COMPENSATION	9989

ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	9989

ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	9989

ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	9989

PART IV

ITEM 15	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	9989

ITEM 16	FORM 10-K SUMMARY	~~104~~94

SIGNATURES


	Year Ended December 31,						Year Ended December 31,
	2017		2016		2015		2018		2017		2016
Gross premiums written	(In thousands)
							(In thousands)
Gross Premiums Written
Homeowners:
Florida	$	482,039	$	477,489	$	427,428	$	458,652	$	482,039	$	477,489
Louisiana	31,312		25,385		18,540		36,063		31,312		25,385
Texas							22,492		8,491		—
South Carolina	10,803		6,531		1,518		17,592		10,803		6,531
Alabama	4,110		3,332		2,280		4,890		4,110		3,332
Texas	8,491		—		—
Total homeowners	536,755		512,737		449,766		539,689		536,755		512,737

Personal automobile:
Texas	19,324		34,239		17,916		5,141		19,324		34,239
Georgia	22,479		31,831		2,762		3,078		22,479		31,831
Florida	1,265		1,745		1,200		384		1,265		1,745
Alabama	437		1,664		34		—		437		1,664
Total personal automobile	43,505		69,479		21,912		8,603		43,505		69,479

Commercial general liability	11,048		13,256		13,928		5,384		11,048		13,256

Federal flood	12,109		10,013		8,164		14,088		12,109		10,013
Gross premiums written total	$	603,417	$	605,485	$	493,770	$	567,764	$	603,417	$	605,485



Quarter Ended:	High		Low
March 31, 2017	$	21.19	$	16.45
June 30, 2017	17.60		14.46
September 30, 2017	17.34		9.78
December 31, 2017	16.75		12.84

March 31, 2016	$	29.08	$	18.68
June 30, 2016	22.93		18.00
September 30, 2016	22.45		17.08
December 31, 2016	19.33		14.03


							Period Ending
	Period Ending						12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018
Index	12/31/2012	12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017
Federated National Holding Company	100.00	277.76	460.35	566.62	362.79	327.96
FedNat Holding Company							100.00	165.73	203.99	130.61	118.07	144.41
NASDAQ Composite	100.00	140.12	160.78	171.97	187.22	242.71	100.00	114.75	122.74	133.62	173.22	168.30
SNL Insurance P&C	100.00	132.48	152.15	157.39	185.75	212.37	100.00	114.85	118.80	140.21	160.30	154.12


	December 31,										December 31,
	2017		2016 (1)		2015 (1)		2014 (1)		2013 (1)		2018		2017		2016		2015		2014
	(In thousands, except per share data)										(In thousands, except per share data)
Balance Sheet Data:
Balance Sheet Data
Cash and invested assets	$	530,249	$	484,275	$	437,369	$	370,920	$	262,156	$	515,948	$	530,249	$	484,275	$	437,369	$	370,920
Total assets	$	904,873	$	815,390	$	701,373	$	506,828	$	317,167	925,371		904,873		815,390		701,373		506,828
Loss and loss adjustment expense reserves	$	230,515	$	158,110	$	97,706	$	78,587	$	61,203	296,230		230,515		158,110		97,706		78,587
Total liabilities	$	677,414	$	580,925	$	455,216	$	317,267	$	210,463	710,112		677,414		580,925		455,216		317,267
Total shareholders’ equity	$	227,459	$	234,465	$	246,157	$	189,561	$	106,704
Total shareholders' equity											215,259		227,459		234,465		246,157		189,561
Book value per share, excluding non-controlling interest	$	16.29	$	16.01	$	16.52	$	13.91	$	9.79	16.84		16.29		16.01		16.52		13.91


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


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


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



	Year Ended December 31,
	2018		% Change		2017
	(Dollars in thousands)
Other income:
Commission income	$	4,649	(25.3	)%	$	6,227
Brokerage	12,305		4.4	%	11,781
Financing and other revenue	2,200		(47.6	)%	4,198
Total other income	$	19,154	(13.7	)%	$	22,206



	2016												2015
	Homeowners			Automobile			Other			Consolidated			Homeowners			Automobile			Other			Consolidated
Revenue:	(Dollars in thousands)
Gross premiums written	$	512,737		$	69,479		$	23,269		$	605,485		$	449,766		$	21,912		$	22,092		$	493,770
Increase in unearned premiums	(28,384		)	(11,167		)	(511		)	(40,062		)	(52,940		)	(7,804		)	(793		)	(61,537		)
Gross premiums earned	484,353			58,312			22,758			565,423			396,826			14,108			21,299			432,233
Ceded premiums earned	(249,972		)	(44,291		)	(9,791		)	(304,054		)	(199,731		)	(11,101		)	(8,381		)	(219,213		)
Net premiums earned	234,381			14,021			12,967			261,369			197,095			3,007			12,918			213,020
Net investment income	—			—			9,063			9,063			—			—			7,226			7,226
Net realized investment gains	—			—			3,045			3,045			—			—			3,616			3,616
Direct written policy fees	7,844			8,171			604			16,619			7,020			2,115			605			9,740
Other income	9,106			5,479			2,844			17,429			6,567			1,657			1,645			9,869
Total revenue	251,331			27,671			28,523			307,525			210,682			6,779			26,010			243,471

Expenses:
Losses and loss adjustment expenses	169,920			14,885			13,005			197,810			97,219			5,196			10,295			112,710
Commissions and other underwriting expenses	73,215			12,471			4,692			90,378			46,684			1,576			4,602			52,862
General and administrative expenses	13,079			600			3,507			17,186			11,956			100			2,642			14,698
Interest expense	348			—			—			348			256			—			—			256
Total costs and expenses	256,562			27,956			21,204			305,722			156,115			6,872			17,539			180,526

Income before income taxes	(5,231		)	(285		)	7,319			1,803			54,567			(93		)	8,471			62,945
Income taxes	(2,015		)	(111		)	2,668			542			21,049			(36		)	3,076			24,089
Net income	(3,216		)	(174		)	4,651			1,261			33,518			(57		)	5,395			38,856
Net income (loss) attributable to non-controlling interest	246			—			—			246			(445		)	—			—			(445		)
Net (loss) income attributable to Federated National Holding Company shareholders	$	(3,462	)	$	(174	)	$	4,651		$	1,015		$	33,963		$	(57	)	$	5,395		$	39,301

Ratios to net premiums earned:
Net loss ratio	72.5		%	106.2		%	100.3		%	75.7		%	49.3		%	172.8		%	79.7		%	52.9		%
Net expense ratio	36.8		%							41.2		%	29.8		%							31.7		%
Combined ratio	109.3		%							116.9		%	79.1		%							84.6		%


	Payments Due By Period										Payments Due By Period
			Less						More				Less						More
			than		1 - 3		3 - 5		than				than		1 - 3		3 - 5		than
	Total		1 Year		Years		Years		5 Years		Total		1 Year		Years		Years		5 Years
	(In thousands)										(In thousands)
Loss and loss adjustment expense reserves (1)	$	230,515	$	136,004	$	80,680	$	11,526	$	2,305	$	296,230	$	174,775	$	88,869	$	17,774	$	14,812
Long-term debt (2)	50,000		—		5,000		20,000		25,000		45,000		—		—		20,000		25,000
Interest payments on long-term debt (3)	27,685		4,202		12,549		8,225		2,709
Operating leases	12,760		780		4,464		2,640		4,876		10,297		802		1,939		2,056		5,500
Total long-term contractual obligations	$	320,960	$	140,986	$	102,693	$	42,391	$	34,890	$	351,527	$	175,577	$	90,808	$	39,830	$	45,312


																						Carrying																							Carrying
	2018			2019			2020			2021			2022			Thereafter			Total			Amount		2019			2020			2021			2022			2023			Thereafter			Total			Amount
	(Dollars in thousands)																							(Dollars in thousands)
Principal amount by expected maturity:
United States government obligations and authorities	$	8,974		$	4,302		$	9,614		$	1,740		$	14,867		$	16,343		$	55,840		$	55,234	$	1,105		$	7,975		$	125		$	14,425		$	7,360		$	17,420		$	48,410		$	47,878
Obligations of states and political subdivisions	5,085			7,430			8,910			5,030			9,920			23,670			60,045			66,266		1,575			1,500			—			4,800			310			1,490			9,675			9,767
Corporate securities	24,847			28,677			29,370			26,364			33,139			87,976			230,373			234,785
International securities	5,883			1,188			2,103			2,210			1,565			4,650			17,599			17,982
Corporate																								13,298			23,309			26,150			61,818			26,323			98,941			249,839			245,264
International																								2,138			3,181			3,434			5,813			1,015			7,181			22,762			22,330
Collateralized mortgage obligations	1,393			3,338			2,126			2,636			2,940			40,111			52,544			54,320		2,746			1,309			1,242			3,504			4,230			93,522			106,553			108,528
Total investments	$	46,182		$	44,935		$	52,123		$	37,980		$	62,431		$	172,750		$	416,401		$	428,587	$	20,862		$	37,274		$	30,951		$	90,360		$	39,238		$	218,554		$	437,239		$	433,767

Weighted average interest rate by expected maturity:
United States government obligations and authorities	0.77		%	1.62		%	0.99		%	1.35		%	1.64		%	1.99		%	1.48		%			2.60		%	1.93		%	2.53		%	1.66		%	2.65		%	2.32		%	2.12		%
Obligations of states and political subdivisions	5.00		%	5.11		%	4.49		%	4.90		%	4.12		%	4.85		%	4.72		%			5.32		%	2.35		%	—		%	3.17		%	3.54		%	3.56		%	3.47		%
Corporate securities	3.52		%	3.55		%	3.05		%	3.28		%	3.32		%	3.65		%	3.46		%			4.24		%	3.12		%	3.71		%	3.28		%	3.79		%	3.78		%	3.62		%
International securities	3.07		%	6.91		%	2.76		%	2.82		%	3.09		%	4.20		%	3.56		%			5.61		%	3.35		%	2.91		%	3.10		%	3.41		%	4.20		%	3.70		%
Collateralized mortgage obligations	2.57		%	2.96		%	3.86		%	3.39		%	3.21		%	3.66		%	3.56		%			2.92		%	3.24		%	3.30		%	3.51		%	3.75		%	3.90		%	3.84		%
Total investments	3.06		%	3.67		%	2.94		%	3.39		%	3.04		%	3.68		%	3.39		%			4.20		%	2.86		%	3.60		%	3.02		%	3.56		%	3.73		%	3.51		%




	PAGE

Report of Independent Registered Public Accounting Firm	4743
Consolidated Balance Sheets as of December 31, ~~2017~~2018 and ~~2016~~2017	4844
Consolidated Statements of Operations For the Years Ended December 31, 2018, 2017 ~~2016~~ and ~~2015~~2016	4945
Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2018, 2017 ~~2016~~ and ~~2015~~2016	5046
Consolidated Statements of Changes in Shareholders’ Equity For the Years Ended December 31, 2018, 2017 ~~2016~~ and ~~2015~~2016	5147
Consolidated Statements of Cash Flows For the Years Ended December 31, 2018, 2017 ~~2016~~ and ~~2015~~2016	5248
Notes to Consolidated Financial Statements	5450


										Accumulated						Total Shareholders’																									Total
										Other						Equity Attributable to																									Shareholders'
			Common Stock					Additional		Comprehensive			Retained			Federated National			Non-			Total																			Equity
	Preferred		Issued					Paid-in		Income			Earnings			Holding Company			controlling			Shareholders’													Accumulated						Attributable to
	Stock		Shares		Amount			Capital		(Loss)			(Deficit)			Shareholders			Interest			Equity					Common Stock					Additional			Other						FedNat Holding			Non-			Total
Balance as of January 1, 2015 (As adjusted)	—		13,632,414		$	136		$	127,302	$	7,718		$	54,405		$	189,561		—			$	189,561
Net income (loss) (As adjusted)	—		—		—			—		—			39,301			39,301			(445		)	38,856
Other comprehensive loss	—		—		—			—		(3,733		)	—			(3,733		)	(121		)	(3,854		)
Non-controlling interest capital contributions	—		—		—			—		—			—			—			18,743			18,743
Dividends	—		—		—			—		—			(1,847		)	(1,847		)	—			(1,847		)
Shares issued under share-based compensation plans	—		166,359		2			169		—			—			171			—			171
Tax benefits from share-based compensation awards	—		—		—			1,564		—			—			1,564			—			1,564
Share-based compensation	—		—		—			2,963		—			—			2,963			—			2,963
Balance as of December 31, 2015 (As adjusted)	—		13,798,773		138			131,998		3,985			91,859			227,980			18,177			246,157
Net income (As adjusted)	—		—		—			—		—			1,015			1,015			246			1,261
Other comprehensive (loss) income	—		—		—			—		(2,044		)	—			(2,044		)	304			(1,740		)
																									Preferred		Issued					Paid-in			Comprehensive			Retained			Company			Controlling			Shareholders'
																									Stock		Shares		Amount			Capital			Income (Loss)			Earnings			Shareholders			Interest			Equity
Balance as of January 1, 2016																									$	—	13,798,773		$	138		$	131,998		$	3,985		$	91,859		$	227,980		18,177			$	246,157
Net income (loss)																									—		—		—			—			—			1,015			1,015			246			1,261
Other comprehensive income (loss)																									—		—		—			—			(2,044		)	—			(2,044		)	304			(1,740		)
Dividends	—		—		—			—		—			(4,677		)	(4,677		)	—			(4,677		)	—		—		—			—			—			(4,677		)	(4,677		)	—			(4,677		)
Shares issued under share-based compensation plans	—		299,165		—			361		—			—			361			—			361			—		299,165		—			361			—			—			361			—			361
Tax benefits from share-based compensation awards	—		—		—			589		—			—			589			—			589			—		—		—			589			—			—			589			—			589
Repurchases of common stock	—		(624,818	)	(4		)	—		—			(11,313		)	(11,317		)	—			(11,317		)			(624,818	)	(4		)	—			—			(11,313		)	(11,317		)	—			(11,317		)
Share-based compensation	—		—		—			3,831		—			—			3,831			—			3,831			—		—		—			3,831			—			—			3,831			—			3,831
Balance as of December 31, 2016 (As adjusted)	—		13,473,120		134			136,779		1,941			76,884			215,738			18,727			234,465
Balance as of December 31, 2016																									—		13,473,120		134			136,779			1,941			76,884			215,738			18,727			234,465
Net income (loss)	—		—		—			—		—			7,989			7,989			(2,647		)	5,342			—		—		—			—			—			7,989			7,989			(2,647		)	5,342
Other comprehensive loss	—		—		—			—		(171		)	—			(171		)	(258		)	(429		)
Other comprehensive income (loss)																									—		—		—			—			(171		)	—			(171		)	(258		)	(429		)
Dividends	—		—		—			—		—			(4,251		)	(4,251		)	—			(4,251		)	—		—		—			—			—			(4,251		)	(4,251		)	—			(4,251		)
Shares issued under share-based compensation plans	—		169,647		—			103		—			—			103			—			103			—		169,647		—			103			—			—			103			—			103
Repurchases of common stock	—		(654,520	)	(4		)	—		—			(10,613		)	(10,617		)	—			(10,617		)	—		(654,520	)	(4		)	—			—			(10,613		)	(10,617		)	—			(10,617		)
Share-based compensation	—		—		—			2,846		—			—			2,846			—			2,846			—		—		—			2,846			—			—			2,846			—			2,846
Balance as of December 31, 2017	$	—	12,988,247		$	130		$	139,728	$	1,770		$	70,009		$	211,637		$	15,822		$	227,459		—		12,988,247		130			139,728			1,770			70,009			211,637			15,822			227,459
Cumulative effect of new accounting standards																									—		—		—			—			(994		)	994			—			—			—
Net income (loss)																									—		—		—			—			—			14,928			14,928			(218		)	14,710
Other comprehensive income (loss)																									—		—		—			—			(4,221		)	—			(4,221		)	(229		)	(4,450		)
Dividends declared																									—		—		—			—			—			(3,120		)	(3,120		)	—			(3,120		)
Acquisition of non-controlling interest																									—		—		—			(1,005		)	(305		)	—			(1,310		)	(15,375		)	(16,685		)
Shares issued under share-based compensation plans																									—		122,905		1			38			—			—			39			—			39
Repurchases of common stock																									—		(326,708	)	(3		)	—			—			(5,058		)	(5,061		)	—			(5,061		)
Share-based compensation																									—		—		—			2,367			—			—			2,367			—			2,367
Balance as of December 31, 2018																									$	—	12,784,444		$	128		$	141,128		$	(3,750	)	$	77,753		$	215,259		$	—		$	215,259



	As of January 1, 2015
	As Reported		Adjustments			As Adjusted

Retained earnings	$	57,423	$	(3,018	)	$	54,405



	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized
	or Cost		Gains		Losses		Fair Value
	(In thousands)
December 31, 2017
Debt securities - available-for-sale:
United States government obligations and authorities	$	98,739	$	244	$	846	$	98,137
Obligations of states and political subdivisions	66,319		325		378		66,266
Corporate securities	239,435		2,233		749		240,919
International securities	17,807		136		27		17,916
	422,300		2,938		2,000		423,238

Debt securities - held-to-maturity:
United States government obligations and authorities	4,160		9		106		4,063
Corporate securities	1,123		21		—		1,144
International securities	66		1		—		67
	5,349		31		106		5,274
Equity securities	14,085		1,628		279		15,434
Total investments	$	441,734	$	4,597	$	2,385	$	443,946


(1)	As a result of the adoption of ASU 2016-01 on January 1, 2018 (see additional details in Note 2 above) for our equity securities we now recongnize changes in unrealized gains or losses within our statements of operations; therefore they are not included as of December 31, 2018.



	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, 2017					(In thousands)
Debt securities - available-for-sale:
United States government obligations
and authorities	$	52,368	$	517	$	19,287	$	329	$	71,655	$	846
Obligations of states and political subdivisions	32,030		221		5,676		157		37,706		378
Corporate	109,780		625		6,452		124		116,232		749
International	8,935		27		25		—		8,960		27
	203,113		1,390		31,440		610		234,553		2,000

Equity securities	4,312		279		—		—		4,312		279

Total investments	$	207,425	$	1,669	$	31,440	$	610	$	238,865	$	2,279


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


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


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


												IBNR & Expected	Cumulative																						IBNR & Expected		Cumulative
	Homeowners Incurred Losses and ALAE, Net of Reinsurance											Development on	Number of		Homeowners Incurred Losses and ALAE, Net of Reinsurance																				Development on		Number of
	For the Years Ended December 31,											Reported Claims	Reported Claims ⁽¹⁾	Severity ⁽²⁾	For the Years Ended December 31,																				Reported Claims		Reported Claims (1)
	(Unaudited)														(Unaudited)
Accident Year	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017		2017			2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		2018		2018
2008	18,305	15,784	15,811	15,977	15,659	16,021	15,661	15,604	15,609	15,608		5	1,710	9,125
2009		26,228	25,618	25,955	26,482	27,015	27,041	27,119	27,163	27,173		104	2,334	11,598	$	26,228	$	25,618	$	25,955	$	26,482	$	27,015	$	27,041	$	27,119	$	27,163	$	27,173	$	27,159	$	141	$	2,334
2010			24,825	25,056	26,151	27,895	28,968	29,407	29,945	30,459		35	2,389	12,735			24,825		25,056		26,151		27,895		28,968		29,407		29,945		30,459		30,602		30		2,391
2011				20,492	21,344	23,007	23,932	24,582	25,957	26,143		27	2,423	10,778					20,492		21,344		23,007		23,932		24,582		25,957		26,143		26,394		25		2,428
2012					23,032	23,301	24,186	24,468	25,889	26,356		14	2,677	9,840							23,032		23,301		24,186		24,468		25,889		26,356		26,836		38		2,691
2013						43,807	42,021	35,834	35,859	37,185		402	3,415	10,771									43,807		42,021		35,834		35,859		37,185		37,880		139		3,427
2014							64,312	63,300	61,770	62,206		1,730	7,564	7,995											64,312		63,300		61,770		62,206		61,817		636		7,621
2015								99,497	92,411	95,129		6,260	13,292	6,686													99,497		92,411		95,129		94,760		2,232		13,137
2016									171,264	162,043		18,842	26,562	5,391															171,264		162,043		158,764		11,832		23,982
2017										202,844		81,261	54,717	2,222																	202,844		192,769		62,363		62,200
2018																																	210,158		91,887		28,532
									Total	$	685,146																				Total		$	867,139


(1)	The cumulative number of reported claims is measured by individual claimant at a coverage level.



		Homeowners Cumulative Paid Losses and ALAE, Net of Reinsurance												Homeowners Cumulative Paid Losses and ALAE, Net of Reinsurance
		For the Years Ended December 31,												For the Years Ended December 31,
		(Unaudited)												(Unaudited)
Accident Year		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017			2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2008		9,477	13,832	14,689	15,190	15,308	15,445	15,595	15,583	15,587	15,587
2009			15,047	23,095	24,657	26,007	26,462	26,831	26,927	26,982	27,049			$	15,047	$	23,095	$	24,657	$	26,007	$	26,462	$	26,831	$	26,927	$	26,982	$	27,049	$	27,015
2010				14,052	21,350	24,730	26,886	27,984	29,092	29,739	30,376					14,052		21,350		24,730		26,886		27,984		29,092		29,739		30,376		30,449
2011					11,119	19,250	21,323	22,723	24,047	25,580	25,982							11,119		19,250		21,323		22,723		24,047		25,580		25,982		26,287
2012						13,693	20,728	23,120	23,923	25,186	26,113									13,693		20,728		23,120		23,923		25,186		26,113		26,777
2013							19,986	31,606	33,867	35,123	35,803											19,986		31,606		33,867		35,123		35,803		37,473
2014								37,033	53,831	57,891	59,722													37,033		53,831		57,891		59,722		60,555
2015									52,214	79,359	86,647															52,214		79,359		86,647		90,415
2016										102,556	142,716																	102,556		142,716		148,274
2017											135,589																			135,589		176,580
2018																																141,173
											$	585,584																				$	764,998

All outstanding liabilities for unpaid claims and ALAE prior to 2008, net of reinsurance											88
All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance													All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance																			138
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance										$	99,650	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																			$	102,279



	Average Annual Payout of Losses and ALAE, Net of Reinsurance
	(Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Homeowners	55.8	%	25.2	%	6.9	%	3.8	%	2.8	%	3.0	%	1.2	%	0.9	%	0.2	%	—	%


		Commercial General Liability Paid Losses and ALAE, Net of Reinsurance												Commercial General Liability Cumulative Paid Losses and ALAE, Net of Reinsurance
		For the Years Ended December 31,												For the Years Ended December 31,
		(Unaudited)												(Unaudited)
Accident Year		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017			2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2008		2,324	6,491	8,856	10,980	12,768	14,662	15,389	16,122	17,716	19,693
2009			2,253	4,236	6,466	7,384	8,046	8,593	10,130	10,454	11,308			$	2,253	$	4,236	$	6,466	$	7,384	$	8,046	$	8,593	$	10,130	$	10,454	$	11,308	$	12,377
2010				1,187	2,279	3,855	5,553	6,363	7,238	7,382	7,631					1,187		2,279		3,855		5,553		6,363		7,238		7,382		7,631		7,918
2011					764	2,763	3,366	3,673	4,246	4,866	5,831							764		2,763		3,366		3,673		4,246		4,866		5,831		6,349
2012						871	1,714	2,632	3,342	3,686	3,841									871		1,714		2,632		3,342		3,686		3,841		4,098
2013							882	2,233	3,366	3,867	4,606											882		2,233		3,366		3,867		4,606		5,033
2014								717	2,593	3,855	4,375													717		2,593		3,855		4,375		5,130
2015									798	2,296	3,249															798		2,296		3,249		3,827
2016										1,515	3,657																	1,515		3,657		5,088
2017											1,592																			1,592		2,478
2018																																963
										Total	$	65,783																		Total		$	53,261

All outstanding liabilities for unpaid claims and ALAE prior to 2008, net of reinsurance											383
All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance													All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance																			1,416
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance										$	17,111	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																			$	18,888



		Automobile Paid Losses and ALAE, Net of Reinsurance												Automobile Cumulative Paid Losses and ALAE, Net of Reinsurance
		For the Years Ended December 31,												For the Years Ended December 31,
		(Unaudited)												(Unaudited)
Accident Year		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017			2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2008		442	513	519	541	554	554	554	554	554	554
2009			61	218	220	225	241	243	243	243	243			$	61	$	218	$	220	$	225	$	241	$	243	$	243	$	243	$	243	$	242
2010				1,713	2,482	2,715	2,863	2,942	2,978	2,984	3,035					1,713		2,482		2,715		2,863		2,942		2,978		2,984		3,035		3,037
2011					1,417	2,381	2,562	2,644	2,726	2,755	2,755							1,417		2,381		2,562		2,644		2,726		2,755		2,755		2,755
2012						867	1,293	1,333	1,384	1,393	1,430									867		1,293		1,333		1,384		1,393		1,430		1,444
2013							907	1,609	1,906	2,069	2,109											907		1,609		1,906		2,069		2,109		2,112
2014								1,455	3,120	3,678	4,122													1,455		3,120		3,678		4,122		4,291
2015									1,393	2,293	2,670															1,393		2,293		2,670		2,807
2016										8,084	17,258																	8,084		17,258		23,053
2017											12,821																			12,821		20,762
2018																																2,331
										Total	$	46,997																		Total		$	62,834

All outstanding liabilities for unpaid claims and ALAE prior to 2008, net of reinsurance											29
All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance													All outstanding liabilities for unpaid claims and ALAE prior to 2009, net of reinsurance																			9
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance										$	11,030	Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																			$	4,374


	As of December 31,				December 31,
	2017		2016		2018		2017
	(In thousands)				(In thousands)
Liabilities for unpaid losses and LAE:
Liabilities for unpaid losses and ALAE:
Homeowners	$	99,650	$	87,955	$	102,279	$	99,650
Commercial general liability	17,111		21,790		18,888		17,111
Automobile	11,030		7,792		4,374		11,030
Flood	—		—		—		—
Total liabilities for unpaid losses and LAE, net of reinsurance	127,791		117,537
Total liabilities for unpaid losses and ALAE, net of reinsurance					125,541		127,791

Reinsurance recoverables:
Homeowners	81,852		20,968		158,043		81,852
Commercial general liability	—		35		—		—
Automobile	15,360		19,201		8,275		15,360
Flood	1,133		208		78		1,133
Total reinsurance recoverables	98,345		40,412		166,396		98,345

Unallocated loss adjustment expenses	4,379		161		4,293		4,379
Gross liability for unpaid losses and LAE	$	230,515	$	158,110	$	296,230	$	230,515


				Aggregate
	Aggregate			Debt
For the Years Ending December 31,	Debt Maturities			Maturities
	(In thousands)			(In thousands)
2018	$	—
2019	—			$	—
2020	—			—
2021	5,000			—
2022	20,000			20,000
2023				—
Thereafter	25,000			25,000
Total debt maturities	50,000			45,000
Less: Deferred financing costs	(749		)
Less: deferred financing costs				596
Total debt maturities, net	$	49,251		$	44,404



	Aggregate Minimum
Year Ended December 31,	Lease Payments
	(in thousands)
2018	$	780
2019	1,443
2020	1,488
2021	1,532
2022	1,579
Thereafter	5,938
Total	$	12,760



	Aggregate
	Minimum
Year Ended December 31,	Lease Payments
	(In thousands)
2019	$	802
2020	955
2021	984
2022	1,013
2023	1,043
Thereafter	5,500
Total	$	10,297


	Number of Shares		Weighted Average Option Exercise Price				Weighted
Outstanding at January 1, 2015	219,285		$	3.79
							Average
					Number of		Option
					Shares		Exercise Price
Outstanding at January 1, 2016					174,633		$	3.79
Granted	—		$	—	—		—
Exercised	(44,652	)	$	3.81	(94,249	)	3.85
Canceled	—		$	—
Outstanding at December 31, 2015	174,633		$	3.79
Granted	—		$	—
Exercised	(94,249	)	$	3.85
Canceled	(900	)	$	4.40
Cancelled					(900	)	4.40
Outstanding at December 31, 2016	79,484		$	3.70	79,484		3.70
Granted	—		$	—	—		—
Exercised	(29,133	)	$	3.68	(29,133	)	3.68
Canceled	—		$	—
Cancelled					—		—
Outstanding at December 31, 2017	50,351		$	3.72	50,351		3.72
Granted					—		—
Exercised					(10,834	)	3.47
Cancelled					(500	)	2.45
Outstanding at December 31, 2018					39,017		$	3.80