Document:

EXHIBIT 10.4

 

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

Federated National Insurance Company

Sunrise, Florida

 

 

	
 

 

	

Table of Contents

	
Article

	
 

	
Page

	
 

	
 

	
 

	
 

	
1

	
 

	
Classes of Business Reinsured

	
1

	
2

	
 

	
Commencement and Termination

	
1

	
3

	
 

	
Territory

	
3

	
4

	
 

	
Exclusions

	
3

	
5

	
 

	
Retention and Limit

	
4

	
6

	
 

	
Florida Hurricane Catastrophe Fund

	
5

	
7

	
 

	
Other Reinsurance

	
5

	
8

	
 

	
Definitions

	
5

	
9

	
 

	
Loss Occurrence

	
6

	
10

	
 

	
Loss Notices and Settlements

	
7

	
11

	
 

	
Salvage and Subrogation

	
8

	
12

	
 

	
Reinsurance Premium

	
8

	
13

	
 

	
Late Payments

	
9

	
14

	
 

	
Offset

	
10

	
15

	
 

	
Access to Records

	
10

	
16

	
 

	
Liability of the Reinsurer

	
10

	
17

	
 

	
Net Retained Lines (BRMA 32E)

	
11

	
18

	
 

	
Errors and Omissions (BRMA 14F)

	
11

	
19

	
 

	
Currency (BRMA 12A)

	
11

	
20

	
 

	
Taxes (BRMA 50B)

	
11

	
21

	
 

	
Federal Excise Tax (BRMA 17D)

	
11

	
22

	
 

	
Reserves

	
12

	
23

	
 

	
Insolvency

	
13

	
24

	
 

	
Arbitration

	
14

	
25

	
 

	
Service of Suit (BRMA 49C)

	
15

	
26

	
 

	
Severability (BRMA 72E)

	
15

	
27

	
 

	
Governing Law (BRMA 71B)

	
15

	
28

	
 

	
Non-Waiver

	
15

	
29

	
 

	
Notices and Contract Execution

	
15

	
30

	
 

	
Intermediary

	
16

 

	
 

 

	

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective: July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to as the "Company")

and

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

Article 1 - Classes of Business Reinsured

 

	A.	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 date hereof or issued or renewed on or after that date, and classified by the Company as Property business, including but not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners business (including any business assumed from Citizens Property Insurance Corporation), subject to the terms, conditions and limitations hereinafter set forth.

	B.	Neither the Company nor the 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 2 - Commencement and Termination

 

	
A.

	
This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, 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, 2014.

	
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 more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

 

	
 

 

	

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 more than 20.0% 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 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.

	
C.

	
The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, July 1, 2013 to 12:01 a.m., Eastern Standard Time, July 1, 2014.  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, 2013 to the effective time and date of termination.

	
D.

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

 

	
 

 

	

Page 2

Article 3 - Territory

 

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

Article 4 - Exclusions

 

	
A.

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

	 	
1.

	
Reinsurance assumed by the Company under obligatory reinsurance agreements, except business assumed by the Company from Citizens Property Insurance Corporation.

	 	
2.

	
Hail damage to growing or standing crops.

	 	
3.

	
Business rated, coded or classified as Flood insurance or which should have been rated, coded or classified as such.

	 	
4.

	
Business rated, coded or classified as Mortgage Impairment and Difference in Conditions insurance or which should have been rated, coded or classified as such.

	 	
5.

	
Title insurance and all forms of Financial Guarantee, Credit and Insolvency.

	 	
6.

	
Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and Health, Animal Mortality and Workers Compensation and Employers Liability.

	 	
7.

	
Errors and Omissions, Malpractice and any other type of Professional Liability insurance.

	 	
8.

	
Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke.  Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company's property loss under the applicable original policy.

	 	
9.

	
Loss or liability as excluded under the provisions of the "War Exclusion Clause" attached to and forming part of this Contract.

	 	
10.

	
Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract.

	 	
11.

	
Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the FHCF or Citizens Property Insurance Corporation.

	 	
12.

	
Loss or liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  "Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

 

	
 

 

	

Page 3

	 	
13.

	
Losses in the respect of overhead transmission and distribution lines other than those on or within 150 meters (or 500 feet) of the insured premises.

	 	
14.

	
Mold, unless resulting from a peril otherwise covered under the policy involved.

	 	
15.

	
Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached to and forming part of this Contract.

	 	
16.

	
All property loss, damage, destruction, erasure, corruption or alteration of Electronic Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss of use, reduction in functionality, cost, expense or whatsoever nature resulting therefrom, unless resulting from a peril otherwise covered under the policy involved.

"Electronic Data" as used herein means facts, concepts and information converted to a form usable for communications, interpretation or processing by electronic and electromechanical data processing or electronically-controlled equipment and includes programs, software and other coded instructions for the processing and manipulation of data or the direction and manipulation of such equipment.

"Computer Virus" as used herein means a set of corrupting, harmful or otherwise unauthorized instructions or code, including a set of maliciously-introduced, unauthorized instructions or code, that propagate themselves through a computer system network of whatsoever nature.

However, in the event that a peril otherwise covered under the policy results from any of the matters described above, this Contract, subject to all other terms and conditions, will cover physical damage directly caused by such listed peril.

Article 5 - Retention and Limit

 

	
A.

	
The Company shall retain and be liable for the first $7,000,000 of ultimate net loss arising out of each loss occurrence.  The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company's retention, but the liability of the Reinsurer shall not exceed $4,000,000 as respects any one loss occurrence, nor shall it exceed $8,000,000 in all during the term of this Contract.

	
B.

	
Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence.  For purposes hereof, the Company shall be the sole judge of what constitutes "one risk."

 

	
 

 

	

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Article 6 - Florida Hurricane Catastrophe Fund

 

The FHCF mandatory layer of coverage, which is purchased by the Company, shall be deemed to inure to the benefit of this Contract.  Further, any FHCF loss reimbursement shall be deemed to be paid to the Company in accordance with the FHCF reimbursement contract at the full payout level set forth therein and will be deemed not to be reduced by any reduction or exhaustion of the FHCF's claims-paying capacity as respects the mandatory FHCF coverage.

Article 7 - Other Reinsurance

 

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

Article 8 - 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 80.0% 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.

 

	
 

 

	

Page 5

	 	
2.

	
"Extra contractual obligations" shall mean 80.0% 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 Canada and states or provinces contiguous thereto and to one another.  However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows:

	 	
1.

	
As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event.  However, the event need not be limited to one state or province or states or provinces contiguous thereto.

	 	
2.

	
As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event.  The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period.

 

	
 

 

	

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3.

	
As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph A) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's "loss occurrence."

	 	
4.

	
As regards "freeze," only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's "loss occurrence."

	 	
5.

	
As regards conflagration, brush fires and any other fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), all individual losses sustained by the Company which occur during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Company's "loss occurrence."

	
B.

	
Except for those "loss occurrences" referred to in subparagraph 2 of paragraph A above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any "loss occurrence" referred to in subparagraph 1 of paragraph A above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

	
C.

	
However, as respects those "loss occurrences" referred to in subparagraph 2 of paragraph A above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more "loss occurrences," provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

	
D.

	
No individual losses occasioned by an event that would be covered by a 96 or 72 hours clause may be included in any "loss occurrence" claimed under a 168 hours provision.

 

Article 10 - Loss Notices and Settlements

 

	
A.

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

 

	
 

 

	

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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 - Salvage and Subrogation

 

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

Article 12 - Reinsurance Premium

 

	
A.

	
As premium for the reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer a premium equal to the product of the following (or a pro rata portion thereof in the event the term of this Contract is less than 12 months), subject to a minimum premium of $2,160,000 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):

	 	
1.

	
$2,700,000; 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, 2013, by (b) $1,114,274.

The Company's AAL shall be derived from results produced by RMS RiskLink Version 11.0 catastrophe modeling software, in the long-term perspective, including secondary uncertainty and loss amplification, but excluding storm surge.  It is understood that the calculation of the actual AAL shall be based on the Reinsurer's per occurrence limit of $4,000,000, net of the FHCF mandatory layer of coverage purchased by the Company using the current estimates of the mandatory FHCF coverage of 90.0% of $258,128,782 excess of $98,470,089.

	
B.

	
The Company shall pay the Reinsurer an annual deposit premium of $2,700,000 in four equal installments of $675,000 on July 1 and October 1 of 2013, and on January 1 and April 1 of 2014.  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, 2014, 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.

 

	
 

 

	

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Article 13 - 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 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.

 

	
 

 

	

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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 14 - 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 15 - 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 16 - 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.

 

	
 

 

	

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Article 17 - 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 18 - 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 19 - 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 20 - 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 21 - 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.

 

	
 

 

	

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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 22 - Reserves

 

	
A.

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

	 	
1.

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

	 	
2.

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

	 	
3.

	
Cash advances;

if the Reinsurer:

	 	
1.

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

	 	
2.

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

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

	
B.

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

	 	
1.

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

 

	
 

 

	

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2.

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

	 	
3.

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

	 	
4.

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

	 	
5.

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

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

Article 23 - 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 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.

 

	
 

 

	

Page 13

Article 24 - 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 reinsurer is involved in the same dispute, all such 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 reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the 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.

 

	
 

 

	

Page 14

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

 

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

Article 28 - 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 29 - 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.

 

	
 

 

	

Page 15

	
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 30 - Intermediary

 

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary.  Payments by the Company to the Intermediary will be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

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

This 8th day of July in the year 2013.

Federated National Insurance Company

/s/  Michael H. Braun

 

	
 

 

	

Page 16

War Exclusion Clause

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

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

	
1.

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

	
2.

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

	 	
I.

	
Nuclear reactor power plants including all auxiliary property on the site, or

	 	
II.

	
Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and "critical facilities" as such, or

	 	
III.

	
Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material," and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or

	 	
IV.

	
Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

	
3.

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

	 	
(a)

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

	 	
(b)

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

	
4.

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

	
5.

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

	
6.

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

	
7.

	
Reassured to be sole judge of what constitutes:

	 	
(a)

	
substantial quantities, and

	 	
(b)

	
the extent of installation, plant or site.

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

	 	
(a)

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

	 	
(b)

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

Terrorism Exclusion

(Property Treaty Reinsurance)

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

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

	 	
1.

	
Involves violence against one or more persons, or

	 	
2.

	
Involves damage to property; or

	 	
3.

	
Endangers life other than the person committing the action; or

	 	
4.

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

	 	
5.

	
Is designed to interfere with or disrupt an electronic system.

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

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

 

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

DaVinci Reinsurance Ltd.

Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

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

This ________________ day of ___________________________ in the year ____________.

DaVinci Reinsurance Ltd.

 

	
 

 

	

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Endurance Specialty Insurance Ltd.

Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

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

This ________________ day of ___________________________ in the year ____________.

Endurance Specialty Insurance Ltd.

 

	
 

 

	

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Everest Reinsurance Company

A Delaware Corporation

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 50.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

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

This ________________ day of ___________________________ in the year ____________.

Everest Reinsurance Company

 

	
 

 

	

Interests and Liabilities Agreement

attached to and forming part of the

Underlying Catastrophe Excess of Loss Reinsurance Contract

Effective:  July 1, 2013

entered into by and between

Federated National Insurance Company

Sunrise, Florida

and

Renaissance Reinsurance, Ltd.

Hamilton, Bermuda

(hereinafter referred to as the "Subscribing Reinsurer")

The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2013, and shall continue in force until 12:01 a.m., Eastern Standard Time, July 1, 2014, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Thomas Dawson, Drinker Biddle & Reath, LLP, 1177 Avenue of the Americas, 41st Floor, New York, New York  10036-2714.

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

This ________________ day of ___________________________ in the year ____________.

Renaissance Reinsurance, Ltd.Exhibit 10.5

 

INSURANCE AGENCY MASTER AGREEMENT

THIS INSURANCE AGENCY MASTER AGREEMENT (this “Agreement”) is entered into on this February 4th, 2013, by and between Ivantage Select Agency, Inc., an affiliate of Allstate Insurance Company (“Allstate”), with its principal office located at 3100 Sanders Rd, Northbrook, IL 60062 (“ISA”) and Federated National Underwriters, Inc., a Florida corporation with its principal office located at 14050 NW 14th Street, Suite 180, Sunrise, Florida 33323 (hereinafter “COMPANY”) (singularly “Party” and collectively the “Parties”).

W I T N E S S E T H:

WHEREAS, ISA, a licensed insurance producer, has access to a network of licensed captive insurance producers (“Producers”), who solicit insurance exclusively on behalf of Allstate Insurance Company, its subsidiaries and affiliates (“Allstate”);

WHEREAS, COMPANY, is authorized by Federated National Insurance Company to solicit the Coverage and, if applicable, to make the appointments as set forth in this Agreement;

WHEREAS, COMPANY and ISA desire to enter into a written agreement that sets forth their rights and obligations with respect to making certain insurance products available to consumers through ISA’s expanded markets program; and

NOW, THEREFORE, in consideration of the recitals and the mutual promises contained herein, the receipt and adequacy of which are acknowledged by all Parties, the Parties to this Agreement agree as follows:

Section 1. Relationship.

(a)            During the term of this Agreement, it is expressly understood that neither Party is subject to an exclusive arrangement herein and may represent other carriers or contract with other wholesale agencies, intermediaries or producers during the term of this Agreement with respect to Coverage. Furthermore, ISA shall have exclusive discretion to determine which risks, if any, that may be submitted for consideration by COMPANY. Likewise, COMPANY shall have exclusive discretion to determine which risks it chooses to accept.

(b)            ISA is a licensed producer and warrants that it is appropriately licensed as an Agency in accordance with the laws, rules and regulations of all states in which ISA shall transact business pursuant to this Agreement. ISA is an independent contractor and nothing herein shall be construed as creating the relationship of employer and employee between COMPANY and ISA.

(c)            ISA and Producers have the authority, unless revoked by COMPANY, to accept, bind, or cancel on behalf of COMPANY. COMPANY agrees to revoke a Producer’s authority at the written request of ISA. Additionally, ISA and Producers shall not assign, adjust or settle any losses on behalf of COMPANY. Notice to the ISA does not constitute notice to COMPANY.

Section 2. Term. This Agreement shall commence on the date this Agreement is executed by both Parties and shall continue until terminated in accordance with the provisions of Section 17 of this Agreement.

Section 3. Scope.

(a)            The scope of this Agreement regarding a particular insurance product or service will be defined in an attachment referenced herein as a Schedule ("Schedule"). Each Schedule will delineate: the carrier(s) approved by ISA, which must hold a Demotech, Inc. Financial Stability Rating (Demotech FSR) rating of A or better; the agreed-upon line or lines of insurance; compensation and territories, as applicable. “Coverage” shall be defined, for purposes of this Agreement, to mean those insurance products and services identified in the Schedules attached hereto that are not currently underwritten by Allstate or are not acceptable under Allstate’s underwriting or administrative guidelines and that Producers have been authorized by ISA to place through COMPANY.

(b)            Each Schedule is subject to the terms and conditions of this Agreement as may from time to time be amended in writing and signed by both Parties, and each Schedule may incorporate such additional terms and conditions as ISA and COMPANY may agree upon. Each Schedule, in conjunction with this Agreement, shall constitute a separate, distinct, and independent agreement and contractual obligation. To the extent that there is any conflict between the provisions of this Agreement and a Schedule, the terms of this Agreement shall control the rights and obligations of the Parties unless a Schedule expressly amends the terms of this Agreement and is signed by authorized representatives of both Parties.

(c)            COMPANY acknowledges that Allstate has the right to change, alter, add to or amend its current policies, products, and services as well as to modify its underwriting or administrative guidelines, from time to time at its sole discretion, the result of which will be to change the definition of Coverage. COMPANY also acknowledges that ISA retains the right of final approval of any and all Coverage products or programs to be made available through Producers. COMPANY agrees to adjust its practices of providing Coverage so that it will not infringe upon Allstate’s right to market its insurance products and so that Producers can make products available to the broadest market.

Section 4. COMPANY’s Obligations. COMPANY shall make commercially reasonable efforts to place Coverage and shall not knowingly accept from Producer, nor shall it knowingly secure Coverage for any risk which is currently underwritten by, and acceptable to Allstate at time of receipt by Agent. Company shall provide the services set forth in Exhibit A attached hereto or as amended, all in accordance with applicable state and federal laws and regulations. Furthermore, COMPANY shall adhere to all Service Standards attached hereto as Exhibit D or as mutually agreed to by the Parties in writing.

Section 5. ISA Obligations. ISA shall provide the services set forth in Exhibit B attached hereto or as amended, all in accordance with applicable state and federal laws and regulations. Premiums for all policies issued shall be direct billed to customers by COMPANY or its affiliates.

2

Section 6. Trademarks, Service Marks and Trade Names. Each Party agrees not to display or use any of the other party’s or its affiliates’ trade names, service marks, or trademarks, and shall not permit the same to be displayed or used by third parties, other than specifically as authorized in advance in writing by the other Party. Both Parties agree that ISA and Producers may use COMPANY and its affiliates name for adhering to applicable laws and regulations, and for distribution of ISA’s Expanded Market Program Notice and Authorization. Each Party acknowledges and agrees that the trade names, service marks, and trademarks of the other are proprietary to the other Party and that nothing in this Agreement constitutes the grant of a general license to use such trade names, service marks, or trademarks. Upon termination of this Agreement, each Party shall discontinue the use of the other’s trade names, service marks, or trademarks previously authorized in connection with any business conducted by it. This Section 6 shall apply to the trade names, service marks and trademarks of either Party’s affiliated companies.

Section 7. Compensation. * by the 10th business day of the following month in which premiums are received by COMPANY. COMPANY shall provide to ISA reports of the amounts of compensation that COMPANY paid to Producers in the manner and format prescribed in Exhibit D, by the 10th business day of the following month in which premiums are received by COMPANY. Any commission amounts owed or payable, by either Party, at the time of termination shall survive termination of this Agreement and for such time as any policies issued pursuant hereto remain in-force.

Section 8. Directly Appointed Producers. COMPANY will enter into an agency agreement between COMPANY and the applicable Producer. Any such agreement must be approved in writing by ISA, which approval shall not be unreasonably withheld. Any such agreement shall state that the Producers do not own any expirations of the business placed under this Agreement. Both Parties agree that COMPANY shall have exclusive authority to grant or deny direct appointments and that the conditions under which directly appointed Producers shall be governed by the agency agreement between the Producer(s) and COMPANY, as authorized and in accordance with any agreements between Producer(s) and ISA.

Section 9. Premium Collection Standards. Policies written under this agreement shall be issued on a direct bill basis. It is not anticipated by the Parties that ISA will receive premiums under this Agreement.

Section 10. Maintenance of Records and Files and Transfer Upon Termination. COMPANY and ISA shall maintain in their principal designated administrative offices books, records, files and other documents relating to this Agreement and transactions between them. ISA shall not be required to maintain books, records, files and other documents produced and maintained by Producers. Such books, records, files and documentation shall be maintained in accordance with all applicable laws and regulations in states where the Parties conduct business under this Agreement and applicable state insurance regulatory entity directives, consistently applied.

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

3

Section 11. *

 

	
(a)

	
*

 

	
(b)

	
*

Section 12. Financial Statement; Right to Audit.

(a)            COMPANY agrees that it shall keep true books and records, in accordance with sound accounting practices and principles applied on a consistent basis from year to year, of all dealings or transactions with respect to COMPANY’s operations pursuant to this Agreement. All such books and records of COMPANY shall be kept at COMPANY’s place of business or such other place(s) as the Parties may hereunder agree and will be available in hard copy if stored in an electronic data file.

(b)            COMPANY agrees to permit ISA, its accountants, attorneys, and assigns, upon one (1) week’s advance written notice and at ISA’s own expense, the right to enter upon COMPANY’s property during regular business hours, during the term of this Agreement for the purpose of examining, inspecting or making copies of COMPANY’s records which pertains to the conduct of business under this Agreement, but the same shall be done with as little disruption to the business of COMPANY as possible. ISA, at its own expense, shall be permitted to use the services of independent accountant or attorneys.

Section 13. *

Section 14. Confidentiality.

(a)            The Parties acknowledge that each Party may make Confidential Data available to the other Party or may otherwise learn of trade secret or confidential information of the other Party (collectively, hereinafter "Confidential Data"). Confidential Data includes all information not generally known or used by others and which gives, or may give, a Party an advantage over its competitors or which could cause injury, embarrassment, or loss of reputation or goodwill if disclosed. Such information includes, but is not necessarily limited to, data which identify or concern the Producers, such as Allstate Agent numbers and office locations, information about business practices, underwriting guidelines of Allstate or its affiliates, financial results, research, development, systems, insurance products and plans; and/or certain information and material identified by a Party as "Confidential" or “Proprietary”; and/or data one Party furnishes to the other Party from its database or third Party vendors; and/or data received from one Party and enhanced by the other Party. Confidential Data shall include information and data provided by or on behalf of any former, current or prospective customers of Allstate. Confidential Data may be written, oral, recorded, or on tapes, disks or other electronic media. Because of the sensitive nature of the information that the Parties and their respective personnel may become aware of as a result of this Agreement, the intent of the Parties is that these provisions be interpreted as broadly as possible to protect Confidential Data.

 

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

4

(b)            Each Party acknowledges that all Confidential Data furnished by the other Party may be considered a proprietary trade secret and is a matter of strict confidentiality. Each Party also acknowledges that the unauthorized use or disclosure of Confidential Data of the other Party will cause irreparable harm to the other Party. Accordingly, each Party agrees that the other Party shall be entitled to seek equitable relief, including injunction and specific performance without the necessity of posting a bond, in addition to all other remedies available at law or in equity for any threatened or actual breach of this Agreement.

(c)            Each Party agrees that it will employ the same security measures to Confidential Data received from the other Party that it would apply to its own comparable confidential information (but in no event less than a reasonable degree of care in handling Confidential Data). Without limiting the generality of the foregoing, except as specifically permitted in this Agreement, each Party further agrees that it will not distribute, disclose or convey to third parties any Confidential Data except as set forth in Section 14 (d) (e) and (f). ISA permits Confidential Data to be used by COMPANY solely for the purpose of placing and servicing Coverage or responding to Regulatory inquiries lawfully requested.

(d)            Both Parties agree that Confidential Data shall be used by ISA, Allstate and the Producers. The Parties agree that Confidential Data shall not be disclosed to or accessed by any other unaffiliated third party, except as authorized in writing by the Parties. Both Parties agree that ISA and Producer shall share Confidential Data with Allstate.

(e)            Each Party further agrees, unless otherwise provided for, that: a) only those with a defined need to know for purposes of placing and servicing Coverage shall be granted access to Confidential Data and only after they have been informed of the confidential nature of the Confidential Data; (b) Confidential Data (excluding any non-public personal information related to former, current. Or perspective customer or Producers) may be distributed, disclosed, conveyed to, or used by any consultant or subcontractor retained by it, which shall be conditioned upon prior written notice to the other Party and such consultant or subcontractors agreeing to be bound by similar confidentiality terms; (c) no copies or reproductions shall be made of any Confidential Data of the other Party except to effectuate the purpose of this Agreement; (d) it shall not make use of any Confidential Data for its own benefit or for the benefit of any unaffiliated third party. If either Party becomes aware of a threatened, suspected or actual breach of this Section, then that Party must provide immediate notice to the other Party.

(f)            Neither Party, nor its officers, directors, or employees, shall disclose the terms of this Agreement to any unaffiliated third party without the prior written consent of the other Party, except pursuant to a valid court order or as otherwise required by law. Each Party further agrees that, should third parties request the Party or its consultants or subcontractors to submit Confidential Data of the other Party to them pursuant to subpoena, summons, search warrant or governmental order, it will notify the other Party immediately upon receipt of such request. Notice shall be forwarded via overnight courier by receiving Party to other Party no later than three (3) business days after receipt by receiving Party. If the other Party objects to the release of the Confidential Data, the Party receiving the request will permit counsel chosen by the other Party to represent it in order to resist release of the Confidential Data. The Party resisting the release of such Confidential Data will indemnify the other Party for any expenses incurred by it in connection with resisting the release of the Confidential Data.

5

(g)            The obligations set forth in paragraphs (a) through (g) above shall not apply to: a) Confidential Data: 1) which has become well known in the trade; 2) which was disclosed to a Party by a third party not under an obligation of confidentiality to the other Party; 3) which was independently developed by a Party not otherwise in violation or breach of this Agreement or any other confidentiality obligation to the other Party; 4) which was rightfully known to a Party prior to entering into this Agreement; or b) any disclosure specifically authorized in writing by a Party.

(h)            No rights or licenses, express or implied, are granted by one Party to the other under any patents, copyrights, trade secrets or other proprietary rights as a result of or related to this Agreement.

Section 15. Privacy. In compliance with federal and state regulations, ISA may disclose nonpublic personal information to COMPANY for the purpose of assisting a customer to obtain insurance products or services. Both Parties agree to use, maintain, secure, store, disclose, and protect all nonpublic personal information of policyholders and insured’s in accordance with laws and regulations governing the privacy and security of such information. Both Parties agree that COMPANY shall provide all policyholders with a copy of COMPANY’s privacy policy.

Section 16. Indemnification and Hold Harmless. ISA shall indemnify COMPANY, its successors and assigns, affiliates, directors, officers, employees and agents and hold them harmless from all losses, claims, regulatory or administrative penalties, threats of claims or litigation, costs, expenses, damages, and attorney’s fees arising out of any act or omission of ISA, its officers, agents (excluding Producers under this Agreement) or employees in fulfilling its obligations under the Agreement or relating to the subject matter hereof. Promptly upon receipt by COMPANY of notice of the commencement of any action or of a threat of action, COMPANY shall, if a claim in respect thereof is to be made against ISA under this Section, notify ISA in writing thereof. COMPANY shall indemnify ISA, its successors and assigns, affiliates, directors, officers, agents, Producers and employees and hold them harmless from all losses, claims, threats of claims or litigation, costs, expenses, damages, and attorney’s fees arising out of any act or omission of COMPANY, its officers, agents, or employees in fulfilling its obligations under the Agreement or relating to the subject matter hereof. Promptly upon receipt by ISA of notice of the commencement of any action or of a threat of action, ISA shall, if a claim in respect thereof is to be made against COMPANY under this Section, notify COMPANY in writing thereof. The provisions regarding the indemnification of Parties contained above shall survive termination of this Agreement.

Section 17. Termination. This Agreement may be terminated as follows:

(a)            At any time by the mutual written consent of the Parties, which agreement shall state an agreed-upon effective date of termination;

(b)            At any time unilaterally, and without cause, by either Party, provided that the party wishing to terminate gives at least 90 days’ written notice to the other Party;

(c)            At any time unilaterally by either Party and to take effect immediately, upon written notice to the other Party, in the event of: (i) either Party filing a petition of bankruptcy or receivership, (ii) in the event of the forfeiture of either Party’s corporate charter, or (iii) if the other Party commits fraud, forgery, misrepresentation or is convicted of a felony; or

6

(d)            At any time unilaterally (i) by ISA if COMPANY is in material breach of the Agreement and such breach shall remain uncured for a period of thirty (30) days after written notice thereof by ISA; or (ii) by COMPANY if ISA is in material breach of this Agreement hereunder and such breach remains uncured for a period of thirty (30) days after written notice thereof by COMPANY.

Section 18. Obligations after Termination. Upon the effective date of termination of this Agreement, both COMPANY and ISA, will continue their obligations under this Agreement with regard to in-force insurance contracts issued under this Agreement until their then current policy expiration subject to the following conditions:

(a)            COMPANY reserves its right to non-renew any policies written under this Agreement in accordance with applicable state law;

(b)            COMPANY reserves all of its rights to cancel any policies written under this Agreement continued in-force for non-payment of premium or for other statutorily allowed reasons; and

(c)            As ISA continues to be Agent of Record on and Producer remains on the policy as servicing agent any policies written under this Agreement that are in force or renewed after the termination of this Agreement, COMPANY will pay commissions at the rate identified in the applicable Schedules. .

Section 19. Suspension. ISA may, at any time and at its sole discretion, choose to exclude or suspend certain Producers by providing COMPANY with a written list of those Producer’s names and instructions for their suspension or exclusion. Upon receipt of such list, COMPANY shall within 10 business days stop accepting any business submitted by an excluded Producer. ISA shall have the right to designate another Producer as servicing agent for all business produced by previous Producer. COMPANY must change servicing agent pursuant to ISA’s instruction upon prior written notice by ISA to COMPANY any and all such business designated by ISA.

Section 20. Amendment. This Agreement may be amended at any time by mutual agreement of the Parties, as evidenced by a written amendment executed by their duly authorized representatives, effective as of the date(s) specified herein.

Section 21. Notices. Any notice, payment, demand or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been effectively given and received when delivered by certified mail (return-receipt requested) or quicker means, with postage and charges prepaid and addressed to the appropriate party at the address set forth below. A Party may change its notice address by delivering a written change of address to the other Parties in the manner set forth in this Section.

7

	
If to ISA:

	
Ivantage Select Agency, Inc.

		
3100 Sanders Road

		
Northbrook, IL 60062

	
 

	
Attn: Mark Green, President

	
 

	
 

	
With a copy to:

	
Allstate Insurance Company

	
 

	
Corporate Law Department

	
 

	
2775 Sanders Road

	
 

	
Suite A2W

	
 

	
Northbrook, IL 60062

	
 

	
Attn: Steve Ihm, Vice President and Assistant General Counsel

	
 

	
 

	
If to COMPANY:

	
Federated National Underwriters, Inc.

	
 

	
14050 NW 14th Street, Suite 180

	
 

	
Sunrise, FL 33323

	
 

	
Attn: Gordon Jennings, President

Section 22. Interpretation. This Agreement constitutes the entire agreement among the Parties and supersedes all prior oral or written negotiations among the Parties with respect to the subject matter hereof. This Agreement shall be construed in accordance with the laws of the State of Illinois without giving effect to its choice of laws or conflict or law provisions.

Section 23. Assignment and Transfer. This Agreement may not be assigned or transferred by any Party without the other Parties’ prior written consent, which consent shall not be unreasonably withheld.

Section 24. Remedies.

(a)            The Parties hereby agree that binding arbitration shall be the sole remedy for any and all dispute(s) arising between them with reference to any transactions, terms, or conditions under this Agreement. Arbitration proceedings brought hereunder shall be referred for final determination to the majority decision of a board of three (3) disinterested arbitrators. Notice of demand for arbitration shall be made, in writing, by the complaining Party to the responding Party.

(b)            Each Party shall appoint an arbitrator within thirty (30) days of being requested, in writing, by the other Party to do so. Within thirty (30) days after their appointment, the two arbitrators so chosen shall select a third arbitrator. The arbitrators shall be active or retired executive officers of a property and casualty insurance company. If the two arbitrators do not agree as to the selection of a third arbitrator within thirty (30) days after their appointment, the third arbitrator shall be chosen pursuant to the rules for the appointment of a neutral arbitrator by the American Arbitration Association or any other mutually agreeable dispute resolution organization. If one of the Parties fails to appoint its arbitrator within thirty (30) days of being requested, in writing, by the other to do so, the latter shall appoint the second arbitrator.

(c)            Within thirty (30) days after appointment of the third arbitrator, each Party shall provide the other with its relevant books, records, and/or papers not protected from disclosure by either the work-product or attorney-client privilege. Other than the exchange of relevant documents, both Parties shall refrain from engaging in any type of discovery including, but not limited to, depositions and interrogatories.

8

(d)            The Board shall be relieved from applying the strict rules of evidence and/or procedure and shall make its decision with a view toward affecting the Agreement in a reasonable manner, but shall be required to strictly enforce all applicable statutes of limitations. The Board shall have no authority to award punitive, multiplied or similar damages, nor make any award of attorneys fees against either Party. The Board shall have no authority to require a Party to put up pre-disposition collateral. Should either Party fail to appear at an arbitration and/or fail to furnish the Board with any subpoenaed papers or information, the Board is empowered to proceed ex parte. The majority decision of the Board shall be final and binding upon the parties. Such decision shall be reduced to a written award, signed by any two (2) of the three (3) arbitrators, dated and delivered overnight to the Parties. In no case shall the authority of the Board extend to awarding punitive or exemplary damages. Judgment may be entered upon the award by any court having jurisdiction.

(e)            Each Party shall bear the expense of its own arbitrator but shall equally share with the other the expense of the third arbitrator. The remaining costs of the arbitration shall be allocated by the Board.

(f)            Since the Agreement entails interstate commerce, arbitration proceedings brought hereunder, any or all provisions contained herein, and arbitration awards entered pursuant to this clause are specifically governed by, subject to, and enforceable under the Federal Arbitration Act (Title 9, United States Code, Sections 1-14, as amended). No state arbitration acts shall apply.

(g)            Unless some other location is mutually agreeable to the Parties, arbitration proceedings shall take place in Northbrook, Illinois and governed under the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association. Arbitration shall commence within one hundred and twenty (120) days after selection of the third arbitrator. The specific time and site of arbitration shall be promptly determined by the Board after selection of the third arbitrator with notice thereof to the Parties.

Section 25. Severability of Provisions. If any term or provision of this Agreement is illegal or invalid for any reason, such illegality or invalidity shall not affect the validity or enforceability of the remainder of this Agreement. Further, the remainder of this Agreement shall be construed and interpreted so as to give effect to the intentions of the Parties, including those evidenced by that part held illegal or invalid to the extent allowed by applicable law.

Section 26. Compliance. The Parties shall comply with relevant state and federal statutes, regulations, and directives.

Section 27. Captions. The section captions herein are for identification only and do not alter the substance of the sections or this Agreement as a whole.

9

IN WITNESS WHEREOF, the Parties have executed this Agreement, in duplicate, by their authorized representative as of the day and year hereinafter written.

	
FEDERATED NATIONAL

	
 

	
IVANTAGE SELECT AGENCY, INC.

	
	
UNDERWRITERS, INC.

	
 

	
 

	
 

	
	
 

	
 

	
 

	
 

	
 

	
	
By:

	
/s/ J. Gordon Jennings, III

	
 

	
By:

	
/s/ Mark Green

	
	 					
	
Title:

	
President

	
 

	
Title:

	
Ivantage President

	
	 					
	
Date:

	
2/5/13

	
 

	
Date:

	
 2/4/13

	

10

EXHIBIT A

OBLIGATIONS OF COMPANY

(a)            Perform all functions relating to underwriting of the policies, it being agreed that COMPANY will retain the full underwriting authority as to the acceptance or rejection of any risk and the rating of any risk with respect to any Policies issued pursuant to this Agreement; provided, however, that COMPANY agrees to provide ISA at least thirty (30) days’ (or as required by state law) advance notice of any significant underwriting or other changes to be made to Coverage.

(b)            COMPANY shall provide ISA with 15 day advance notice in writing of any change in capacity restrictions of the carriers authorized in the Schedules appended to the agreement. If any part of the State of Florida is subject to a threat of windstorm events, COMPANY will advise ISA as soon as practicable of immediate temporary suspension to bind policies and ISA agrees to immediately advise all Producers that a temporary suspension is in effect until further notice that the weather event is no longer a threat.

(c)            Adjust, manage and settle all claims made in connection with the policies issued pursuant to this Agreement. .

(d)            Perform appropriate premium audits of the policies issued pursuant to this Agreement in accordance with terms of the policies and all applicable laws and regulations.

(e)            COMPANY shall ensure that the amount of all premiums for any policies written pursuant to this Agreement conform with the filed rates (or consent to rate pursuant to Section 627.171 Florida Statutes). In no event shall COMPANY charge or seek reimbursement from policyholders for any additional fees relating to the COMPANY’s performance of this Agreement or the administration of the policies written pursuant to this Agreement.

(f)            COMPANY shall develop an education/orientation program to be made available to all Producers who shall place Coverage, which shall be first approved in writing by ISA. Educational opportunities will remain available to Producers throughout the term of this Agreement. Additional supplemental reference materials shall be provided to Producers at ISA’s discretion.

(g)            COMPANY shall not distribute written program materials or communications about the expanded market program pursuant to this Agreement without prior review and approval in writing by ISA.

(h)            To aid ISA in measuring the success of the expanded market program, COMPANY shall provide to ISA, as requested, within thirty (30) days after the end of each calendar month, certain information including but not limited to monthly and year-to-date: (i) written and earned premium, statewide and by Producer, (ii) class of risk broken out by class code, (iii) incurred loss reports, on a calendar and accident year basis, broken down by paid loss and allocated expense, reserved loss and loss expense, and any such other information and documentation as may be reasonably requested by ISA.

11

(i)            * by the 10th business day of the month following the month in which premiums are received by COMPANY, *. Any commission refunds owed COMPANY shall survive the termination of the Agreement.

(j)            Provide to ISA agreed upon commission file by the 10th day of every month following the month of which production commenced and provide to ISA the agreed upon production and enrollment file by the 10th business day of every month following the month of production.

(k)            COMPANY will, during the term of this Agreement, maintain at COMPANY’s expense all appropriate insurance for itself and its employees, which insurance at minimum shall conform with the requirements set forth in Exhibit C attached here to the Agreement.

It is understood that COMPANY shall perform all of their duties and responsibilities under the Agreement in a commercially reasonable manner and that the failure to so perform such duties and responsibilities shall be deemed a material breach of the Agreement

 

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

12

EXHIBIT B

OBLIGATIONS OF ISA

(a)            Direct producers to be licensed by applicable state(s) and direct producers to adhere to the policies and procedures of COMPANY with respect to this Agreement. ISA shall provide a copy of its license upon request by COMPANY.

(b)            ISA and Producers shall have no authority to:

  

(i)            change, omit, add or waive any question, statement or answer on an application for coverage; or change, omit, add, waive, or discharge any provision of a coverage;

 

(ii)           waive forfeitures, extend time for the payment of premium or a policy fee, quote rates other than those given by COMPANY, or obligate or bind COMPANY or the carrier that COMPANY represents in any way not specifically authorized by this Agreement;

(iii)          authorize any claim settlement;

(iv)          waive or extend any policy obligation or condition;

(v)           incur any liability on behalf of COMPANY;

(vi)         represent that any product other than the Coverage has been placed by COMPANY, or any entity affiliated with it;

(vii)        represent that any Coverage is different from what it is represented to be by COMPANY; or

(viii)      represent that any Coverage is endorsed, sponsored or underwritten by Allstate or any of its affiliates

(c)            ISA shall not be responsible for the processing or the payment of any claims that arise on Coverage written pursuant to this Agreement. In the event that ISA should receive any inquiries related to any claim matter, ISA will immediately refer such inquiries to COMPANY or, as appropriate, the licensed claims administrator for the carrier that represents COMPANY.

(d)            Provide such other assistance and cooperation to COMPANY as the Parties may mutually agree.

(e)            Maintain in force and effect a valid and binding contract of liability insurance with an insurer having A.M. Best rating of A- or higher in the amount of at least $1,000,000 covering ISA, its agents, employees, and representatives, from an insurance company approved by COMPANY for damages occasioned by errors or omissions alleged to have been caused by ISA. Evidence of such coverage to be submitted to COMPANY at their request.

(f)            ISA shall provide to COMPANY a list of Producers designated by ISA to submit applications for Coverage pursuant to this Agreement promptly following execution of this Agreement and shall update such list at its discretion.

(g)            ISA shall use commercially reasonable efforts to resolve customer service issues between COMPANY and individual Producers.

13

EXHIBIT C

Standard Insurance Requirements

Company will, at its own expense, provide and keep in full force and effect during the term of this Agreement the following kinds and minimum amounts of insurance:

	(a)	Workers' Compensation.

Workers' compensation statutory coverage as required by the laws of the jurisdiction in which the services are performed;

	(b)	Employers' Liability.

Employers' liability insurance with a limit of not less than $1,000,000 per accident;

	(c)	Automobile Liability.

Commercial automobile liability insurance with a $1,000,000 per accident limit for vehicles owned, leased, or rented by Company, while performing under this Agreement;

	(d)	General Liability.

Commercial general liability insurance, including bodily injury, personal injury, blanket contractual liability and property damage, with a $1,000,000 per occurrence limit. Allstate shall be added as an additional insured on a primary and non-contributory basis;

	(e)	Bond.

Commercial blanket fidelity bond with a minimum $100,000 each occurrence limit;

	(f)	Errors & Omissions.

Professional liability insurance covering the errors and omissions of Company's personnel with a $5,000,000 per occurrence limit; and

	(g)	Umbrella Liability.

Umbrella liability insurance in the amount of $10,000,000 per occurrence.

Each insurance coverage listed above shall, at all times, be insured with an insurance company that has (1) an A.M. Best Rating of A- or higher and (2) a Financial Size Category (FSC) of Class VIII or higher, as such ratings and categories are assigned by A.M. Best.

Within thirty (30) days of the effective date of this Agreement, and as requested by ISA from time to time Company shall provide ISA with Certificates of Insurance evidencing the insurance coverages listed above.

14

EXHIBIT D

COMPANY SERVICE LEVEL OBJECTIVES

NORMAL BUSINESS OPERATIONS

Call center availability between Normal Business Hours: 8:30 a.m. to 5:00 p.m. (Eastern Time) Monday through Friday for Producers and for other callers, except for federal, public, or national holidays. A list of holidays will be posted on the COMPANY’s Producer web site.

RIGHT TO CURE

It is understood and agreed that any assertion of violation of any Service Level Objective must be conveyed to COMPANY in writing per the Notice provisions of this Agreement. COMPANY shall have 60 days thereafter to investigate and cure any violation without constituting a breach of this Agreement.

CALL CENTER RESPONSE

COMPANY will answer at least 98% of all calls during Normal Business Hours.

COMPANY shall agree to provide automated voice response system capabilities 24/7.

Of all the calls answered, 80% will be answered within 30 seconds.

All calls including voice mail messages will be responded to within 24 hours of first contact during Normal Business Hours.

First call resolution rate will be no less than 75%.

POLICY PROCESSING

Upon the completion of all required underwriting materials, all transactions will be posted in policy issuance system in an appropriate time frame as follows:

New Business:                                      Within 24 hours

Cancellations:                                        Within 48 hours

Reinstatements:                                   Within 48 hours

Endorsements:                                      Within 48 hours

15

CLAIMS PROCESSING

First Response (non-catastrophe):                                                          24 hours

First Response (catastrophe):                                                                      48 hours

COMPANY agrees to support ISA’s catastrophe management practices by providing, for example, policyholder details by Producer, moratorium details, etc., within 24 hours of request.

PRODUCER WEB SITE

Normal Operations

Company will provide systems providing Producers with access to quoting and self-service policy information will be available between the hours of 7:00 a.m. and 12:00 a.m. (Eastern Time) at least 95% of the time, other than for Scheduled Maintenance and Deployments as detailed below. Systems will include site security through firewall protection, site system administration and maintenance, and site network monitoring.

Scheduled Maintenance and Deployments

Company will notify Producers and ISA of scheduled maintenance and deployments via the Company‘s Producer Web Site at least 24 hours prior to the scheduled maintenance. The amount and nature of any system downtime will be detailed in the Producer notification of scheduled maintenance.

Unscheduled Maintenance and Downtime

If systems are discovered to be unavailable during the hours of 7:00 a.m. to 12:00 a.m. (Eastern Time) for more than 15 minutes, Producers and ISA will be notified via email or telephone of the issue and expected plans for resolution and availability.

System Response Time

Company's systems will not exceed 30 seconds for routine quoting or for routine information requests.

Producer Web Site service level metrics will be monitored weekly for the first 90 days and monthly for the subsequent 90 days following each product launch.

PRODUCER SATISFACTION SURVEY

COMPANY agrees to participate in a Producer Satisfaction Survey to be administered by Ivantage. COMPANY agrees to strive for a minimum 85% satisfaction rate. If Producer satisfaction rate is less than 85%, COMPANY agrees to cooperate with ISA to ensure that subsequent survey’s achieve a minimum of 85% satisfaction.

16

REPORTING METRICS

COMPANY will provide the following data to ISA at the intervals indicated. All files will be password protected and encrypted for security purposes.

		1.	Commission File (Monthly) COMPANY will provide to ISA a monthly commission file for the prior month's business. The Excel file will include the following information by Producer:

 

	
COLUMN HEADER

	
FIELD DESCRIPTION

	
Example

	
Reporting Month

	
Include on each line

	
00/00/0000

	
Allstate Agent Number

	
“A” plus 6 numeric or alpha numeric digits

	
A000000

 

A0A1234

	
Underwriting Carrier

	
 List name

	
Agent Name

	
Line of Business

	
Refer to “Line of Business Codes” under Production Report requirement

	
 

	
Transaction Type

	
New, Renewal, Endorsement, abbreviations acceptable

	
New, Ren, End

	
Insured First Name

	
 First

	
First

	
Insured Last Name

	
 Last

	
Last

	
Policy Number

	
 

	
 

	
Effective Date

	
 00/00/0000

	
 00/00/0000

	
Risk State

	
2 letter state abbreviation

	
IL

	
Total Premium Recorded For Month

	
Dollar amount, two decimals, no dollar symbol, comma acceptable

	
20000.00

	
Commission Rate

	
*

	
10%

	
Commission Amount

	
Dollar amount, two decimals, no dollar symbol, comma acceptable

	
20000.00

 

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

17

		2.	Agent Enrollment File (Monthly) COMPANY will provide to ISA a monthly agent enrollment file in Excel to include all actively enrolled Producers. COMPANY should use the monthly active agent list provided by ISA to identify terminated Producers that should no longer be part of the program and identify those Producers to ISA.

 

	
COLUMN HEADER

	
FIELD DESCRIPTION

	
Example

	
Allstate Agent Number

	
Allstate agent number, alpha character plus 6 numeric or alpha numeric digits

	
A000000

 

A0A1234

	
Date Agent Enrolled

	
Date Allstate agent enrolled

	
00/00/0000

		3.	Production Reporting (Monthly, by the 10th business day of the following month)

COMPANY will provide to ISA a monthly production file as outlined below. If the formatting or data is incorrect, COMPANY commits to a 48 hour turnaround for corrections.

REQUIREMENTS

		·	There are two files that need to be sent:

		§	Control File – used for quick data file validation

		Ø	Naming convention for this file should be:

CarrierName_yyyymm_CTL.csv

		Ø	Consists of one record containing two fields in comma delimited format.

		Ø	The first field contains the total number of records sent in the data file. No commas in the number.

		Ø	The second field contains the total amount of written premium in the data file. No $ or commas in the number.

18

Example:

            12350,3456198.35                                        cr (carriage return)

		§	Data File – the actual policy records

		Ø	Naming convention for this file should be:

CarrierName_yyyymm.csv

		Ø	Submit one record for all policies active for the previous month in comma delimited format. Do not send column headers as the first row. The entire file should be data.

		Ø	Every policy number must be unique. No duplicates.

		Ø	The policy number must be the base number related to the policy. Any prefix or suffix that modifies the base policy number should be broken down into the policy prefix and policy suffix fields.

		Ø	Please note the required fields and the format we have requested for each field as defined on Chart 1

		Ø	The Vendor GA – ID will be derived from a code assigned by ISA. Your GA ID will be _0XX_. The Vendor Carrier – ID is the NAIC code assigned to each carrier.

19

Chart 1

Technical Requirements

 

	
Field Number

	
Field Name

	
Type(Text, Currency, Numeric, Date)

	
Format Expected to Receive Data (example: phone number could be (999)999-9999 or 999999999: Amount could be 1234.56 or $1,234.56

	
Required

 

* Check Field Definitions

	
Length of Field

	
1

	
Accounting Year/Month

	
Date

	
YYYYMM

	
X

	
6

	
2

	
Line of Business

	
Text

	
XXX (use leading zeros if necessary)

	
X

	
3

	
3

	
Policy Effective Date

	
Date

	
YYYYMMDD

	
X

	
8

	
4

	
Policy Expiration Date

	
Date

	
YYYYMMDD

	
X

	
8

	
5

	
Policy Inception Date

	
Date

	
YYYYMMDD

	
X

	
8

	
6

	
Policy Number

	
Text

	
 

	
X

	
30

	
7

	
Policy Prefix

	
Text

	
 

	
 

	
 

	
8

	
Policy Suffix

	
Text

	
 

	
 

	
 

	
9

	
Policy Term

	
Numeric

	
99

	
X

	
2

	
10

	
Business Name

	
Text

	
 

	
*

	
50

	
11

	
Insured First Name

	
Text

	
 

	
*

	
30

	
12

	
Insured Last Name

	
Text

	
 

	
*

	
30

	
13

	
Written Premium

	
Numeric

	
9999999.00

	
X

	
 

	
14

	
Allstate Agent Number

	
Text

	
a999999

	
X

	
7

	
15

	
Allstate Agent First Name

	
Text

	
 

	
*

	
30

20

	
16

	
Allstate Agent Last Name

	
Text

	
 

	
*

	
30

	
17

	
Allstate Agency Name

	
Text

	
 

	
*

	
50

	
18

	
Agent State

	
Text

	
 

	
X

	
2

	
19

	
Insured Risk Address

	
Text

	
 

	
X

	
60

	
20

	
Insured Risk City

	
Text

	
 

	
X

	
30

	
21

	
Insured Risk State

	
Text

	
 

	
X

	
2

	
22

	
Insured Risk Zip

	
Text

	
 

	
X

	
10

	
23

	
Insured Mail Address

	
Text

	
 

	
X

	
60

	
24

	
Insured Mail City

	
Text

	
 

	
X

	
30

	
25

	
Insured Mail State

	
Text

	
XX

	
X

	
2

	
26

	
Insured Mail Zip

	
Text

	
999990000

	
X

	
10

	
27

	
Insured Mail Phone

	
Numeric

	
9998887777

	
 

	
10

	
28

	
Vendor GA - ID

	
Text

	
XXX (use leading zeros if necessary)

	
X

	
3

	
29

	
Vendor Carrier - ID

	
Numeric

	
99999

	
X

	
5

	
30

	
Cancellation Date

	
Date

	
YYYYMMDD

	
X

	
1 or 8

21

Chart 2

Field Definitions

 

	
Field

	
Field Name

	
Description

	
Rules

	
1

	
Accounting Date

	
The year and month of the current inforce policies passed from the GA/Carrier to Allstate

	
Accounting date should always be equal to or greater than the inception date.

	
 

	
 

	
 

	
Examples

 

Accounting date = 201103

Correct: Inception date = 20110301 or 20110101. Effective date = 20110301 or 20110501.

Incorrect: Inception date = 20110401. (Inception date is greater than Accounting date - show on April submission)

 

	
2

	
Line of Business

	
The line of business on the policy.

	
Must be a valid business code. See tab LOB. Must be an approved LOB for state and GA/Carrier per contract. It should never change for the same policy number in the monthly submissions.

 

	
3

	
Policy Effective Date

	
The date coverage begins on the policy.

	
Changes upon renewal. Should not change prior to renewal. Can be equal to or greater than inception date, but should never be prior.

	
 

	
 

	
 

	
Examples

 

Effective date = 20110101

Correct: Inception date = 20110101 or 20110315

Incorrect: Inception date = 20110501 (Effective date should be equal to or greater than Inception date.)

 

	
4

	
Policy Expiration Date

	
The date policy expected to retire. End date of current policy.

 

	
The expiration date is typically one policy term in the future from the effective date.

	
5

	
Policy Inception Date

	
The date the policy was created (written, processed, bound).

	
Should never change. Can be equal to or prior to effective date, but can never come after. No policies with an inception date greater than the accounting date should appear on monthly submission.

 

	
 

	
 

	
 

	
Examples

 

Inception date = 20110301

Correct: Effective date = 20110301, 20110315 or 20110501

Incorrect: Effective date = 20110215 (Inception date must be prior to or equal to Effective date.)

Incorrect: Accounting date = 201102 (Policy should appear on 201103 submission.)

 

22

	
6

	
Policy Number

	
The unique number assigned to the policy.

	
Should never change. Do not truncate. No duplicates. Strip off policy prefix and/or suffix only if they are expected to change. Policy number must be unique; any changes will result in error.

If the policy number contains leading or trailing zeros, do not truncate.

 

	
7

	
Policy Prefix

	
User defined policy prefix.

 

	
Optional

 

	
8

	
Policy Suffix

	
User defined policy suffix.

 

	
Optional

 

	
9

	
Policy Term

	
Length of policy coverage measured in months.

 

	
 

	
10

	
Business Name

	
Business name of insured.

	
Do not combine names - field should contain a single insured (first and last name). Cannot be blank if insured first name or insured last name is blank.

 

	
 

	
 

	
 

	
Example

 

Correct: John Smith

Incorrect: John Smith a single man and Amy Brown a single woman

 

	
11

	
Insured First Name

	
First name of insured.

	
Cannot be blank if last name is filled in. Cannot be blank if business name is blank.

 

	
12

	
Insured Last Name

	
Last name of insured.

	
Cannot be blank if first name is filled in. Cannot be blank if business name is blank.

 

	
13

	
Written Premium

	
Written premium should not include fees.

 

	
Written premium cannot be 0 or negative.

 

	
14

	
Allstate Agent Number

	
The Allstate agent number consisting of seven characters.

	
Exclusive agents (IDs beginning with A0, A1), Employee agents (IDs beginning with A6 in NY and WV only)

 

	
15

	
Allstate Agent Last Name

	
Allstate agent last name.

	
Cannot be blank if agent first name is filled in. Cannot be blank if agency name is blank.

 

23

	
16

	
Allstate Agent First Name

	
Allstate agent first name

	
Cannot be blank if agent last name is filled in. Cannot be blank if agency name is blank.

 

	
17

	
Allstate Agency Name

	
Agency name of agent.

	
Cannot be blank if agent last and first name is blank.

 

	
18

	
Allstate Agent State

	
Agent resident license state.

 

	
Must be US state. Cannot be blank.

 

	
19

	
Insured Risk Address

	
Address of insured property.

 

	
Must be US address.

 

	
20

	
Insured Risk City

	
City of insured property.

 

	
Must be US city.

 

	
21

	
Insured Risk State

	
State of insured property.

 

	
Must be US State.

 

	
22

	
Insured Risk Zip

	
Zip code of insured property.

 

	
Must be US zip code. Do not truncate.

 

	
23

	
Insured Mail Address

	
Mail address for insured property.

 

	
Cannot be blank if foreign or US.

 

	
24

	
Insured Mail City

	
Mail city for insured property.

 

	
Cannot be blank if foreign or US.

 

	
25

	
Insured Mail State

	
Mail state for insured property.

 

	
Cannot be blank if US.

 

	
26

	
Insured Mail Zip

	
Mail zip for insured property.

 

	
Cannot be blank if US.

 

	
27

	
Insured Mail Phone

	
Area code + exchange + number of mail phone for insured.

 

	
Optional

 

	
28

	
Vendor GA ID

	
GA code - provided by Ivantage.

 

	
Mandatory - Please refer to Ivantage for your GA Code

 

	
29

	
Vendor Carrier ID

	
NAIC code of carrier.

 

	
Must be valid NAIC code. Must be an approved carrier. Should never change.

 

	
30

	
Cancellation Field

	
Date policy ceases to exist. (Cancelled, non-renewed).

	
Must contain a date or 0. Cannot be blank. No leading or trailing spaces.

 

When a policy cancels, expires or if it is a nonrenewal, please indicate the date here.

24

Chart 3

Line of Business Codes:

 

	
CODE

	
LINE OF BUSINESS

	
DEFINITION

 

	
001

	
Homeowners

	
HO3, HO5

 

	
002

	
Residential Fire

	
All DP forms

 

	
003

	
High Value

 

	
 

	
004

	
Earthquake

 

	
 

	
005

	
Wind

	
Wind Only Policies

 

	
006

	
Mexican Travel

 

	
 

	
007

	
Manufactured Home

 

Mobile Home

 

	
Factory built housing transported to site for permanent installation

	
008

	
Boats

	
Includes personal watercraft, boat and yacht

 

	
009

	
Excess Flood

 

	
 

	
010

	
CPL

	
Comprehensive Personal Liability

 

	
011

	
Motorhomes

	
Self Propelled vehicle equiped with living quarters (RV)

 

	
012

	
Condo

 

	
 

	
013

	
Renters

	
Tenant coverage, personal property only

 

	
014

	
Motorcycles

	
 

25

	
015

	
LPP

	
Landlord Policy

 

	
016

	
SPP

	
Scheduled Property Policy - Valuable Articles Floater

 

	
017

	
Auto/ Classic Car

 

	
 

	
018

	
Personal Umbrella

	
Personal Umbrella Policy

 

	
019

	
Worker's Comp

 

	
 

	
020

	
Jewelry

 

	
 

	
021

	
Exc. CPL

	
Excess Comprehensive Personal Liability

 

	
022

	
Farm and Ranch

 

	
 

	
023

	
Excess Auto Liability

 

	
 

	
024

	
Workers Compensation

 

	
 

	
025

	
Commercial Auto

 

	
 

	
026

	
Commercial Property

 

	
 

	
027

	
Bonds

 

	
 

	
028

	
Commercial Umbrella

 

	
 

	
029

	
General Liability

	
Commercial General Liability

26

SCHEDULE A

This Schedule is entered into this ___, day of ______, 201_, by and between Federated National Underwriters (“Company”) and Ivantage Select Agency, Inc., (“ISA”) pursuant to Section 3, of that certain Insurance Agency Master Agreement dated _______________, between Company and ISA (“Agreement”). This Schedule is attached to and subject to the terms and conditions of that Agreement and contains the following terms and conditions.

Coverage

ISA agrees to allow certain designated Producers to place Homeowners, Dwelling Fire and Commercial General Liability coverage with Company. All policies written pursuant to this Schedule shall be written by Federated National Insurance Company (“Carrier”), unless agreed to otherwise in writing by ISA.

Commissions

*

Company shall pay commissions to Producers on a premiums received basis (net of endorsements, cancellations, reinstatements, and any additional mandatory fees)) as follows:

8% of new business premium and 8% of renewal business premium on Homeowners policies and Dwelling Fire for the first twenty-five (25) policies written pursuant to this Agreement. Commissions shall be 10% of new business premium and 10% of renewal business premium thereafter once Producer meets the threshold of twenty-five (25) on Homeowners and Dwelling Fire policies written pursuant to this Agreement.

15% of new premium and 15% of renewal premium on Commercial General Liability policies written pursuant to this Agreement.

Payments and any necessary adjustments will be made on the 10th business day of each month for the preceding month’s business. *

Mandatory additional fees shall be defined as additional fees as authorized under law, including but not limited to: $25 policy service fee, $2 Emergency Management Preparedness And Assistance Trust Fund (state fee), Citizen 2005 Emergency Assessment (state fee), Florida Hurricane Catastrophe Fund Emergency Assessment (state fee).

 

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

27

Territory

The state of Florida.

 

*

Termination

This Schedule may be terminated pursuant to the terms of Section 17 of the Agreement. In addition, and without prejudice to the right of either Party to invoke any applicable right of termination under said Section 17, Section 17 of the Agreement is hereby amended to provide for the following additional termination event: ISA, in its sole discretion, may immediately terminate this Schedule upon a Carrier’s failure to maintain at least an “A” rating from Demotech FSR.

Accepted by:

	
FEDERATED NATIONAL

	
 

	
IVANTAGE SELECT AGENCY, INC.

	
	
UNDERWRITERS, INC.

	
 

	
 

	
 

	
	
 

	
 

	
 

	
 

	
 

	
	
By:

	
/s/ J. Gordon Jennings, III

	
 

	
By:

	
/s/ Mark Green

	
	
 

	
 

	
 

	
 

	
 

	
	
Title:

	
President

	
 

	
Title:

	
Ivantage President

	
	
 

	
 

	
 

	
 

	
 

	
	
Date:

	
2/5/13

	
 

	
Date:

	
2/4/13

	

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

 

28

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