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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________________TO _______________________

Commission File number 000-25001
 FedNat Holding Company
(Exact name of registrant as specified in its charter)
Florida 65-0248866
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
   
14050 N.W. 14th Street, Suite 180, Sunrise, FL
33323
(Address of principal executive offices) (Zip Code)
800-293-2532
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock FNHC Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes þ   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨
Accelerated Filer
þ
Non-accelerated Filer ¨
Smaller reporting company
☐
   
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 1, 2019, the registrant had 12,869,366 shares of common stock outstanding.


FEDNAT HOLDING COMPANY
TABLE OF CONTENTS
 
    
PART I: FINANCIAL INFORMATION PAGE
     
ITEM 1
3
     
ITEM 2
32
     
ITEM 3
51
     
ITEM 4
51
     
PART II: OTHER INFORMATION  
     
ITEM 1
53
     
ITEM 1A
53
     
ITEM 2
53
     
ITEM 3
53
     
ITEM 4
53
     
ITEM 5
53
     
ITEM 6
54
     
SIGNATURES
55


-2-

PART I: FINANCIAL INFORMATION
Item 1.  Financial Statements
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
໿
  September 30, December 31,
  2019 2018
ASSETS
Investments:
Debt securities, available-for-sale, at fair value (amortized cost of $452,698 and $433,664, respectively)
$ 468,130    $ 428,641   
Debt securities, held-to-maturity, at amortized cost 4,369    5,126   
Equity securities, at fair value 19,014    17,758   
Total investments 491,513    451,525   
Cash and cash equivalents 121,418    64,423   
Prepaid reinsurance premiums 170,294    108,577   
Premiums receivable, net of allowance of $117 and $77, respectively
39,932    29,791   
Reinsurance recoverable, net 202,875    211,424   
Deferred acquisition costs, net 48,539    39,436   
Income taxes, net 1,056    5,220   
Other assets 25,602    14,975   
Total assets $ 1,101,229    $ 925,371   
           
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Loss and loss adjustment expense reserves $ 286,948    $ 296,230   
Unearned premiums 317,393    281,992   
Reinsurance payable 122,802    63,599   
Long-term debt, net of deferred financing costs of $1,518 and $596, respectively
98,482    44,404   
Deferred revenue 6,239    4,585   
Other liabilities 31,976    19,302   
Total liabilities 863,840    710,112   
Commitments and contingencies (see Note 10)
Shareholders' Equity
Preferred stock, $0.01 par value: 1,000,000 shares authorized —    —   
Common stock, $0.01 par value: 25,000,000 shares authorized; 12,869,366 and 12,784,444 issued and outstanding, respectively
129    128   
Additional paid-in capital 143,088    141,128   
Accumulated other comprehensive income (loss) 11,648    (3,750)  
Retained earnings 82,524    77,753   
Total shareholders’ equity 237,389    215,259   
Total liabilities and shareholders' equity $ 1,101,229    $ 925,371   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
-3-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenues:    
Net premiums earned $ 87,374    $ 98,493    $ 268,464    $ 264,159   
Net investment income 4,068    3,137    12,037    9,058   
Net realized and unrealized investment gains (losses) 794    1,760    5,050    916   
Direct written policy fees 2,514    3,796    7,308    10,685   
Other income 4,726    3,646    13,115    14,833   
Total revenues 99,476    110,832    305,974    299,651   
           
Costs and expenses:          
Losses and loss adjustment expenses 62,105    62,457    194,284    156,098   
Commissions and other underwriting expenses 24,854    31,373    75,650    91,467   
General and administrative expenses 5,246    5,000    17,336    16,345   
Interest expense 1,894    1,032    8,860    3,139   
Total costs and expenses 94,099    99,862    296,130    267,049   
           
Income (loss) before income taxes 5,377    10,970    9,844    32,602   
Income tax expense (benefit) 718    3,020    1,940    8,587   
Net income (loss) 4,659    7,950    7,904    24,015   
Net income (loss) attributable to non-controlling interest —    —    —    (218)  
Net income (loss) attributable to FedNat Holding Company shareholders
$ 4,659    $ 7,950    $ 7,904    $ 24,233   
         
Net Income (Loss) Per Common Share          
Basic $ 0.36    $ 0.62    $ 0.62    $ 1.90   
Diluted $ 0.36    $ 0.62    $ 0.61    $ 1.88   
         
Weighted Average Number of Shares of Common Stock Outstanding          
Basic 12,854    12,749    12,831    12,775   
Diluted 12,897    12,870    12,880    12,866   
         
Dividends Declared Per Common Share $ 0.08    $ —    $ 0.24    $ 0.16   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
-4-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Net income (loss) $ 4,659    $ 7,950    $ 7,904    $ 24,015   
   
Change in net unrealized gains (losses) on investments, available-for-sale, net of tax
2,388    (551)   15,398    (6,601)  
Comprehensive income (loss) 7,047    7,399    23,302    17,414   
   
Less: comprehensive income (loss) attributable to non-controlling interest, net of tax
—    —    —    (447)  
Comprehensive income (loss) attributable to FedNat Holding Company shareholders
$ 7,047    $ 7,399    $ 23,302    $ 17,861   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
 

-5-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

໿
Total
Shareholders'
Equity
Accumulated Attributable to
Common Stock Additional Other FedNat Holding Non- Total
Preferred Issued Paid-in Comprehensive Retained Company Controlling Shareholders'
Stock Shares Amount Capital Income (Loss) Earnings Shareholders Interest Equity
Balance as of June 30, 2019 $ —    12,849,319    $ 128    $ 142,486    $ 9,260    $ 78,911    $ 230,785    $ —    $ 230,785   
Net income (loss) —    —    —    —    —    4,659    4,659    —    4,659   
Other comprehensive income (loss) —    —    —    —    2,388    —    2,388    —    2,388   
Dividends declared —    —    —    —    —    (1,046)   (1,046)   —    (1,046)  
Shares issued under share-based compensation plans —    20,047    1    —    —    —    1    —    1   
Share-based compensation —    —    —    602    —    —    602    —    602   
Balance as of September 30, 2019 $ —    12,869,366    $ 129    $ 143,088    $ 11,648    $ 82,524    $ 237,389    $ —    $ 237,389   

Total
Shareholders'
Equity
Accumulated Attributable to
Common Stock Additional Other FedNat Holding Non- Total
Preferred Issued Paid-in Comprehensive Retained Company Controlling Shareholders'
Stock Shares Amount Capital Income (Loss) Earnings Shareholders Interest Equity
Balance as of June 30, 2018 $ —    12,731,777    $ 127    $ 140,102    $ (5,350)   $ 80,149    $ 215,028    $ —    $ 215,028   
Net income (loss) —    —    —    —    —    7,950    7,950    —    7,950   
Other comprehensive income (loss) —    —    —    —    (551)   —    (551)   —    (551)  
Dividends declared —    —    —    —    —    2    2    —    2   
Shares issued under share-based compensation plans —    42,667    1    22    —    —    23    —    23   
Share-based compensation —    —    —    484    —    —    484    —    484   
Balance as of September 30, 2018 $ —    12,774,444    $ 128    $ 140,608    $ (5,901)   $ 88,101    $ 222,936    $ —    $ 222,936   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
-6-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
(In thousands, except share data)
(Unaudited)

Total
Shareholders'
Equity
Accumulated Attributable to
Common Stock Additional Other FedNat Holding Non- Total
Preferred Issued Paid-in Comprehensive Retained Company Controlling Shareholders'
Stock Shares Amount Capital Income (Loss) Earnings Shareholders Interest Equity
Balance as of January 1, 2019 $ —    12,784,444    $ 128    $ 141,128    $ (3,750)   $ 77,753    $ 215,259    $ —    $ 215,259   
Net income (loss) —    —    —    —    —    7,904    7,904    —    7,904   
Other comprehensive income (loss) —    —    —    —    15,398    —    15,398    —    15,398   
Dividends declared —    —    —    —    —    (3,133)   (3,133)   —    (3,133)  
Shares issued under share-based compensation plans —    84,922    1    —    —    —    1    —    1   
Share-based compensation —    —    —    1,960    —    —    1,960    —    1,960   
Balance as of September 30, 2019 $ —    12,869,366    $ 129    $ 143,088    $ 11,648    $ 82,524    $ 237,389    $ —    $ 237,389   

Total
Shareholders'
Equity
Accumulated Attributable to
Common Stock Additional Other FedNat Holding Non- Total
Preferred Issued Paid-in Comprehensive Retained Company Controlling Shareholders'
Stock Shares Amount Capital Income (Loss) Earnings Shareholders Interest Equity
Balance as of January 1, 2018 $ —    12,988,247    $ 130    $ 139,728    $ 1,770    $ 70,009    $ 211,637    $ 15,822    $ 227,459   
Net income (loss) —    —    —    —    —    24,233    24,233    (218)   24,015   
Other comprehensive income (loss) —    —    —    —    (6,372)   —    (6,372)   (229)   (6,601)  
Dividends declared —    —    —    —    —    (2,077)   (2,077)   —    (2,077)  
Cumulative effect of new accounting standards —    —    —    —    (994)   994    —    —    —   
Acquisition of non-controlling interest —    —    —    (1,005)   (305)   —    (1,310)   (15,375)   (16,685)  
Shares issued under share-based compensation plans —    112,905    1    38    —    —    39    —    39   
Repurchases of common stock —    (326,708)   (3)   —    —    (5,058)   (5,061)   —    (5,061)  
Share-based compensation —    —    —    1,847    —    —    1,847    —    1,847   
Balance as of September 30, 2018 $ —    12,774,444    $ 128    $ 140,608    $ (5,901)   $ 88,101    $ 222,936    $ —    $ 222,936   

The accompanying notes are an integral part of the unaudited consolidated financial statements.
-7-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

໿
Nine Months Ended
September 30,
2019 2018
Cash flow from operating activities:    
Net income (loss) $ 7,904    $ 24,015   
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Net realized and unrealized investment (gains) losses (5,050)   (916)  
Loss (gain) on early extinguishment of debt 3,575    —   
Amortization of investment premium or discount, net 606    1,333   
Depreciation and amortization 1,088    1,033   
Share-based compensation 1,960    1,847   
Changes in operating assets and liabilities:    
Prepaid reinsurance premiums (61,717)   1,207   
Premiums receivable, net (10,141)   12,107   
Reinsurance recoverable, net 8,549    (10,135)  
Deferred acquisition costs (9,103)   (6,502)  
Income taxes, net (893)   9,051   
Deferred revenue 1,654    (1,309)  
Loss and loss adjustment expense reserves (9,282)   (9,401)  
Unearned premiums 35,401    1,906   
Reinsurance payable 59,203    5,060   
Other 2,632    (1,038)  
Net cash provided by (used in) operating activities 26,386    28,258   
Cash flow from investing activities:    
Proceeds from sales of equity securities 7,461    7,407   
Proceeds from sales of debt securities 123,415    153,970   
Purchases of equity securities (5,190)   (8,377)  
Purchases of debt securities (169,933)   (254,110)  
Maturities and redemptions of debt securities 29,158    86,935   
Purchases of property and equipment (1,562)   (1,002)  
Net cash provided by (used in) investing activities (16,651)   (15,177)  
Cash flow from financing activities:    
Issuance of long-term debt, net of issuance costs 98,390    —   
Payment of long-term debt and prepayment penalties (48,000)   (5,000)  
Purchase of non-controlling interest —    (16,685)  
Purchases of FedNat Holding Company common stock —    (5,061)  
Issuance of common stock for share-based awards 1    39   
Dividends paid (3,131)   (3,145)  
Net cash provided by (used in) financing activities 47,260    (29,852)  
Net increase (decrease) in cash and cash equivalents 56,995    (16,771)  
Cash and cash equivalents at beginning-of-period 64,423    86,228   
Cash and cash equivalents at end-of-period $ 121,418    $ 69,457   

The accompanying notes are an integral part of the unaudited consolidated financial statements.

-8-

FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)
 
໿
Nine months ended
September 30,
2019 2018
Supplemental disclosure of cash flow information:    
Cash paid (received) during the period for interest $ 4,860    $ 2,983   
Cash paid (received) during the period for income taxes $ 2,729    $ (466)  
Significant non-cash investing and financing transactions:
Right-of-use asset $ (7,860)   $ —   
Lease liability $ 7,860    $ —   

The accompanying notes are an integral part of the unaudited consolidated financial statements.



-9-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2019
1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION

Organization

FedNat Holding Company (“FNHC,” the “Company,” “we,” “us,” or "our") is an insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents.  The Company, through its wholly owned subsidiaries, is authorized to underwrite and/or place homeowners multi-peril ("homeowners"), federal flood and other lines of insurance in Florida and other states. The Company markets, distributes and services its own and third-party insurers’ products and other services through a network of independent and general agents.

FedNat Insurance Company (“FNIC”), our largest wholly owned insurance subsidiary, is licensed as an admitted carrier, to write specific lines of insurance by the state’s insurance departments, in Florida, Louisiana, Texas, Georgia, South Carolina, Alabama and Mississippi.  Monarch National Insurance Company (“MNIC”), our other insurance subsidiary, is licensed as an admitted carrier in Florida. Admitted carriers are bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices. Admitted carriers are also required to financially contribute to the state guarantee fund used to pay for losses if an insurance carrier becomes insolvent or unable to pay loss amounts due to their policyholders.

Refer to Basis of Presentation and Principles of Consolidation and below.

Material Distribution Relationships

Ivantage Select Agency, Inc.
The Company is a party to an insurance agency master agreement with Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which the Company has been authorized by ISA to appoint Allstate agents to offer the Company’s homeowners insurance products to consumers in Florida. As a percentage of the total homeowners premiums we underwrote, 23.6% and 24.5% were from Allstate’s network of Florida agents, for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, 23.5% and 23.9%, respectively, of the homeowners premiums we underwrote were from Allstate's network of Florida agents.

SageSure Insurance Managers, LLC
The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) to facilitate growth in our FNIC homeowners business outside of Florida.  As a percentage of the total homeowners premiums, 25.2% and 16.2%, respectively, of the Company’s premiums were underwritten by SageSure, for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, 22.4% and 14.2%, respectively, of the Company's homeowners premiums were underwritten by Sagesure.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).  The consolidated financial statements include the accounts of FNHC and its wholly-owned subsidiaries and all entities in which the Company has a controlling financial interest and any variable interest entity (“VIE”) of which the Company is the primary beneficiary. The Company’s management believes the consolidated financial statements reflect all material adjustments, including normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows of the Company for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company identifies a VIE as an entity that does not have sufficient equity to finance its own activities without additional financial support or where the equity investors lack certain characteristics of a controlling financial interest.  The Company assesses its contractual, ownership or other interests in a VIE to determine if the Company’s interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  The Company performs an ongoing qualitative assessment of its variable interests in a VIE to determine whether the Company has a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the assets and liabilities of the VIE in its consolidated financial statements.

-10-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Our significant accounting policies were described in Note 2 of our 2018 Form 10-K. Other than the changes noted in "Recently Issued Accounting Pronouncements, Adopted" below, there have been no significant changes in our significant accounting policies for the nine months ended September 30, 2019.

Accounting Estimates and Assumptions

The Company prepares the accompanying consolidated financial statements in accordance with 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 loss 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 ongoing basis.

Recently Issued Accounting Pronouncements, Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842).  The update superseded the prior lease guidance in Topic 840, Leases and lessees are 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.  Additionally, lessees 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 Company adopted the guidance effective January 1, 2019, by reflecting a $6.1 million right-of-use asset, after-tax, and $6.1 million lease liability, after-tax, on our consolidated balance sheets for our leases in existence as of that date. All of the Company's leases were classified as operating leases and we elected the practical expedient, therefore no adjustment to comparative prior periods presented have been made.  The provisions of this ASU did not have an impact on our pattern of lease expense recognition on our consolidated statements of operations.

Refer to Note 10 below for additional information regarding leases.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial 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 other-than-temporary impairment ("OTTI") model. The update also requires 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.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a 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 internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. 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.

-11-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

3. ACQUISITIONS

On February 25, 2019, the Company executed a definitive agreement for the acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. ("PIH"). Specifically, the Company will purchase Maison Insurance Company ("MIC"), Maison Managers, Inc., and ClaimCor LLC (collectively, the "Maison Companies"). The purchase price is $51.0 million, which includes $25.5 million in cash and $25.5 million in shares of the Company’s common stock. The shares to be issued will be subsequently registered and will be subject to a five years standstill agreement. Additionally, in connection with the pending acquisition, on March 5, 2019, the Company closed on an offering of $100 million of Senior Unsecured Notes due 2029, which bear interest at the annual rate of 7.5%. A portion of the cash from the offering was used to retire the full $45.0 million of outstanding debt (thereby lowering our overall cost of borrowing) and the remainder will be used to purchase the Maison Companies and for other general corporate purposes.

In addition to the purchase price, PIH will receive five years rights of first refusal to provide reinsurance of up to 7.5% of any layer in FedNat’s catastrophe reinsurance program and a five years agreement for PIH to provide investment advisory services to FedNat. PIH has also agreed to a non-compete for five years following the closing with respect to residential property insurance in Alabama, Florida, Georgia, Louisiana, South Carolina and Texas.

The transaction, which is subject to the Maison Companies having consolidated GAAP net book value of at least $42 million as of closing and satisfaction of other customary closing conditions, is expected to close as soon as practicable after November 30, 2019, after the conclusion of the hurricane season.  

4. 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.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

-12-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

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:
September 30, 2019
Level 1 Level 2 Level 3 Total
(In thousands)
Debt securities - available-for-sale, at fair value:        
United States government obligations and authorities $ 73,590    $ 100,650    $ —    $ 174,240   
Obligations of states and political subdivisions —    13,328    —    13,328   
Corporate securities —    255,399    —    255,399   
International securities —    25,163    —    25,163   
Debt securities, at fair value 73,590    394,540    —    468,130   
       
Equity securities, at fair value 16,570    2,444    —    19,014   
       
Total investments, at fair value $ 90,160    $ 396,984    $ —    $ 487,144   
໿
December 31, 2018
Level 1 Level 2 Level 3 Total
(In thousands)
Debt securities - available-for-sale, at fair value:        
United States government obligations and authorities $ 43,918    $ 83,950    $ —    $ 127,868   
Obligations of states and political subdivisions —    9,767    —    9,767   
Corporate securities —    268,731    —    268,731   
International securities —    22,275    —    22,275   
Debt securities, at fair value 43,918    384,723    —    428,641   
       
Equity securities, at fair value 16,037    1,721    —    17,758   
       
Total investments, at fair value $ 59,955    $ 386,444    $ —    $ 446,399   

Held-to-maturity debt securities reported on the consolidated balance sheets at amortized cost and disclosed at fair value below (and in Note 5) and the level of fair value hierarchy of inputs used consisted of the following:
Level 1 Level 2 Level 3 Total
(In thousands)
September 30, 2019 $ 3,435    $ 914    $ —    $ 4,349   
December 31, 2018 3,809    1,155    —    4,964   

We measure the fair value of our securities based on assumptions used by market participants in pricing the security.  The most appropriate valuation methodology is selected based on the specific characteristics of the security, and we consistently apply the valuation methodology to measure the security’s fair value.  Our fair value measurement is based on a market approach that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities.  We review the third-party pricing methodologies on a quarterly basis and validate the fair value prices to a separate independent data service and ensure there are no material differences. Additionally, market indicators, industry and economic events are monitored.

-13-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

A summary of the significant valuation techniques and market inputs for each financial instrument carried at fair value includes the following:

•United States Government Obligations and Authorities - In determining the fair value for United States government securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for United States government securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
•Obligations of States and Political Subdivisions - In determining the fair value for state and municipal securities, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
•Corporate and International Securities - In determining the fair value for corporate securities the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.
•Equity Securities - In determining the fair value for equity securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for equity securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

There were no changes to the Company’s valuation methodology and the Company is not aware of any events or circumstances that would have a significant adverse effect on the carrying value of its assets and liabilities measured at fair value as of September 30, 2019 and December 31, 2018. There were no transfers between the fair value hierarchy levels during the nine months ended September 30, 2019 and 2018.

-14-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

5. INVESTMENTS

Unrealized Gains and Losses

The difference between amortized cost or cost and estimated fair value and gross unrealized gains and losses, by major investment category, consisted of the following:
໿
Amortized Gross Gross  
Cost Unrealized Unrealized  
or Cost Gains Losses Fair Value
(In thousands)
September 30, 2019        
Debt securities - available-for-sale:        
United States government obligations and authorities $ 170,400    $ 3,986    $ 146    $ 174,240   
Obligations of states and political subdivisions 13,002    326    —    13,328   
Corporate 244,735    10,765    101    255,399   
International 24,561    623    21    25,163   
452,698    15,700    268    468,130   
       
Debt securities - held-to-maturity:        
United States government obligations and authorities 3,589    18    62    3,545   
Corporate 725    23    —    748   
International 55    1    —    56   
4,369    42    62    4,349   
Total investments, excluding equity securities $ 457,067    $ 15,742    $ 330    $ 472,479   
໿

Amortized Gross Gross  
Cost Unrealized Unrealized  
or Cost Gains Losses Fair Value
(In thousands)
December 31, 2018        
Debt securities - available-for-sale:        
United States government obligations and authorities $ 127,928    $ 1,091    $ 1,151    $ 127,868   
Obligations of states and political subdivisions 9,870    27    130    9,767   
Corporate 273,192    510    4,971    268,731   
International 22,674    12    411    22,275   
433,664    1,640    6,663    428,641   
       
Debt securities - held-to-maturity:        
United States government obligations and authorities 4,085    1    158    3,928   
Corporate 986    2    6    982   
International 55    —    1    54   
5,126    3    165    4,964   
Total investments, excluding equity securities $ 438,790    $ 1,643    $ 6,828    $ 433,605   

-15-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Net Realized and Unrealized Gains and Losses

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method.

Net realized and unrealized gains (losses) recognized in earnings, by major investment category, consisted of the following:
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands)
Gross realized and unrealized gains:    
Debt securities $ 897    $ 91    $ 2,048    $ 355   
Equity securities 326    1,922    4,633    4,163   
Total gross realized and unrealized gains 1,223    2,013    6,681    4,518   
   
Gross realized and unrealized losses:    
Debt securities (4)   (253)   (524)   (2,571)  
Equity securities (425)   —    (1,107)   (1,031)  
Total gross realized and unrealized losses (429)   (253)   (1,631)   (3,602)  
Net realized and unrealized gains (losses) on investments $ 794    $ 1,760    $ 5,050    $ 916   

The above line item, net realized and unrealized gains (losses) on investments, includes the following equity securities gains (losses) recognized in earnings:


Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands)
Net realized and unrealized gains (losses) $ (99)   $ 1,922    $ 3,526    $ 3,132   
Less:
Net realized and unrealized gains (losses) on securities sold 1,012    409    394    674   
Net unrealized gains (losses) still held as of the end-of-period $ (1,111)   $ 1,513    $ 3,132    $ 2,458   


-16-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Contractual Maturity

Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.

Amortized cost and estimated fair value of debt securities, by contractual maturity, consisted of the following:
໿
September 30, 2019
Amortized  
Cost Fair Value
Securities with Maturity Dates (In thousands)
Debt securities, available-for-sale:    
One year or less $ 24,715    $ 24,761   
Over one through five years 152,917    157,160   
Over five through ten years 139,570    146,237   
Over ten years 135,496    139,972   
452,698    468,130   
Debt securities, held-to-maturity:    
One year or less 206    207   
Over one through five years 3,983    3,960   
Over five through ten years 69    71   
Over ten years 111    111   
4,369    4,349   
Total $ 457,067    $ 472,479   

Net Investment Income

Net investment income consisted of the following:
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands)
Interest income $ 4,005    $ 3,089    $ 11,831    $ 8,904   
Dividends income 63    48    206    154   
Net investment income $ 4,068    $ 3,137    $ 12,037    $ 9,058   


-17-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Aging of Gross Unrealized Losses

Gross unrealized losses and related fair values for debt securities, grouped by duration of time in a continuous unrealized loss position, consisted of the following:
໿
Less than 12 months 12 months or longer Total
  Gross   Gross   Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
    (In thousands)    
September 30, 2019
Debt securities - available-for-sale:            
United States government obligations and authorities
$ 20,948    $ 115    $ 6,238    $ 31    $ 27,186    $ 146   
Obligations of states and political subdivisions —    —    —    —    —    —   
Corporate 10,502    36    5,277    65    15,779    101   
International 2,202    18    1,023    3    3,225    21   
33,652    169    12,538    99    46,190    268   
Debt securities, held-to-maturity:
United States government obligations and authorities
100    —    2,306    62    2,406    62   
Corporate 20    —    —    —    20    —   
International —    —    —    —    —    —   
120    —    2,306    62    2,426    62   
Total investments, excluding equity securities $ 33,772    $ 169    $ 14,844    $ 161    $ 48,616    $ 330   


Less than 12 months 12 months or longer Total
  Gross   Gross   Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
    (In thousands)    
December 31, 2018
Debt securities - available-for-sale:          
United States government obligations and authorities
$ 22,673    $ 246    $ 29,727    $ 905    $ 52,400    $ 1,151   
Obligations of states and political subdivisions 3,254    18    4,786    112    8,040    130   
Corporate 160,361    3,058    53,232    1,913    213,593    4,971   
International 15,608    217    4,678    194    20,286    411   
201,896    3,539    92,423    3,124    294,319    6,663   
           
Debt securities, held-to-maturity:
United States government obligations and authorities
229    1    3,113    157    3,342    158   
Corporate 591    6    90    —    681    6   
International 54    1    —    —    54    1   
874    8    3,203    157    4,077    165   
Total investments, excluding equity securities $ 202,770    $ 3,547    $ 95,626    $ 3,281    $ 298,396    $ 6,828   

-18-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

As of September 30, 2019, the Company held a total of 106 debt securities that were in an unrealized loss position, of which 42 securities were in an unrealized loss position continuously for 12 months or more. As of December 31, 2018, the Company held a total of 1,222 debt securities that were in an unrealized loss position, of which 371 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these securities consisted primarily of losses related to corporate securities.

The Company holds some of its debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company will write the security’s cost-basis or amortized cost-basis down to the fair value of the investment and recognizes an OTTI loss in the Company’s consolidated statement of operations. Additionally, any portion of such decline related to debt securities that is believed to arise from factors other than credit will be recorded as a component of other comprehensive income rather than charged against income. The Company did not have any OTTI losses on its available-for-sale debt securities for the first nine months of 2019 and 2018.

The Company's equity investments are measured at fair value through net income (loss).

Collateral Deposits

Cash and cash equivalents and investments, the majority of which were debt securities, with fair values of $10.8 million and $10.3 million, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations as of September 30, 2019 and December 31, 2018, respectively.

6. REINSURANCE

Overview

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

The Company is selective in choosing reinsurers and considers numerous factors, the most important of which is 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 the Company’s exposure to the insolvency of a reinsurer, the Company evaluates the acceptability and review the financial condition of the reinsurer at least annually with the assistance of the Company’s reinsurance broker.

Significant Reinsurance Contracts

2018-2019 Excess of Loss Reinsurance Programs
With the February 21, 2018 acquisition of the minority interests of MNIC, the Company has combined both FNIC and MNIC under a single program allowing the Company to capitalize on efficiencies and scale. FNIC and MNIC’s combined 2018-2019 reinsurance programs cost $148.8 million. This amount includes $102.7 million for the private reinsurance for the Company’s exposure, including prepaid automatic premium reinstatement protection, along with $46.1 million payable to the FHCF. The combination of private and FHCF reinsurance treaties affords FNIC and MNIC $1.8 billion of aggregate coverage with a maximum single event coverage totaling $1.3 billion, exclusive of retentions. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2018 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $20.0 million, up slightly from the 2017-2018 reinsurance program and MNIC’s single event pre-tax retention for a catastrophic event is $3.0 million, down slightly from the 2017-2018 reinsurance program.

The combined FNIC and MNIC private market excess of loss treaties, covering both Florida and non-Florida exposures, became effective July 1, 2018 and all private layers have prepaid automatic reinstatement protection, which affords the Company additional coverage for subsequent events. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all layers attach after $20.0 million in losses for FNIC and after $3.0 million in losses for MNIC. If the
-19-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

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. Given current market conditions, FNIC has elected not to purchase any multiple year protection and terminated the second year of the $89.0 million of multiple year protection that FNIC purchased last year on a two-year basis. FNIC also had $156.0 million of multiple year protection that expired on June 30, 2018. The overall reinsurance programs 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.

FNIC’s non-Florida excess of loss reinsurance treaties afford us an additional $23.0 million of aggregate coverage with first event coverage totaling $5.0 million and second event coverage totaling $18.0 million, with the incremental $13.0 million of second event coverage applying to hurricane losses only. The end result is a non-Florida retention of $15.0 million for the first event and $2.0 million for the second event though these retentions are reduced to $7.5 million and $1.0 million after taking into account the profit sharing agreement that FNIC has with the nonaffiliated managing general underwriter that writes our non-Florida property business. FNIC’s non-Florida reinsurance program cost will $2.0 million for this private reinsurance, including prepaid automatic premium reinstatement protection.

The Company’s cost and amounts of reinsurance are based on management’s current analysis of exposure to catastrophic risk. The data will be subjected to exposure level analysis at various dates during the period ending December 31, 2018. This analysis of the Company’s exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in retentions, limits and reinsurance premiums as a result of increases or decreases in the Company’s exposure level.

2019-2020 Catastrophe Excess of Loss Reinsurance Program
Given the pending acquisition of Maison Companies, the Company and PIH agreed to combine FNIC, MNIC, and MIC under a single reinsurance program allowing the carriers to capitalize on efficiencies, spread of risk and scale.

The combined reinsurance treaties provides approximately $1.3 billion of single-event reinsurance coverage in excess of a $27 million retention for catastrophic losses on the first event (and $15 million on the second and third events), including hurricanes, and aggregate coverage of $1.9 billion, at an approximate total cost of $224.4 million, of which FNIC's and MNIC's share of the cost is estimated to total $179.3 million.

The combined FNIC, MNIC and MIC private market excess of loss treaties, covering both Florida and non-Florida exposures, become effective July 1, 2019 and all private layers have prepaid automatic reinstatement protection, which affords the carriers additional coverage for subsequent events. This private market excess of loss treaty structure breaks coverage into layers, with a cascading feature such that substantially all layers attach after $20 million in losses for FNIC, $2 million in losses for MNIC and $5 million in losses for MIC. For FNIC and MNIC, the second and third event attaches at $10 million per event, on a combined basis. 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. The overall reinsurance program is with reinsurers that currently have an A.M. Best Company or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts. 

As indicated above, FNIC, MNIC and MIC’s combined 2019-2020 reinsurance program is estimated to cost $224.4 million. This amount includes approximately $178.8 million for private reinsurance for the carriers’ exposure described above, including prepaid automatic premium reinstatement protection, along with approximately $45.6 million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford FNIC, MNIC, and MIC approximately $1.9 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.3 billion, exclusive of retentions. Each carrier will pay directly its allocated portion of the aggregate premium cost. The allocation methodology by which FNIC, MNIC, and MIC will determine their share of the premium and distribution of reinsurance recoveries under the combined reinsurance tower is based on catastrophe loss modeling of the separate books of business. Each carrier will share the combined program cost in proportion to its contribution to the total expected loss in each reinsurance layer. Each carrier's reinsurance recoveries will be based on that carrier's contributing share of a given event's total loss. Both FNIC and MNIC maintained their FHCF participation at 75% for the 2019 hurricane season, and MIC increased its FHCF participation to 90%.

FNIC’s non-Florida excess of loss reinsurance treaties afford us an additional $18 million of coverage for a second event, which applies to hurricane losses only. The result is a non-Florida retention of $20 million for FNIC for the first event and $2 million for the second event, although these retentions are reduced to $10 million and $1 million after taking into account the profit-sharing agreement that FNIC has with the non-affiliated managing general underwriter that writes FNIC’s non-Florida property business.
-20-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

FNIC’s non-Florida reinsurance program cost for the above specific coverage will approximate $1.8 million for this private reinsurance.

The insurance carriers’ cost and amounts of reinsurance are based on current analysis of exposure to catastrophic risk. The data is subjected to exposure level analysis at various dates through December 31, 2019. This analysis of the carriers’ exposure level in relation to the total exposures to the FHCF and excess of loss treaties may produce changes in retentions, limits and reinsurance premiums in total, and by carrier, as a result of increases or decreases in the carriers’ exposure levels.

Quota-Share Reinsurance Programs
FNIC's reinsurance programs also include quota-share treaties. One such treaty for 30% became effective July 1, 2014, and another for 10% became effective on July 1, 2015 with each running for two years. The combined treaties provided up to a 40% quota-share reinsurance on covered losses for the homeowners’ property and liability insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.

On July 1, 2016, the 30% quota-share treaty expired on a cut-off basis, which means as of that date the Company retained an incremental 30% of its unearned premiums and losses. On July 1, 2017, the 10% 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 the paid losses occurring during the terms of the treaties, until each treaty is commuted.

On July 1, 2017, FNIC bound a 10% quota-share on its Florida homeowners book of business, which excluded named storms, subject to certain limitations including, but not limited to caps on losses associated with occurrences. This treaty is not subject to accounting as a retrospectively rated contract. This treaty expired on July 1, 2018 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded will be returned to FNIC.

On July 1, 2018, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was initially set at 2%, and is subject to certain limitations including, but not limited to caps on losses associated with occurrences. In addition, this quota-share allowed FNIC to prospectively increase or decrease the cession percentage up to three times during the term of the agreement. Effective October 1, 2018, FNIC elected to increase the cession percentage from 2% to 10% on an in-force, new and renewal basis.

The treaty expired on July 1, 2019 on a cut-off basis, meaning that the reinsurer will not be liable (under this agreement) for losses as a result of occurrences taking place after the date of termination, and the unearned premium previously ceded will be returned to FNIC.

On July 1, 2019, FNIC renewed the quota-share treaty on its Florida homeowners book of business, on an in-force, new and renewal basis, excluding named storms, which was initially set at 10%, which is subject to certain limitations including, but not limited to, caps on losses associated with non-named storm catastrophe losses. In addition, this quota-share allows FNIC the flexibility to prospectively increase or decrease the cession percentage up to three times during the term of the agreement.

The Company’s private passenger automobile quota-share treaties are programs which became effective at different points in the year and cover auto policies across several states.

Associated Trust Agreements
Certain reinsurance agreements require FNIC and MNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled less than $0.1 million as of September 30, 2019 and December 31, 2018.


-21-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Reinsurance Recoverable, Net

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverable. Reinsurance recoverable, net consisted of the following:
໿
September 30, December 31,
2019 2018
(In thousands)
Reinsurance recoverable on paid losses $ 47,857    $ 45,028   
Reinsurance recoverable on unpaid losses 155,018    166,396   
Reinsurance recoverable, net $ 202,875    $ 211,424   

As of September 30, 2019 and December 31, 2018, the Company had reinsurance recoverable of $164.0 million and $183.5 million, respectively as a result of Hurricane Michael and Irma. All reinsurers in our excess-of-loss reinsurance programs 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.


Net Premiums Written and Net Premiums Earned

Net premiums written and net premiums earned consisted of the following:
໿
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands)
Net Premiums Written        
Direct $ 159,131    $ 139,022    $ 460,534    $ 440,151   
Ceded (146,231)   (81,023)   (220,363)   (177,604)  
$ 12,900    $ 57,999    $ 240,171    $ 262,547   
Net Premiums Earned        
Direct $ 145,546    $ 144,907    $ 425,133    $ 438,239   
Ceded (58,172)   (46,414)   (156,669)   (174,080)  
$ 87,374    $ 98,493    $ 268,464    $ 264,159   

-22-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

7. LOSS AND LOSS ADJUSTMENT RESERVES

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

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

Nine Months Ended
September 30,
2019 2018
(In thousands)
Gross reserves, beginning-of-period $ 296,230    $ 230,515   
Less: reinsurance recoverable (1) (166,396)   (98,345)  
Net reserves, beginning-of-period 129,834    132,170   
   
Incurred loss, net of reinsurance, related to:    
Current year 195,024    159,998   
Prior year loss development (redundancy) (2) 1,238    330   
Ceded losses subject to offsetting experience account adjustments (3) (1,978)   (4,230)  
Prior years (740)   (3,900)  
Total incurred loss and LAE, net of reinsurance 194,284    156,098   
   
Paid loss, net of reinsurance, related to:    
Current year 114,790    87,960   
Prior years 77,398    71,266   
Total paid loss and LAE, net of reinsurance 192,188    159,226   
   
Net reserves, end-of-period 131,930    129,042   
Plus: reinsurance recoverable (1) 155,018    92,072   
Gross reserves, end-of-period $ 286,948    $ 221,114   

(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 (loss).

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

During the nine months ended September 30, 2019, the Company experienced $1.2 million of unfavorable loss and LAE reserve development on prior accident years, which consists of adverse development in its commercial general liability and personal automobile lines of business, offset by redundancy in the homeowners line of business as a result of lower LAE expenses associated primarily with Hurricane Irma.

During the nine months ended September 30, 2018, the Company experienced $0.3 million of favorable loss and LAE reserve redundancy in accident year 2017. The redundancy was the result of lower LAE expenses associated primarily with Hurricane Irma.

-23-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

As previously disclosed, the Company entered into 30% and 10% retrospectively-rated Florida-only property quota-share treaties, which ended on July 1, 2016 and 2017, respectively.  These agreements included a profit share (experience account) provision, under which the Company will receive ceded premium adjustments at the end of the treaty to the extent there is a positive balance in the experience account.  This experience account is based on paid losses rather than incurred losses.  Due to the retrospectively-rated nature of this treaty, when the experience account is positive we cede losses under these treaties as the claims are paid with an equal and offsetting adjustment to ceded premiums (in recognition of the related change to the experience account receivable), with no impact on net income.  Conversely, when the experience account is negative, the Company cedes losses on an incurred basis with no offsetting adjustment to ceded premiums, which impacts net income. Loss development can be either favorable or unfavorable regardless of whether the experience account is in a positive or negative position.

8. LONG-TERM DEBT

As discussed in Note 3 above, the net proceeds of the offering discussed in Senior Unsecured Notes below, were in part used to redeem all $45 million of the Company's Senior Unsecured Fixed Rate Notes Due 2022 and the Company's Senior Notes Due 2027. We recognized $3.6 million as interest expense in our consolidated statements of operations for the six months ended June 30, 2019, for prepayment fees, including the write-off unamortized debt issuance costs on the repayment.

Senior Unsecured Notes

On March 5, 2019, the Company completed a private placement offering and issued $100.0 million in principal amount of Senior Unsecured Fixed Rate Notes due 2029 (the "Notes”), pursuant to an indenture dated as of March 5, 2019 (the “Indenture”). The Notes mature on March 15, 2029 and bear interest at a fixed rate of 7.5% per year, payable semi-annually in arrears, subject to increases in the interest rate payable in the event of a downgrade in the credit rating assigned to the Notes. The Notes are not convertible or exchangeable for any equity securities, other securities or assets of the Company or any subsidiary.

The Company may redeem the Notes under certain circumstances as set forth in the Indenture. Prior to March 15, 2024, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100.00% of the principal amount of the Notes to be redeemed, plus the “Applicable Premium,” plus accrued and unpaid interest on such Notes, if any, on the Notes redeemed, to the applicable redemption date. The “Applicable Premium” is defined in the Indenture to mean, with respect to any Note on any applicable redemption date, the greater of (1) 1.0% of the then-outstanding principal amount of such Note and (2) the excess (if any) of: (A) the present value at such redemption date of (i) the applicable redemption price of such Note at March 15, 2024 (excluding any accrued but unpaid interest), plus (ii) all required interest payments due on such Note through March 15, 2024 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate (as defined in the Indenture) on such redemption date plus 50 basis points; over (B) the then-outstanding principal amount of such Note.

On and after March 15, 2024, the Company may redeem the Notes, in whole or in part, at 103.750% in 2024, 101.875% in 2025, and 100% in 2026 and thereafter, together with any accrued and unpaid interest on the Notes being redeemed to but excluding the date of redemption.

If a change in control of the Company, as defined in the Indenture, occurs, the holders of the Notes will have the right to require the Company to purchase all or a portion of their Notes at a price in cash equal to 101% of the principal amount thereof, plus any accrued but unpaid interest.

The Notes are senior unsecured obligations of the Company and will rank equally with all of the Company’s other future senior unsecured indebtedness. The Indenture includes customary covenants and events of default. Among other things, the covenants restrict the ability of the Company and its subsidiaries to incur additional indebtedness or make restricted payments, including dividends, and under certain circumstances, the Company is required to maintain certain levels of reinsurance coverage while the Notes remain outstanding, and maintain certain other financial covenants. These covenants are subject to important exceptions and qualifications set forth in the Indenture. Principal and interest on the Notes are subject to acceleration in the event of certain events of default, including automatic acceleration upon certain bankruptcy-related events.
-24-

FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Long-term debt consisted of the following:
September 30, December 31,
2019 2018
(In thousands)
Senior unsecured fixed rate notes, due March 15, 2029, net of deferred financing costs of $1,518 and $0, respectively
$ 98,482    $ —   
Senior unsecured floating rate notes, due December 31, 2027, net of deferred financing costs of $0 and $348, respectively
—    24,652   
Senior unsecured fixed rate notes, due December 31, 2022, net of deferred financing costs of $0 and $248, respectively
—    19,752   
Total long-term debt, net $ 98,482    $ 44,404   

As of September 30, 2019, the Company's estimated annual aggregate amount of debt maturities includes the following:

Aggregate
Debt
For the Years Ending December 31, Maturities
(In thousands)
2019 $ —   
2020 —   
2021 —   
2022 —   
2023 —   
Thereafter 100,000   
Total debt maturities 100,000   
Less: deferred financing costs 1,518   
Total debt maturities, net $ 98,482   

9. INCOME TAXES

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. The effective income tax rate was 13.4% and 27.5% for the three months ended September 30, 2019 and 2018, respectively. The effective income tax rate was 19.7% and 26.3% for the nine months ended September 30, 2019 and 2018, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction, executive compensation and other items.

The Company had an uncertain tax position of $0.4 million and $0.6 million as of September 30, 2019 and December 31, 2018, respectively. The Company does not have a valuation allowance on its deferred income tax asset as of September 30, 2019 and December 31, 2018.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense (benefit) in the consolidated statements of operations and statements of comprehensive income (loss). For the three and nine months ended September 30, 2019, the Company recognized $0.2 million of benefit related to an uncertain tax position and our associated accrued interest and penalties was less than $0.1 million. For the three and nine months ended September 30, 2018, the Company did not recognize any expenses related to an uncertain tax position.
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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

10. COMMITMENTS AND CONTINGENCIES

Litigation and Legal Proceedings

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

The Company reviews the outstanding matters, if any, on a quarterly basis.  The Company accrues for estimated losses and contingent obligations in the consolidated financial statements if and when the obligation or potential loss from any litigation, legal proceeding or claim is considered probable and the amount of the potential exposure is reasonably estimable.  The Company records such probable and estimable losses, through the establishment of legal expense reserves.  As events evolve, facts concerning litigation and contingencies become known and as additional information becomes available, the Company’s management reassesses its potential liabilities related to pending claims and litigation and may revise its previous estimates and make appropriate adjustment to the financial statements. Estimates that require judgment are subject to change and are based on management’s assessment, including the advice of legal counsel, the expected outcome of litigation and legal proceedings or other dispute resolution proceedings or the expected resolution of contingencies. The Company’s management believes that the Company’s accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on the Company’s consolidated financial statements.

Regarding the matter involving the Co-Existence Agreement effective as of April 30, 2013 with Federated Mutual Insurance Company and the related arbitration (please see Note 9 of our 2018 Form 10-K for more information), the U.S. Court of Appeals for the Eighth Circuit agreed with the Company’s position that the U.S. District Court in Minnesota did not have jurisdiction over the Company, vacated the judgment of the Minnesota court confirming the arbitration award, and ordered the Minnesota matter dismissed. The parties are in the process of completing mutual releases and the dismissal of all remaining pending proceedings.

Assessment Related Activity

The Company operates in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Florida Automobile Joint Underwriters Association (“JUA”), Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Georgia Automobile Insurance Plan (“GAIP”), Property Insurance Association of Louisiana (“PIAL”), Louisiana Automobile Insurance Plan (“LAIP”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Texas Automobile Insurance Plan Association (“TAIPA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Underwriters Association (“AIUA”). As a direct premium writer in Florida, we are required to participate in certain insurer solvency associations under Florida law, administered by FIGA.

In connection with its automobile line of business, which is currently winding down, FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan, which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. There were no material assessments by the JUA Plan as of December 31, 2018. Future assessments by the JUA and the JUA Plan are indeterminable at this time.


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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Leases

The Company is committed under an operating lease agreement for office space with a nine-and-a-half-year term remaining.

The right-of-use asset is reflected in other assets and the lease liability is reflected in other liabilities on our consolidated balance sheets. Lease expense, net of sublease income is reflected in general and administrative expenses on our consolidated statements of operations.

Additional information related to our operating lease agreement for office space consisted of the following:
September 30,
2019
(In thousands)
Right-of-use asset $ 7,860   
Accrued rent (279)  
Right-of-use asset, net $ 7,581   
Lease liability $ 7,860   
Weighted-average discount rate 4.71  %

Nine
Months
Ended
September 30,
2019
(In thousands)
Lease expense $ 779   
Sublease income (127)  
Lease expense, net $ 652   
Net cash provided by (used in) operating activities $ (440)  

The interest rate implicit in our lease was not known, therefore the weighted-average discount rate above was determined by what FedNat would have had to pay to borrow the lease payments in a similar economic environment that existed at inception of our lease while considering our general credit and the theoretical collateral of the office space. In the event of a change to lease term, the Company would re-evaluate all inputs and assumptions, including the discount rate.

Refer to Note 2 above for additional information regarding the implementation of new lease accounting rules on January 1, 2019.



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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

11. SHAREHOLDERS' EQUITY

Common Stock Repurchases

The Company may repurchase shares in open market transactions in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.

In December 2018, the Company’s Board of Directors authorized an additional share repurchase program under which the Company may repurchase up to $10.0 million of its outstanding shares of common stock through December 31, 2019. As of September 30, 2019, the remaining availability for future repurchases of our common stock under this program was $10.0 million.

The Company may repurchase shares in open market transactions in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.

Securities Offerings

In June 2018, the Company filed with the Securities and Exchange Commission (“SEC”) on Form S-3, a shelf registration statement enabling the Company to offer and sell, from time to time, up to an aggregate of $150.0 million of securities. No securities have been offered or sold under this registration statement.

Stock Compensation Plan

In June 2018, the Company filed with the SEC on Form S-8, a registration statement registering 800,000 shares of common stock reserved for issuance under the Company’s 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”).  The 2018 Plan, which was approved by the Company’s shareholders at the 2018 annual meeting, is an equity compensation plan that may be used for our employees, non-employee directors, consultants and advisors.

Share-Based Compensation Expense

Share-based compensation arrangements include the following:
໿
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands)
Restricted stock $ 467    $ 512    $ 1,463    $ 1,660   
Performance stock 135    (28)   497    187   
Total share-based compensation expense $ 602    $ 484    $ 1,960    $ 1,847   
       
Recognized tax benefit $ 137    $ 123    $ 481    $ 468   
Intrinsic value of options exercised 2    151    2    229   
Fair value of restricted stock vested $ 482    $ 622    $ 1,715    $ 2,098   

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


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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Stock Option Awards

A summary of the Company’s stock option activity includes the following:
໿
Number of Shares Weighted Average Option Exercise Price
Outstanding at January 1, 2019 39,017    $ 3.80   
Granted —    —   
Exercised (167)   2.45   
Cancelled —    —   
Outstanding at September 30, 2019 38,850    $ 3.80   

Restricted Stock Awards

The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by the Company’s directors, executives and other key employees. For all RSA awards, excluding relative total shareholder return ("TSR"), the accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis for service awards and over successive one-year requisite service periods for performance-based awards. Our expense for our performance awards depends on achievement of specified results; therefore, the ultimate expense can range from 0% to 250% of target. Our TSR cliff vesting awards contain performance criteria which are tied to the achievement of certain market conditions. The TSR grant date fair value was determined using a Monte Carlo simulation and, unlike the performance condition awards, the expense is not reversed if the performance condition is not met. This value is recognized as expense over the requisite service period using the straight-line recognition method.

During the nine months ended September 30, 2019 and 2018, the Board of Directors granted 140,156 and 133,060 RSAs, respectively, vesting over three or five years, to the Company’s directors, executives and other key employees.

RSA activity includes the following:
Number of Shares Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019 262,334    $ 18.78   
Granted 140,156    18.03   
Vested (84,755)   20.24   
Cancelled (12,960)   18.15   
Outstanding at September 30, 2019 304,775    $ 18.06   

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


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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) associated with debt securities - available-for-sale consisted of the following:
໿
Three Months Ended September 30,
2019 2018
Before Tax Income Tax Net Before Tax Income Tax Net
(In thousands)
Accumulated other comprehensive income (loss), beginning-of-period
$ 12,404    $ (3,144)   $ 9,260    $ (7,166)   $ 1,816    $ (5,350)  
Other comprehensive income (loss) before reclassification
3,921    (854)   3,067    (575)   145    (430)  
Reclassification adjustment for realized losses (gains) included in net income
(893)   214    (679)   (162)   41    (121)  
3,028    (640)   2,388    (737)   186    (551)  
Accumulated other comprehensive income (loss), end-of-period
$ 15,432    $ (3,784)   $ 11,648    $ (7,903)   $ 2,002    $ (5,901)  


Nine Months Ended September 30,
2019 2018
Before Tax Income Tax Net Before Tax Income Tax Net
(In thousands)
Accumulated other comprehensive income (loss), beginning-of-period
$ (5,023)   $ 1,273    $ (3,750)   $ 2,287    $ (593)   $ 1,694   
Cumulative effect of new accounting standards —    —    —    (1,349)   355    (994)  
Other comprehensive income (loss) before reclassification
21,979    (5,431)   16,548    (10,573)   2,679    (7,894)  
Reclassification adjustment for realized losses (gains) included in net income
(1,524)   374    (1,150)   1,732    (439)   1,293   
 20,455    (5,057)   15,398    (8,841)   2,240    (6,601)  
Accumulated other comprehensive income (loss), end-of-period
$ 15,432    $ (3,784)   $ 11,648    $ (7,903)   $ 2,002    $ (5,901)  


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FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, 2019

12. EARNINGS PER SHARE

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

The following table presents the calculation of basic and diluted EPS:
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
(In thousands, except per share data)
Net income (loss) attributable to FedNat Holding Company shareholders $ 4,659    $ 7,950    $ 7,904    $ 24,233   
   
Weighted average number of common shares outstanding - basic 12,854    12,749    12,831    12,775   
Net income (loss) per common share - basic      $ 0.36    $ 0.62    $ 0.62    $ 1.90   
   
   
Weighted average number of common shares outstanding - basic 12,854    12,749    12,831    12,775   
Dilutive effect of stock compensation plans 43    121    49    91   
Weighted average number of common shares outstanding - diluted 12,897    12,870    12,880    12,866   
Net income (loss) per common share - diluted $ 0.36    $ 0.62    $ 0.61    $ 1.88   
   
Dividends per share $ 0.08    $ —    $ 0.24    $ 0.16   

Dividends Declared

In January 2019, our Board of Directors declared a $0.08 per common share dividend, payable in March 2019, to shareholders of record on February 14, 2019, amounting to $1.0 million.

In May 2019, our Board of Directors declared a $0.08 per common share dividend, payable in June 2019, to shareholders of record on May 14, 2019, amounting to $1.1 million.

In July 2019, our Board of Directors declared a $0.08 per common share dividend, payable in September 2019, to shareholders of record on August 16, 2019, amounting to $1.0 million.

In November 2019, our Board of Directors declared a $0.09 per common share dividend, payable in December 2019, to shareholders of record on November 15, 2019, amounting to $1.2 million.

13. SUBSEQUENT EVENTS

Dividends Declared

Refer to Note 12 above for information related to our dividend declared in November 2019.


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General information about FedNat Holding Company can be found at www.FedNat.com; however, the information that can be accessed through our website is not part of our report. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to the Securities and Exchange Act of 1934 available free of charge on our website, as soon as reasonably practicable after they are electronically filed with the SEC.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q (the “Form 10-Q”). In addition, please refer to our audited consolidated financial statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Unless the context requires otherwise, as used in the remainder of this Form 10-Q, the terms “FNHC,” “Company,” “we,” “us” and “our” refer to FedNat Holding Company and its consolidated subsidiaries.

Below, in addition to providing consolidated revenues and net income (loss), we also provide adjusted operating revenues and adjusted operating income (loss) because we believe these performance measures that are not United States of America generally accepted accounting principles ("GAAP") measures allow for a better understanding of the underlying trend in our business, as the excluded items are not necessarily indicative of our operating fundamentals or performance.
Non-GAAP measures do not replace the most directly comparable GAAP measures and we have included a detailed reconciliation thereof in "Results of Operations" below.

We exclude the after-tax (using our prevailing income tax rate) effects of the following items from GAAP net income (loss) to arrive at adjusted operating income (loss):

•Net realized and unrealized gains (losses), including, but not limited to, gains (losses) associated with investments and early extinguishment of debt;
•Acquisition/integration and other costs and the amortization of specifically identifiable intangibles (other than value of business acquired);
•Impairment of intangibles;
•Income (loss) from initial adoption of new regulations and accounting guidance; and
•Income (loss) from discontinued operations.

We also exclude the pre-tax effect of the first bullet above from GAAP revenues to arrive at adjusted operating revenues.

Forward-Looking Statements

This Form 10-Q or the documents that are incorporated by reference into this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “forecast,” “guidance,” “indicate,” “intend,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “will,” “would,” “will be,” “will continue” or the negative thereof or other variations thereon or comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Management cautions that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assume that such statements will be realized or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our 2018 Form 10-K, and discussed from time to time in our reports filed with the Securities and Exchange Commission (“SEC”).

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Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included or incorporated by reference into this Form 10-Q are made only as of the date hereof. We do not undertake and specifically disclaim any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

GENERAL

The Company is an insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents.   We, through our wholly owned subsidiaries, are authorized to underwrite, and/or place homeowners multi-peril (“homeowners”), federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.

FedNat Insurance Company (“FNIC”), our largest wholly-owned insurance subsidiary, is licensed as an admitted carrier, to write specific lines of insurance by the state’s insurance departments, in Florida, Louisiana, Texas, Georgia, South Carolina and Alabama.  Monarch National Insurance Company (“MNIC”), our other insurance subsidiary, is licensed as an admitted carrier in Florida. Admitted carriers are bound by rate and form regulations, and are strictly regulated to protect policyholders. Admitted carriers are also required to financially contribute to the state guarantee fund used to pay for losses if an insurance carrier becomes insolvent or unable to pay loss amounts due to their policyholders.

Through our wholly-owned subsidiary, FedNat Underwriters, Inc. (“FNU”), we serve as managing general agent for FNIC and MNIC.

Maison Companies Acquisition

On February 25, 2019, the Company executed a definitive agreement for the acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. ("PIH"). Specifically, the Company will purchase Maison Insurance Company ("MIC"), Maison Managers, Inc., and ClaimCor LLC (collectively, the "Maison Companies"). The purchase price is $51.0 million, which includes $25.5 million in cash and $25.5 million in shares of the Company’s common stock. Additionally, in connection with the pending acquisition, on March 5, 2019, the Company closed on an offering of $100 million of Senior Unsecured Notes due 2029, which bear interest at the annual rate of 7.5% (the "2029 Notes"). The cash from the offering was used in part to retire the full $45.0 million of outstanding debt (thereby lowering our overall cost of borrowing) and will be used to purchase the Maison Companies and for other general corporate purposes.

Refer to Note 3 of the notes to our Consolidated Financial Statements included herein, for additional information regarding the pending acquisition, including regulatory and other necessary approval and the potential timing thereof.

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”) in which they underwrite our FNIC homeowners business outside of Florida. 

Overview of Insurance Lines of Business

Homeowners’ Property and Casualty Insurance
FNIC and MNIC underwrite homeowners insurance in Florida and FNIC also underwrites insurance in Alabama, Texas, Louisiana and South Carolina. Homeowners insurance generally protects an owner of real and personal property against covered causes of loss to that property. As of September 30, 2019, the total homeowners policies in-force was 315,000, of which 237,000 were in Florida and 78,000 were outside of Florida. As of December 31, 2018, the total homeowners policies in-force was 291,000, of which 247,000 were in Florida and 44,000 were outside of Florida.

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Florida
Our homeowners insurance products provide maximum dwelling coverage of approximately $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. 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.

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

Non-Florida
Our non-Florida homeowners insurance products, produced through our partnership with SageSure, provide maximum dwelling coverage “A” up to $1.8 million, with the aggregate maximum policy limit being approximately $3.6 million.  The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims. 

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. The profit share cost is reflected in commissions and other underwriting expenses on our consolidated statements of operations.

Other Insurance Lines of Business
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 for an admitted flood endorsement as an alternative to the NFIP program.

See the discussion in Item 1: “Business” in our 2018 Form 10-K, for additional information with respect to our business.

Regulation

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 any regulatory agency, but primarily by the Florida OIR. The Florida OIR has completed its 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 years ended December 31, 2017 and 2016. There were no material findings by the Florida OIR in connection with these examinations.


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RESULTS OF OPERATIONS

Operating Results Overview - Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein and in our 2018 Form 10-K.

The following table sets forth results of operations for the periods presented:
Three Months Ended
September 30,
2019 % Change 2018
(Dollars in thousands)
Revenues:      
Gross premiums written $ 159,131    14.5  % $ 139,022   
Gross premiums earned 145,546    0.4  % 144,907   
Ceded premiums (58,172)   25.3  % (46,414)  
Net premiums earned 87,374    (11.3) % 98,493   
Net investment income 4,068    29.7  % 3,137   
Net realized and unrealized investment gains (losses) 794    (54.9) % 1,760   
Direct written policy fees 2,514    (33.8) % 3,796   
Other income 4,726    29.6  % 3,646   
Total revenues 99,476    (10.2) % 110,832   
     
Costs and expenses:      
Losses and loss adjustment expenses 62,105    (0.6) % 62,457   
Commissions and other underwriting expenses 24,854    (20.8) % 31,373   
General and administrative expenses 5,246    4.9  % 5,000   
Interest expense 1,894    83.5  % 1,032   
Total costs and expenses 94,099    (5.8) % 99,862   
     
Income (loss) before income taxes 5,377    (51.0) % 10,970   
Income tax expense (benefit) 718    (76.2) % 3,020   
Net income (loss) $ 4,659    (41.4) % $ 7,950   
     
Ratios to net premiums earned:      
Net loss ratio 71.1  %   63.4  %
Net expense ratio 34.4  %   36.9  %
Combined ratio 105.5  %   100.3  %

(1)Net loss ratio is calculated as losses and loss adjustment expenses ("LAE") 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 LAE and all operating expenses less interest expense divided by net premiums earned.




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The following table sets forth a reconciliation of GAAP to non-GAAP measures:

As of or For the Three Months Ended September 30,
2019 2018
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)  
Revenue
Total revenues $ 93,735    $ 4    $ 5,737    $ 99,476    $ 100,616    $ 2,332    $ 7,884    $ 110,832   
Less:
Net realized and unrealized investment gains (losses)
—    —    794    794    —    —    1,760    1,760   
Adjusted operating revenues $ 93,735    $ 4    $ 4,943    $ 98,682    $ 100,616    $ 2,332    $ 6,124    $ 109,072   
Net Income (Loss)
Net income (loss) $ 3,398    $ (613)   $ 1,874    $ 4,659    $ 8,158    $ (1,416)   $ 1,208    $ 7,950   
Less:
Net realized and unrealized investment gains (losses)
—    —    634    634    —    —    1,314    1,314   
Acquisition and other costs (187)   (5)   (46)   (238)   (609)   (37)   (78)   (724)  
Gain (loss) on early extinguishment of debt
—    —    (29)   (29)   —    —    —    —   
Adjusted operating income (loss) $ 3,585    $ (608)   $ 1,315    $ 4,292    $ 8,767    $ (1,379)   $ (28)   $ 7,360   
Income tax rate assumed for reconciling items above
18.26  % 18.26  % 18.26  % 18.26  % 25.35  % 25.35  % 25.35  % 25.35  %

-36-

The table below summarizes our unaudited results of operations by line of business for the periods presented. Although we conduct our operations under a single reportable segment, we have provided line of business information as we believe it is useful to our shareholders and the investing public. “Homeowners” line of business consists of our homeowners and fire property and casualty insurance business. “Automobile” line of business consists of our nonstandard personal automobile insurance business. “Other” line of business primarily consists of our commercial general liability and federal flood businesses, along with corporate and investment operations. Certain percentages are not considered meaningful ("NCM").
Three Months Ended September 30,
2019 2018
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)
Revenues:                
Gross premiums written $ 154,131    $ —    $ 5,000    $ 159,131    $ 136,503    $ (3,041)   $ 5,560    $ 139,022   
Gross premiums earned 141,493    —    4,053    145,546    136,587    2,766    5,554    144,907   
Ceded premiums (54,207)   —    (3,965)   (58,172)   (40,782)   (2,091)   (3,541)   (46,414)  
Net premiums earned 87,286    —    88    87,374    95,805    675    2,013    98,493   
Net investment income —    —    4,068    4,068    —    —    3,137    3,137   
Net realized and unrealized investment gains (losses)
—    —    794    794    —    —    1,760    1,760   
Direct written policy fees 2,453    —    61    2,514    2,198    1,466    132    3,796   
Other income 3,996    4    726    4,726    2,613    191    842    3,646   
Total revenues 93,735    4    5,737    99,476    100,616    2,332    7,884    110,832   
 
               
Costs and expenses:                
Losses and loss adjustment expenses 60,708    742    655    62,105    56,856    2,609    2,992    62,457   
Commissions and other underwriting expenses
24,109    —    745    24,854    28,647    1,545    1,181    31,373   
General and administrative expenses 4,484    50    712    5,246    4,187    75    738    5,000   
Interest expense —    —    1,894    1,894    —    —    1,032    1,032   
Total costs and expenses 89,301    792    4,006    94,099    89,690    4,229    5,943    99,862   

               
Income (loss) before income taxes 4,434    (788)   1,731    5,377    10,926    (1,897)   1,941    10,970   
Income tax expense (benefit) 1,036    (175)   (143)   718    2,768    (481)   733    3,020   
Net income (loss) $ 3,398    $ (613)   $ 1,874    $ 4,659    $ 8,158    $ (1,416)   $ 1,208    $ 7,950   
                 
Ratios to net premiums earned:                
Net loss ratio 69.6  % NCM    744.3  % 71.1  % 59.3  % 386.5  % 148.6  % 63.4  %
Net expense ratio 32.7  % 34.4  % 34.3  % 36.9  %
Combined ratio 102.3  % 105.5  % 93.6  % 100.3  %

-37-

Revenue

Total revenue decreased $11.3 million or 10.2%, to $99.5 million for the three months ended September 30, 2019, compared with $110.8 million for the three months ended September 30, 2018. The decrease was primarily driven by higher ceded premiums due to increased reinsurance spend, a decline in Automobile direct written policy fees and lower investment gains, partially offset by increases in gross premiums earned, net investment income and other income, all of which are discussed below.

Gross Premiums Written

The following table sets forth the gross premiums written for the periods presented:
໿
Three Months Ended
September 30,
2019 2018
(In thousands)
Gross premiums written:    
Homeowners Florida $ 115,341    $ 114,441   
Homeowners non-Florida 38,790    22,062   
Automobile —    (3,041)  
Commercial general liability (19)   1,435   
Federal flood 5,019    4,125   
Total gross premiums written $ 159,131    $ 139,022   

Gross premiums written increased $20.1 million, or 14.5%, to $159.1 million in the quarter, compared with $139.0 million for the same three-month period last year. Gross premiums written increased due to the growth in homeowners non-Florida and Florida. Our homeowners non-Florida business continues to show exceptional growth year over year, especially in the state of Texas, which has allowed us to leverage our infrastructure and diversify insurance risk. Our homeowners Florida FNIC premiums grew $2.2 million or 2% this quarter as compared to last year, which represents the first quarter showing premium growth since the third quarter of 2017. Overall, Homeowners grew 12.9%.

Gross Premiums Earned

The following table sets forth the gross premiums earned for the periods presented:
Three Months Ended
September 30,
2019 2018
(In thousands)
Gross premiums earned:    
Homeowners Florida $ 113,062    $ 118,603   
Homeowners non-Florida 28,431    17,984   
Automobile —    2,766   
Commercial general liability 157    2,122   
Federal flood 3,896    3,432   
Total gross premiums earned $ 145,546    $ 144,907   

Gross premiums earned increased $0.6 million, or 0.4%, to $145.5 million for the three months ended September 30, 2019, as compared to $144.9 million for the three months ended September 30, 2018. The higher gross earned premiums was driven by a 3.6% increase in earned premiums in Homeowners, partially offset by the results of our decision to exit the Automobile and commercial general liability lines.
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Ceded Premiums Earned

Ceded premiums increased $11.8 million, or 25.3%, to $58.2 million in the quarter, compared to $46.4 million the same three-month period last year. The increase was driven by $8.1 million higher excess of loss reinsurance spend in Homeowners, as the new program became effective July 1, 2019 at a higher rate on-line than the program in the previous year and $6.1 million from the homeowners Florida quota share being set at 10% in the third quarter of 2019 as compared to 2% in the prior year period. These items were offset by $2.1 million lower ceded premiums in Automobile as we have exited that line of business.

Net Investment Income

Net investment income increased $1.0 million, or 29.7%, to $4.1 million during the three months ended September 30, 2019, as compared to $3.1 million during the three months ended September 30, 2018. The increase was due to fixed income portfolio growth, partly due to the net proceeds of the offering (refer to Notes 3 and 8 to the Consolidated Financial Statements included herein, for additional information) and the improvement in the yield as a result of rising interest rates during 2018 as well as from portfolio repositioning.

Net realized and Unrealized Investment Gains (Losses)

Net realized and unrealized investment gains (losses) decreased $1.0 million, to $0.8 million for the three months ended September 30, 2019, compared to $1.8 million in the prior year period. We recognized $(0.6) million and $1.6 million in unrealized investment gains (losses) for equity securities during these respective periods.  Our current and prior year net realized gains are associated with our portfolio managers, under our control, moving out of positions due to both macro and micro conditions in the normal course of managing the portfolio.

Direct Written Policy Fees

Direct written policy fees decreased by $1.3 million, or 33.8%, to $2.5 million for the three months ended September 30, 2019, compared with $3.8 million in the same period in 2018. The decrease in direct written policy fees is correlated to lower number of policies in-force in Automobile and commercial general liability due to our decision to exit these lines, as discussed earlier, offset by higher fees from homeowners non-Florida as we continue to grow.

Other Income

Other income included the following for the periods presented:
໿
Three Months Ended
September 30,
2019 % Change 2018
(In thousands)
Other income:      
Commission income $ 726    (15.2) % $ 856   
Brokerage 3,582    63.6  % 2,190   
Financing and other revenue 418    (30.3) % 600   
Total other income $ 4,726    29.6  % $ 3,646   

The increase in other income was primarily driven by higher brokerage revenue, partially offset by lower financing and commission income. The brokerage revenue increase is the result of higher excess of loss reinsurance spend from the reinsurance programs in place during the third quarter of 2019 as compared to the third quarter of 2018. The year over year decreases in financing and commission income were driven by lower Automobile fee income from our exit of this line of business.

-39-

Expenses

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses (“LAE”) decreased $0.4 million, or 0.6%, to $62.1 million for the three months ended September 30, 2019, compared with $62.5 million for the same three-month period last year. The net loss ratio increased 7.7 percentage points, to 71.1% in the current quarter, as compared to 63.4% in the third quarter of 2018.  The higher ratio was primarily the result of the increase in reinsurance spend, which reduces the net earned premium denominator of the loss ratio calculation. The third quarter of 2019 included $11.0 million of losses, related to catastrophe losses from Hurricane Dorian, Hurricane Barry and Tropical Storm Imelda ($8.0 million of these losses relate to non-Florida, which is subject to a 50% profit-sharing agreement, as discussed earlier), compared to the prior year quarter which included $6.1 million of catastrophe losses arising from Hurricane Florence and Tropical Storm Gordon. The remaining variance is driven by lower losses in the quarter in Automobile and commercial general liability lines as we exit those lines and higher ceded losses from homeowners Florida quota share in the quarter due to the higher percentage (as discussed earlier), partially offset by increased losses related to higher gross premiums earned in Homeowners.

Commissions and Other Underwriting Expenses

The following table sets forth the commissions and other underwriting expenses for the periods presented:
Three Months Ended
September 30,
2019 2018
(In thousands)
Commissions and other underwriting expenses:
Homeowners Florida $ 13,187    $ 14,258   
All others 6,610    4,866   
Ceding commissions (3,203)   (689)  
Total commissions 16,594    18,435   
Automobile —    1,466   
Homeowners non-Florida 902    571   
Total fees 902    2,037   
Salaries and wages 2,696    3,147   
Other underwriting expenses 4,662    7,754   
Total commissions and other underwriting expenses $ 24,854    $ 31,373   

Commissions and other underwriting expenses decreased $6.5 million, or 20.8%, to $24.9 million for the three months ended September 30, 2019, compared with $31.4 million for the three months ended September 30, 2018. The decrease was driven by higher ceding commissions from homeowners Florida quota share in the quarter due to the higher percentage (as discussed earlier), lower Automobile fees due to reduced premiums earned, and a reduction in other underwriting expenses as there was a benefit in the non-Florida profit share calculation this quarter as a direct result of $8.0 million of non-Florida weather-related losses (as previously discussed in the Losses and Loss Adjustment Expenses section), resulting in a $4.0 million reduction. These decreases were partially offset by higher homeowners acquisition related costs as a result of premium growth across periods.

The net expense ratio decreased 2.5 percentage points to 34.4% in the third quarter of 2019, as compared to 36.9% in the third quarter of 2018. Refer to the discussion above for more information.

General and Administrative Expenses

General and administrative expenses increased $0.2 million by 4.9% to $5.2 million for the three months ended September 30, 2019 compared to $5 million in the third quarter of 2018. The increase was the result of higher professional fees and other costs as compared to the prior year.


-40-

Interest Expense

Interest expense increased $0.9 million to $1.9 million for the three months ended September 30, 2019, compared with $1.0 million in the prior year period due to an increase in the outstanding debt. Refer to Note 3 and 8 of the notes to our Consolidated Financial Statements included herein, for information regarding new debt issued and debt retirement that occurred in March 2019.
Income Taxes

Income taxes (benefits) decreased $2.3 million, to $0.7 million for the three months ended September 30, 2019, compared to $3.0 million for the three months ended September 30, 2018. The decrease in income tax expense is predominantly the result of lower income during the current quarter as compared to the third quarter of 2018. Additionally, in the quarter, we recognized a benefit of $0.4 million relating to an election to carry back capital losses and a benefit of $0.2 million relating to a reduction in the uncertain tax position reserve. Lastly, the State of Florida announced a reduction in its state income tax rate from 5.5% to 4.5%, effective January 1, 2019, which represented a benefit in the quarter. This new tax rate will be in place until at least December 31, 2021.
-41-

Operating Results Overview - Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018

The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein and in our 2018 Form 10-K.

The following table sets forth results of operations for the periods presented:
Nine Months Ended
September 30,
2019 % Change 2018
(Dollars in thousands)
Revenues:      
Gross premiums written $ 460,534    4.6  % $ 440,151   
Gross premiums earned 425,133    (3.0) % 438,239   
Ceded premiums (156,669)   (10.0) % (174,080)  
Net premiums earned 268,464    1.6  % 264,159   
Net investment income 12,037    32.9  % 9,058   
Net realized and unrealized investment gains (losses) 5,050    451.3  % 916   
Direct written policy fees 7,308    (31.6) % 10,685   
Other income 13,115    (11.6) % 14,833   
Total revenues 305,974    2.1  % 299,651   
Costs and expenses:
Losses and loss adjustment expenses 194,284    24.5  % 156,098   
Commissions and other underwriting expenses 75,650    (17.3) % 91,467   
General and administrative expenses 17,336    6.1  % 16,345   
Interest expense 8,860    182.3  % 3,139   
Total costs and expenses 296,130    10.9  % 267,049   
Income (loss) before income taxes 9,844    (69.8) % 32,602   
Income tax expense (benefit) 1,940    (77.4) % 8,587   
Net income (loss) 7,904    (67.1) % 24,015   
Net income (loss) attributable to non-controlling interest —    (100.0) % (218)  
Net income (loss) attributable to FNHC shareholders $ 7,904    (67.4) % $ 24,233   
     
Ratios to net premiums earned:      
Net loss ratio 72.4  % 59.1  %
Net expense ratio 34.6  % 40.8  %
Combined ratio 107.0  % 99.9  %

(1)Net loss ratio is calculated as losses and LAE 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 LAE and all operating expenses less interest expense divided by net premiums earned.


-42-

The following table sets forth a reconciliation of GAAP to non-GAAP measures:

As of or For the Nine Months Ended September 30,
2019 2018
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)  
Revenue
Total revenues $ 284,685    $ 27    $ 21,262    $ 305,974    $ 269,395    $ 9,839    $ 20,417    $ 299,651   
Less:
Net realized and unrealized investment gains (losses)
—    —    5,050    5,050    —    —    916    916   
Adjusted operating revenues $ 284,685    $ 27    $ 16,212    $ 300,924    $ 269,395    $ 9,839    $ 19,501    $ 298,735   
Net Income (Loss)
Net income (loss) $ 7,981    $ (2,241)   $ 2,164    $ 7,904    $ 23,529    $ (1,668)   $ 2,372    $ 24,233   
Less:
Net realized and unrealized investment gains (losses)
—    —    3,812    3,812    —    —    684    684   
Acquisition and other costs (237)   (5)   (532)   (774)   (1,183)   (69)   (126)   (1,378)  
Gain (loss) on early extinguishment of debt
—    —    (2,698)   (2,698)   —    —    —    —   
Adjusted operating income (loss) $ 8,218    $ (2,236)   $ 1,582    $ 7,564    $ 24,712    $ (1,599)   $ 1,814    $ 24,927   
Income tax rate assumed for reconciling items above
24.52  % 24.52  % 24.52  % 24.52  % 25.35  % 25.35  % 25.35  % 25.35  %


-43-

The following table summarizes our unaudited results of operations by line of business for the periods presented:

Nine Months Ended September 30,
2019 2018
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
(Dollars in thousands)
Revenues:
Gross premiums written $ 447,642    $ (1)   $ 12,893    $ 460,534    $ 414,914    $ 8,628    $ 16,609    $ 440,151   
Gross premiums earned 412,409    26    12,698    425,133    403,579    17,876    16,784    438,239   
Ceded premiums (145,438)   (20)   (11,211)   (156,669)   (150,722)   (13,350)   (10,008)   (174,080)  
Net premiums earned 266,971    6    1,487    268,464    252,857    4,526    6,776    264,159   
Net investment income —    —    12,037    12,037    —    —    9,058    9,058   
Net realized and unrealized investment gains (losses)
—    —    5,050    5,050    —    —    916    916   
Direct written policy fees 7,082    3    223    7,308    5,978    4,229    478    10,685   
Other income 10,632    18    2,465    13,115    10,560    1,084    3,189    14,833   
Total revenues 284,685    27    21,262    305,974    269,395    9,839    20,417    299,651   
 
 
 
 
 
 
 
 
 
Costs and expenses:
Losses and loss adjustment expenses 186,520    2,794    4,970    194,284    141,428    6,777    7,893    156,098   
Commissions and other underwriting expenses
73,272    51    2,327    75,650    83,284    5,021    3,162    91,467   
General and administrative expenses 14,320    150    2,866    17,336    13,361    275    2,709    16,345   
Interest expense —    —    8,860    8,860    100    —    3,039    3,139   
Total costs and expenses 274,112    2,995    19,023    296,130    238,173    12,073    16,803    267,049   
Income (loss) before income taxes 10,573    (2,968)   2,239    9,844    31,222    (2,234)   3,614    32,602   
Income tax expense (benefit) 2,592    (727)   75    1,940    7,911    (566)   1,242    8,587   
Net income (loss) 7,981    (2,241)   2,164    7,904    23,311    (1,668)   2,372    24,015   
Net income (loss) attributable to non-controlling interest
—    —    —    —    (218)   —    —    (218)  
Net income (loss) attributable to FNHC shareholders
$ 7,981    $ (2,241)   $ 2,164    $ 7,904    $ 23,529    $ (1,668)   $ 2,372    $ 24,233   
                 
Ratios to net premiums earned:
Net loss ratio 69.9  % NCM    NCM    72.4  % 55.9  % 149.7  % 116.5  % 59.1  %
Net expense ratio 32.8  % 34.6  % 38.3  % 40.8  %
Combined ratio 102.7  % 107.0  % 94.2  % 99.9  %

-44-

Revenue

Total revenue increased $6.3 million, or 2.1%, to $306.0 million for the nine months ended September 30, 2019, compared with $299.7 million for the nine months ended September 30, 2018. The increase was primarily driven by higher net premiums from Homeowners due to gross premiums growth and lower reinsurance spend offset by lower revenue from Automobile as we exit the business, all of which are discussed below.

Gross Premiums Written

The following table sets forth the gross premiums written for the periods presented:
໿
Nine Months Ended
September 30,
2019 2018
(In thousands)
Gross premiums written:    
Homeowners Florida $ 347,320    $ 355,818   
Homeowners non-Florida 100,322    59,096   
Automobile (1)   8,628   
Commercial general liability (121)   5,519   
Federal flood 13,014    11,090   
Total gross premiums written $ 460,534    $ 440,151   

Gross written premiums increased $20.3 million, or 4.6%, to $460.5 million for the nine months ended September 30, 2019, compared with $440.2 million for the nine months ended September 30, 2018. Gross premiums written increased primarily due to the growth in homeowners non-Florida, partially offset by the decline in the non-core businesses we are exiting, Automobile and commercial general liability, as well as a decline in homeowners Florida. Our homeowners non-Florida business continues to show exceptional growth year over year, especially in the state of Texas, which is allowing us to leverage our infrastructure and diversify insurance risk. Overall, Homeowners grew 7.9%.

Gross Premiums Earned

The following table sets forth the gross premiums earned for the periods presented:
Nine Months Ended
September 30,
2019 2018
(In thousands)
Gross premiums earned:    
Homeowners Florida $ 338,481    $ 356,507   
Homeowners non-Florida 73,928    47,072   
Automobile 26    17,876   
Commercial general liability 1,693    7,144   
Federal flood 11,005    9,640   
Total gross premiums earned $ 425,133    $ 438,239   

Gross premiums earned decreased $13.1 million, or 3.0%, to $425.1 million for the nine months ended September 30, 2019, as compared to $438.2 million for the nine months ended September 30, 2018. The results are a reflection of our decision to exit the Automobile and commercial general liability lines, partially offset by a 2.2% increase in earned premiums in Homeowners.


-45-

Ceded Premiums Earned

Ceded premiums decreased $17.4 million, or 10.0%, to $156.7 million for the nine months ended September 30, 2019, compared to $174.1 million for the nine months ended September 30, 2018. The decrease was primarily driven by lower excess of loss reinsurance spend in Homeowners and lower ceded premiums in Automobile as we have exited that line of business.

Net Investment Income

Net investment income increased $2.9 million, or 32.9%, to $12.0 million during the nine months ended September 30, 2019, compared to $9.1 million during the nine months ended September 30, 2018. The increase was due to fixed income portfolio growth and the improvement in the yield as a result of rising interest rates during 2018 and from portfolio repositioning.

Net Realized and Unrealized Investment Gains (Losses)

Net realized and unrealized investment gains (losses) were $5.1 million for the nine months ended September 30, 2019, compared to $0.9 million in the prior year period.  We recognized $3.0 million and $2.6 million in unrealized investment gains for equity securities during these respective periods.  Our current year net realized gains and prior year net realized losses are primarily associated with our portfolio managers, under our control, moving out of positions due to both macro and micro conditions, a typical practice each and every quarter. Our prior year net realized losses also resulted from our decision to liquidate certain bond positions, including positions related to tax-free municipal securities during the first quarter of 2018.

Direct Written Policy Fees

Direct written policy fees decreased by $3.4 million, or 31.6%, to $7.3 million for the nine months ended September 30, 2019, compared with $10.7 million during the nine months ended September 30, 2018. The decrease in direct written policy fees is correlated to lower number of policies in-force in Automobile due to our decision to exit this line, as discussed earlier.

Other Income

Other income included the following for the periods presented:

໿
Nine Months Ended
September 30,
2019 % Change 2018
(In thousands)
Other income:      
Commission income $ 2,466    (35.6) % $ 3,827   
Brokerage 9,408    1.4  % 9,274   
Financing and other revenue 1,241    (28.3) % 1,732   
Total other income $ 13,115    (11.6) % $ 14,833   

The decrease in other income was driven by lower commission income and financing revenue, partially offset by higher brokerage revenue. The year over year decreases in commission income were driven by lower Automobile fee income from the reduction in premiums earned and, to a lesser extent, lower fee income from other areas of the business.

-46-

Expenses

Losses and Loss Adjustment Expenses

Losses and LAE increased $38.2 million, or 24.5%, to $194.3 million for the nine months ended September 30, 2019, compared with $156.1 million for the same period last year. Homeowners losses increased $45.0 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, slightly offset by $6.0 million of decreases in Automobile and commercial general liability as we exit these lines, across the same period.
The net loss ratio increased 13.3 percentage points, to 72.4% in the first nine months of 2019, as compared to 59.1% in the first nine months of 2018. The higher ratio was primarily the result of $46.7 million of losses, net in 2019 from severe weather events in Florida and other states ($23.5 million of the 2019 losses relates to non-Florida, which is subject to a 50% profit-sharing agreement, as discussed earlier). Severe weather in 2018 amounted to $7.8 million. The remaining variance is the result of higher losses from higher gross premiums in 2019 as compared to 2018.

Commissions and Other Underwriting Expenses

The following table sets forth the commissions and other underwriting expenses for the periods presented:

Nine Months Ended
September 30,
2019 2018
(In thousands)
Commissions and other underwriting expenses:
Homeowners Florida $ 39,810    $ 42,796   
All others 17,796    14,488   
Ceding commissions (8,893)   (8,777)  
Total commissions and other fees 48,713    48,507   
Automobile 3    4,229   
Homeowners non-Florida 2,337    1,354   
Total fees 2,340    5,583   
Salaries and wages 9,090    11,282   
Other underwriting expenses 15,507    26,095   
Total commissions and other underwriting expenses $ 75,650    $ 91,467   

Commissions and other underwriting expenses decreased $15.8 million, or 17.3%, to $75.7 million for the nine months ended September 30, 2019, compared with $91.5 million for the nine months ended September 30, 2018. The decrease is the result of a significant reduction in other underwriting expenses as there was a benefit in the non-Florida profit share calculation in the nine months as a direct result of $23.5 million of non-Florida weather related losses (as previously discussed in the Losses and Loss Adjustment Expenses section), resulting in a $11.8 million reduction.

Additionally, the lower Automobile fees and lower homeowners Florida commissions are driven by the corresponding change in premiums earned across periods. The decline in salaries and wages is due in part to our continued focus on operational efficiencies. These items are partially offset by an increase in homeowners non-Florida commissions and fees as a result of higher premiums earned across periods.

The net expense ratio decreased 6.2 percentage points to 34.6% in the first nine months of 2019, as compared to 40.8% in the first nine months of 2018. The decrease in the ratio is attributable to the lower non-Florida profit share expense and other expense reductions as well as the lower reinsurance spend during the nine months driving higher net premiums earned. Refer to the discussion above for more information.

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General and Administrative Expenses

General and administrative expenses increased $1.0 million, or 6.1%, to $17.3 million for the nine months ended September 30, 2019, compared with $16.3 million in the prior year period. The increase was primarily the result of higher professional fees, including due diligence costs relating to the pending acquisition of Maison Companies, as previously discussed earlier.

Interest Expense

Interest expense increased $5.8 million to $8.9 million for the nine months ended September 30, 2019, compared with $3.1 million in the prior year period due to the $3.6 million of prepayment fees, including the write-off of remaining debt issuance costs, and an increase in the outstanding debt as a result of our first quarter 2019 borrowing. Refer to Note 3 and 8 of the notes to our Consolidated Financial Statements included herein, for information regarding new debt issued and debt retirement that occurred in March 2019.

Income Taxes

Income taxes decreased $6.7 million, to $1.9 million for the nine months ended September 30, 2019, compared with a tax expense of $8.6 million for the nine months ended September 30, 2018. The decrease in income tax expense is the result of lower income during the nine months ended September 30, 2019, compared to the corresponding period in 2018. Additionally, in 2019, we recognized a benefit of $0.4 million relating to an election to carry back capital losses and a benefit of $0.2 million relating to a reduction in the uncertain tax position reserve. Lastly, the State of Florida announced a reduction in its state income tax rate effective from January 1, 2019, as discussed earlier.


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LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of funds are gross written premiums, investment income, commission income and fee income.  Our primary uses of funds are the payment of claims, catastrophe and other reinsurance premiums and operating expenses.  As of September 30, 2019, the Company held $491.5 million in investments. Cash and cash equivalents increased $57.0 million, to $121.4 million as of September 30, 2019, compared with $64.4 million as of December 31, 2018, as discussed below, primarily due to the net proceeds of our March 2019 debt offering, after redemption of our legacy $45 million principal amount. Total shareholders’ equity increased $22.1 million, to $237.4 million as of September 30, 2019, compared with $215.3 million as of December 31, 2018 due primarily to unrealized gains on our bond portfolio and net income.

Historically, we have met our liquidity requirements primarily through cash generated from operations. On March 5, 2019, the Company closed on an offering of $100 million of Senior Unsecured Notes due 2029, which bear interest at the annual rate of 7.5%. The net proceeds of the offering were in part used to redeem all $45 million of the Company's Senior Unsecured Fixed Rate Notes due 2022 and the Company's Senior Notes due 2027. Additionally, the remaining cash from the offering will be used to purchase the Maison Companies and for other general corporate purposes, including potential repurchases of shares of our common stock and managing the capital needs of our subsidiaries. Refer to Notes 3 and 8 to the notes to the Consolidated Financial Statements included herein, for additional information regarding the 2029 Notes as well as the pending acquisition of the Maison Companies.

Among other things, the 2029 Notes contain customary covenants that limit the Company's ability to enter into certain operational and financial transactions, including, but not limited to incurring additional debt above certain thresholds. The Company's actual debt to capital ratio as of September 30, 2019 was approximately 29%.

Statutory Capital and Surplus of Our Insurance Subsidiaries

As described more fully in Part I, Item 1. Business, Regulation of our 2018 Form 10-K, the Company’s insurance operations are subject to the laws and regulations of the states in which we operate.  The Florida OIR and its regulatory counterparts in other states utilize the National Association of Insurance Commissions (“NAIC”) risk-based capital (“RBC”) requirements, and the resulting RBC ratio, as a key metric in the exercise of their regulatory oversight.  The RBC ratio is a measure of the sufficiency of an insurer’s statutory capital and surplus.  In addition, the RBC ratio is used by insurance industry ratings services in the determination of the financial strength ratings (i.e., claims paying ability) they assign to insurance companies.  As of September 30, 2019 and December 31, 2018, FNIC’s statutory surplus was $150.9 million and $161.7 million, respectively.  

Based on RBC requirements, the extent of regulatory intervention and action increases as the ratio of an insurer’s statutory surplus to its 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 and MNIC's ratios of statutory surplus to ACL were 329.9% and 774.4%, respectively, as of December 31, 2018.

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Cash Flows Discussion

We believe that existing cash and investment balances, when combined with anticipated cash flows and the proceeds of our debt offering as described above, will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future. We believe the combined balances will be sufficient to meet our ongoing operating requirements and anticipated cash needs, and satisfy the covenants in our senior notes. Future growth strategies may require additional external financing and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us on favorable terms, or at all, or that any such financing would not negatively impact our results of operations. We expect to continue declaring and paying dividends at comparable levels, subject to our future liquidity needs and reserve requirements.

Subject to our compliance with capital requirements as described above, we may consider various opportunities to deploy our capital, including repurchases of our common stock if such repurchases represent a more favorable use of available capital.

Operating Activities

Net cash provided by operating activities decreased to $26.4 million in the nine months ended September 30, 2019 compared to $28.3 million in the same period in 2018. This decrease reflects higher expenses paid, including those related to losses and loss adjustment expenses, partially offset by higher net premiums collected, in the first nine months of 2019 as compared to the corresponding period in 2018. 

Investing Activities

Net cash used in investing activities of $16.7 million in the nine months ended September 30, 2019 reflected purchases of debt and equity investment securities of $175.1 million, partly offset by sales, maturities and redemptions of our debt and equity investment securities of $160.0 million. Net cash used in investing activities of $15.2 million in the nine months ended September 30, 2018 reflected purchases of debt and equity investment securities of $262.5 million, partly offset by sales, maturities and redemptions of our debt and equity investment securities of $248.3 million.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2019 of $47.3 million primarily reflects issuance of long-term debt, net of issuance costs, of $98.4 million, partly offset by payment of long-term debt of $48.0 million. Net cash used in financing activities of $29.9 million for the nine months ended September 30, 2018 primarily reflects the purchase of non-controlling interest of $16.7 million, payment of long-term debt of $5.0 million, and repurchase of our common stock of $5.1 million.

Impact of Inflation and Changing Prices

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

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

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with GAAP, which requires us 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.

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

There have been no significant changes to our critical accounting estimates during the nine months ended September 30, 2019.  Refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our 2018 Form 10-K for a more complete description of our critical accounting estimates. 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

Our investment policy is established by the Board of Directors' Investment Committee and is reviewed on a regular basis. Pursuant to this investment policy, as of September 30, 2019, approximately 97% of investments were in debt securities and cash and cash equivalents, which are considered to be either held-until-maturity or available-for-sale, based upon our estimates of required liquidity. Approximately 99% of the debt securities are considered available-for-sale and are marked to market. We may in the future consider additional debt securities to be held-to-maturity securities, which are carried at amortized cost. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.

There have been no material changes to the Company’s exposures to market risks since December 31, 2018. Please refer to the 2018 Form 10-K for a complete discussion of the Company’s exposures to market risks.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, due to the control matter discussed below in “Changes in Internal Control over Financial Reporting”, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were not effective as of September 30, 2019.

Notwithstanding the identified material weakness, we believe the consolidated financial statements included in this Form 10-Q fairly represent in all material respects the financial condition, results of operations and cash flows of the Company for the periods presented.


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Changes in Internal Control over Financial Reporting

Recently, as part of a substantially completed investigation, the Company identified a control deficiency resulting primarily from inadequate managerial review by a subset of our claims team around processing of follow-on payments on closed claims of less than $30 thousand. In the course of investigating this matter, we identified fifteen inappropriate payments totaling approximately $0.3 million, which occurred between June and October 2019. As a result of our substantially completed investigation, we concluded that no other inappropriate payments occurred. A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. While this deficiency did not result in a material misstatement of the Company’s financial statements, the Company’s management, with the oversight of the Audit Committee of our Board of Directors, concluded that this deficiency rises to the level of a material weakness, as it had the potential to allow for a material dollar amount of inappropriate claim payments to be made without being detected.

To remediate the material weakness, we are strengthening the level and scope of managerial review of claim payment controls related primarily to follow-on payments on closed claims of less than $30 thousand as well as enhancing compensating controls around access and authority limits. Additionally, we are improving the segregation of responsibilities across the claim payment process, which will add additional layers of management review. The material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed by the end of fiscal year 2019.

Except as noted above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness

Our management and our audit committee do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control gaps and instances of fraud have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions.
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Part II: OTHER INFORMATION

Item 1.  Legal Proceedings

Refer to Note 10 to our Consolidated Financial Statements set forth in Part I, “Financial Statements” for information about legal proceedings.

Item 1A.  Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of the Company’s 2018 Form 10-K.  Please refer to that section for disclosures regarding what we believe are the most significant risks and uncertainties related to our business.

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

(c) Issuer Purchases of Equity Securities. The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended September 30, 2019 by or on behalf of FNHC:
໿
    Total Number of Approximate Dollar
Total Number Average Shares Purchased Value of Shares That
of Shares Price Paid as Part of Publicly May Yet Be Purchased
Repurchased Per Share Announced Plans
Under the Plans (1)
July 2019 —    $ —    —    $ 10,000,000   
August 2019 —    —    —    10,000,000   
September 2019 —    —    —    10,000,000   

໿
(1)In December 2018, the Company’s Board of Directors authorized an additional share repurchase program under which the Company may repurchase up to $10.0 million of its outstanding shares of common stock through December 31, 2019. As of September 30, 2019, the remaining availability for future repurchases of our common stock was $10.0 million. Any such purchases would be made in the open market in accordance with Rule 10b-18 or under Rule 10b5-1 of the Exchange Act.
໿


Item 3.  Defaults upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

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Item 6.  Exhibits
Exhibit No. Description
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
31.1
31.2
32.1
32.2
101.INS XBRL Instance Document*****
101.SCH XBRL Taxonomy Extension Schema Document*****
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*****
101.LAB XBRL Taxonomy Extension Label Linkbase Document*****
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*****
________________________
* Filed herewith. Certain identified information has been omitted from this exhibit in accordance with and as permitted by Item 601(b)(10)(iv) of Regulation S-K.
** Incorporated by reference to the comparable exhibit included in the Current Report on Form 8-K filed with the SEC on August 12, 2019.
*** Incorporated by reference to the comparable exhibit included in the Current Report on Form 8-K filed with the SEC on August 13, 2019.
**** Filed herewith.
***** In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES

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

  FEDNAT HOLDING COMPANY  
       
  By: /s/ Michael H. Braun  
    Michael H. Braun, Chief Executive Officer  
    (Principal Executive Officer)  
       
    /s/ Ronald Jordan  
    Ronald Jordan, Chief Financial Officer  
    (Principal Financial Officer)  

Date: November 12, 2019

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Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 19\F7V1099

 
Table of Contents Article Page 1 Classes of Business Reinsured 1 2 Commencement and Termination 1 3 Territory 2 4 Exclusions 3 5 Retention and Limit 4 6 Florida Hurricane Catastrophe Fund 5 7 Other Reinsurance 5 8 Reinstatement 6 9 Definitions 6 10 Loss Occurrence 8 11 Loss Notices and Settlements 10 12 Cash Call 10 13 Salvage and Subrogation 10 14 Reinsurance Premium 10 15 Sanctions 11 16 Late Payments 11 17 Offset 13 18 Severability of Interests and Obligations 13 19 Access to Records 14 20 Liability of the Reinsurer 14 21 Net Retained Lines (BRMA 32E) 14 22 Errors and Omissions (BRMA 14F) 14 23 Currency (BRMA 12A) 15 24 Taxes (BRMA 50B) 15 25 Federal Excise Tax (BRMA 17D) 15 26 Foreign Account Tax Compliance Act 15 27 Reserves 15 28 Insolvency 17 29 Arbitration 17 30 Service of Suit (BRMA 49C) 18 31 Severability (BRMA 72E) 19 32 Governing Law (BRMA 71B) 19 33 Confidentiality 19 34 Non-Waiver 20 35 Agency Agreement 20 36 Notices and Contract Execution 21 37 Intermediary 21 Schedule A 19\F7V1099

 
Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 entered into by and between FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana (hereinafter collectively referred to as the "Company" except to the extent individually referred to) and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations set forth herein and in Schedule A attached hereto. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2020. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 19\F7V1099 Page 1 [A]

 
2. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 3. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 4. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 5. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 6. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 7. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 8. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to 12:01 a.m., Eastern Standard Time, July 1, 2020. However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to the effective time and date of termination. D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article 3 - Territory The territorial limits of this Contract shall be identical with those of the Company's policies. 19\F7V1099 Page 2 [A]

 
Article 4 - Exclusions A. This Contract does not apply to and specifically excludes the following: 1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation. 2. Hail damage to growing or standing crops. 3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such. 4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such. 5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency. 6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability. 7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance. 8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy. 9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract. 10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract. 11. Loss or liability excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation. 12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. 19\F7V1099 Page 3 [A]

 
13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises. 14. Mold, unless resulting from a peril otherwise covered under the policy involved. 15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract. 16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved. "Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment. "Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature. However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril. Article 5 - Retention and Limit A. As respects FedNat Insurance Company, the Company shall retain and be liable for the first $20,000,000 of ultimate net loss arising out of each loss occurrence. As respects Monarch National Insurance Company, the Company shall retain and be liable for the first $2,000,000 of ultimate net loss arising out of each loss occurrence. As respects Maison Insurance Company, the Company shall retain and be liable for the first $5,000,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company's respective retention, but the liability of the Reinsurer under each excess layer shall not exceed a combined amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects any one loss occurrence. As respects FedNat Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $20,000,000 of ultimate net loss arising out of such loss occurrence. As respects Monarch National Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached 19\F7V1099 Page 4 [A]

 
hereto, the Company's retention will not exceed the first $2,000,000 of ultimate net loss arising out of such loss occurrence. As respects Maison Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $5,000,000 of ultimate net loss arising out of such loss occurrence. B. Recoveries shall always be made, in the first instance, under the lowest excess layer that is not entirely exhausted. If there is any amount of ultimate net loss arising out of a loss occurrence in excess of either of Company's respective retentions under the lowest excess layer that has not been recovered thereunder, such amount shall be recovered under the next or subsequent excess layer or layers, as appropriate. Recoveries under the First Excess layer shall inure to the benefit of the Second Excess layer. It is understood, however, that any fully exhausted excess layer or the exhausted portion of any excess layer shall no longer inure to the benefit of any subsequent excess layer(s). C. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes "one risk." Article 6 - Florida Hurricane Catastrophe Fund As respects FedNat Insurance Company and Monarch National Insurance Company, the Company has purchased 75.0% of the FHCF mandatory layer of coverage and shall be deemed to inure to the benefit of this Contract. As respects Maison Insurance Company, the Company has purchased 90.0% of the FHCF mandatory layer of coverage and shall be deemed to inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage. Article 7 - Other Reinsurance A. The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. B. Any loss reimbursement received under the Company's FHCF Supplement Layer Reinsurance Contract (19\F7V1085), which shall be deemed to be placed at 15.0%, shall be deemed to inure to the benefit of this Contract. 19\F7V1099 Page 5 [A]

 
Article 8 - Reinstatement A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by ultimate net loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon. For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following: 1. The percentage of the occurrence limit for the excess layer reinstated (based on the ultimate net loss paid by the Reinsurer under that excess layer); times 2. 85.0% of the finally adjusted earned reinsurance premium for the excess layer reinstated for the term of this Contract (exclusive of reinstatement premium). B. Whenever the Company requests payment by the Reinsurer of any ultimate net loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for any excess layer for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested ultimate net loss for that excess layer. Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company's statement. C. Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss under any excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following: 1. The amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one loss occurrence; or 2. The amount, shown as "Reinsurer's Term Limit" for that excess layer in Schedule A attached hereto, in all during the term of this Contract. Article 9 - Definitions A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions 19\F7V1099 Page 6 [A]

 
connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss adjustment expense as defined above does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses. B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean: 1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. 2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy. Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance. D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. 19\F7V1099 Page 7 [A]

 
Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. Article 10 - Loss Occurrence A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows: 1. As regards a named storm, all individual losses sustained by the Company occurring during any period (a) from and after 12:00 a.m. Eastern Standard Time on the date a watch, warning, advisory, or other bulletin (whether for wind, flood or otherwise) for such named storm is first issued by the National Hurricane Center ("NHC") or its successor or any other division of the National Weather Service ("NWS"), (b) continuing for a time period thereafter during which such named storm continues, regardless of its category rating or lack thereof and regardless of whether the watch, warning, or advisory or other bulletin remains in effect for such named storm and (c) ending 96 hours following the issuance of the last watch, warning or advisory or other bulletin for such named storm or related to such named storm by the NHC or its successor or any other division of the NWS. "Named storm" shall mean any storm or storm system that has been declared by the NHC or its successor or any other division of the NWS to be a named storm at any time, which may include, by way of example and not limitation, hurricane, wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, water damage, fire following, sprinkler leakage, riots, vandalism, and collapse, and all losses and perils (including, by way of example and not limitation, those mentioned previously in this sentence) in each case arising out of, caused by, occurring during, occasioned by or resulting from such storm or storm system, including by way of example and not limitation the merging of one or more separate storm(s) or storm system(s) into a combined storm surge event. However, the named storm need not be limited to one state or province or states or provinces contiguous thereto. 2. As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto. 3. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours within the area of one municipality or county and the 19\F7V1099 Page 8 [A]

 
municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period. 4. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's loss occurrence. 5. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's loss occurrence. 6. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence. B. For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident, or loss or series of disasters, accidents, or losses. Furthermore: 1. For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event. 2. As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 3. As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period. C. It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above. 19\F7V1099 Page 9 [A]

 
Article 11 - Loss Notices and Settlements A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's respective retention under any excess layer hereunder and/or appear likely to result in a claim under such excess layer, the Company shall notify the Subscribing Reinsurers under that excess layer and shall provide updates related to development of such losses. The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company. Article 12 - Cash Call Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss. Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer. Article 13 - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so. Article 14 - Reinsurance Premium A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months): 1. The amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto; times 19\F7V1099 Page 10 [A]

 
2. The percentage calculated by dividing (a) the actual in force premium determined by the Company's wind insurance in force on September 30, 2019, by (b) the original in force premium in the amount of $[***]. However, if the difference between the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and the premium calculated in accordance with this paragraph A for the excess layer decreases or is an increase of 10.0% or less, the premium due the Reinsurer shall equal the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto. If the difference between the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and the premium calculated in accordance with this paragraph A for the excess layer is greater than a 10.0% increase, the Company shall remit to the Reinsurer an additional amount equal to the difference between the adjusted premium for that excess layer and 110% of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto. B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as "Deposit Premium Installment" for that excess layer in Schedule A attached hereto, on July 1 and October 1 of 2019, and on January 1 and April 1 of 2020. C. On or before June 30, 2020, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly. Article 15 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. Article 16 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. 19\F7V1099 Page 11 [A]

 
B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects a "cash call" made in accordance with the Cash Call Article, payment shall be deemed due 10 days after the demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest shall accrue on the payment or amount overdue in accordance with paragraph B above, from the date the demand for payment was transmitted to the Reinsurer. 4. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1, 2, and 3 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, 19\F7V1099 Page 12 [A]

 
or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article 17 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. Article 18 - Severability of Interests and Obligations The rights, duties and obligations set forth below shall apply as if this Contract were a separate contract between the Subscribing Reinsurers and each named reinsured company: A. Balances payable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances recoverable to, or from, any other reinsured party to the Contract and balances payable shall be separated by named reinsured company and paid directly to the appropriate named reinsured company’s bank account. B. Balances recoverable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances payable to, or from, any other reinsured party to the Contract. C. Reports and remittances made to the Reinsurer in accordance with the applicable articles of the Contract are to be in sufficient detail to identify both the Reinsurer's loss obligations due to each named reinsured company and each named reinsured company's premium remittance under the report. D. In the event of the insolvency of any of the parties to the Contract, offset shall be only allowed in accordance with the laws of the insolvent party's state of domicile. E. Nothing in this Article shall be construed to provide a separate retention, Reinsurer's limit of liability any one loss occurrence or Reinsurer's annual limit of liability for each named reinsured company. 19\F7V1099 Page 13 [A]

 
Article 19 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. Article 20 - Liability of the Reinsurer A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract. Article 21 - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article 22 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. 19\F7V1099 Page 14 [A]

 
Article 23 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article 24 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. Article 25 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article 26 - Foreign Account Tax Compliance Act A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the premium payable under this Contract. B. In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article. In the event the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts. Article 27 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be 19\F7V1099 Page 15 [A]

 
unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 19\F7V1099 Page 16 [A]

 
5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 28 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Article 29 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One 19\F7V1099 Page 17 [A]

 
Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 30 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a 19\F7V1099 Page 18 [A]

 
United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 31 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. Article 32 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. Article 33 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article 19\F7V1099 Page 19 [A]

 
or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. Article 34 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 35 - Agency Agreement If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract. 19\F7V1099 Page 20 [A]

 
Article 36 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 37 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company. 19\F7V1099 Page 21 [A]

 
In Witness Whereof, the Company by its duly authorized representatives has executed this Contract as of the dates specified below: This _______9________ day of __October____________________ in the year _2019_______. FedNat Insurance Company /s/ Michael Braun_____________________________________________________ This _______9________ day of __October____________________ in the year _2019_______. Monarch National Insurance Company /s/ Michael Braun_____________________________________________________ This _______9________ day of __October____________________ in the year _2019_______. Maison Insurance Company /s/ Doug Raucy_______________________________________________________ 19\F7V1099 Page 22 [A]

 
Schedule A Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana First Second Excess Excess Reinsurer's Per Occurrence Limit $75,000,000 $160,000,000 Reinsurer's Term Limit $150,000,000 $320,000,000 Annual Deposit Premium [***] [***] Deposit Premium Installments [***] [***] The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto. 19\F7V1099 Schedule A

 
War Exclusion Clause As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. 19\F7V1099

 
Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.) 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate (a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. 6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. 12/12/57 N.M.A. 1119 BRMA 35B 19\F7V1099

 
Pools, Associations and Syndicates Exclusion Clause (Catastrophe) It is hereby understood and agreed that: A. This Contract excludes loss or liability arising from: 1. Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities. This subparagraph 1 shall not apply with respect to: a. Residual market mechanisms created by statute. This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract). For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism." b. Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation. 2. Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks. This subparagraph 2 shall not apply: a. If the total insured value over all interests of the risk is less than $250,000,000. b. To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis. c. To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000. B. With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions: 1. Recovery is limited to perils otherwise protected hereunder. 2. In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct 19\F7V1099 Page 1 of 2

 
assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence. 3. The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence. 4. The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence. 5. The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder. 6. The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment. 7. If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment. 8/1/2012 19\F7V1099 Page 2 of 2

 
Terrorism Exclusion (Property Treaty Reinsurance) Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 1. Involves violence against one or more persons, or 2. Involves damage to property; or 3. Endangers life other than the person committing the action; or 4. Creates a risk to health or safety of the public or a section of the public; or 5. Is designed to interfere with or disrupt an electronic system. This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism. Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination. 19\F7V1099

 
The Interests and Liabilities Agreements, constituting 2 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 19\F7V1099

 
Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 19\F7V1054

 
Table of Contents Article Page 1 Classes of Business Reinsured 1 2 Commencement and Termination 1 3 Territory 3 4 Exclusions 3 5 Retention and Limit 4 6 Florida Hurricane Catastrophe Fund 6 7 Other Reinsurance 6 8 Reinstatement 6 9 Definitions 7 10 Loss Occurrence 8 11 Loss Notices and Settlements 10 12 Cash Call 10 13 Salvage and Subrogation 11 14 Reinsurance Premium 11 15 Sanctions 12 16 Late Payments 12 17 Offset 14 18 Severability of Interests and Obligations 14 19 Access to Records 14 20 Liability of the Reinsurer 14 21 Net Retained Lines (BRMA 32E) 15 22 Errors and Omissions (BRMA 14F) 15 23 Currency (BRMA 12A) 15 24 Taxes (BRMA 50B) 15 25 Federal Excise Tax (BRMA 17D) 16 26 Foreign Account Tax Compliance Act 16 27 Reserves 16 28 Insolvency 17 29 Arbitration 18 30 Service of Suit (BRMA 49C) 19 31 Severability (BRMA 72E) 19 32 Governing Law (BRMA 71B) 20 33 Confidentiality 20 34 Non-Waiver 21 35 Agency Agreement (BRMA 73A) 21 36 Notices and Contract Execution 21 37 Intermediary 22 Schedule A 19\F7V1054

 
Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 entered into by and between FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana (hereinafter collectively referred to as the "Company" except to the extent individually referred to) and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations set forth herein and in Schedule A attached hereto. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2020. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or 19\F7V1054 Page 1

 
2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or 3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 4. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to 12:01 a.m., Eastern Standard Time, July 1, 2020. However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to the effective time and date of termination. D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the 19\F7V1054 Page 2

 
termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article 3 - Territory The territorial limits of this Contract shall be identical with those of the Company's policies. Article 4 - Exclusions A. This Contract does not apply to and specifically excludes the following: 1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation. 2. Hail damage to growing or standing crops. 3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such. 4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such. 5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency. 6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability. 7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance. 8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy. 9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract. 10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract. 11. Loss or liability excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation. 19\F7V1054 Page 3

 
12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. 13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises. 14. Mold, unless resulting from a peril otherwise covered under the policy involved. 15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract. 16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved. "Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment. "Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature. However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril. Article 5 - Retention and Limit A. As respects FedNat Insurance Company, the Company shall retain and be liable for the first $20,000,000 of ultimate net loss arising out of each loss occurrence. As respects Monarch National Insurance Company, the Company shall retain and be liable for the first $2,000,000 of ultimate net loss arising out of each loss occurrence. As respects Maison Insurance Company, the Company shall retain and be liable for the first $5,000,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company's respective retention, but the liability of the Reinsurer under each excess layer 19\F7V1054 Page 4

 
shall not exceed a combined amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects any one loss occurrence. As respects FedNat Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $20,000,000 of ultimate net loss arising out of such loss occurrence. As respects Monarch National Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $2,000,000 of ultimate net loss arising out of such loss occurrence. As respects Maison Insurance Company, whether a loss occurrence results in an ultimate net loss under one or more of the excess layers set forth in Schedule A attached hereto, the Company's retention will not exceed the first $5,000,000 of ultimate net loss arising out of such loss occurrence. B. Recoveries shall always be made, in the first instance, under the lowest excess layer that is not entirely exhausted. If there is any amount of ultimate net loss arising out of a loss occurrence in excess of the Company's respective retentions under the lowest excess layer that has not been recovered thereunder, such amount shall be recovered under the next or subsequent excess layer or layers, as appropriate. Recoveries under each excess layer set forth in Schedule A attached to and forming part of this Contract shall inure as follows: 1. Recoveries under the First Excess layer shall inure to the benefit of the Second Excess layer; 2. Recoveries under the First and Second Excess layers shall inure to the benefit of the Third Excess layer; 3. Recoveries under the First, Second and Third Excess layers shall inure to the benefit of the Fourth Excess layer; and 4. Recoveries under the First, Second, Third and Fourth Excess layers shall inure to the benefit of the Fifth Excess layer. It is understood, however, that any fully exhausted excess layer or the exhausted portion of any excess layer shall no longer inure to the benefit of any subsequent excess layer(s). C. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes "one risk." 19\F7V1054 Page 5

 
Article 6 - Florida Hurricane Catastrophe Fund As respects FedNat Insurance Company and Monarch National Insurance Company, the Company has purchased 75.0% of the FHCF mandatory layer of coverage and shall be deemed to inure to the benefit of this Contract. As respects Maison Insurance Company, the Company has purchased 90.0% of the FHCF mandatory layer of coverage and shall be deemed to inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage. Article 7 - Other Reinsurance A. The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. B. Any loss reimbursement received under the Company's FHCF Supplement Layer Reinsurance Contract (19\F7V1085), which shall be deemed to be placed at 15.0%, shall be deemed to inure to the benefit of this Contract. Article 8 - Reinstatement A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by ultimate net loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon. For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following: 1. The percentage of the occurrence limit for the excess layer reinstated (based on the ultimate net loss paid by the Reinsurer under that excess layer); times 2. The earned reinsurance premium for the excess layer reinstated for the term of this Contract (exclusive of reinstatement premium). B. Whenever the Company requests payment by the Reinsurer of any ultimate net loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for any excess layer for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested ultimate net loss for that excess layer. Any return reinstatement premium shown 19\F7V1054 Page 6

 
to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company's statement. C. Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss under any excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following: 1. The amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one loss occurrence; or 2. The amount, shown as "Reinsurer's Term Limit" for that excess layer in Schedule A attached hereto, in all during the term of this Contract. Article 9 - Definitions A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss adjustment expense as defined above does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses. B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean: 1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. 2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but 19\F7V1054 Page 7

 
not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy. Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance. D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. Article 10 - Loss Occurrence A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows: 1. As regards a named storm, all individual losses sustained by the Company occurring during any period (a) from and after 12:00 a.m. Eastern Standard Time on the date a watch, warning, advisory, or other bulletin (whether for wind, flood or otherwise) for such named storm is first issued by the National Hurricane Center ("NHC") or its successor or any other division of the National Weather Service ("NWS"), (b) continuing for a time period thereafter during which such named storm continues, regardless of its category rating or lack thereof and regardless of whether the watch, warning, or advisory or other bulletin remains in effect for such named storm and (c) ending 96 hours following the issuance of the last watch, warning or advisory or other bulletin for such named storm or related to such named storm by the NHC or its successor or any other division of the NWS. "Named storm" shall mean any storm or 19\F7V1054 Page 8

 
storm system that has been declared by the NHC or its successor or any other division of the NWS to be a named storm at any time, which may include, by way of example and not limitation, hurricane, wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, water damage, fire following, sprinkler leakage, riots, vandalism, and collapse, and all losses and perils (including, by way of example and not limitation, those mentioned previously in this sentence) in each case arising out of, caused by, occurring during, occasioned by or resulting from such storm or storm system, including by way of example and not limitation the merging of one or more separate storm(s) or storm system(s) into a combined storm surge event. However, the named storm need not be limited to one state or province or states or provinces contiguous thereto. 2. As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto. 3. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period. 4. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's loss occurrence. 5. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's loss occurrence. 6. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence. B. For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by 19\F7V1054 Page 9

 
the Company arising out of that disaster, accident, or loss or series of disasters, accidents, or losses. Furthermore: 1. For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event. 2. As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 3. As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period. C. It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above. Article 11 - Loss Notices and Settlements A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's respective retention under any excess layer hereunder and/or appear likely to result in a claim under such excess layer, the Company shall notify the Subscribing Reinsurers under that excess layer and shall provide updates related to development of such losses. The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company. Article 12 - Cash Call Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss. Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer. 19\F7V1054 Page 10

 
Article 13 - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so. Article 14 - Reinsurance Premium A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months), subject to a minimum premium of the amount, shown as "Minimum Premium" for that excess layer in Schedule A attached hereto (or a pro rata portion thereof in the event the term of this Contract is less than 12 months): 1. The amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto; times 2. The percentage calculated by dividing (a) the actual Average Annual Loss ("AAL") determined by the Company's wind insurance in force on September 30, 2019, by (b) the original AAL of the amount, shown as "AAL" for that excess layer in Schedule A attached hereto. The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) Touchstone v5.1 and Risk Management Solutions (RMS) RiskLink v17 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge. It is understood that the calculation of the actual AAL shall be based on the amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, net of (1) the FHCF mandatory layer of coverage purchased by FedNat Insurance Company using the current estimates of the mandatory FHCF coverage of 75.0% of $721,000,000 excess of $256,900,000, (2) the FHCF mandatory layer of coverage purchased by Monarch National Insurance Company using the current estimates of the mandatory FHCF coverage of 75.0% of $23,100,000 excess of $8,300,000, (3) the FHCF mandatory layer of coverage purchased by Maison Insurance Company using the current estimates of the mandatory FHCF coverage of 90.0% of $67,200,000 excess of $23,900,000, and of (4) the Company's FHCF Supplement Layer Reinsurance Contract (19\F7V1085), which shall be deemed to be placed at 15.0%. 19\F7V1054 Page 11

 
B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as "Deposit Premium Installment" for that excess layer in Schedule A attached hereto, on July 1 and October 1 of 2019, and on January 1 and April 1 of 2020. However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination. C. On or before June 30, 2020, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly. Article 15 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. Article 16 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. 19\F7V1054 Page 12

 
C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects a "cash call" made in accordance with the Cash Call Article, payment shall be deemed due 10 days after the demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest shall accrue on the payment or amount overdue in accordance with paragraph B above, from the date the demand for payment was transmitted to the Reinsurer. 4. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1, 2, and 3 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. 19\F7V1054 Page 13

 
Article 17 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. Article 18 - Severability of Interests and Obligations The rights, duties and obligations set forth below shall apply as if this Contract were a separate contract between the Subscribing Reinsurers and each named reinsured company: A. Balances payable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances recoverable to, or from, any other reinsured party to the Contract and balances payable shall be separated by named reinsured company and paid directly to the appropriate named reinsured company’s bank account. B. Balances recoverable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances payable to, or from, any other reinsured party to the Contract. C. Reports and remittances made to the Reinsurer in accordance with the applicable articles of the Contract are to be in sufficient detail to identify both the Reinsurer's loss obligations due to each named reinsured company and each named reinsured company's premium remittance under the report. D. In the event of the insolvency of any of the parties to the Contract, offset shall be only allowed in accordance with the laws of the insolvent party's state of domicile. E. Nothing in this Article shall be construed to provide a separate retention, Reinsurer's limit of liability any one loss occurrence or Reinsurer's annual limit of liability for each named reinsured company. Article 19 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. Article 20 - Liability of the Reinsurer A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications 19\F7V1054 Page 14

 
of the Company's policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract. Article 21 - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article 22 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article 23 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article 24 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. 19\F7V1054 Page 15

 
Article 25 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article 26 - Foreign Account Tax Compliance Act A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the premium payable under this Contract. B. In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article. In the event the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts. Article 27 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 19\F7V1054 Page 16

 
2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 28 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the 19\F7V1054 Page 17

 
Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Article 29 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. 19\F7V1054 Page 18

 
C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 30 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 31 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. 19\F7V1054 Page 19

 
Article 32 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. Article 33 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. 19\F7V1054 Page 20

 
F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. Article 34 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 35 - Agency Agreement (BRMA 73A) If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. Article 36 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. 19\F7V1054 Page 21

 
C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 37 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company. In Witness Whereof, the Company by its duly authorized representatives has executed this Contract as of the dates specified below: This ___10___________ day of ____September_______________ in the year _2019_______. FedNat Insurance Company /s/ Michael Braun_____________________________________________________ This ___10___________ day of ____September_______________ in the year _2019_______. Monarch National Insurance Company /s/ Michael Braun_____________________________________________________ This ___10___________ day of ____September_______________ in the year _2019_______. Maison Insurance Company /s/ Doug Raucy_______________________________________________________ 19\F7V1054 Page 22

 
Schedule A Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana First Second Third Fourth Fifth Excess Excess Excess Excess Excess Reinsurer's Per Occurrence Limit $75,000,000 $160,000,000 $75,000,000 $117,500,000 $121,000,000 Reinsurer's Term Limit $150,000,000 $320,000,000 $150,000,000 $235,000,000 $242,000,000 Minimum Premium [***] [***] [***] [***] [***] AAL [***] [***] [***] [***] [***] Annual Deposit Premium [***] [***] [***] [***] [***] Deposit Premium Installments [***] [***] [***] [***] [***] The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto. 19\F7V1054 Schedule A

 
War Exclusion Clause As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. 19\F7V1054

 
Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.) 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate (a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. 6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. 12/12/57 N.M.A. 1119 BRMA 35B 19\F7V1054

 
Pools, Associations and Syndicates Exclusion Clause (Catastrophe) It is hereby understood and agreed that: A. This Contract excludes loss or liability arising from: 1. Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities. This subparagraph 1 shall not apply with respect to: a. Residual market mechanisms created by statute. This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract). For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism." b. Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation. 2. Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks. This subparagraph 2 shall not apply: a. If the total insured value over all interests of the risk is less than $250,000,000. b. To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis. c. To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000. B. With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions: 1. Recovery is limited to perils otherwise protected hereunder. 2. In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct 19\F7V1054 Page 1 of 2

 
assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence. 3. The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence. 4. The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence. 5. The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder. 6. The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment. 7. If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment. 8/1/2012 19\F7V1054 Page 2 of 2

 
Terrorism Exclusion (Property Treaty Reinsurance) Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 1. Involves violence against one or more persons, or 2. Involves damage to property; or 3. Endangers life other than the person committing the action; or 4. Creates a risk to health or safety of the public or a section of the public; or 5. Is designed to interfere with or disrupt an electronic system. This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism. Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination. 18\F7V1054

 
The Interests and Liabilities Agreements, constituting 79 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 19\F7V1054

 
Second and Third Event Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 19\F7V1101

 
Table of Contents Article Page 1 Classes of Business Reinsured 1 2 Commencement and Termination 1 3 Territory 3 4 Exclusions 3 5 Retention and Limit 4 6 Florida Hurricane Catastrophe Fund 5 7 Other Reinsurance 5 8 Definitions 5 9 Loss Occurrence 6 10 Loss Notices and Settlements 8 11 Cash Call 9 12 Salvage and Subrogation 9 13 Reinsurance Premium 9 14 Sanctions 9 15 Late Payments 10 16 Offset 11 17 Severability of Interests and Obligations 11 18 Access to Records 12 19 Liability of the Reinsurer 12 20 Net Retained Lines (BRMA 32E) 12 21 Errors and Omissions (BRMA 14F) 12 22 Currency (BRMA 12A) 13 23 Taxes (BRMA 50B) 13 24 Federal Excise Tax (BRMA 17D) 13 25 Foreign Account Tax Compliance Act 13 26 Reserves 14 27 Insolvency 15 28 Arbitration 16 29 Service of Suit (BRMA 49C) 16 30 Severability (BRMA 72E) 17 31 Governing Law (BRMA 71B) 17 32 Confidentiality 17 33 Non-Waiver 18 34 Agency Agreement (BRMA 73A) 18 35 Notices and Contract Execution 19 36 Intermediary 19 19\F7V1101

 
Second and Third Event Excess Catastrophe Reinsurance Contract Effective: July 1, 2019 entered into by and between FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida (hereinafter collectively referred to as the "Company" except to the extent individually referred to) and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations set forth herein. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2020. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or 2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this 19\F7V1101 Page 1

 
Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or 3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 4. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to 12:01 a.m., Eastern Standard Time, July 1, 2020. However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to the effective time and date of termination. D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. 19\F7V1101 Page 2

 
Article 3 - Territory The territorial limits of this Contract shall be identical with those of the Company's policies, but is limited to risks located within the State of Florida. Article 4 - Exclusions A. This Contract does not apply to and specifically excludes the following: 1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation. 2. Hail damage to growing or standing crops. 3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such. 4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such. 5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency. 6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability. 7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance. 8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy. 9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract. 10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract. 11. Loss or liability excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation. 12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, 19\F7V1101 Page 3

 
pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. 13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises. 14. Mold, unless resulting from a peril otherwise covered under the policy involved. 15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract. 16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved. "Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment. "Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature. However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril. Article 5 - Retention and Limit A. The Company shall retain and be liable for the first $10,000,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention (subject to the provisions of paragraph B below), but the liability of the Reinsurer shall not exceed $12,000,000 of ultimate net loss, as respects any one loss occurrence, nor shall it exceed $24,000,000, in all during the term of this Contract. B. Notwithstanding the provisions of paragraph A above, no claim shall be made hereunder unless and until the Company's subject excess ultimate net loss arising out of loss occurrences commencing during the term of this Contract exceeds $12,000,000 in the aggregate. "Subject excess ultimate net loss" as used herein shall mean the amount, if any, by which the Company's ultimate net loss arising out of any one loss occurrence 19\F7V1101 Page 4

 
exceeds $10,000,000, but said amount shall not exceed $12,000,000 in excess of $10,000,000 as respects any one loss occurrence. C. Notwithstanding the provisions above, no claim shall be made as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes "one risk." Article 6 - Florida Hurricane Catastrophe Fund As respects FedNat Insurance Company and Monarch National Insurance Company, the Company has purchased 75.0% of the FHCF mandatory layer of coverage and shall be deemed to inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage. Article 7 - Other Reinsurance A. The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. B. Any loss reimbursement received under the Company's FHCF Supplement Layer Reinsurance Contract (19\F7V1085), which shall be deemed to be placed at 15.0%, shall be deemed to inure to the benefit of this Contract. Article 8 - Definitions A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss adjustment expense as defined above does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses. 19\F7V1101 Page 5

 
B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean: 1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. 2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy. Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance. D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. Article 9 - Loss Occurrence A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of 19\F7V1101 Page 6

 
Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows: 1. As regards a named storm, all individual losses sustained by the Company occurring during any period (a) from and after 12:00 a.m. Eastern Standard Time on the date a watch, warning, advisory, or other bulletin (whether for wind, flood or otherwise) for such named storm is first issued by the National Hurricane Center ("NHC") or its successor or any other division of the National Weather Service ("NWS"), (b) continuing for a time period thereafter during which such named storm continues, regardless of its category rating or lack thereof and regardless of whether the watch, warning, or advisory or other bulletin remains in effect for such named storm and (c) ending 96 hours following the issuance of the last watch, warning or advisory or other bulletin for such named storm or related to such named storm by the NHC or its successor or any other division of the NWS. "Named storm" shall mean any storm or storm system that has been declared by the NHC or its successor or any other division of the NWS to be a named storm at any time, which may include, by way of example and not limitation, hurricane, wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, water damage, fire following, sprinkler leakage, riots, vandalism, and collapse, and all losses and perils (including, by way of example and not limitation, those mentioned previously in this sentence) in each case arising out of, caused by, occurring during, occasioned by or resulting from such storm or storm system, including by way of example and not limitation the merging of one or more separate storm(s) or storm system(s) into a combined storm surge event. However, the named storm need not be limited to one state or province or states or provinces contiguous thereto. 2. As regards storm or storm systems that are not a named storm, including, by way of example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain, tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots, vandalism, collapse and water damage, all individual losses sustained by the Company occurring during any period of 144 consecutive hours arising out of, caused by, occurring during, occasioned by or resulting from the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto. 3. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period. 4. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph) and fire following directly occasioned by the earthquake, only those individual fire losses which 19\F7V1101 Page 7

 
commence during the period of 168 consecutive hours may be included in the Company's loss occurrence. 5. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's loss occurrence. 6. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 3 and 4 above), all individual losses sustained by the Company which commence during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company's loss occurrence. B. For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident, or loss or series of disasters, accidents, or losses. Furthermore: 1. For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and A.3. above, only one such period of 168 consecutive hours shall apply with respect to one event. 2. As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only one such period of consecutive hours (as set forth therein) shall apply with respect to one event, regardless of the duration of the event. 3. As regards those loss occurrences referred to in subparagraph A.3. above, if the disaster, accident, or loss or series of disasters, accidents, or losses occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident, or loss or series of disasters, accidents, or losses into two or more loss occurrences, provided that no two periods overlap and no individual loss is included in more than one such period. C. It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than 168 consecutive hours, except as regards those loss occurrences referred to in subparagraphs A.1., A.4. and A.6. above. Article 10 - Loss Notices and Settlements A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's respective retention hereunder and/or appear likely to result in a claim, the Company shall notify the Subscribing Reinsurers and shall provide updates related to development of such losses. The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. 19\F7V1101 Page 8

 
B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company. Article 11 - Cash Call Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss. Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer. Article 12 - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so. Article 13 - Reinsurance Premium As premium for the reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a reinsurance premium of $[***], in four equal installments of $[***] on July 1 and October 1 of 2019, and on January 1 and April 1 of 2020. However, in the event this Contract is terminated, there shall be no premium installments due after the effective date of termination, and the Reinsurer shall immediately return the unearned portion of any premium paid hereunder. Article 14 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. 19\F7V1101 Page 9

 
Article 15 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects a "cash call" made in accordance with the Cash Call Article, payment shall be deemed due 10 days after the demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest shall accrue on the payment or amount overdue in accordance with paragraph B above, from the date the demand for payment was transmitted to the Reinsurer. 4. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1, 2, and 3 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. 19\F7V1101 Page 10

 
For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article 16 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. Article 17 - Severability of Interests and Obligations The rights, duties and obligations set forth below shall apply as if this Contract were a separate contract between the Subscribing Reinsurers and each named reinsured company: A. Balances payable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances recoverable to, or from, any other reinsured party to the Contract and balances payable shall be separated by named reinsured company and paid directly to the appropriate named reinsured company's bank account. B. Balances recoverable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances payable to, or from, any other reinsured party to the Contract. C. Reports and remittances made to the Reinsurer in accordance with the applicable articles of the Contract are to be in sufficient detail to identify both the Reinsurer's loss obligations due to each named reinsured company and each named reinsured company's premium remittance under the report. D. In the event of the insolvency of any of the parties to the Contract, offset shall be only allowed in accordance with the laws of the insolvent party's state of domicile. 19\F7V1101 Page 11

 
E. Nothing in this Article shall be construed to provide a separate retention, Reinsurer's limit of liability any one loss occurrence or Reinsurer's annual limit of liability for each named reinsured company. Article 18 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. Article 19 - Liability of the Reinsurer A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract. Article 20 - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article 21 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such 19\F7V1101 Page 12

 
delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article 22 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article 23 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. Article 24 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article 25 - Foreign Account Tax Compliance Act A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the premium payable under this Contract. B. In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article. In the event the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts. 19\F7V1101 Page 13

 
Article 26 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 19\F7V1101 Page 14

 
4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 27 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. 19\F7V1101 Page 15

 
Article 28 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 29 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) 19\F7V1101 Page 16

 
A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 30 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. Article 31 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. Article 32 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial 19\F7V1101 Page 17

 
condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. Article 33 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 34 - Agency Agreement (BRMA 73A) If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending 19\F7V1101 Page 18

 
or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. Article 35 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 36 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company. 19\F7V1101 Page 19

 
In Witness Whereof, the Company by its duly authorized representatives has executed this Contract as of the dates specified below: This _10_____________ day of _September__________________ in the year _2019_______. FedNat Insurance Company /s/ Michael Braun_______________________________________________________ This _10_____________ day of _September__________________ in the year _2019_______. Monarch National Insurance Company /s/ Michael Braun_______________________________________________________ 19\F7V1101 Page 20

 
War Exclusion Clause As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. 19\F7V1101

 
Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.) 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate (a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. 6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. 12/12/57 N.M.A. 1119 BRMA 35B 19\F7V1101

 
Pools, Associations and Syndicates Exclusion Clause (Catastrophe) It is hereby understood and agreed that: A. This Contract excludes loss or liability arising from: 1. Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities. This subparagraph 1 shall not apply with respect to: a. Residual market mechanisms created by statute. This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract). For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism." b. Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation. 2. Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks. This subparagraph 2 shall not apply: a. If the total insured value over all interests of the risk is less than $250,000,000. b. To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis. c. To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000. B. With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions: 1. Recovery is limited to perils otherwise protected hereunder. 2. In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct 19\F7V1101 Page 1 of 2

 
assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence. 3. The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence. 4. The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence. 5. The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder. 6. The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment. 7. If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment. 8/1/2012 19\F7V1101 Page 2 of 2

 
Terrorism Exclusion (Property Treaty Reinsurance) Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 1. Involves violence against one or more persons, or 2. Involves damage to property; or 3. Endangers life other than the person committing the action; or 4. Creates a risk to health or safety of the public or a section of the public; or 5. Is designed to interfere with or disrupt an electronic system. This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism. Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination. 19\F7V1101

 
The Interests and Liabilities Agreements, constituting 6 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 19\F7V1101

 
NET QUOTA SHARE REINSURANCE AGREEMENT NO. POR1238172 EFFECTIVE: JULY 1, 2019 between FEDNAT INSURANCE COMPANY Sunrise, Florida and SWISS REINSURANCE AMERICA CORPORATION Armonk, New York _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. EFFECTIVE: JULY 1, 2019 P19-0086 7/25/2019 2:47 PM.v3

 
NET QUOTA SHARE REINSURANCE AGREEMENT NO. POR1238172 ARTICLE CONTENTS PAGE PREAMBLE 1 I BUSINESS COVERED 1 II EFFECTIVE DATE AND TERMINATION 3 III TERRITORY 4 IV RETENTION 4 V DEFINITIONS 4 VI EXCLUSIONS 8 VII SPECIAL ACCEPTANCE 11 VIII INTERNATIONAL TRADE CONTROLS AND ECONOMIC SANCTIONS 11 IX REINSURANCE PREMIUM 11 X SLIDING SCALE COMMISSION 12 XI LOSSES, LOSS ADJUSTMENT EXPENSES AND SALVAGES 13 XII REPORTS AND REMITTANCES 14 XIII ACCESS TO RECORDS 17 XIV TAXES 17 XV OFFSET 18 XVI DISPUTE RESOLUTION 18 XVII INSOLVENCY 19 XVIII AMENDMENTS 20 SIGNATURES 21 ATTACHMENTS: INSOLVENCY FUNDS EXCLUSION CLAUSE POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE POLLUTION AND SEEPAGE EXCLUSION CLAUSE NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A. NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4 POLLUTION LIABILITY EXCLUSION CLAUSE - REINSURANCE NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A. TERRORISM EXCLUSION CLAUSE (USA) – REINSURANCE (PROPERTY) TERRORISM EXCLUSION CLAUSE (USA) – REINSURANCE (CASUALTY) EFFECTIVE: JULY 1, 2019 P19-0086 7/25/2019 2:47 PM.v3

 
NET QUOTA SHARE REINSURANCE AGREEMENT NO. POR1238172 (hereinafter referred to as the "Agreement") between FEDNAT INSURANCE COMPANY Sunrise, Florida (hereinafter referred to as the "Company") and SWISS REINSURANCE AMERICA CORPORATION Armonk, New York (hereinafter referred to as the "Reinsurer") ARTICLE I - BUSINESS COVERED A. By this Agreement the Company obligates itself to cede to the Reinsurer and the Reinsurer obligates itself to accept from the Company a 10% Quota Share participation of the Company's Ultimate Net Liability for Policies in force as of July 1, 2019, and new and renewal Policies becoming effective on or after said date as respects losses occurring on or after July 1, 2019, subject to Paragraph B. This Quota Share is subject to the maximum cession limits set forth below: 1. Property Business $[***] each risk (10% share of the Company's Ultimate Net Liability of $[***]), but in no event shall the Reinsurer's liability from all risks in any one Loss Occurrence exceed $[***] (10% of $[***]) during the term of this Agreement. Notwithstanding the limits stated above, the Reinsurer's liability shall not exceed $[***] (10% of $[***]) as respects all Loss Occurrences taking place during the term of this Agreement. 2. Casualty Business $[***] each Policy each Loss Occurrence (10% share of the Company's Ultimate Net Liability of $[***].) B. The cession percentage set forth in Paragraph A. of this Article may be adjusted up to three times during the Agreement Year, subject to the following: EFFECTIVE: JULY 1, 2019 1. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
1. The Company has provided the Reinsurer no less than 45 day's written notice prior to the end of any calendar quarter during the Agreement Year, of its desire to adjust the cession percentage prospectively. 2. The adjusted cession percentage shall not be less than 2% nor greater than 20%. 3. The cession adjustment is to take effect as respects in force, new and renewal business on a prospective basis on the last day of the calendar quarter in which such notice was given as respects Loss Occurrences taking place on or after such date; 4. Such cession adjustment shall be at the election of the Company only if the Loss Ratio from Agreement inception through the end of the quarter in which such notice was given is less than or equal to 30%. 5. If such Loss Ratio is greater than 30%, any such cession adjustment must be mutually agreed by both parties. 6. Mutual agreement of the parties to any cession adjustment is evidenced by addendum to this Agreement signed by both parties. For purposes of this Paragraph B., "Loss Ratio" shall mean the actual ratio of Incurred Losses to Earned Premiums from Agreement inception to the end of the calendar quarter for which calculation is being made. The terms "Incurred Losses" and "Earned Premiums" shall be defined as they are under Article X - Sliding Scale Commission, provided however, as respects Incurred Losses, there will be no Incurred But Not Reported ("IBNR") losses included. C. Loss Adjustment Expenses and any loss arising under this Agreement with respect to Loss In Excess of Policy Limits and Extra Contractual Obligations, as defined herein, shall be recovered in the same proportion as the contractual loss recoverable hereunder; provided such contractual loss plus Loss Adjustment Expenses, Loss In Excess of Policy Limits and Extra Contractual Obligations shall never exceed the maximum cession limit set forth under Paragraph A. above. D. This Agreement is solely between the Company and the Reinsurer, and nothing contained in this Agreement shall create any obligations or establish any rights against the Reinsurer in favor of any person or entity not a party hereto. E. The performance of obligations by both parties under this Agreement shall be in accordance with a fiduciary standard of good faith and fair dealing. F. Under this Agreement, the indemnity for reinsured loss applies only to the following Property and Casualty Business except as excluded under Article VI - Exclusions of this Agreement. PROPERTY LINES OF BUSINESS Homeowners (Section I only) EFFECTIVE: JULY 1, 2019 2. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
Dwelling Fire (Section I only) CASUALTY LINES OF BUSINESS Homeowners (Section II only) Dwelling Fire (Section II only) ARTICLE II - EFFECTIVE DATE AND TERMINATION A. This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, and shall terminate at 12:01 a.m., Eastern Standard Time on July 1, 2020. B. Upon termination of this Agreement: 1. All reinsurance hereunder shall be automatically cancelled as of the date of termination and the Reinsurer shall be released of all liability as respects losses occurring on or after the date of termination. The Reinsurer shall return to the Company the unearned premiums on the business in force hereunder at the date of termination, less the commission allowed thereon. 2. Alternatively, at the Company's option, and provided written notice of the Company's election of such option is given to the Reinsurer by certified mail, electronic mail or by a courier service each producing evidence of receipt by the Reinsurer prior to the date of termination, this Agreement will terminate on a "Run-off" basis and the Reinsurer shall be liable for losses occurring on or after to the date of termination for all Policies covered hereunder and in force at the date of termination of this Agreement until their natural expiry, cancellation or next anniversary of such business, whichever first occurs; but in no case shall the Reinsurer be liable for losses occurring more than 12 months after the termination date unless the Company is required by statute or regulation to continue coverage on a Policy. In such case, the Reinsurer shall continue to be liable for losses occurring subsequent to the date of termination until the earliest date on which the Company may cancel such Policy. The Reinsurer shall return to the Company the unearned premiums, if any, less commissions applicable, for the unexpired periods. ARTICLE III – TERRITORY As respects Property Business, this Agreement applies to risks located in Florida. As respects Casualty Business, the Agreement applies to Policies issued by the Company within Florida and shall apply to losses covered hereunder wherever occurring. EFFECTIVE: JULY 1, 2019 3. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
ARTICLE IV - RETENTION A. The Company warrants that it shall retain net for its own account and not reinsure in any way, 90% of its Ultimate Net Liability. B. In the event there is a cession adjustment pursuant to Paragraph B. of Article I – Business Covered, the Company's net retention shall be revised to reflect the difference between the revised cession percentage and 100% as of the effective date of the change. ARTICLE V – DEFINITIONS A. AGREEMENT YEAR "Agreement Year" shall mean the 12 month period commencing July 1, 2019 and continuing through June 30, 2020. B. DECLARATORY JUDGMENT EXPENSES "Declaratory Judgment Expenses" shall mean all legal expenses incurred in the representation of the Company in litigation brought to determine the Company's defense and/or indemnification obligations that are allocable to any specific claim or loss applicable to Policies subject to this Agreement. In addition, the Company shall promptly notify the Reinsurer of any Declaratory Judgment Expenses subject to this Agreement. C. EXTRA CONTRACTUAL OBLIGATIONS 1. "Extra Contractual Obligations" are defined as those liabilities not covered under any other provision of this Agreement and which arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action. 2. The date on which an Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original accident, casualty, disaster or loss occurrence. 3. However, coverage hereunder as respects Extra Contractual Obligations shall not apply where the loss has been incurred due to the fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. EFFECTIVE: JULY 1, 2019 4. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
4. Recoveries, collectibles or retention from any other form of insurance or reinsurance including deductibles or self-insured retention which protect the Company against Extra Contractual Obligations, whether collectible or not, shall inure to the benefit of the Reinsurer and shall be deducted from the total amount of Extra Contractual Obligations for purposes of determining the loss hereunder. 5. If any provision of this paragraph shall be rendered illegal or unenforceable by the laws, regulations or public policy of any jurisdiction, such provision shall be considered void in such jurisdiction, but this shall not affect the validity or enforceability of any other provision of this Article or the enforceability of such provision in any other jurisdiction. D. GROSS PREMIUMS WRITTEN "Gross Premiums Written" shall mean the Company's written premiums for subject business less return premiums. E. LOSS ADJUSTMENT EXPENSES "Loss Adjustment Expenses" shall mean all expenses paid by the Company in connection with the investigation, settlement, defense or litigation, including court costs and post-judgment interest, of any claim or loss which is the subject matter of Policies covered under this Agreement and shall include Declaratory Judgment Expenses. However, "Loss Adjustment Expenses" shall not include the salaries and expenses of Company employees, office expenses, and other overhead expenses. F. LOSS IN EXCESS OF POLICY LIMITS 1. "Loss in Excess of Policy Limits" is defined as loss in excess of the limit of the original Policy, such loss in excess of the limit having been incurred because of failure by the Company to settle within the Policy limit or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action. 2. However, this paragraph shall not apply where the loss has been incurred due to fraud by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. 3. For the purposes of this paragraph, the word "loss" shall mean any amounts which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. EFFECTIVE: JULY 1, 2019 5. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
4. With respect to coverage provided under this paragraph, recoveries from any insurance or reinsurance other than this Agreement, whether collectible or not, shall be deducted to arrive at the amount of the Company's Ultimate Net Liability. G. LOSS OCCURRENCE As respects Property Business covered under this Agreement: 1. The term "Loss Occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the state of Florida. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term "Loss Occurrence" shall be further defined as follows: a. As regards windstorm, other than Named Windstorms, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 120 consecutive hours arising out of and directly occasioned by the same event. b. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company, occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period. c. As regards earthquake (the epicentre of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's Loss Occurrence. d. As regards Freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (including but not limited to those caused by freezing and/or melting of ice, snow and sleet, or ice damming on a structure or bursting of frozen pipes and tanks) may be included in the Company's Loss Occurrence. 2. For all Loss Occurrences the Company may choose the date and time when any such period of consecutive hours commences provided that it is not EFFECTIVE: JULY 1, 2019 6. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event except for those Loss Occurrences referred to in a. and b. above, where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event. 3. No individual losses occasioned by an event that would be covered by 72 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision. As respects Casualty Business covered under this Agreement: "Loss Occurrence" shall mean any accident or occurrence or series of accidents or occurrences arising out of any one event and happening within the term and scope of this Agreement. H. NAMED WINDSTORMS "Named Windstorms" shall mean a storm and all other atmospheric perils arising out of such storm that are identified and named as a Tropical Storm or Hurricane by the National Hurricane Center of the National Weather Service, operated by the National Oceanographic Administration of the U.S. Government ("NHC"). The duration of such Named Windstorm shall be deemed to be as follows: 1. Beginning at the time a Named Windstorm warning is issued by the NHC for any part of each state in which the Company writes the business reinsured hereunder; 2. Continuing for the time period which the Named Windstorm conditions exist anywhere in such state; and 3. Ending 72 hours following termination of the last Named Windstorm warning by NHC for any part of such state. I. POLICIES "Policies" shall mean each of the Company's binders, policies and contracts of insurance on the business covered hereunder. J. RISK The Company shall be the sole judge of what constitutes one risk provided, however, that: 1. A risk shall never be less than all insurable values within exterior walls and under one roof regardless of fire divisions, the number of Policies involved, and whether there is a single, multiple or unrelated named insureds involved in such risk. EFFECTIVE: JULY 1, 2019 7. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
2. When two or more buildings are situated at the same general location, the Company shall identify on its records at the time of acceptance by the Company, those individual buildings and all insurable values contained therein that are considered to constitute each risk. If such identification is not made, each building and all insurable values contained therein shall be considered to be a separate risk. 3. A risk shall be determined from the standpoint of the predominant peril and such peril shall be noted in the Company's records. K. ULTIMATE NET LIABILITY "Ultimate Net Liability" shall mean the remaining portion of the Company's gross liability on each Policy reinsured under this Agreement after deducting recoveries from all other reinsurance, whether specific or general and whether collectible or not. ARTICLE VI - EXCLUSIONS I. AS RESPECTS PROPERTY BUSINESS COVERED UNDER THIS AGREEMENT THIS AGREEMENT DOES NOT COVER: A. THE FOLLOWING GENERAL CATEGORIES 1. All Lines of Business not specifically listed in Article I - Business Covered. 2. Reinsurance assumed. 3. Ex-gratia Payments. 4. Loss or damage occasioned by war, invasion, revolution, bombardment, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage which would be covered under a standard form of Policy containing a standard war exclusion clause. 5. Insolvency Funds as per the attached Insolvency Funds Exclusion Clause, which is made part of this Agreement. 6. Pool, Syndicate and Association business as per the attached Pools, Associations and Syndicates Exclusion Clause, which is made part of this Agreement. EFFECTIVE: JULY 1, 2019 8. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
7. Any statutory or regulatory fine or penalty imposed upon the Company on account of any unfair trade or claim practice. B. THE FOLLOWING PERILS 1. Flood and/or Earthquake when written on a stand-alone basis. 2. Pollution and Seepage as per the attached Pollution and Seepage Exclusion Clause which is made part of this Agreement. 3. Nuclear Incident Exclusion Clauses which are attached and made part of this Agreement: a. Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A. b. Nuclear Incident Exclusion Clause - Reinsurance - No. 4. 4. a. Loss, damage or expense of whatsoever nature caused directly or indirectly by any of the following, regardless of any other cause or event contributing concurrently or in any other sequence to the loss: nuclear reaction or radiation, or radioactive contamination, however caused. b. However, if nuclear reaction or radiation, or radioactive contamination results in fire it is specifically agreed herewith that this Agreement will pay for such fire loss or damage subject to all of the terms, conditions and limitations of this Agreement. c. This exclusion shall not apply to loss, damage or expense originating from and occurring at risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Company to be the primary hazard. 5. Terrorism as per the attached Terrorism Exclusion Clause (USA) – Reinsurance (Property), which is made part of this Agreement. 6. Loss, damage or expense of whatsoever nature arising from Named Windstorms. II. AS RESPECTS CASUALTY BUSINESS COVERED UNDER THIS AGREEMENT THIS AGREEMENT DOES NOT COVER: 1. All Lines of Business not specifically listed in Article I - Business Covered. 2. Ex-gratia payments. 3. Loss or damage caused directly or indirectly by: (a) enemy attack by armed forces including action taken by military, naval or air forces in resisting an EFFECTIVE: JULY 1, 2019 9. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) intervention; (g) civil war; and (h) usurped power. 4. Reinsurance assumed by the Company. 5. Business derived from any Pool, Association, including Joint Underwriting Association, Syndicate, Exchange, Plan, Fund or other facility directly as a member, subscriber or participant, or indirectly by way of reinsurance or assessments. 6. Pollution Liability as per the attached Pollution Liability Exclusion Clause - Reinsurance. 7. Insolvency Funds as per the attached Insolvency Funds Exclusion Clause. 8. Nuclear Incident Exclusion Clauses which are attached and made part of this Agreement: a. Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A. b. Nuclear Incident Exclusion Clause - Reinsurance - No. 4. 9. Any statutory or regulatory fine or penalty imposed upon the Company on account of any unfair trade or claim practice. 10. Terrorism as per the attached Terrorism Exclusion Clause (USA) – Reinsurance (Casualty), which is made part of this Agreement. 11. Any actual or alleged liability whatsoever for any claim or claims in respect of loss or losses, directly or indirectly arising out of, resulting from, or in consequence of asbestos, in whatever form or quantity. ARTICLE VII - SPECIAL ACCEPTANCE Risks and/or Policies which are beyond the terms, conditions or limitations of this Agreement may be submitted to the Reinsurer for special acceptance hereunder; and such risks and/or Policies, if accepted in writing by the Reinsurer, shall be subject to all of the terms, conditions and limitations of this Agreement, except as modified by the special acceptance. Premiums and losses derived from any special acceptance shall be included with other data for purposes of this Agreement. ARTICLE VIII - INTERNATIONAL TRADE CONTROLS AND ECONOMIC SANCTIONS No Reinsurer shall be deemed to provide cover and no Reinsurer shall be liable to pay any claim or pay any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that Reinsurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of any jurisdiction applicable to that Reinsurer. EFFECTIVE: JULY 1, 2019 10. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
ARTICLE IX - REINSURANCE PREMIUM A. The Company shall cede to the Reinsurer 10% of the Company's unearned premiums on its Ultimate Net Liability in force as of July 1, 2019 on the business covered hereunder. B. The Company shall cede to the Reinsurer 10% of the Company's Gross Premiums Written applicable to new and renewal Policies becoming effective on or after July 1, 2019, with respect to its Ultimate Net Liability on the business covered hereunder. C. The Reinsurer will allow the Company an allowance for other reinsurance equal to [***]% of the premiums ceded under Paragraphs A. and B. above. Other reinsurance includes but is not limited to Property Per Risk Reinsurance, Florida Hurricane Catastrophe Mandatory Coverage Layer and Property Catastrophe Excess of Loss Reinsurance. D. In the event there is a cession adjustment pursuant to Paragraph B. of Article I – Business Covered, the percentage of the Company's Gross Premiums Written to be ceded to the Reinsurer commencing on the effective date of such cession change shall be the newly revised cession percentage and any resulting difference in unearned premiums shall be debited or credited to the appropriate party. ARTICLE X – SLIDING SCALE COMMISSION A. The Reinsurer shall make to the Company a provisional commission allowance of [***]% of the Gross Premiums Written ceded hereunder. Such provisional commission allowance shall also apply to the Company's unearned premiums ceded hereunder as respects business in force as of July 1, 2019. The Company shall debit the Reinsurer with the provisional commission allowance; such provisional commission shall be adjusted as provided hereafter. On all return premiums the Company shall return to the Reinsurer the provisional commission allowance of [***]%. Such commission allowance includes provision for all brokerage and commission, premium taxes of all kinds, all board, bureau and exchange assessments and any other expenses whatsoever except Loss Adjustment Expenses. B. The adjusted commission allowance which the Reinsurer shall make to the Company shall be in accordance with the following formula and computed and paid on Earned Premiums. All intermediate and final calculations shall be rounded to two decimal places. EFFECTIVE: JULY 1, 2019 11. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
If the actual ratio of Incurred The adjusted commission Losses to Earned Premiums is: shall be: [***]% or less [***]% Maximum Higher than [***]% but [***]% less [***]% of not exceeding [***]% the difference between the actual loss ratio and [***]% [***]% or higher [***]% Minimum C. The term "Incurred Losses" means all losses and Loss Adjustment Expenses paid less recoveries, including salvage and subrogation, during the current Period for which computation is being made plus all losses and Loss Adjustment Expenses outstanding at the end of the current Period plus a reserve for IBNR losses at the end of the current Period, as determined by the Company, less all losses and Loss Adjustment Expenses outstanding and IBNR, determined by the Company, at the close of the preceding period. D. The term "Earned Premiums" means the total of the Gross Premiums Written, ceded during the current Period plus the unearned premiums as respects premiums in force at the beginning of such Period, less the unearned premiums at the close of the current Period, provided that in the event of a Run-off termination, only those unearned premiums applicable to any unexpired periods shall be deducted. Said unearned premiums to be calculated on an actual daily basis or in accordance with the Company's methodology, as agreed. E. The term "Period" means the actual time covered by each adjustment of commission. F. Within 90 days after the close of each Period, the Reinsurer shall calculate the commission adjustment on the Earned Premiums during the Period. The first adjustment of commission shall be made as of September 30, 2020, for the Period from July 1, 2019, through June 30, 2020 and annually thereafter. If the adjusted commission on the Earned Premiums during the Period exceeds the provisional commission already allowed on the Earned Premiums, the Reinsurer shall pay the difference to the Company. If the provisional commission already allowed on the Earned Premiums exceeds the adjusted commission on the Earned Premiums, the difference shall be refunded by the Company to the Reinsurer. In addition, the difference in commission adjustment shall be paid by the debtor party within 30 days after the Company's verification of the Reinsurer's calculations. G. In the event reserves for losses and Loss Adjustment Expenses used in any previous calculation of adjusted commission shall have been underestimated or overestimated, as proven by subsequent developments, such previous calculations shall be revised at the request of either party. The Company shall refund to the Reinsurer, or the Reinsurer shall pay to the Company, such amount as will give effect to the revision(s). EFFECTIVE: JULY 1, 2019 12. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
H. After the first commission adjustment, as noted in Paragraph F. above, all subsequent adjustments of commission shall be made every September 30th until the expiration of all liability and the settlement of all losses covered under this Agreement. ARTICLE XI - LOSSES, LOSS ADJUSTMENT EXPENSES AND SALVAGES A. The Reinsurer shall pay its pro rata share of losses including prejudgment interest paid by the Company arising under Policies covered under this Agreement, subject to Article I – Business Covered, and the Reinsurer shall benefit proportionately in all recoveries, including salvage and subrogation. B. The Reinsurer shall pay its pro rata share of Loss Adjustment Expenses paid by the Company, subject to Article I – Business Covered. C. The Company shall have the responsibility to investigate, defend or negotiate settlements of all claims and lawsuits related to Policies written by the Company and reinsured under this Agreement. The Reinsurer, at its own expense, may associate with the Company in the defense of any claim, suit or other proceeding which involves or is likely to involve the reinsurance provided under this Agreement, and the Company shall cooperate in every respect in the defense of any such claim, suit or proceeding. ARTICLE XII - REPORTS AND REMITTANCES A. The Company shall provide the Reinsurer with a quarterly account and bordereaux, as well as quarterly and annual reports, in accordance with the provisions set forth in Paragraphs C., E., F. and G. below. B. Portfolio Assumption - Within 45 days after July 1, 2019, the Company shall pay to the Reinsurer the Reinsurer's pro rata share of the Company's unearned premium reserve segregated by Line of Business on the business in force as of said date. C. Quarterly Account - Within 30 days after the close of each calendar quarter, the Company shall forward a quarterly account summarizing the following transactions under this Agreement during such quarter: 1. Gross Premiums Written ceded segregated by Line of Business specifically identifying the current cession rate in the event there has been a cession change pursuant to Paragraph B. of Article I – Business Covered; 2. [***] allowance for reinsurance; 3. Provisional Commissions; 4. Loss and Loss Adjustment Expenses paid less recoveries, including salvage and subrogation, segregated by Line of Business, by year of loss. EFFECTIVE: JULY 1, 2019 13. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
The balance due either party shall be paid within 45 days after the close of each for the transactions during such quarter. D. In respect of Paragraph C. above: 1. All quarterly Account Statements shall be sent to the Reinsurer at: a. E-Mail/Word, Excel, PDF, or TIF Formats, or other scanned documents: [***], or b. Standard Mail: Swiss Reinsurance America Corporation P.O. Box 74008504 Chicago, IL 60674-8504 2. All checks and supporting documentation shall be sent to the Reinsurer through one of the options set forth below and shall identify the applicable Reinsurer Agreement Number(s): a. WIRE TRANSFER (i) All wires shall be sent to: Bank of America 655 Grant Street Concord, CA 94520 Account Name: Swiss Reinsurance America Corporation Account Address: 175 King Street Armonk, NY 10504 Account Number: [***] Wire ABA Number: [***] ACH ABA Number: [***] SWIFT: [***] (ii) All supporting documentation shall be sent to: (a) E-Mail/Word, Excel, PDF, or TIF Formats, or other scanned documents: [***], or (b) Standard Mail: Swiss Reinsurance America Corporation P.O. Box 74008504 Chicago, IL 60674-8504 b. COURIER OR OVERNIGHT CARRIER EFFECTIVE: JULY 1, 2019 14. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
Both checks and supporting documentation shall be sent to: Bank of America Lockbox Services Swiss Reinsurance America Corporation 540 West Madison Street, 4th Floor Chicago, IL 60661 Re: Lockbox 74008504 c. STANDARD MAIL Both checks and supporting documentation shall be sent to: Swiss Reinsurance America Corporation P.O. Box 74008504 Chicago, IL 60674-8504 E. Premium Bordereau as respects each Policy covered under this Agreement - Within 30 days after the close of each quarter, the Company shall submit a premium bordereau to the Reinsurer segregated by underwriting year, the following information as respects each Policy covered under this Agreement: 1. Name of Insured, 2. Policy Number, 3. Effective and Expiration Dates, 4. Line of Business. F. Loss Bordereau as respects each Policy covered under this Agreement - Within 30 days after the close of each quarter, the Company shall submit a loss bordereau to the Reinsurer segregating by underwriting year of loss the following information as respects each loss covered under this Agreement: 1. Name of Insured, 2. Policy Number, 3. Policy Limits, 4. Effective and Expiration Dates, 5. Claim Number, 6. Date of Loss, 7. Line of Business. EFFECTIVE: JULY 1, 2019 15. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
G. Quarterly Report - The Company shall furnish the Reinsurer within 30 days after the close of each quarter the following information as respects the business ceded hereunder: 1. Unearned premium reserves segregated by Line of Business at the end of the quarter and calculated on the actual daily basis or in accordance with the Company's methodology, as agreed. 2. Estimated loss and Loss Adjustment Expense reserves outstanding at the end of the quarter segregated by Line of Business, by year of loss. H. Annual Report - The Company shall furnish the Reinsurer, within 45 days after the termination date of this Agreement, and annually thereafter, a summary of the business ceded hereunder: 1. Gross Premiums Written ceded from inception to date, segregated by Line of Business; provided that in the event there was a cession change under the Agreement, pursuant to Paragraph B. of Article I- Business Covered, such report shall provide separately the Gross Premiums Written ceded during the year as respects the initial 10% cession and the Gross Premiums Written ceded during the year as respects the revised cession percentage, specifically identifying the new percentage. 2. Unearned premium reserves segregated by Line of Business; 3. Losses and Loss Adjustment Expenses paid, less recoveries, including salvage and subrogation, from inception to date; 4. Losses and Loss Adjustment Expenses outstanding, segregated by Line of Business; 5. IBNR, as determined by the Company, as of each June 30th. ARTICLE XIII - ACCESS TO RECORDS The Reinsurer or its duly authorized representatives shall have the right to examine, at the offices of the Company at a reasonable time, during the currency of this Agreement or anytime thereafter, all books and records of the Company relating to business which is the subject of this Agreement. ARTICLE XIV - TAXES The Company shall be liable for all taxes on premiums paid to the Reinsurer under this Agreement, except income or profit taxes of the Reinsurer, and shall indemnify and hold the Reinsurer harmless for any such taxes which the Reinsurer may become obligated to pay to any local, state or federal taxing authority. EFFECTIVE: JULY 1, 2019 16. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
ARTICLE XV - OFFSET Each party to this Agreement together with their successors or assigns shall have and may exercise, at any time, the right to offset any balance or balances due the other (or, if more than one, any other). Such offset may include balances due under this Agreement regardless of whether such balances arise from premiums, losses or otherwise, and regardless of capacity of any party, whether as assuming insurer and/or ceding insurer, under the various agreements involved; provided however, that in the event of insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable Florida law, statute or regulation governing such offset. ARTICLE XVI - DISPUTE RESOLUTION Part I - Choice Of Law And Forum Any dispute arising under this Agreement shall be resolved in the State of Florida, and the laws of the State of Florida shall govern the interpretation and application of this Agreement. Part II - Mediation If a dispute between the Company and the Reinsurer, arising out of the provisions of this Agreement or concerning its interpretation or validity and whether arising before or after termination of this Agreement has not been settled through negotiation, both parties agree to try in good faith to settle such dispute by nonbinding mediation, before resorting to arbitration. Part III - Arbitration A. Resolution of Disputes - As a condition precedent to any right of action arising hereunder, any dispute not resolved by mediation between the Company and the Reinsurer arising out of the provisions of this Agreement or concerning its interpretation or validity, whether arising before or after termination of this Agreement, shall be submitted to arbitration in the manner hereinafter set forth. B. Composition of Panel - Unless the parties agree upon a single arbitrator within 15 days after the receipt of a notice of intention to arbitrate, all disputes shall be submitted to an arbitration panel composed of two arbitrators and an umpire chosen in accordance with Paragraph C. hereof. C. Appointment of Arbitrators - The members of the arbitration panel shall be chosen from disinterested persons with at least 10 years' experience in the insurance and reinsurance business. Unless a single arbitrator is agreed upon, the party requesting arbitration (hereinafter referred to as the "claimant") shall appoint an arbitrator and give written notice thereof by certified mail or by a courier service producing evidence of receipt by the receiving party, to the other party (hereinafter referred to as the "respondent") together with its notice of intention to arbitrate. Within 30 days after receiving such notice, the respondent shall also appoint an EFFECTIVE: JULY 1, 2019 17. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
arbitrator and notify the claimant thereof by certified mail or by a courier service producing evidence of receipt by the receiving party. Before instituting a hearing, the two arbitrators so appointed shall choose an umpire. If, within 20 days after the appointment of the arbitrator chosen by the respondent, the two arbitrators fail to agree upon the appointment of an umpire, each of them shall nominate three individuals to serve as umpire, of whom the other shall decline two and the umpire shall be chosen from the remaining two by drawing lots. The name of the individual first drawn shall be the umpire. D. Failure of Party to Appoint an Arbitrator - If the respondent fails to appoint an arbitrator within 30 days after receiving a notice of intention to arbitrate, the claimant's arbitrator shall appoint an arbitrator on behalf of the respondent, such arbitrator shall then, together with the claimant's arbitrator, choose an umpire as provided in Paragraph C. of Part III of this Article. E. Submission of Dispute to Panel – Within 30 days after the notice of appointment of all arbitrators, the panel shall meet, and determine a timely period for discovery, discovery procedures and schedules for hearings. F. Procedure Governing Arbitration - All proceedings before the panel shall be informal and the panel shall not be bound by the formal rules of evidence. The panel shall have the power to fix all procedural rules relating to the arbitration proceeding. In reaching any decision, the panel shall give due consideration to the customs and usages of the insurance and reinsurance business. G. Arbitration Award - The arbitration panel shall render its decision within 60 days after termination of the proceeding, which decision shall be in writing, stating the reasons therefor. The decision of the majority of the panel shall be final and binding on the parties to the proceeding. In no event, however, will the panel be authorized to award punitive, exemplary or consequential damages of whatsoever nature in connection with any arbitration proceeding concerning this Agreement. H. Cost of Arbitration - Unless otherwise allocated by the panel, each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other parties the expense of the umpire and the arbitration. ARTICLE XVII - INSOLVENCY A. In the event of insolvency of the Company, the reinsurance provided by this Agreement shall be payable by the Reinsurer on the basis of the liability of the Company as respects Policies covered hereunder, without diminution because of such insolvency, directly to the Company or its liquidator, receiver, conservator or statutory successor except as provided in Sections 4118(a)(1)(A) and 1114(c) of the New York Insurance Law. B. The Reinsurer shall be given written notice of the pendency of each claim or loss which may involve the reinsurance provided by this Agreement within a reasonable time after such claim or loss is filed in the insolvency proceedings. The Reinsurer shall have the right to investigate each such claim or loss and interpose, at its own EFFECTIVE: JULY 1, 2019 18. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
expense, in the proceedings where the claim or loss is to be adjudicated, any defense which it may deem available to the Company, its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to court approval, against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. C. In addition to the offset provisions set forth in Article XV - Offset, any debts or credits, liquidated or unliquidated, in favor of or against either party on the date of the receivership or liquidation order (except where the obligation was purchased by or transferred to be used as an offset) are deemed mutual debts or credits and shall be set off with the balance only to be allowed or paid. Although such claim on the part of either party against the other may be unliquidated or undetermined in amount on the date of the entry of the receivership or liquidation order, such claim will be regarded as being in existence as of such date and any claims then in existence and held by the other party may be offset against it. D. Nothing contained in this Article is intended to change the relationship or status of the parties to this Agreement or to enlarge upon the rights or obligations of either party hereunder except as provided herein. ARTICLE XVIII - AMENDMENTS This Agreement may be amended by mutual consent of the parties expressed in an addendum; and such addendum, when executed by both parties, shall be deemed to be an integral part of this Agreement and binding on the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the following dates: EFFECTIVE: JULY 1, 2019 19. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
FEDNAT INSURANCE COMPANY /s/ Michael Braun /s/ Ronald Jordan Signature Signature Ronald Jordan Michael Braun Print Name Print Name Chief Executive Officer Chief Financial Officer Title Title Date:__7/31/2019___________________ Date:__8/1/2019______________________ SWISS REINSURANCE AMERICA CORPORATION ______________________________________ _____________________________________ EFFECTIVE: JULY 1, 2019 20. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
SUPPLEMENT TO THE ATTACHMENTS DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS A. Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other term is used to designate the reinsured company or companies within the various attachments to the reinsurance agreement, the term shall be understood to mean Company or Reinsured or Reassured or whatever other term is used in the attached reinsurance agreement to designate the reinsured company or companies. B. Wherever the term "Agreement" or "Contract" or "Policy" or whatever other term is used to designate the attached reinsurance agreement within the various attachments to the reinsurance agreement, the term shall be understood to mean Agreement or Contract or Policy or whatever other term is used to designate the attached reinsurance agreement. C. Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever other term is used to designate the reinsurer or reinsurers in the various attachments to the reinsurance agreement, the term shall be understood to mean Reinsurer or Reinsurers or Underwriters or whatever other term is used to designate the reinsuring company or companies. EFFECTIVE: JULY 1, 2019 1. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
INSOLVENCY FUNDS EXCLUSION CLAUSE This Agreement excludes all liability of the Company arising by contract, operation of law, or otherwise from its participation or membership, whether voluntary or involuntary, in any insolvency fund or from reimbursement of any person for any such liability. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by any person of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. EFFECTIVE: JULY 1, 2019 1. POR1238172 P189-0086 7/25/2019 2:47 PM.v3

 
POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE SECTION A Excluding: (a) All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities. (b) Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968, for the purpose of insuring Property whether on a country-wide basis or in respect of designated areas. This Exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage. SECTION B It is agreed that business, written by the Company for the same perils, which is known at the time to be insured by or in excess of underlying amounts placed in the following Pools, Associations or Syndicates, whether by way of insurance or reinsurance is excluded hereunder: Industrial Risk Insurers (successor to Factory Insurance Association and Oil Insurance Association); Associated Factory Mutuals. Any Pool, Association or Syndicate formed for the purpose of writing Oil, Gas or Petro- Chemical Plants and/or Oil or Gas Drilling Rigs. United States Aircraft Insurance Group, Canadian Aircraft Insurance Group, Associated Aviation Underwriters, American Aviation Underwriters. SECTION B does not apply: (a) Where the Total Insured Value over all interests of the risk in question is less than $350,000,000. (b) To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis. (c) To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above. (d) To risks as follows: Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities (other than Railroad Schedules) and Builders Risks on the classes of risks specified in this subsection (d) only. EFFECTIVE: JULY 1, 2019 1. POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
POLLUTION AND SEEPAGE EXCLUSION CLAUSE This Reinsurance does not apply to: 1. Pollution, seepage, contamination or environmental impairment (hereinafter collectively referred to as "pollution") insurances, however styled; 2. Loss or damage caused directly or indirectly by pollution, unless said loss or damage follows as a result of a loss caused directly by a peril covered hereunder; 3. Expenses resulting from any governmental direction or request that material present in or part of or utilized on an insured's property be removed or modified, except as provided in 5. below; 4. Expenses incurred in testing for and/or monitoring pollutants; 5. Expenses incurred in removing debris, unless (A) the debris results from a loss caused directly by a peril covered hereunder, and (B) the debris to be removed is itself covered hereunder, and (C) the debris is on the insured's premises, subject, however, to a limit of $5,000 plus 25% of (i) the property damage loss, any risk, any one location, any one original insured, and (ii) any deductible applicable to the loss; 6. Expenses incurred to extract pollutants from land or water at the insured's premises unless (A) the release, discharge, or dispersal of pollutants results from a loss caused directly by a peril covered hereunder, and (B) such expenses shall not exceed $10,000; 7. Loss of income due to any increased period of time required to resume operations resulting from enforcement of any law regulating the prevention, control, repair, clean-up or restoration of environmental damage; 8. Claims under 5. and/or 6. above, unless notice thereof is given to the Company by the insured within 180 days after the date of the loss occurrence to which such claims relate. "Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. Where no pollution exclusion has been accepted or approved by an insurance regulatory authority for use in a policy that is subject to this Agreement or where a pollution exclusion that has been used in a policy is overturned, either in whole or in part, by a court having jurisdiction, there shall be no recovery for pollution under this Agreement unless said pollution loss or damage follows as a result of a loss caused directly by a peril covered hereunder. Nothing herein shall be deemed to extend the coverage afforded by this reinsurance to property or perils specifically excluded or not covered under the terms and conditions of the original policy involved. EFFECTIVE: JULY 1, 2019 1 POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A. N.M.A. 1119 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph 1. of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and critical facilities as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph 2. III. above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operation of paragraphs 1. and 2. of this Clause, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith, except that this paragraph 3. shall not operate: (a) where the Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However, on and after 1st January, 1960, this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operation of paragraphs 1., 2. and 3. of this Clause, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. N.M.A. 1119 EFFECTIVE: JULY 1, 2019 1 POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
6. The term "special nuclear material" shall have the meaning given to it by the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December, 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December, 1960 whichever first occurs whereupon all the provisions of this Clause shall apply, (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December, 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December, 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. EFFECTIVE: JULY 1, 2019 2 POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4 1. This Reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association. 2. Without in any way restricting the operations of Nuclear Incident Exclusion Clauses, - Liability, - Physical Damage, - Boiler and Machinery and paragraph 1. of this Clause, it is understood and agreed that for all purposes of the reinsurance assumed by the Reinsurer from the Reinsured, all original insurance policies or contracts of the Reinsured (new, renewal and replacement) shall be deemed to include the applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any subsequent revisions thereto as agreed upon and approved by the Insurance Industry and/or a qualified Advisory or Rating Bureau. EFFECTIVE: JULY 1, 2019 1 POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
POLLUTION LIABILITY EXCLUSION CLAUSE - REINSURANCE This Reinsurance excludes: (1) Any loss occurrence arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants: a) At or from premises owned, rented or occupied by an original assured; or b) At or from any site or location used for the handling, storage, disposal, processing or treatment of waste; or c) Which are at any time transported, handled, stored, treated, disposed of, or processed as waste; or d) At or from any site or location on which any original assured is performing operations: (i) If the pollutants are brought on or to the site or location in connection with such operations; or (ii) If the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants. (2) Any liability, loss, cost or expense arising out of any governmental direction or request to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants. "Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. Subparagraphs a) and d)(i) of paragraph (1) of this exclusion do not apply to loss occurrences caused by heat, smoke or fumes from a hostile fire. As used herein, "hostile fire" means one which becomes uncontrollable or breaks out from where it was intended to be. "Original assured" as used herein means all insureds as defined in the policy issued by the Company. EFFECTIVE: JULY 1, 2019 1 POR1238172 P19-0086 7/25/2019 2:47 PM.v3

 
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A. N.M.A. 1590 1. This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association. 2. Without in any way restricting the operation of paragraph 1. of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II. in this paragraph 2. from the time specified in Clause III. in this paragraph 2. shall be deemed to include the following provision (specified as the Limited Exclusion Provision): LIMITED EXCLUSION PROVISION* I. It is agreed that the policy does not apply under any liability coverage, to injury, sickness, disease, death or destruction, bodily injury or property damage with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability. II. Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liabilities Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies. III. The inception dates and thereafter of all original policies as described in II. above, whether new, renewal or replacement, being policies which either (a) become effective on or after 1st May, 1960, or (b) become effective before that date and contain the Limited Exclusion Provision set out above; provided this paragraph 2. shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof. 3. Except for those classes of policies specified in Clause II. of paragraph 2. and without in any way restricting the operation of paragraph 1. of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages: 2012 JULY 1 EFFECTIVE: JULY 1, 2019 1 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability) shall be deemed to include with respect to such coverages, from the time specified in Clause V. of this paragraph 3., the following provision (specified as the Broad Exclusion Provision): BROAD EXCLUSION PROVISION* It is agreed that the policy does not apply: I. Under any Liability Coverage to injury, sickness, disease, death or destruction, bodily injury or property damage (a) with respect to which an insured under the policy is also an insured under nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or (b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization. II. Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to immediate medical or surgical relief, first aid, to expenses incurred with respect to bodily injury, sickness, disease or death, bodily injury resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization. III. Under any Liability Coverage, to injury, sickness, disease, death or destruction, bodily injury or property damage resulting from the hazardous properties of nuclear material, if (a) the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom; (b) the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or EFFECTIVE: JULY 1, 2019 2 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
(c) the injury, sickness, disease, death or destruction, bodily injury or property damage arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to injury to or destruction of property at such nuclear facility, property damage to such nuclear facility and any property thereat. IV. As used in this endorsement: "hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or byproduct material; "source material," "special nuclear material," and "byproduct material" have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (1) containing byproduct material other than the tailings or wastes produced by the extraction or concentration of uranium or thorium from any ore processed for its source material content and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; "nuclear facility" means (a) any nuclear reactor, (b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste, (c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235, (d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self- supporting chain reaction or to contain a critical mass of fissionable material; with respect to injury to or destruction of property, the word "injury" or "destruction" includes all forms of radioactive contamination of property; "property damage" includes all forms of radioactive contamination of property. V. The inception dates and thereafter of all original policies affording coverages specified in this paragraph 3., whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph 3. shall not be applicable to (i) Garage and Automobile Policies issued by the Reassured on New York risks, or EFFECTIVE: JULY 1, 2019 3 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
(ii) Statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraph 1. of this Clause, it is understood and agreed that paragraphs 2. and 3. above are not applicable to original liability policies of the Reassured in Canada, and that with respect to such policies, this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters' Association or the Independent Insurance Conference of Canada. *NOTE: The words printed in BOLD TYPE in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words. EFFECTIVE: JULY 1, 2019 4 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
TERRORISM EXCLUSION CLAUSE (USA) – REINSURANCE (PROPERTY) Notwithstanding any provision to the contrary within this Agreement or any endorsement thereto, this reinsurance Agreement does not cover any loss, damage or expense of whatsoever nature directly or indirectly caused by, resulting from, arising out of or in connection with any act of terrorism in the United States of America, regardless of any other cause contributing concurrently or in any other sequence to the loss, damage or expense. For the purpose of this exclusion, terrorism means any actual or threatened violent act or act harmful to human life, tangible or intangible property or infrastructure, directed towards or having the effect of (a) influencing or protesting against any de jure or de facto government or policy thereof or (b) intimidating, coercing or putting in fear a civilian population or section thereof. In any action, suit or other proceedings where the reinsurer alleges that by reason of this exclusion a loss, damage or expense is not covered by this reinsurance Agreement, the burden of proving that such loss, damage or expense is covered shall be upon the Company. TERRUSA-PROP EFFECTIVE: JULY 1, 2019 1 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
TERRORISM EXCLUSION CLAUSE (USA) – REINSURANCE (CASUALTY) Notwithstanding any provision to the contrary within this Agreement or any endorsement thereto, this reinsurance Agreement does not cover any liability, loss, cost or expense of whatsoever nature directly or indirectly caused by, resulting from, arising out of or in connection with any act of terrorism in the United States of America, regardless of any other cause contributing concurrently or in any other sequence to the liability, loss, cost or expense. For the purpose of this exclusion, terrorism means any actual or threatened violent act or act harmful to human life, tangible or intangible property or infrastructure, directed towards or having the effect of (a) influencing or protesting against any de jure or de facto government or policy thereof or (b) intimidating, coercing or putting in fear a civilian population or section thereof. In any action, suit or other proceedings where the reinsurer alleges that by reason of this exclusion a liability, loss, cost or expense is not covered by this reinsurance Agreement, the burden of proving that such liability, loss, cost or expense is covered shall be upon the Company. TERRUSA-CAS EFFECTIVE: JULY 1, 2019 1 P19-0086 POR1238172 7/25/2019 2:47 PM.v3

 
Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 19\F7V1075

 
Table of Contents Article Page 1 Classes of Business Reinsured 1 2 Commencement and Termination 1 3 Territory 3 4 Exclusions 3 5 Retention and Limit 4 6 Other Reinsurance 5 7 Definitions 5 8 Loss Occurrence 6 9 Loss Notices and Settlements 7 10 Cash Call 7 11 Salvage and Subrogation 7 12 Reinsurance Premium 8 13 Sanctions 8 14 Late Payments 8 15 Offset 10 16 Access to Records 10 17 Liability of the Reinsurer 10 18 Net Retained Lines (BRMA 32E) 10 19 Errors and Omissions (BRMA 14F) 11 20 Currency (BRMA 12A) 11 21 Taxes (BRMA 50B) 11 22 Federal Excise Tax (BRMA 17D) 11 23 Foreign Account Tax Compliance Act 12 24 Reserves 12 25 Insolvency 13 26 Arbitration 14 27 Service of Suit (BRMA 49C) 15 28 Severability (BRMA 72E) 15 29 Governing Law (BRMA 71B) 15 30 Confidentiality 15 31 Non-Waiver 17 32 Notices and Contract Execution 17 33 Intermediary 17 19\F7V1075

 
Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract Effective: July 1, 2019 entered into by and between FedNat Insurance Company Sunrise, Florida (hereinafter referred to as the "Company") and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability arising out of any hurricane named at the time of landfall which may accrue to the Company under its policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations set forth herein. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2020. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or 2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial 19\F7V1075 Page 1

 
statement filed with regulatory authorities and available to the public as of the inception of this Contract; or 3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 4. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to 12:01 a.m., Eastern Standard Time, July 1, 2020. However, if this Contract is terminated, the "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2019 to the effective time and date of termination. D. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. 19\F7V1075 Page 2

 
Article 3 - Territory The territorial limits of this Contract shall be identical with those of the Company's policies, excluding risks located in the State of Florida. Article 4 - Exclusions A. This Contract does not apply to and specifically excludes the following: 1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation. 2. Hail damage to growing or standing crops. 3. Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such. 4. Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such. 5. Title insurance and all forms of Financial Guarantee, Credit and Insolvency. 6. Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability. 7. Errors and Omissions, Malpractice and any other type of Professional Liability insurance. 8. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy. 9. Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract. 10. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract. 11. Loss or liability excluded by the Pools, Associations and Syndicates Exclusion Clause (Catastrophe) attached to and forming part of this Contract and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation. 12. Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guaranty fund, insolvency fund, plan, 19\F7V1075 Page 3

 
pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. 13. Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises. 14. Mold, unless resulting from a peril otherwise covered under the policy involved. 15. Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract. 16. All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved. "Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment. "Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature. However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril. Article 5 - Retention and Limit A. The Company shall retain and be liable for the first $2,000,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention (subject to the provisions of paragraph B below), but the liability of the Reinsurer shall not exceed $18,000,000 of ultimate net loss, as respects any one loss occurrence, nor shall it exceed $18,000,000, in all during the term of this Contract. B. Notwithstanding the provisions of paragraph A above, no claim shall be made hereunder unless and until the Company's subject excess ultimate net loss arising out of loss occurrences commencing during the term of this Contract exceeds $18,000,000 in the aggregate. "Subject excess ultimate net loss" as used herein shall mean the amount, if any, by which the Company's ultimate net loss arising out of any one loss occurrence 19\F7V1075 Page 4

 
exceeds $2,000,000, but said amount shall not exceed $18,000,000 in excess of $2,000,000 as respects any one loss occurrence. C. Notwithstanding the provisions above, no claim shall be made as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes "one risk." Article 6 - Other Reinsurance The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. Article 7 - Definitions A. "Loss adjustment expense," regardless of how such expenses are classified for statutory reporting purposes, as used in this Contract shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest, unless included as part of the award or judgment; b) post-judgment interest; c) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro rata share of salaries of the Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss adjustment expense as defined above does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than in (d) above, and office and other overhead expenses. B. "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract shall mean: 1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company's policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. Any loss in excess of policy limits that is made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. 2. "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of 19\F7V1075 Page 5

 
any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy. Any extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the actual catastrophe loss. Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Policies" as used in this Contract shall mean all policies, contracts and binders of insurance or reinsurance. D. "Ultimate net loss" as used in this Contract shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as defined herein) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. Article 8 - Loss Occurrence A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by a storm or storm system that has been declared by a Reporting Agency to be a hurricane at landfall, which may include, by way of example, windstorm, hail, tornado, hurricane, tropical storm, cyclone caused by, resulting from or occurring during such storm or storm system (each, a "hurricane"), all individual losses sustained during any period (a) from and after 12:00 a.m. Eastern Standard Time on the date a watch, warning, advisory, or other bulletin (whether for wind, flood or otherwise) for such hurricane is first issued by the National Hurricane Center ("NHC") or its successor or any other division of the National Weather Service ("NWS"), (b) continuing for a time period thereafter during which such hurricane continues, regardless of its category rating or lack thereof and regardless of whether the watch, warning, or advisory or other bulletin remains in effect for such hurricane and (c) ending 96 hours following the issuance of the last watch, warning or advisory or other bulletin for such hurricane or related to such hurricane by the NHC or its successor or any other division of the NWS. However, the hurricane need not be limited to one state or province or states or provinces contiguous thereto. B. For all loss occurrences hereunder, the Company may choose the date and time when any such period of consecutive hours commences, provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by 19\F7V1075 Page 6

 
the Company arising out of that disaster, accident, or loss or series of disasters, accidents, or losses. Furthermore, only one such hourly limitation as set forth in paragraph A shall apply with respect to one event. C. It is understood that losses arising from a combination of two or more perils as a result of the same event may be considered as having arisen from one loss occurrence. Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single loss occurrence shall encompass a time period greater than the hourly limitation set forth in paragraph A above. Article 9 - Loss Notices and Settlements A. Whenever losses sustained by the Company are reserved by the Company for an amount greater than 50.0% of the Company's retention hereunder and/or appear likely to result in a claim, the Company shall notify the Subscribing Reinsurers and shall provide updates related to development of such losses. The Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of this Contract and the terms of the original policy (with the exception of loss in excess of policy limits or extra contractual obligations coverage, if any, under this Contract), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company. Article 10 - Cash Call Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of the Company, the Reinsurer shall pay any amount with regard to a loss settlement or settlements that are scheduled to be made (including any payments projected to be made) within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory proof of loss. Such agreed payment shall be made within 10 days from the date the demand for payment was transmitted to the Reinsurer. Article 11 - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to do so. 19\F7V1075 Page 7

 
Article 12 - Reinsurance Premium A. As premium for reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months), subject to a minimum premium in the amount of $[***] (or a pro rata portion thereof in the event the term of this Contract is less than 12 months): 1. The annual deposit premium of $[***]; times 2. The percentage calculated by dividing (a) the actual Average Annual Loss ("AAL") determined by the Company's wind insurance in force on September 30, 2019, by (b) the original AAL of the amount of $[***]. The Company's AAL shall be derived by averaging the applicable data produced by Applied Insurance Research (AIR) Touchstone v5.1 and Risk Management Solutions (RMS) RiskLink v17 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge. It is understood that the calculation of the actual AAL shall be based on the amount of $18,000,000. B. The Company shall pay the Reinsurer an annual deposit premium in the amount of $[***], in four equal installments in the amount of $[***], on July 1 and October 1 of 2019, and on January 1 and April 1 of 2020. However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination. C. On or before June 30, 2020, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly. Article 13 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. Article 14 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party 19\F7V1075 Page 8

 
agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects a "cash call" made in accordance with the Cash Call Article, payment shall be deemed due 10 days after the demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest shall accrue on the payment or amount overdue in accordance with paragraph B above, from the date the demand for payment was transmitted to the Reinsurer. 4. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1, 2, and 3 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such 19\F7V1075 Page 9

 
proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article 15 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. Article 16 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. Article 17 - Liability of the Reinsurer A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company's policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract. Article 18 - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect 19\F7V1075 Page 10

 
of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article 19 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article 20 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article 21 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. Article 22 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. 19\F7V1075 Page 11

 
Article 23 - Foreign Account Tax Compliance Act A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the premium payable under this Contract. B. In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article. In the event the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts. Article 24 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the 19\F7V1075 Page 12

 
contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 25 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. 19\F7V1075 Page 13

 
B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Article 26 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two 19\F7V1075 Page 14

 
Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 27 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 28 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. Article 29 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. Article 30 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the 19\F7V1075 Page 15

 
placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. 19\F7V1075 Page 16

 
Article 31 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 32 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 33 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company. 19\F7V1075 Page 17

 
In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below: This __10____________ day of __September_________________ in the year __2019______. FedNat Insurance Company /s/ Michael Braun_______________________________________________________ 19\F7V1075 Page 18

 
War Exclusion Clause As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. 19\F7V1075

 
Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.) 1. This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks. 2. Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to: I. Nuclear reactor power plants including all auxiliary property on the site, or II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or III. Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission. 3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate (a) where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or (b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof. 4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against. 5. It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard. 6. The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof. 7. Reassured to be sole judge of what constitutes: (a) substantial quantities, and (b) the extent of installation, plant or site. Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that (a) all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. (b) with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply. 12/12/57 N.M.A. 1119 BRMA 35B 19\F7V1075

 
Pools, Associations and Syndicates Exclusion Clause (Catastrophe) It is hereby understood and agreed that: A. This Contract excludes loss or liability arising from: 1. Business derived directly or indirectly from any pool, association, or syndicate which maintains its own reinsurance facilities. This subparagraph 1 shall not apply with respect to: a. Residual market mechanisms created by statute. This Contract shall not extend, however, to afford coverage for liability arising from the inability of any other participant or member in the residual market mechanism to meet its obligations, nor shall this Contract extend to afford coverage for liability arising from any claim against the residual market mechanism brought by or on behalf of any insolvency fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract). For the purposes of this Clause, the California Earthquake Authority shall be deemed to be a "residual market mechanism." b. Inter-agency or inter-government joint underwriting or risk purchasing associations (however styled) created by or permitted by statute or regulation. 2. Those perils insured by the Company that the Company knows, at the time the risk is bound, to be insured by or in excess of amounts insured or reinsured by any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks. This subparagraph 2 shall not apply: a. If the total insured value over all interests of the risk is less than $250,000,000. b. To interests traditionally underwritten as Inland Marine or Stock or Contents written on a blanket basis. c. To Contingent Business Interruption liability, except when it is known to the Company, at the time the risk is bound, that the key location is insured by or through any pool, association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless the total insured value over all interests of the risk is less than $250,000,000. B. With respect to loss or liability arising from the Company's participation or membership in any residual market mechanism created by statute, the Company may include in its ultimate net loss only amounts for which the Company is assessed as a direct consequence of a covered loss occurrence, subject to the following provisions: 1. Recovery is limited to perils otherwise protected hereunder. 2. In the event the terms of the Company's participation or membership in any such residual market mechanism permit the Company to recoup any such direct 19\F7V1075 Page 1 of 2

 
assessment attributed to a loss occurrence by way of a specific policy premium surcharge or similar levy on policyholders, the amount received by the Company as a result of such premium surcharge or levy shall reduce the Company's ultimate net loss for such loss occurrence. 3. The result of any rate increase filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall have no effect on the Company's ultimate net loss for any covered loss occurrence. 4. The result of any premium tax credit filing permitted by the terms of the Company's participation or membership in any such residual market mechanism following any assessment shall reduce the Company's ultimate net loss for any covered loss occurrence. 5. The Company may not include in its ultimate net loss any amount resulting from an assessment that, pursuant to the terms of the Company's participation or membership in the residual market mechanism, the Company is required to pay only after such assessment is collected from the policyholder. 6. The ultimate net loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of a residual market mechanism nor any fines or penalties imposed on the Company for late payment. 7. If, however, a residual market mechanism only provides for assessment based on an aggregate of losses in any one contract or plan year of said mechanism, then the amount of that assessment to be included in the ultimate net loss for any one loss occurrence shall be determined by multiplying the Company's share of the aggregate assessment by a factor derived by dividing the Company's ultimate net loss (net of the assessment) with respect to the loss occurrence by the total of all of its ultimate net losses (net of assessments) from all loss occurrences included by the mechanism in determining the assessment. 8/1/2012 19\F7V1075 Page 2 of 2

 
Terrorism Exclusion (Property Treaty Reinsurance) Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss. An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which: 1. Involves violence against one or more persons, or 2. Involves damage to property; or 3. Endangers life other than the person committing the action; or 4. Creates a risk to health or safety of the public or a section of the public; or 5. Is designed to interfere with or disrupt an electronic system. This Contract also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against or responding to any act of terrorism. Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not related cost and expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from or arising out of or in connection with radiological, biological, chemical, or nuclear pollution or contamination. 19\F7V1075

 
The Interests and Liabilities Agreements, constituting 9 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 19\F7V1075

 
Reinstatement Premium Protection Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana _______________________ Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. Redactions are indicated by [***]. 19\F7V1055

 
Table of Contents Article Page 1 Coverage 1 2 Commencement and Termination 1 3 Concurrency of Conditions 3 4 Premium 3 5 Sanctions 4 6 Loss Notices and Settlements 4 7 Late Payments 4 8 Offset 5 9 Severability of Interests and Obligations 6 10 Access to Records 6 11 Errors and Omissions (BRMA 14F) 6 12 Currency (BRMA 12A) 7 13 Taxes (BRMA 50B) 7 14 Federal Excise Tax (BRMA 17D) 7 15 Foreign Account Tax Compliance Act 7 16 Reserves 7 17 Insolvency 9 18 Arbitration 9 19 Service of Suit (BRMA 49C) 10 20 Severability (BRMA 72E) 11 21 Governing Law (BRMA 71B) 11 22 Confidentiality 11 23 Non-Waiver 12 24 Agency Agreement (BRMA 73A) 12 25 Notices and Contract Execution 13 26 Intermediary 13 Schedule A Schedule B 19\F7V1055

 
Reinstatement Premium Protection Reinsurance Contract Effective: July 1, 2019 entered into by and between FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana (hereinafter referred to as the "Company") and The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Article 1 - Coverage By this Contract the Reinsurer agrees to indemnify the Company for 100% of any reinstatement premium which the Company pays or becomes liable to pay as a result of loss occurrences covered under the provisions of the Company's Excess Catastrophe Reinsurance Contract, effective July 1, 2019 (hereinafter referred to as the "Original Contract"), subject to the terms and conditions hereinafter set forth herein and in Schedules A and B attached to and forming part of this Contract. Article 2 - Commencement and Termination A. This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2019, with respect to reinstatement premium payable by the Company under the Original Contract as a result of losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2020. B. Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur: 1. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or 19\F7V1055 Page 1

 
2. The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by 20.0% or more of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or 3. The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or 4. The Subscribing Reinsurer has become, or has announced its intention to become, merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or 5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or 6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or 7. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or 8. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or 9. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid; or 10. The Subscribing Reinsurer has failed to comply with the funding requirements set forth in the Reserves Article. C. If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. 19\F7V1055 Page 2

 
Article 3 - Concurrency of Conditions A. It is agreed that this Contract will follow the terms, conditions, exclusions, definitions, warranties and settlements of the Company under the Original Contract, which are not inconsistent with the provisions of this Contract. B. The Company shall advise the Reinsurer of any material changes in the Original Contract which may affect the liability of the Reinsurer under this Contract. Article 4 - Premium A. As premium for the reinsurance coverage provided hereunder for each excess layer for the term of this Contract, the Company shall pay the Reinsurer the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months and for purposes of calculating subparagraph 3 below, the term of the Original Contract is a full 12 months): 1. The amount, shown as "Reinstatement Factor" for that excess layer in Schedule B attached hereto; times 2. The Final Adjusted Rate on Line for the corresponding excess layer of the Original Contract; times 3. An amount equal to 100% reinsurance placement percentage under each excess layer of the Original Contract of the final adjusted premium paid by the Company for the corresponding excess layer of the Original Contract. "Final Adjusted Rate on Line" as used herein shall mean an amount equal to a 100% reinsurance placement percentage under each excess layer of the Original Contract of the final adjusted premium paid by the Company for the corresponding excess layer of the Original Contract divided by the amount, shown as the "Reinsurer's Per Occurrence Limit" for that excess layer under the Original Contract in Schedule A attached hereto. B. The Company shall pay the Reinsurer a deposit premium for each excess layer of the amount, shown as "Annual Deposit Premium" for that excess layer in Schedule B attached hereto, in four equal installments of the amount, shown as "Deposit Premium Installment" for that excess layer in Schedule B attached hereto, on July 1 and October 1 of 2019, and January 1 and April 1 of 2020. However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination. C. As soon as possible after the termination or expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly. 19\F7V1055 Page 3

 
Article 5 - Sanctions Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America that are applicable to either party. Article 6 - Loss Notices and Settlements A. Whenever reinstatement premium settlements made by the Company under the Original Contract appear likely to result in a claim hereunder, the Company shall notify the Reinsurer. The Company will advise the Reinsurer of all subsequent developments relating to such claims that, in the opinion of the Company, may materially affect the position of the Reinsurer. B. All reinstatement premium settlements made by the Company under the Original Contract, provided they are within the terms of the Original Contract and within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable within 10 days of receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company. Article 7 - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary. 19\F7V1055 Page 4

 
C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest charges arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article 8 - Offset The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other contract heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. The provisions of this Article shall not be affected by the insolvency of either party. 19\F7V1055 Page 5

 
Article 9 - Severability of Interests and Obligations The rights, duties and obligations set forth below shall apply as if this Contract were a separate contract between the Subscribing Reinsurers and each named reinsured company: A. Balances payable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances recoverable to, or from, any other reinsured party to the Contract and balances payable shall be separated by named reinsured company and paid directly to the appropriate named reinsured company’s bank account. B. Balances recoverable by any Subscribing Reinsurer to or from any reinsured party under the Contract shall not serve to offset any balances payable to, or from, any other reinsured party to the Contract. C. Reports and remittances made to the Reinsurer in accordance with the applicable articles of the Contract are to be in sufficient detail to identify both the Reinsurer's loss obligations due to each named reinsured company and each named reinsured company's premium remittance under the report. D. In the event of the insolvency of any of the parties to the Contract, offset shall be only allowed in accordance with the laws of the insolvent party's state of domicile. E. Nothing in this Article shall be construed to provide a separate retention, Reinsurer's limit of liability any one loss occurrence or Reinsurer's annual limit of liability for each named reinsured company. Article 10 - Access to Records The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company specifying the reason(s) why the payments are disputed. Article 11 - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. 19\F7V1055 Page 6

 
Article 12 - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article 13 - Taxes (BRMA 50B) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia. Article 14 - Federal Excise Tax (BRMA 17D) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article 15 - Foreign Account Tax Compliance Act A. To the extent the Reinsurer is subject to the deduction and withholding of premium payable hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the premium payable under this Contract. B. In the event of any return of premium becoming due hereunder, the return premium shall be determined and paid in full without regard to any amounts deducted or withheld under paragraph A of this Article. In the event the Company or its agent recovers such premium deductions and withholdings on the return premium from the United States Government, the Company or its agent shall reimburse the Reinsurer for such amounts. Article 16 - Reserves A. The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss reserves (being the sum of all reinstatement premiums paid by the Company under the Original Contract but not yet 19\F7V1055 Page 7

 
recovered from the Reinsurer, plus the Company's reserves for reinstatement premium due under the Original Contract, if any) (hereinafter referred to as "Reinsurer's Obligations") by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if the Reinsurer: 1. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or 2. Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of reinstatement premiums paid by the Company under the terms of the Original Contract, unless paid in cash by the Reinsurer; 3. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 4. To fund a cash account in an amount equal to the Reinsurer's share of amounts, including, but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 19\F7V1055 Page 8

 
5. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article 17 - Insolvency A. In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more Subscribing Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company. C. It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees. Article 18 - Arbitration A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One 19\F7V1055 Page 9

 
Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one Subscribing Reinsurer is involved in the same dispute, all such Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the Subscribing Reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article 19 - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a 19\F7V1055 Page 10

 
United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article 20 - Severability (BRMA 72E) If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction. Article 21 - Governing Law (BRMA 71B) This Contract shall be governed by and construed in accordance with the laws of the State of Florida. Article 22 - Confidentiality A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, including all information obtained through any audits and any claims information between the Company and the Reinsurer, and any submission or other materials relating to any renewal (hereinafter referred to as "Confidential Information") are proprietary and confidential to the Company. B. Except as provided for in paragraph C below, the Reinsurer shall not disclose any Confidential Information to any third parties, including but not limited to the Reinsurer's subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates, underwriting agencies, research organizations, any unaffiliated entity engaged in modeling insurance or reinsurance data, and statistical rating organizations. C. Confidential Information may be used by the Reinsurer only in connection with the performance of its obligations or enforcement of its rights under this Contract and will only be disclosed when required by (1) retrocessionaires subject to the business ceded to this Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial condition, (3) external auditors performing an audit of the Reinsurer's records in the normal course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer advises such parties of the confidential nature of the Confidential Information and their obligation to maintain its confidentiality. The Company may require that any third-party representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article 19\F7V1055 Page 11

 
or by a separate written confidentiality agreement, containing terms no less stringent than those set forth in this Article. If a third-party representative of the Reinsurer is not bound, in writing, by this Confidentiality Article or by a separate written confidentiality agreement, the Reinsurer shall be responsible for any breach of this provision by such third-party representative of the Reinsurer. D. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure, to the extent legally permissible, and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article. E. Any disclosure of Non-Public Personally Identifiable Information shall comply with all state and federal statutes and regulations governing the disclosure of Non-Public Personally Identifiable Information. "Non-Public Personally Identifiable Information" shall be defined as this term or a similar term is defined in any applicable state, provincial, territory, or federal law. Disclosing or using this information for any purpose not authorized by applicable law is expressly forbidden without the prior consent of the Company. F. The parties agree that any information subject to privilege, including the attorney-client privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. Furthermore, the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential Information has been waived or otherwise compromised by virtue of its disclosure pursuant to this Contract. G. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns. Article 23 - Non-Waiver The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise any right, remedy or option hereunder shall not: (1) constitute a waiver of any rights contained in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in the future, nor (4) affect the validity of this Contract or any part thereof. Article 24 - Agency Agreement (BRMA 73A) If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. 19\F7V1055 Page 12

 
Article 25 - Notices and Contract Execution A. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable. B. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto: 1. Paper documents with an original ink signature; 2. Facsimile or electronic copies of paper documents showing an original ink signature; and/or 3. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto. C. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original. Article 26 - Intermediary Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company. 19\F7V1055 Page 13

 
In Witness Whereof, the Company by its duly authorized representatives has executed this Contract as of the dates specified below: This __10____________ day of __September_________________ in the year __2019______. FedNat Insurance Company /s/ Michael Braun_____________________________________________________ This __10____________ day of __September_________________ in the year __2019______. Monarch National Insurance Company /s/ Michael Braun_____________________________________________________ This __10____________ day of __September_________________ in the year __2019______. Maison Insurance Company /s/ Doug Raucy_______________________________________________________ 19\F7V1055 Page 14

 
Schedule A Reinstatement Premium Protection Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana Original Original Original Original Original Contract Contract Contract Contract Contract First Second Third Fourth Fifth Excess Excess Excess Excess Excess Reinsurer's Per Occurrence Limit $75,000,000 $160,000,000 $75,000,000 $117,500,000 $121,000,000 Reinsurer's Term Limit $150,000,000 $320,000,000 $150,000,000 $235,000,000 $242,000,000 Minimum Premium [***] [***] [***] [***] [***] AAL [***] [***] [***] [***] [***] Annual Deposit Premium [***] [***] [***] [***] [***] Deposit Premium Installments [***] [***] [***] [***] [***] 19\F7V1055 Schedule A

 
Schedule B Reinstatement Premium Protection Reinsurance Contract Effective: July 1, 2019 FedNat Insurance Company Sunrise, Florida and Monarch National Insurance Company Sunrise, Florida and Maison Insurance Company Baton Rouge, Louisiana First Second Third Fourth Fifth RPP Layer RPP Layer RPP Layer RPP Layer RPP Layer Reinstatement Factor [***] [***] [***] [***] [***] Annual Deposit Premium [***] [***] [***] [***] [***] Deposit Premium Installments [***] [***] [***] [***] [***] 19\F7V1055 Schedule B

 
The Interests and Liabilities Agreements, constituting 39 pages in total, have been omitted from this exhibit because such agreements are not material and would be competitively harmful if publicly disclosed. 19\F7V1055 Schedule B

 
Exhibit 31(1)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Michael H. Braun, certify that:
1. I have reviewed this Form 10-Q of FedNat Holding Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  November 12, 2019
  
/s/ Michael H. Braun  
Michael H. Braun  
Chief Executive Officer (Principal Executive Officer)  



Exhibit 31(2)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Ronald Jordan, certify that:
1. I have reviewed this Form 10-Q of FedNat Holding Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 12, 2019
/s/ Ronald Jordan  
Ronald Jordan  
Chief Financial Officer  
(Principal Financial and Accounting Officer)


Exhibit 32(1)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of FedNat Holding Company for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), I, Michael H. Braun, Chief Executive Officer of FedNat Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedNat Holding Company.

/s/ Michael H. Braun  
Michael H. Braun  
Chief Executive Officer (Principal Executive Officer)  

November 12, 2019



Exhibit 32(2)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report on Form 10-Q of FedNat Holding Company for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), I, Ronald Jordan, Chief Financial Officer of FedNat Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedNat Holding Company.

/s/ Ronald Jordan  
Ronald Jordan  
Chief Financial Officer  
(Principal Financial and Accounting Officer)  

November 12, 2019