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.
Refer to Basis of Presentation and Principles of Consolidation and Note 17 below.
The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (“SageSure”) to underwrite our FNIC homeowners business outside of Florida. As a percentage of the total homeowners premiums, 15.0%,10.2% and 6.9% respectively, of the Company’s premiums were underwritten by SageSure, for the years ended December 31, 2018, 2017, and 2016 respectively.
The Company recognizes premiums as revenue on a pro-rata basis over the term of the insurance policy.
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 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.
As discussed in Note 1 above, the outstanding principal balance of $5.0 million promissory note to TransRe was paid in full in February 2018. The associated deferred financing costs for this debt of less than $0.1 million was recognized as interest expense in our consolidated statement of operations for the three months ended March 31, 2018.
The Company files a federal income tax return and various state and local tax returns. The Company’s consolidated federal and state income tax returns for 2015 - 2017 are open for review by the Internal Revenue Service and other state taxing authorities.
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 December 31, 2018, the remaining availability for future repurchases of our common stock under this program was $10.0 million.
Related to an equity method investment in Southeast Catastrophe Consulting Company, LLC, based in Mobile, Alabama, the Company recorded claims adjustment service fees and other expenses of $6.7 million, $17.0 million, and $3.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, the Company recognized other income in the consolidated statements of operations, of $0.3 million, $2.0 million and $0.2 million, respectively.
As of December 31, 2018 and 2017, on a combined statutory basis, the capital and surplus of the Company’s insurance companies was $161.7 million and $188.0 million, respectively. Combined statutory operational results of the Company’s insurance companies was a net income of $2.9 million, net loss of $19.6 million and net loss of $37.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. Statutory capital and surplus exceeds amounts necessary to satisfy regulatory requirements.