Document:

fnhc93018ex102

                           Non-Florida Property Catastrophe                            Excess of Loss Reinsurance Contract                                  Effective:  July 1, 2018                                  FedNat Insurance Company                                      Sunrise, Florida                                                                                    *****Portions of this document omitted pursuant to an application for an order for confidential  treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this  document have been filed separately with the Securities and Exchange Commission.      18\F7V1075      

 

                                 Table of Contents        Article                                                                         Page        1       Classes of Business Reinsured                                          1       2       Commencement and Termination                                           1       3       Territory                                                              3       4       Exclusions                                                             3       5       Retention and Limit                                                    4       6       Other Reinsurance                                                      5       7       Reinstatement                                                          5       8       Definitions                                                            6       9       Loss Occurrence                                                        7      10       Loss Notices and Settlements                                           9      11       Cash Call                                                              9      12       Salvage and Subrogation                                               10      13       Reinsurance Premium                                                   10      14       Sanctions                                                             11      15       Late Payments                                                         11      16       Offset                                                                12      17       Access to Records                                                     12      18       Liability of the Reinsurer                                            13      19       Net Retained Lines (BRMA 32E)                                         13      20       Errors and Omissions (BRMA 14F)                                       13      21       Currency (BRMA 12A)                                                   13      22       Taxes (BRMA 50B)                                                      14      23       Federal Excise Tax (BRMA 17D)                                         14      24       Foreign Account Tax Compliance Act                                    14      25       Reserves                                                              14      26       Insolvency                                                            16      27       Arbitration                                                           16      28       Service of Suit (BRMA 49C)                                            17      29       Severability (BRMA 72E)                                               18      30       Governing Law (BRMA 71B)                                              18      31       Confidentiality                                                       18      32       Non-Waiver                                                            19      33       Notices and Contract Execution                                        19      34       Intermediary                                                          20               Schedule A       18\F7V1075      

 

                           Non-Florida Property Catastrophe                            Excess of Loss Reinsurance Contract                                   Effective: July 1, 2018                                  entered into by and between                                   FedNat Insurance Company                                      Sunrise, Florida                          (hereinafter referred to as the "Company")                                             and                           The Subscribing Reinsurer(s) Executing the                            Interests and Liabilities Agreement(s)                                      Attached Hereto                          (hereinafter referred to as the "Reinsurer")        Article 1 - Classes of Business Reinsured   By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the  Company under its policies in force at the effective time and date hereof or issued or renewed at  or after that time and date, and classified by the Company as Property business, including but  not limited to, Dwelling Fire, Inland Marine, Mobile Home, Commercial and Homeowners  business (including any business assumed from Citizens Property Insurance Corporation),  subject to the terms, conditions and limitations set forth herein and in Schedule A attached  hereto.      Article 2 - Commencement and Termination   A.  This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2018,      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, 2019.    B.  Notwithstanding the provisions of paragraph A above, the Company may terminate a      Subscribing Reinsurer's percentage share in this Contract at any time by giving written      notice to the Subscribing Reinsurer in the event any of the following circumstances occur:         1.  The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the           Subscribing Reinsurer's accounting system) at the inception of this Contract has been           reduced by 20.0% or more of the amount of surplus (or the applicable equivalent)           12 months prior to that date; or         2.  The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the           Subscribing Reinsurer's accounting system) at any time during the term of this           Contract has been reduced by 20.0% or more of the amount of surplus (or the           applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial    18\F7V1075  Page 1    

 

        statement filed with regulatory authorities and available to the public as of the          inception of this Contract; or         3.  The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded          below A- and/or Standard & Poor's rating has been assigned or downgraded below          BBB+; or         4.  The Subscribing Reinsurer has become, or has announced its intention to become,          merged with, acquired by or controlled by any other entity or individual(s) not          controlling the Subscribing Reinsurer's operations previously; or         5.  A State Insurance Department or other legal authority has ordered the Subscribing          Reinsurer to cease writing business; or         6.  The Subscribing Reinsurer has become insolvent or has been placed into liquidation,          receivership, supervision, administration, winding-up or under a scheme of          arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings          have been instituted against the Subscribing Reinsurer for the appointment of a          receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in          bankruptcy, or other agent known by whatever name, to take possession of its assets          or control of its operations; or         7.  The Subscribing Reinsurer has reinsured its entire liability under this Contract without          the Company's prior written consent; or         8.  The Subscribing Reinsurer has ceased assuming new or renewal property or casualty          treaty reinsurance business; or         9.  The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is          compensated on a contingent basis or is otherwise provided with financial incentives          based on the quantum of claims paid; or        10.  The Subscribing Reinsurer has failed to comply with the funding requirements set forth          in the Reserves Article.    C.  The "term of this Contract" as used herein shall mean the period from 12:01 a.m., Eastern      Standard Time, July 1, 2018 to 12:01 a.m., Eastern Standard Time, July 1, 2019.  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, 2018 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.        18\F7V1075  Page 2    

 

Article 3 - Territory   The territorial limits of this Contract shall be identical with those of the Company's policies,  excluding risks located in the State of Florida.      Article 4 - Exclusions   A.  This Contract does not apply to and specifically excludes the following:         1.  Reinsurance assumed by the Company under obligatory reinsurance agreements,           except business assumed by the Company from Citizens Property Insurance           Corporation.         2.  Hail damage to growing or standing crops.         3.  Business rated, coded or classified as Flood insurance or which should have been           rated, coded or classified as such.         4.  Business rated, coded or classified as Mortgage Impairment and Difference in           Conditions insurance or which should have been rated, coded or classified as such.         5.  Title insurance and all forms of Financial Guarantee, Credit and Insolvency.         6.  Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety, Accident and           Health, Animal Mortality and Workers Compensation and Employers Liability.         7.  Errors and Omissions, Malpractice and any other type of Professional Liability           insurance.          8.  Loss and/or damage and/or costs and/or expenses arising from seepage and/or           pollution and/or contamination, other than contamination from smoke.  Nevertheless,           this exclusion does not preclude payment of the cost of removing debris of property           damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of           the Company's property loss under the applicable original policy.         9.  Loss or liability as excluded under the provisions of the "War Exclusion Clause"           attached to and forming part of this Contract.        10.  Nuclear risks as defined in the "Nuclear Incident Exclusion Clause - Physical           Damage - Reinsurance (U.S.A.)" attached to and forming part of this Contract.        11.  Loss or liability excluded by the Pools, Associations and Syndicates Exclusion Clause           (Catastrophe) attached to and forming part of this Contract and any assessment or           similar demand for payment related to the FHCF or Citizens Property Insurance           Corporation.        12.  Loss or liability of the Company arising by contract, operation of law, or otherwise,           from its participation or membership, whether voluntary or involuntary, in any           insolvency fund.  "Insolvency fund" includes any guaranty fund, insolvency fund, plan,   18\F7V1075  Page 3    

 

        pool, association, fund or other arrangement, however denominated, established or          governed, which provides for any assessment of or payment or assumption by the          Company of part or all of any claim, debt, charge, fee or other obligation of an insurer,          or its successors or assigns, which has been declared by any competent authority to          be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge,          fee or other obligation in whole or in part.         13.  Losses in the respect of overhead transmission and distribution lines other than those           on or within 150 meters (or 500 feet) of the insured premises.        14.  Mold, unless resulting from a peril otherwise covered under the policy involved.        15.  Loss or liability as excluded under the provisions of the "Terrorism Exclusion" attached           to and forming part of this Contract.        16.  All property loss, damage, destruction, erasure, corruption or alteration of Electronic           Data from any cause whatsoever (including, but not limited to, Computer Virus) or loss           of use, reduction in functionality, cost, expense or whatsoever nature resulting           therefrom, unless resulting from a peril otherwise covered under the policy involved.             "Electronic Data" as used herein means facts, concepts and information converted to           a form usable for communications, interpretation or processing by electronic and           electromechanical data processing or electronically-controlled equipment and includes           programs, software and other coded instructions for the processing and manipulation           of data or the direction and manipulation of such equipment.              "Computer Virus" as used herein means a set of corrupting, harmful or otherwise           unauthorized instructions or code, including a set of maliciously-introduced,           unauthorized instructions or code, that propagate themselves through a computer           system network of whatsoever nature.             However, in the event that a peril otherwise covered under the policy results from any           of the matters described above, this Contract, subject to all other terms and           conditions, will cover physical damage directly caused by such listed peril.      Article 5 - Retention and Limit   A.  Coverage A:  The Company shall retain and be liable for the first $15,000,000 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 the amount, shown as "Reinsurer's Per Occurrence Limit"      for Coverage A in Schedule A attached hereto, as respects any one loss occurrence.    B.  Coverage B:  The Company shall retain and be liable for the first $2,000,000 of ultimate net      loss arising out of each loss occurrence.  The Reinsurer shall then be liable for the amount      by which such ultimate net loss exceeds the Company's retention (subject to the provisions      of paragraph C below), but the liability of the Reinsurer shall not exceed the amount, shown      as "Reinsurer's Per Occurrence Limit" for Coverage B in Schedule A attached hereto, as      respects any one loss occurrence, nor shall it exceed the amount, shown as "Reinsurer's   18\F7V1075  Page 4    

 

    Term Limit" for Coverage B in Schedule A attached hereto, in all during the term of this      Contract.        This Coverage B shall only apply to losses arising out of any hurricane named at the time of      landfall.    C.  Notwithstanding the provisions of paragraph B above, no claim shall be made under      Coverage B unless and until the Company's subject excess ultimate net loss arising out of      loss occurrences commencing during the term of this Contract exceeds $13,000,000 in the      aggregate.  "Subject excess ultimate net loss" as used herein shall mean the amount, if      any, but which the Company's ultimate net loss arising out of any one loss occurrence      exceeds $2,000,000, but said amount shall not exceed $13,000,000 in excess of      $2,000,000 as respects any one loss occurrence.    D.  Notwithstanding the provisions above, no claim shall be made under any coverage section      as respects losses arising out of loss occurrences commencing during the term of this      Contract unless at least two risks insured or reinsured by the Company are involved in such      loss occurrence.  For purposes hereof, the Company shall be the sole judge of what      constitutes "one risk."      Article 6 - Other Reinsurance   The Company shall be permitted to carry other reinsurance, recoveries under which shall inure  solely to the benefit of the Company and be entirely disregarded in applying all of the provisions  of this Contract.      Article 7 - Reinstatement   A.  In the event all or any portion of the reinsurance coverage provided under Coverage A is      exhausted by ultimate net loss, the amount so exhausted shall be reinstated immediately      from the time the loss occurrence commences hereon.  For each amount so reinstated the      Company agrees to pay additional premium equal to the product of the following:         1.  The percentage of the occurrence limit for Coverage A reinstated (based on the           ultimate net loss paid by the Reinsurer under Coverage A); times         2.  The earned reinsurance premium for Coverage A for the term of this Contract           (exclusive of reinstatement premium).    B.  Whenever the Company requests payment by the Reinsurer of any ultimate net loss under      Coverage A, the Company shall submit a statement to the Reinsurer of reinstatement      premium due the Reinsurer for that coverage section.  If the earned reinsurance premium      for Coverage A for the term of this Contract has not been finally determined as of the date      of any such statement, the calculation of reinstatement premium due for Coverage A shall      be based on the amount shown as "Annual Deposit Premium" for Coverage A in      Schedule A attached hereto, and shall be readjusted when the earned reinsurance      premium for Coverage A for the term of this Contract has been finally determined.  Any      reinstatement premium shown to be due the Reinsurer for Coverage A as reflected by any   18\F7V1075  Page 5    

 

    such statement (less prior payments, if any, for that coverage section) shall be payable by      the Company concurrently with payment by the Reinsurer of the requested ultimate net loss      for Coverage A.  Any return reinstatement premium shown to be due the Company shall be      remitted by the Reinsurer as promptly as possible after receipt and verification of the      Company's statement.    C.  Notwithstanding anything stated herein, the liability of the Reinsurer for ultimate net loss      under any coverage section shall not exceed either of the following:         1.  The amount, shown as "Reinsurer's Per Occurrence Limit" for that coverage section in          Schedule A attached hereto, as respects loss or losses arising out of any one loss          occurrence; or         2.  The amount, shown as "Reinsurer's Term Limit" for that coverage section in          Schedule A attached hereto, in all during the term of this Contract.      Article 8 - Definitions   A.  "Loss adjustment expense," regardless of how such expenses are classified for statutory      reporting purposes, as used in this Contract shall mean all costs and expenses allocable to      a specific claim that are incurred by the Company in the investigation, appraisal,      adjustment, settlement, litigation, defense or appeal of a specific claim, including court      costs and costs of supersedeas and appeal bonds, and including a) pre-judgment interest,      unless included as part of the award or judgment; b) post-judgment interest; c) legal      expenses and costs incurred in connection with coverage questions and legal actions      connected thereto, including Declaratory Judgment Expense; and d) expenses and a pro      rata share of salaries of the Company field employees, and expenses of other Company      employees who have been temporarily diverted from their normal and customary duties and      assigned to the field adjustment of losses covered by this Contract.        Loss adjustment expense as defined above does not include unallocated loss adjustment      expense.  Unallocated loss adjustment expense includes, but is not limited to, salaries and      expenses of employees, other than in (d) above, and office and other overhead expenses.    B.  "Loss in excess of policy limits" and "extra contractual obligations" as used in this Contract      shall mean:         1.  "Loss in excess of policy limits" shall mean 90.0% of any amount paid or payable by           the Company in excess of its policy limits, but otherwise within the terms of its policy,           such loss in excess of the Company's policy limits having been incurred because of,           but not limited to, failure by the Company to settle within the policy limits or by reason           of the Company's alleged or actual negligence, fraud or bad faith in rejecting an offer           of settlement or in the preparation of the defense or in the trial of an action against its           insured or reinsured or in the preparation or prosecution of an appeal consequent           upon such an action.  Any loss in excess of policy limits that is made in connection           with this Contract shall not exceed 25.0% of the actual catastrophe loss.         2.  "Extra contractual obligations" shall mean 90.0% of any punitive, exemplary,           compensatory or consequential damages paid or payable by the Company, not   18\F7V1075  Page 6    

 

        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 a named storm, all individual losses sustained by the Company occurring          during any period (a) from and after 12:00 a.m. Eastern Standard Time on the date a          watch, warning, advisory, or other bulletin (whether for wind, flood or otherwise) for          such named storm is first issued by the National Hurricane Center ("NHC") or its          successor or any other division of the National Weather Service ("NWS"),          (b) continuing for a time period thereafter during which such named storm continues,          regardless of its category rating or lack thereof and regardless of whether the watch,          warning, or advisory or other bulletin remains in effect for such named storm and          (c) ending 96 hours following the issuance of the last watch, warning or advisory or   18\F7V1075  Page 7    

 

        other bulletin for such named storm or related to such named storm by the NHC or its          successor or any other division of the NWS.  "Named storm" shall mean any storm or          storm system that has been declared by the NHC or its successor or any other          division of the NWS to be a named storm at any time, which may include, by way of          example and not limitation, hurricane, wind, gusts, typhoon, tropical storm, hail, rain,          tornados, cyclones, ensuing flood, storm surge, water damage, fire following, sprinkler          leakage, riots, vandalism, and collapse, and all losses and perils (including, by way of          example and not limitation, those mentioned previously in this sentence) in each case          arising out of, caused by, occurring during, occasioned by or resulting from such storm          or storm system, including by way of example and not limitation the merging of one or          more separate storm(s) or storm system(s) into a combined storm surge event.           However, the named storm need not be limited to one state or province or states or          provinces contiguous thereto.         2.  As regards storm or storm systems that are not a named storm, including, by way of          example and not limitation, ensuing wind, gusts, typhoon, tropical storm, hail, rain,          tornados, cyclones, ensuing flood, storm surge, fire following, sprinkler leakage, riots,          vandalism, collapse and water damage, all individual losses sustained by the          Company occurring during any period of 144 consecutive hours arising out of, caused          by, occurring during, occasioned by or resulting from the same event.  However, the          event need not be limited to one state or province or states or provinces contiguous          thereto.         3.  As regards riot, riot attending a strike, civil commotion, vandalism and malicious          mischief, all individual losses sustained by the Company occurring during any period          of 96 consecutive hours within the area of one municipality or county and the          municipalities or counties contiguous thereto arising out of and directly occasioned by          the same event.  The maximum duration of 96 consecutive hours may be extended in          respect of individual losses which occur beyond such 96 consecutive hours during the          continued occupation of an assured's premises by strikers, provided such occupation          commenced during the aforesaid period.         4.  As regards earthquake (the epicenter of which need not necessarily be within the          territorial confines referred to in the introductory portion of this paragraph) and fire          following directly occasioned by the earthquake, only those individual fire losses which          commence during the period of 168 consecutive hours may be included in the          Company's loss occurrence.         5.  As regards freeze, only individual losses directly occasioned by collapse, breakage of          glass and water damage (caused by bursting frozen pipes and tanks) may be included          in the Company's loss occurrence.         6.  As regards firestorms, brush fires and any other fires or series of fires, irrespective of           origin (except as provided in subparagraphs 3 and 4 above), all individual losses           sustained by the Company which commence during any period of 168 consecutive           hours within the area of one state of the United States or province of Canada and           states or provinces contiguous thereto and to one another may be included in the           Company's loss occurrence.      18\F7V1075  Page 8    

 

B.  For all loss occurrences hereunder, the Company may choose the date and time when any      such period of consecutive hours commences, provided that no period commences earlier      than the date and time of the occurrence of the first recorded individual loss sustained by      the Company arising out of that disaster, accident, or loss or series of disasters, accidents,      or losses.  Furthermore:         1.  For all loss occurrences other than those referred to in subparagraphs A.1., A.2., and           A.3. above, only one such period of 168 consecutive hours shall apply with respect to           one event.         2.  As regards those loss occurrences referred to in subparagraphs A.1. and A.2., only           one such period of consecutive hours (as set forth therein) shall apply with respect to           one event, regardless of the duration of the event.           3.  As regards those loss occurrences referred to in subparagraph A.3. above, if the           disaster, accident, or loss or series of disasters, accidents, or losses occasioned by           the event is of greater duration than 96 consecutive hours, then the Company may           divide that disaster, accident, or loss or series of disasters, accidents, or losses into           two or more loss occurrences, provided that no two periods overlap and no individual           loss is included in more than one such period.    C.  It is understood that losses arising from a combination of two or more perils as a result of      the same event may be considered as having arisen from one loss occurrence.       Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded      as respects the applicable perils, and no single loss occurrence shall encompass a time      period greater than 168 consecutive hours, except as regards those loss occurrences      referred to in subparagraphs A.1., A.4. and A.6. above.      Article 10 - Loss Notices and Settlements   A.  Whenever losses sustained by the Company are reserved by the Company for an amount      greater than 50.0% of the Company's retention under any coverage section hereunder      and/or appear likely to result in a claim under such coverage section, the Company shall      notify the Subscribing Reinsurers under that coverage section and shall provide updates      related to development of such losses.  The Reinsurer shall have the right to participate in      the adjustment of such losses at its own expense.    B.  All loss settlements made by the Company, provided they are within the terms of this      Contract and the terms of the original policy (with the exception of loss in excess of policy      limits or extra contractual obligations coverage, if any, under this Contract), shall be binding      upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable      upon receipt of reasonable evidence of the amount paid by the Company.      Article 11 - Cash Call   Notwithstanding the provisions of the Loss Notices and Settlements Article, upon the request of  the Company, the Reinsurer shall pay any amount with regard to a loss settlement or  settlements that are scheduled to be made (including any payments projected to be made)   18\F7V1075  Page 9    

 

within the next 20 days by the Company, subject to receipt by the Reinsurer of a satisfactory  proof of loss.  Such agreed payment shall be made within 10 days from the date the demand for  payment was transmitted to the Reinsurer.      Article 12 - Salvage and Subrogation   The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by  the Company, less the actual cost, excluding salaries of officials and employees of the  Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making  such recovery) on account of claims and settlements involving reinsurance hereunder.  Salvage  thereon shall always be used to reimburse the excess carriers in the reverse order of their  priority according to their participation before being used in any way to reimburse the Company  for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation  relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all  claims arising out of such rights, if, in the Company's opinion, it is economically reasonable to  do so.      Article 13 - Reinsurance Premium   A.  As premium for each coverage section of reinsurance coverage provided by this Contract,      the Company shall pay the Reinsurer a premium equal to the product of the following (or a      pro rata portion thereof in the event the term of this Contract is less than 12 months),      subject to a minimum premium of the amount, shown as "Minimum Premium" for that      coverage section in Schedule A attached hereto (or a pro rata portion thereof in the event      the term of this Contract is less than 12 months):         1.  The amount, shown as "Annual Deposit Premium" for that coverage section in           Schedule A attached hereto; times          2.  The percentage calculated by dividing (a) the actual Average Annual Loss ("AAL")           determined by the Company's wind insurance in force on September 30, 2018, by           (b) the original AAL of the amount, shown as "AAL" for that coverage section in           Schedule A attached hereto.        The Company's AAL shall be derived by averaging the applicable data produced by Applied      Insurance Research (AIR) Touchstone v5 and Risk Management Solutions (RMS)      RiskLink v17 catastrophe modeling software, in the long-term perspective, including      secondary uncertainty and loss amplification, but excluding storm surge.  It is understood      that the calculation of the actual AAL shall be based on the amount, shown as "Reinsurer's      Per Occurrence Limit" for that coverage section in Schedule A attached hereto.    B.  The Company shall pay the Reinsurer an annual deposit premium for each coverage      section of the amount, shown as "Annual Deposit Premium" for that coverage section in      Schedule A attached hereto, in four equal installments of the amount, shown as "Deposit      Premium Installment" for that coverage section in Schedule A attached hereto, on July 1      and October 1 of 2018, and on January 1 and April 1 of 2019.  However, in the event this      Contract is terminated, there shall be no deposit premium installments due after the      effective date of termination.   18\F7V1075  Page 10    

 

  C.  On or before June 30, 2019, the Company shall provide a report to the Reinsurer setting      forth the premium due hereunder for each coverage section for the term of this Contract,      computed in accordance with paragraph A above, and any additional premium due the      Reinsurer or return premium due the Company for each such coverage section shall be      remitted promptly.      Article 14 - Sanctions   Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under  this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction  under United Nations resolutions or the trade or economic sanctions, laws or regulations of the  European Union, United Kingdom or United States of America that are applicable to either party.      Article 15 - Late Payments   A.  The provisions of this Article shall not be implemented unless specifically invoked, in      writing, by one of the parties to this Contract.    B.  In the event any premium, loss or other payment due either party is not received by the      intermediary named in the Intermediary Article (hereinafter referred to as the      "Intermediary") by the payment due date, the party to whom payment is due may, by      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   18\F7V1075  Page 11    

 

        loss or claim payment is not received within the 10 days, interest will accrue on the          payment or amount overdue in accordance with paragraph B above, from the date the          proof of loss or demand for payment was transmitted to the Reinsurer.         3.  As respects a "cash call" made in accordance with the Cash Call Article, payment          shall be deemed due 10 days after the demand for payment is transmitted to the          Reinsurer.  If such loss or claim payment is not received within the 10 days, interest          shall accrue on the payment or amount overdue in accordance with paragraph B          above, from the date the demand for payment was transmitted to the Reinsurer.         4.  As respects any payment, adjustment or return due either party not otherwise          provided for in subparagraphs 1, 2, and 3 of this paragraph C, the due date shall be as          provided for in the applicable section of this Contract.  In the event a due date is not          specifically stated for a given payment, it shall be deemed due 10 days following          transmittal of written notification that the provisions of this Article have been invoked.        For purposes of interest calculations only, amounts due hereunder shall be deemed paid      upon receipt by the Intermediary.    D.  Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from      contesting the validity of any claim, or from participating in the defense of any claim or suit,      or prohibiting either party from contesting the validity of any payment or from initiating any      arbitration or other proceeding in accordance with the provisions of this Contract.  If the      debtor party prevails in an arbitration or other proceeding, then any interest charges due      hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such      proceeding, then the interest charge on the amount determined to be due hereunder shall      be calculated in accordance with the provisions set forth above unless otherwise      determined by such proceedings.  If a debtor party advances payment of any amount it is      contesting, and proves to be correct in its contestation, either in whole or in part, the other      party shall reimburse the debtor party for any such excess payment made plus interest on      the excess amount calculated in accordance with this Article.    E.  Interest charges arising out of the application of this Article that are $1,000 or less from any      party shall be waived unless there is a pattern of late payments consisting of three or more      items over the course of any 12-month period.      Article 16 - Offset   The Company and the Reinsurer may offset any balance or amount due from one party to the  other under this Contract or any other contract heretofore or hereafter entered into between the  Company and the Reinsurer, whether acting as assuming reinsurer or ceding company.  The  provisions of this Article shall not be affected by the insolvency of either party.      Article 17 - Access to Records   The Reinsurer or its designated representatives shall have access at any reasonable time to all  records of the Company which pertain in any way to this reinsurance, provided the Reinsurer  gives the Company at least 15 days prior notice of request for such access.  However, a   18\F7V1075  Page 12    

 

Subscribing Reinsurer or its designated representatives shall not have any right of access to the  records of the Company if it is not current in all undisputed payments due the Company.   "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not  contested in writing to the Company specifying the reason(s) why the payments are disputed.        Article 18 - Liability of the Reinsurer   A.  The liability of the Reinsurer shall follow that of the Company in every case and be subject      in all respects to all the general and specific stipulations, clauses, waivers and modifications      of the Company's policies and any endorsements thereon.  However, in no event shall this      be construed in any way to provide coverage outside the terms and conditions set forth in      this Contract.    B.  Nothing herein shall in any manner create any obligations or establish any rights against      the Reinsurer in favor of any third party or any persons not parties to this Contract.      Article 19 - Net Retained Lines (BRMA 32E)   A.  This Contract applies only to that portion of any policy which the Company retains net for its      own account (prior to deduction of any underlying reinsurance specifically permitted in this      Contract), and in calculating the amount of any loss hereunder and also in computing the      amount or amounts in excess of which this Contract attaches, only loss or losses in respect      of that portion of any policy which the Company retains net for its own account shall be      included.    B.  The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not      be increased by reason of the inability of the Company to collect from any other      reinsurer(s), whether specific or general, any amounts which may have become due from      such reinsurer(s), whether such inability arises from the insolvency of such other      reinsurer(s) or otherwise.      Article 20 - Errors and Omissions (BRMA 14F)   Inadvertent delays, errors or omissions made in connection with this Contract or any transaction  hereunder shall not relieve either party from any liability which would have attached had such  delay, error or omission not occurred, provided always that such error or omission is rectified as  soon as possible after discovery.      Article 21 - Currency (BRMA 12A)   A.  Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be      construed to mean United States Dollars and all transactions under this Contract shall be in      United States Dollars.      18\F7V1075  Page 13    

 

B.  Amounts paid or received by the Company in any other currency shall be converted to      United States Dollars at the rate of exchange at the date such transaction is entered on the      books of the Company.      Article 22 - Taxes (BRMA 50B)   In consideration of the terms under which this Contract is issued, the Company will not claim a  deduction in respect of the premium hereon when making tax returns, other than income or  profits tax returns, to any state or territory of the United States of America or the District of  Columbia.      Article 23 - Federal Excise Tax (BRMA 17D)   A.  The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the      applicable percentage of the premium payable hereon (as imposed under Section 4371 of      the Internal Revenue Code) to the extent such premium is subject to the Federal Excise      Tax.    B.  In the event of any return of premium becoming due hereunder the Reinsurer will deduct      the applicable percentage from the return premium payable hereon and the Company or its      agent should take steps to recover the tax from the United States Government.      Article 24 - Foreign Account Tax Compliance Act   A.  To the extent the Reinsurer is subject to the deduction and withholding of premium payable      hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the      Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the      premium payable under this Contract.     B.  In the event of any return of premium becoming due hereunder, the return premium shall      be determined and paid in full without regard to any amounts deducted or withheld under      paragraph A of this Article.  In the event the Company or its agent recovers such premium      deductions and withholdings on the return premium from the United States Government,      the Company or its agent shall reimburse the Reinsurer for such amounts.      Article 25 - Reserves   A.  The Reinsurer agrees to fund its share of amounts, including but not limited to, the      Company's ceded unearned premium and outstanding loss and loss adjustment expense      reserves (including all case reserves plus any reasonable amount estimated to be      unreported from known loss occurrences) (hereinafter referred to as "Reinsurer's      Obligations") by:         1.  Clean, irrevocable and unconditional letters of credit issued and confirmed, if           confirmation is required by the insurance regulatory authorities involved, by a bank or    18\F7V1075  Page 14    

 

        banks meeting the NAIC Securities Valuation Office credit standards for issuers of          letters of credit and acceptable to said insurance regulatory authorities; and/or         2.  Escrow accounts for the benefit of the Company; and/or         3.  Cash advances;        if the Reinsurer:         1.  Is unauthorized in any state of the United States of America or the District of Columbia          having jurisdiction over the Company and if, without such funding, a penalty would          accrue to the Company on any financial statement it is required to file with the          insurance regulatory authorities involved; or         2.  Has an A.M. Best Company's rating equal to or below B++ at the inception of this           Contract.        The Reinsurer, at its sole option, may fund in other than cash if its method and form of      funding are acceptable to the insurance regulatory authorities involved.    B.  With regard to funding in whole or in part by letters of credit, it is agreed that each letter of      credit will be in a form acceptable to insurance regulatory authorities involved, will be issued      for a term of at least one year and will include an "evergreen clause," which automatically      extends the term for at least one additional year at each expiration date unless written      notice of non-renewal is given to the Company not less than 30 days prior to said expiration      date.  The Company and the Reinsurer further agree, notwithstanding anything to the      contrary in this Contract, that said letters of credit may be drawn upon by the Company or      its successors in interest at any time, without diminution because of the insolvency of the      Company or the Reinsurer, but only for one or more of the following purposes:         1.  To reimburse itself for the Reinsurer's share of unearned premiums returned to           insureds on account of policy cancellations, unless paid in cash by the Reinsurer;         2.  To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense           paid under the terms of policies reinsured hereunder, unless paid in cash by the           Reinsurer;         3.  To reimburse itself for the Reinsurer's share of any other amounts claimed to be due           hereunder, unless paid in cash by the Reinsurer;         4.  To fund a cash account in an amount equal to the Reinsurer's share of amounts,           including but not limited to, the Reinsurer's Obligations as set forth above, funded by           means of a letter of credit which is under non-renewal notice, if said letter of credit has           not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;         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.      18\F7V1075  Page 15    

 

    In the event the amount drawn by the Company on any letter of credit is in excess of the      actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount      determined to be due, the Company shall promptly return to the Reinsurer the excess      amount so drawn.      Article 26 - Insolvency   A.  In the event of the insolvency of the Company, this reinsurance shall be payable directly to      the Company or to its liquidator, receiver, conservator or statutory successor on the basis of      the liability of the Company without diminution because of the insolvency of the Company or      because the liquidator, receiver, conservator or statutory successor of the Company has      failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver,      conservator or statutory successor of the Company shall give written notice to the      Reinsurer of the pendency of a claim against the Company indicating the policy or bond      reinsured which claim would involve a possible liability on the part of the Reinsurer within a      reasonable time after such claim is filed in the conservation or liquidation proceeding or in      the receivership, and that during the pendency of such claim, the Reinsurer may investigate      such claim and interpose, at its own expense, in the proceeding where such claim is to be      adjudicated, any defense or defenses that it may deem available to the Company or its      liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the      Reinsurer shall be chargeable, subject to the approval of the Court, against the Company      as part of the expense of conservation or liquidation to the extent of a pro rata share of the      benefit which may accrue to the Company solely as a result of the defense undertaken by      the Reinsurer.    B.  Where two or more Subscribing Reinsurers are involved in the same claim and a majority in      interest elect to interpose defense to such claim, the expense shall be apportioned in      accordance with the terms of this Contract as though such expense had been incurred by      the Company.    C.  It is further understood and agreed that, in the event of the insolvency of the Company, the      reinsurance under this Contract shall be payable directly by the Reinsurer to the Company      or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of      the New York Insurance Law or except (1) where this Contract specifically provides another      payee of such reinsurance in the event of the insolvency of the Company or (2) where the      Reinsurer with the consent of the direct insured or insureds has assumed such policy      obligations of the Company as direct obligations of the Reinsurer to the payees under such      policies and in substitution for the obligations of the Company to such payees.      Article 27 - Arbitration   A.  As a condition precedent to any right of action hereunder, in the event of any dispute or      difference of opinion hereafter arising with respect to this Contract, it is hereby mutually      agreed that such dispute or difference of opinion shall be submitted to arbitration.  One      Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall      be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active      or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's      London Underwriters.  In the event that either party should fail to choose an Arbiter within   18\F7V1075  Page 16    

 

    30 days following a written request by the other party to do so, the requesting party may      choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If      the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their      appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of      whom the other shall decline, and the decision shall be made by drawing lots.    B.  Each party shall present its case to the Arbiters within 30 days following the date of      appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable      engagement rather than merely as a legal obligation and they are relieved of all judicial      formalities and may abstain from following the strict rules of law.  The decision of the      Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the      Umpire and the decision of the majority shall be final and binding upon both parties.       Judgment upon the final decision of the Arbiters may be entered in any court of competent      jurisdiction.    C.  If more than one Subscribing Reinsurer is involved in the same dispute, all such      Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party      for purposes of this Article and communications shall be made by the Company to each of      the Subscribing Reinsurers constituting one party, provided, however, that nothing herein      shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint,      defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers      participating under the terms of this Contract from several to joint.    D.  Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with      the other the expense of the Umpire and of the arbitration.  In the event that the two      Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the      Umpire and the arbitration shall be equally divided between the two parties.    E.  Any arbitration proceedings shall take place at a location mutually agreed upon by the      parties to this Contract, but notwithstanding the location of the arbitration, all proceedings      pursuant hereto shall be governed by the law of the state in which the Company has its      principal office.      Article 28 - Service of Suit (BRMA 49C)   (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not  authorized in any State, Territory or District of the United States where authorization is required  by insurance regulatory authorities)    A.  It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due      hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a      court of competent jurisdiction within the United States.  Nothing in this Article constitutes or      should be understood to constitute a waiver of the Reinsurer's rights to commence an      action in any court of competent jurisdiction in the United States, to remove an action to a      United States District Court, or to seek a transfer of a case to another court as permitted by      the laws of the United States or of any state in the United States.    B.  Further, pursuant to any statute of any state, territory or district of the United States which      makes provision therefor, the Reinsurer hereby designates the party named in its Interests   18\F7V1075  Page 17    

 

    and Liabilities Agreement, or if no party is named therein, the Superintendent,      Commissioner or Director of Insurance or other officer specified for that purpose in the      statute, or his successor or successors in office, as its true and lawful attorney upon whom      may be served any lawful process in any action, suit or proceeding instituted by or on      behalf of the Company or any beneficiary hereunder arising out of this Contract.      Article 29 - Severability (BRMA 72E)   If any provision of this Contract shall be rendered illegal or unenforceable by the laws,  regulations or public policy of any state, such provision shall be considered void in such state,  but this shall not affect the validity or enforceability of any other provision of this Contract or the  enforceability of such provision in any other jurisdiction.      Article 30 - Governing Law (BRMA 71B)   This Contract shall be governed by and construed in accordance with the laws of the State of  Florida.      Article 31 - Confidentiality   A.  The Reinsurer hereby acknowledges that the documents, information and data provided to      it by the Company, whether directly or through an authorized agent, in connection with the      placement and execution of this Contract, including all information obtained through any      audits and any claims information between the Company and the Reinsurer, and any      submission or other materials relating to any renewal (hereinafter referred to as      "Confidential Information") are proprietary and confidential to the Company.      B.  Except as provided for in paragraph C below, the Reinsurer shall not disclose any      Confidential Information to any third parties, including but not limited to the Reinsurer's      subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates,      underwriting agencies, research organizations, any unaffiliated entity engaged in modeling      insurance or reinsurance data, and statistical rating organizations.      C.  Confidential Information may be used by the Reinsurer only in connection with the      performance of its obligations or enforcement of its rights under this Contract and will only      be disclosed when required by (1) retrocessionaires subject to the business ceded to this      Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial      condition, (3) external auditors performing an audit of the Reinsurer's records in the normal      course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer      advises such parties of the confidential nature of the Confidential Information and their      obligation to maintain its confidentiality.  The Company may require that any third-party      representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article      or by a separate written confidentiality agreement, containing terms no less stringent than      those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in      writing, by this Confidentiality Article or by a separate written confidentiality agreement, the      Reinsurer shall be responsible for any breach of this provision by such third-party      representative of the Reinsurer.   18\F7V1075  Page 18    

 

  D.  Notwithstanding the above, in the event that the Reinsurer is required by court order, other      legal process or any regulatory authority to release or disclose any or all of the Confidential      Information, the Reinsurer agrees to provide the Company with written notice of same at      least 10 days prior to such release or disclosure, to the extent legally permissible, and to      use its best efforts to assist the Company in maintaining the confidentiality provided for in      this Article.    E.  Any disclosure of Non-Public Personally Identifiable Information shall comply with all state      and federal statutes and regulations governing the disclosure of Non-Public Personally      Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as      this term or a similar term is defined in any applicable state, provincial, territory, or federal      law.  Disclosing or using this information for any purpose not authorized by applicable law is      expressly forbidden without the prior consent of the Company.    F.  The parties agree that any information subject to privilege, including the attorney-client      privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to      the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or      otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore,      the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential      Information has been waived or otherwise compromised by virtue of its disclosure pursuant      to this Contract.      G.  The provisions of this Article shall extend to the officers, directors and employees of the      Reinsurer and its affiliates, and shall be binding upon their successors and assigns.      Article 32 - Non-Waiver   The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise  any right, remedy or option hereunder shall not:  (1) constitute a waiver of any rights contained  in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and  complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in  the future, nor (4) affect the validity of this Contract or any part thereof.      Article 33 - Notices and Contract Execution   A.  Whenever a notice, statement, report or any other written communication is required by this      Contract, unless otherwise specified, such notice, statement, report or other written      communication may be transmitted by certified or registered mail, nationally or      internationally recognized express delivery service, personal delivery, electronic mail, or      facsimile.  With the exception of notices of termination, first class mail is also acceptable.    B.  The use of any of the following shall constitute a valid execution of this Contract or any      amendments thereto:         1.  Paper documents with an original ink signature;      18\F7V1075  Page 19    

 

     2.  Facsimile or electronic copies of paper documents showing an original ink signature;           and/or         3.  Electronic records with an electronic signature made via an electronic agent.  For the           purposes of this Contract, the terms "electronic record," "electronic signature" and           "electronic agent" shall have the meanings set forth in the Electronic Signatures in           Global and National Commerce Act of 2000 or any amendments thereto.    C.  This Contract may be executed in one or more counterparts, each of which, when duly      executed, shall be deemed an original.      Article 34 - Intermediary   Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance  intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business  hereunder.  All communications (including but not limited to notices, statements, premiums,  return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss  settlements) relating to this Contract will be transmitted to the Company or the Reinsurer  through the Intermediary.  Payments by the Company to the Intermediary will be deemed  payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed  payment to the Company only to the extent that such payments are actually received by the  Company.      In Witness Whereof, the Company by its duly authorized representative has executed this  Contract as of the date specified below:    This 9th day of August in the year 2018.    FedNat Insurance Company    /s/ Michael H. Braun      18\F7V1075  Page 20    

 

                                      Schedule A                              Non-Florida Property Catastrophe                            Excess of Loss Reinsurance Contract                                  Effective:  July 1, 2018                                  FedNat Insurance Company                                      Sunrise, Florida                                                        Coverage A       Coverage B                          Reinsurer's Per Occurrence Limit        $5,000,000     $13,000,000            Reinsurer's Term Limit                 $10,000,000     $13,000,000            Minimum Premium                                *****          *****            AAL                                            *****          *****            Annual Deposit Premium                         *****          *****            Deposit Premium Installments                   *****          *****        The figures listed above for each coverage section shall apply to each Subscribing Reinsurer in  the percentage share for that coverage section as expressed in its Interests and Liabilities  Agreement attached hereto.    18\F7V1075  Schedule A        

 

                                 War Exclusion Clause        As regards interests which at time of loss or damage are on shore, no liability shall attach hereto  in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of  foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or  confiscation by order of any government or public authority.      18\F7V1075      

 

      Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)      1.   This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or       Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.    2.   Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or       liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against       Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:           I.  Nuclear reactor power plants including all auxiliary property on the site, or          II.  Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor             installations, and "critical facilities" as such, or          III.  Installations for fabricating complete fuel elements or for processing substantial quantities of "special nuclear material,"             and for reprocessing, salvaging, chemically separating, storing or disposing of "spent" nuclear fuel or waste materials, or         IV.   Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other             products of nuclear fission.    3.   Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or       liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer,       from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and       which normally would be insured therewith except that this paragraph (3) shall not operate         (a)   where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or         (b)   where said insurance contains a provision excluding coverage for damage to property caused by or resulting from             radioactive contamination, however caused.  However on and after 1st January 1960 this sub-paragraph (b) shall only             apply provided the said radioactive contamination exclusion provision has been approved by the Governmental             Authority having jurisdiction thereof.    4.   Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or       liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer,       when such radioactive contamination is a named hazard specifically insured against.    5.   It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear       exposure is not considered by the Reassured to be the primary hazard.    6.   The term "special nuclear material" shall have the meaning given it in the Atomic Energy Act of 1954 or by any law       amendatory thereof.    7.   Reassured to be sole judge of what constitutes:         (a)   substantial quantities, and         (b)   the extent of installation, plant or site.    Note.-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that         (a)   all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other             provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of             this Clause shall apply.         (b)   with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be             free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first             occurs whereupon all the provisions of this Clause shall apply.    12/12/57  N.M.A. 1119  BRMA 35B    18\F7V1075      

 

            Pools, Associations and Syndicates Exclusion Clause                                     (Catastrophe)      It is hereby understood and agreed that:    A.  This Contract excludes loss or liability arising from:         1.  Business derived directly or indirectly from any pool, association, or syndicate which           maintains its own reinsurance facilities.  This subparagraph 1 shall not apply with           respect to:             a.  Residual market mechanisms created by statute.  This Contract shall not extend,               however, to afford coverage for liability arising from the inability of any other               participant or member in the residual market mechanism to meet its obligations,               nor shall this Contract extend to afford coverage for liability arising from any               claim against the residual market mechanism brought by or on behalf of any               insolvency fund (as defined in the Insolvency Fund Exclusion Clause               incorporated in this Contract).  For the purposes of this Clause, the California               Earthquake Authority shall be deemed to be a "residual market mechanism."                    b.  Inter-agency or inter-government joint underwriting or risk purchasing               associations (however styled) created by or permitted by statute or regulation.         2.   Those perils insured by the Company that the Company knows, at the time the risk is           bound, to be insured by or in excess of amounts insured or reinsured by any pool,           association or syndicate formed for the purpose of insuring oil, gas, or petro-chemical           plants; oil or gas drilling rigs; and/or aviation risks.  This subparagraph 2 shall not           apply:             a.  If the total insured value over all interests of the risk is less than $250,000,000.             b.  To interests traditionally underwritten as Inland Marine or Stock or Contents               written on a blanket basis.             c.  To Contingent Business Interruption liability, except when it is known to the               Company, at the time the risk is bound, that the key location is insured by or               through any pool, association or syndicate formed for the purpose of insuring oil,               gas, or petro-chemical plants; oil or gas drilling rigs; and/or aviation risks; unless               the total insured value over all interests of the risk is less than $250,000,000.    B.  With respect to loss or liability arising from the Company's participation or membership in      any residual market mechanism created by statute, the Company may include in its ultimate      net loss only amounts for which the Company is assessed as a direct consequence of a      covered loss occurrence, subject to the following provisions:         1.  Recovery is limited to perils otherwise protected hereunder.         2.  In the event the terms of the Company's participation or membership in any such           residual market mechanism permit the Company to recoup any such direct    18\F7V1075  Page 1 of 2  

 

        assessment attributed to a loss occurrence by way of a specific policy premium          surcharge or similar levy on policyholders, the amount received by the Company as a          result of such premium surcharge or levy shall reduce the Company's ultimate net loss          for such loss occurrence.         3.  The result of any rate increase filing permitted by the terms of the Company's          participation or membership in any such residual market mechanism following any           assessment shall have no effect on the Company's ultimate net loss for any covered           loss occurrence.         4.  The result of any premium tax credit filing permitted by the terms of the Company's           participation or membership in any such residual market mechanism following any           assessment shall reduce the Company's ultimate net loss for any covered loss           occurrence.         5.  The Company may not include in its ultimate net loss any amount resulting from an           assessment that, pursuant to the terms of the Company's participation or membership           in the residual market mechanism, the Company is required to pay only after such           assessment is collected from the policyholder.         6.  The ultimate net loss hereunder shall not include any monies expended to purchase or          retire bonds as a consequence of being a member of a residual market mechanism          nor any fines or penalties imposed on the Company for late payment.         7.  If, however, a residual market mechanism only provides for assessment based on an          aggregate of losses in any one contract or plan year of said mechanism, then the          amount of that assessment to be included in the ultimate net loss for any one loss          occurrence shall be determined by multiplying the Company's share of the aggregate          assessment by a factor derived by dividing the Company's ultimate net loss (net of the          assessment) with respect to the loss occurrence by the total of all of its ultimate net          losses (net of assessments) from all loss occurrences included by the mechanism in          determining the assessment.     8/1/2012                                                     18\F7V1075  Page 2 of 2  

 

                                Terrorism Exclusion                               (Property Treaty Reinsurance)        Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it  is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused  by, contributed to by, resulting from or arising out of or in connection with any act of terrorism,  as defined herein, regardless of any other cause or event contributing concurrently or in any  other sequence to the loss.    An act of terrorism includes any act, or preparation in respect of action, or threat of action  designed to influence the government de jure or de facto of any nation or any political division  thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public  or a section of the public of any nation by any person or group(s) of persons whether acting  alone or on behalf of or in connection with any organization(s) or government(s) de jure or  de facto, and which:         1.  Involves violence against one or more persons, or         2.  Involves damage to property; or         3.  Endangers life other than the person committing the action; or         4.  Creates a risk to health or safety of the public or a section of the public; or         5.  Is designed to interfere with or disrupt an electronic system.    This Contract also excludes loss, damage, cost or expense directly or indirectly caused by,  contributed to by, resulting from or arising out of or in connection with any action in controlling,  preventing, suppressing, retaliating against or responding to any act of terrorism.    Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this  Contract, in respect only of personal lines, this Contract will pay actual loss or damage (but not  related cost and expense) caused by any act of terrorism provided such act is not directly or  indirectly caused by, contributed to by, resulting from or arising out of or in connection with  radiological, biological, chemical, or nuclear pollution or contamination.        18\F7V1075                                                                                            

 

The Interests and Liabilities Agreements, constituting 11 pages in total, have been omitted in  accordance with Rule 24b-2 under the Exchange Act.  These pages have been filed separately  with the Securities and Exchange Commission.    18\F7V1075fnhc93018ex103

                                                                                                             Non-Florida Reinstatement Premium Protection                                   Reinsurance Contract                                  Effective:  July 1, 2018                                                                             FedNat Insurance Company                                      Sunrise, Florida                                                                              _______________________      *****Portions of this document omitted pursuant to an application for an order for confidential  treatment pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this  document have been filed separately with the Securities and Exchange Commission.                                                 18\F7V1072        

 

                                                                                                                          Table of Contents       Article                                                                        Page        1       Coverage                                                               1       2       Commencement and Termination                                           1       3       Concurrency of Conditions                                              2   4 Premium                                                                          3       5       Sanctions                                                              3       6       Loss Notices and Settlements                                           3       7       Late Payments                                                          4       8       Offset                                                                 5       9       Access to Records                                                      5      10       Errors and Omissions (BRMA 14F)                                        5      11       Currency (BRMA 12A)                                                    5      12       Taxes (BRMA 50B)                                                       6      13       Federal Excise Tax (BRMA 17D)                                          6      14       Foreign Account Tax Compliance Act                                     6      15       Reserves                                                               6      16       Insolvency                                                             8      17       Arbitration                                                            8      18       Service of Suit (BRMA 49C)                                             9      19       Severability (BRMA 72E)                                               10      20       Governing Law (BRMA 71B)                                              10      21       Confidentiality                                                       10      22       Non-Waiver                                                            11      23       Notices and Contract Execution                                        11      24       Intermediary                                                          12               Schedule A      18\F7V1072        

 

                                                                                                             Non-Florida Reinstatement Premium Protection                                   Reinsurance Contract                                  Effective:  July 1, 2018                                  entered into by and between                                  FedNat Insurance Company                                      Sunrise, Florida                          (hereinafter referred to as the "Company")                                             and                           The Subscribing Reinsurer(s) Executing the                            Interests and Liabilities Agreement(s)                                      Attached Hereto                          (hereinafter referred to as the "Reinsurer")        Article 1 - Coverage   By this Contract the Reinsurer agrees to indemnify the Company for 100% of any reinstatement  premium which the Company pays or becomes liable to pay as a result of loss occurrences  covered under Coverage A of the Company's Non-Florida Property Catastrophe Excess of Loss  Reinsurance Contract, effective July 1, 2018 (hereinafter referred to as the "Original Contract"  and described in Schedule A attached hereto), subject to the terms, conditions and limitations  set forth herein and in Schedule A attached to and forming part of this Contract.      Article 2 - Commencement and Termination   A.  This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2018,      with respect to reinstatement premium payable by the Company under Coverage A of the      Original Contract as a result of losses arising out of loss occurrences commencing at or      after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time,      July 1, 2019.    B.  Notwithstanding the provisions of paragraph A above, the Company may terminate a      Subscribing Reinsurer's percentage share in this Contract at any time by giving written      notice to the Subscribing Reinsurer in the event any of the following circumstances occur:         1.  The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the           Subscribing Reinsurer's accounting system) at the inception of this Contract has been           reduced by 20.0% or more of the amount of surplus (or the applicable equivalent)           12 months prior to that date; or         2.  The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the           Subscribing Reinsurer's accounting system) at any time during the term of this           Contract has been reduced by 20.0% or more of the amount of surplus (or the           applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial    18\F7V1072  Page 1      

 

                                                                                                 statement filed with regulatory authorities and available to the public as of the          inception of this Contract; or         3.  The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded          below "A-" and/or Standard & Poor's rating has been assigned or downgraded below          "BBB+"; or         4.  The Subscribing Reinsurer has become, or has announced its intention to become,          merged with, acquired by or controlled by any other entity or individual(s) not          controlling the Subscribing Reinsurer's operations previously; or         5.  A State Insurance Department or other legal authority has ordered the Subscribing          Reinsurer to cease writing business; or         6.  The Subscribing Reinsurer has become insolvent or has been placed into liquidation,          receivership, supervision, administration, winding-up or under a scheme of          arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings          have been instituted against the Subscribing Reinsurer for the appointment of a          receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in          bankruptcy, or other agent known by whatever name, to take possession of its assets          or control of its operations; or         7.  The Subscribing Reinsurer has reinsured its entire liability under this Contract without          the Company's prior written consent; or          8.  The Subscribing Reinsurer has ceased assuming new or renewal property or casualty          treaty reinsurance business; or         9.  The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is          compensated on a contingent basis or is otherwise provided with financial incentives          based on the quantum of claims paid; or        10.  The Subscribing Reinsurer has failed to comply with the funding requirements set forth          in the Reserves Article.    C.  If this Contract is terminated or expires while a loss occurrence covered hereunder is in      progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions      of this Contract, be determined as if the entire loss occurrence had occurred prior to the      termination or expiration of this Contract, provided that no part of such loss occurrence is      claimed against any renewal or replacement of this Contract.      Article 3 - Concurrency of Conditions   A.  It is agreed that this Contract will follow the terms, conditions, exclusions, definitions,      warranties and settlements of the Company under Coverage A of the Original Contract,      which are not inconsistent with the provisions of this Contract.    B.  The Company shall advise the Reinsurer of any material changes in the Original Contract      which may affect the liability of the Reinsurer under this Contract.     18\F7V1072  Page 2      

 

                                                                                           Article 4 - Premium   A.  As premium for the reinsurance coverage provided hereunder for the term of this Contract,      the Company shall pay the Reinsurer the product of the following (or a pro rata portion      thereof in the event the term of this Contract is less than 12 months and for purposes of      calculating subparagraph 2 below, the term of the Original Contract is a full 12 months):          1.  The Final Adjusted Rate on Line for Coverage A of the Original Contract; times         2.  An amount equal to 100% reinsurance placement percentage under Coverage A of           the Original Contract of the final adjusted premium paid by the Company for           Coverage A of the Original Contract.        "Final Adjusted Rate on Line" as used herein shall mean an amount equal to a 100%      reinsurance placement percentage under Coverage A of the Original Contract of the final      adjusted premium paid by the Company for Coverage A of the Original Contract divided by      the amount, shown as the "Reinsurer's Per Occurrence Limit" for Coverage A of the      Original Contract in Schedule A attached hereto.    B.  The Company shall pay the Reinsurer a deposit premium of *****, in four equal installments      of *****, on July 1 and October 1 of 2018, and January 1 and April 1 of 2019.  However, in      the event this Contract is terminated, there shall be no deposit premium installments due      after the effective date of termination.    C.  As soon as possible after the termination or expiration of this Contract, the Company shall      provide a report to the Reinsurer setting forth the premium due hereunder for the term of      this Contract, computed in accordance with paragraph A above, and any additional      premium due the Reinsurer or return premium due the Company shall be remitted promptly.      Article 5 - Sanctions   Neither the Company nor any Subscribing Reinsurer shall be liable for premium or loss under  this Contract if it would result in a violation of any mandatory sanction, prohibition or restriction  under United Nations resolutions or the trade or economic sanctions, laws or regulations of the  European Union, United Kingdom or United States of America that are applicable to either party.      Article 6 - Loss Notices and Settlements   A.  Whenever reinstatement premium settlements made by the Company under the Original      Contract appear likely to result in a claim hereunder, the Company shall notify the      Reinsurer.  The Company will advise the Reinsurer of all subsequent developments relating      to such claims that, in the opinion of the Company, may materially affect the position of the      Reinsurer.    B.  All reinstatement premium settlements made by the Company under the Original Contract,      provided they are within the terms of the Original Contract and within the terms of this      Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts    18\F7V1072  Page 3      

 

                                                                                             for which it may be liable within 10 days of receipt of reasonable evidence of the amount      paid (or scheduled to be paid) by the Company.      Article 7 - Late Payments   A.  The provisions of this Article shall not be implemented unless specifically invoked, in      writing, by one of the parties to this Contract.    B.  In the event any premium, loss or other payment due either party is not received by the      intermediary named in the Intermediary Article (hereinafter referred to as the      "Intermediary") by the payment due date, the party to whom payment is due may, by      notifying the Intermediary in writing, require the debtor party to pay, and the debtor party      agrees to pay, an interest charge on the amount past due calculated for each such payment      on the last business day of each month as follows:         1.  The number of full days which have expired since the due date or the last monthly           calculation, whichever the lesser; times         2.  1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street           Journal on the first business day of the month for which the calculation is made; times         3.  The amount past due, including accrued interest.        It is agreed that interest shall accumulate until payment of the original amount due plus      interest charges have been received by the Intermediary.    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.     18\F7V1072  Page 4      

 

                                                                                         D.  Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from      contesting the validity of any claim, or from participating in the defense of any claim or suit,      or prohibiting either party from contesting the validity of any payment or from initiating any      arbitration or other proceeding in accordance with the provisions of this Contract.  If the      debtor party prevails in an arbitration or other proceeding, then any interest charges due      hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such      proceeding, then the interest charge on the amount determined to be due hereunder shall      be calculated in accordance with the provisions set forth above unless otherwise      determined by such proceedings.  If a debtor party advances payment of any amount it is      contesting, and proves to be correct in its contestation, either in whole or in part, the other      party shall reimburse the debtor party for any such excess payment made plus interest on      the excess amount calculated in accordance with this Article.    E.  Interest charges arising out of the application of this Article that are $1,000 or less from any      party shall be waived unless there is a pattern of late payments consisting of three or more      items over the course of any 12-month period.      Article 8 - Offset   The Company and the Reinsurer may offset any balance or amount due from one party to the  other under this Contract or any other contract heretofore or hereafter entered into between the  Company and the Reinsurer, whether acting as assuming reinsurer or ceding company.  The  provisions of this Article shall not be affected by the insolvency of either party.      Article 9 - Access to Records   The Reinsurer or its designated representatives shall have access at any reasonable time to all  records of the Company which pertain in any way to this reinsurance, provided the Reinsurer  gives the Company at least 15 days prior notice of request for such access.  However, a  Subscribing Reinsurer or its designated representatives shall not have any right of access to the  records of the Company if it is not current in all undisputed payments due the Company.   "Undisputed" as used herein shall mean any amount that the Subscribing Reinsurer has not  contested in writing to the Company specifying the reason(s) why the payments are disputed.      Article 10 - Errors and Omissions (BRMA 14F)   Inadvertent delays, errors or omissions made in connection with this Contract or any transaction  hereunder shall not relieve either party from any liability which would have attached had such  delay, error or omission not occurred, provided always that such error or omission is rectified as  soon as possible after discovery.      Article 11 - Currency (BRMA 12A)   A.  Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be      construed to mean United States Dollars and all transactions under this Contract shall be in      United States Dollars.     18\F7V1072  Page 5      

 

                                                                                         B.  Amounts paid or received by the Company in any other currency shall be converted to      United States Dollars at the rate of exchange at the date such transaction is entered on the      books of the Company.      Article 12 - Taxes (BRMA 50B)   In consideration of the terms under which this Contract is issued, the Company will not claim a  deduction in respect of the premium hereon when making tax returns, other than income or  profits tax returns, to any state or territory of the United States of America or the District of  Columbia.      Article 13 - Federal Excise Tax (BRMA 17D)   A.  The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the      applicable percentage of the premium payable hereon (as imposed under Section 4371 of      the Internal Revenue Code) to the extent such premium is subject to the Federal Excise      Tax.    B.  In the event of any return of premium becoming due hereunder the Reinsurer will deduct      the applicable percentage from the return premium payable hereon and the Company or its      agent should take steps to recover the tax from the United States Government.      Article 14 - Foreign Account Tax Compliance Act   A.  To the extent the Reinsurer is subject to the deduction and withholding of premium payable      hereon as set forth in the Foreign Account Tax Compliance Act (Sections 1471-1474 of the      Internal Revenue Code), the Reinsurer shall allow such deduction and withholding from the      premium payable under this Contract.     B.  In the event of any return of premium becoming due hereunder, the return premium shall      be determined and paid in full without regard to any amounts deducted or withheld under      paragraph A of this Article.  In the event the Company or its agent recovers such premium      deductions and withholdings on the return premium from the United States Government,      the Company or its agent shall reimburse the Reinsurer for such amounts.      Article 15 - Reserves   A.  The Reinsurer agrees to fund its share of amounts, including but not limited to, the      Company's ceded unearned premium and outstanding loss reserves (being the sum of all      reinstatement premiums paid by the Company under the Original Contract but not yet      recovered from the Reinsurer, plus the Company's reserves for reinstatement premium due      under the Original Contract, if any) (hereinafter referred to as "Reinsurer's Obligations") by:         1.  Clean, irrevocable and unconditional letters of credit issued and confirmed, if           confirmation is required by the insurance regulatory authorities involved, by a bank or           banks meeting the NAIC Securities Valuation Office credit standards for issuers of           letters of credit and acceptable to said insurance regulatory authorities; and/or   18\F7V1072  Page 6      

 

                                                                                                2.  Escrow accounts for the benefit of the Company; and/or         3.  Cash advances;        if the Reinsurer:         1.  Is unauthorized in any state of the United States of America or the District of Columbia           having jurisdiction over the Company and if, without such funding, a penalty would           accrue to the Company on any financial statement it is required to file with the           insurance regulatory authorities involved; or         2.  Has an A.M. Best Company's rating equal to or below B++ at the inception of this           Contract.        The Reinsurer, at its sole option, may fund in other than cash if its method and form of      funding are acceptable to the insurance regulatory authorities involved.    B.  With regard to funding in whole or in part by letters of credit, it is agreed that each letter of      credit will be in a form acceptable to insurance regulatory authorities involved, will be issued      for a term of at least one year and will include an "evergreen clause," which automatically      extends the term for at least one additional year at each expiration date unless written      notice of non-renewal is given to the Company not less than 30 days prior to said expiration      date.  The Company and the Reinsurer further agree, notwithstanding anything to the      contrary in this Contract, that said letters of credit may be drawn upon by the Company or      its successors in interest at any time, without diminution because of the insolvency of the      Company or the Reinsurer, but only for one or more of the following purposes:         1.  To reimburse itself for the Reinsurer's share of unearned premiums returned to           insureds on account of policy cancellations, unless paid in cash by the Reinsurer;         2.  To reimburse itself for the Reinsurer's share of reinstatement premiums paid by the           Company under the terms of the Original Contract, unless paid in cash by the           Reinsurer;         3.  To reimburse itself for the Reinsurer's share of any other amounts claimed to be due           hereunder, unless paid in cash by the Reinsurer;         4.  To fund a cash account in an amount equal to the Reinsurer's share of amounts,           including, but not limited to, the Reinsurer's Obligations as set forth above, funded by           means of a letter of credit which is under non-renewal notice, if said letter of credit has           not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;         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.   18\F7V1072  Page 7      

 

                                                                                             Article 16 - Insolvency   A.  In the event of the insolvency of the Company, this reinsurance shall be payable directly to      the Company or to its liquidator, receiver, conservator or statutory successor on the basis of      the liability of the Company without diminution because of the insolvency of the Company or      because the liquidator, receiver, conservator or statutory successor of the Company has      failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver,      conservator or statutory successor of the Company shall give written notice to the      Reinsurer of the pendency of a claim against the Company indicating the policy or bond      reinsured which claim would involve a possible liability on the part of the Reinsurer within a      reasonable time after such claim is filed in the conservation or liquidation proceeding or in      the receivership, and that during the pendency of such claim, the Reinsurer may investigate      such claim and interpose, at its own expense, in the proceeding where such claim is to be      adjudicated, any defense or defenses that it may deem available to the Company or its      liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the      Reinsurer shall be chargeable, subject to the approval of the Court, against the Company      as part of the expense of conservation or liquidation to the extent of a pro rata share of the      benefit which may accrue to the Company solely as a result of the defense undertaken by      the Reinsurer.    B.  Where two or more Subscribing Reinsurers are involved in the same claim and a majority in      interest elect to interpose defense to such claim, the expense shall be apportioned in      accordance with the terms of this Contract as though such expense had been incurred by      the Company.    C.  It is further understood and agreed that, in the event of the insolvency of the Company, the      reinsurance under this Contract shall be payable directly by the Reinsurer to the Company      or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of      the New York Insurance Law or except (1) where this Contract specifically provides another      payee of such reinsurance in the event of the insolvency of the Company or (2) where the      Reinsurer with the consent of the direct insured or insureds has assumed such policy      obligations of the Company as direct obligations of the Reinsurer to the payees under such      policies and in substitution for the obligations of the Company to such payees.      Article 17 - Arbitration   A.  As a condition precedent to any right of action hereunder, in the event of any dispute or      difference of opinion hereafter arising with respect to this Contract, it is hereby mutually      agreed that such dispute or difference of opinion shall be submitted to arbitration.  One      Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall      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.   18\F7V1072  Page 8      

 

                                                                                           B.  Each party shall present its case to the Arbiters within 30 days following the date of      appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable      engagement rather than merely as a legal obligation and they are relieved of all judicial      formalities and may abstain from following the strict rules of law.  The decision of the      Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the      Umpire and the decision of the majority shall be final and binding upon both parties.       Judgment upon the final decision of the Arbiters may be entered in any court of competent      jurisdiction.    C.  If more than one Subscribing Reinsurer is involved in the same dispute, all such      Subscribing Reinsurers shall, at the option of the Company, constitute and act as one party      for purposes of this Article and communications shall be made by the Company to each of      the Subscribing Reinsurers constituting one party, provided, however, that nothing herein      shall impair the rights of such Subscribing Reinsurers to assert several, rather than joint,      defenses or claims, nor be construed as changing the liability of the Subscribing Reinsurers      participating under the terms of this Contract from several to joint.    D.  Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with      the other the expense of the Umpire and of the arbitration.  In the event that the two      Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the      Umpire and the arbitration shall be equally divided between the two parties.    E.  Any arbitration proceedings shall take place at a location mutually agreed upon by the      parties to this Contract, but notwithstanding the location of the arbitration, all proceedings      pursuant hereto shall be governed by the law of the state in which the Company has its      principal office.      Article 18 - Service of Suit (BRMA 49C)   (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not  authorized in any State, Territory or District of the United States where authorization is required  by insurance regulatory authorities)    A.  It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due      hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a      court of competent jurisdiction within the United States.  Nothing in this Article constitutes or      should be understood to constitute a waiver of the Reinsurer's rights to commence an      action in any court of competent jurisdiction in the United States, to remove an action to a      United States District Court, or to seek a transfer of a case to another court as permitted by      the laws of the United States or of any state in the United States.    B.  Further, pursuant to any statute of any state, territory or district of the United States which      makes provision therefor, the Reinsurer hereby designates the party named in its Interests      and Liabilities Agreement, or if no party is named therein, the Superintendent,      Commissioner or Director of Insurance or other officer specified for that purpose in the      statute, or his successor or successors in office, as its true and lawful attorney upon whom      may be served any lawful process in any action, suit or proceeding instituted by or on      behalf of the Company or any beneficiary hereunder arising out of this Contract.     18\F7V1072  Page 9      

 

                                                                                           Article 19 - Severability (BRMA 72E)   If any provision of this Contract shall be rendered illegal or unenforceable by the laws,  regulations or public policy of any state, such provision shall be considered void in such state,  but this shall not affect the validity or enforceability of any other provision of this Contract or the  enforceability of such provision in any other jurisdiction.      Article 20 - Governing Law (BRMA 71B)   This Contract shall be governed by and construed in accordance with the laws of the State of  Florida.      Article 21 - Confidentiality   A.  The Reinsurer hereby acknowledges that the documents, information and data provided to      it by the Company, whether directly or through an authorized agent, in connection with the      placement and execution of this Contract, including all information obtained through any      audits and any claims information between the Company and the Reinsurer, and any      submission or other materials relating to any renewal (hereinafter referred to as      "Confidential Information") are proprietary and confidential to the Company.      B.  Except as provided for in paragraph C below, the Reinsurer shall not disclose any      Confidential Information to any third parties, including but not limited to the Reinsurer's      subsidiaries and affiliates, other insurance companies and their subsidiaries and affiliates,      underwriting agencies, research organizations, any unaffiliated entity engaged in modeling      insurance or reinsurance data, and statistical rating organizations.      C.  Confidential Information may be used by the Reinsurer only in connection with the      performance of its obligations or enforcement of its rights under this Contract and will only      be disclosed when required by (1) retrocessionaires subject to the business ceded to this      Contract, (2) regulators performing an audit of the Reinsurer's records and/or financial      condition, (3) external auditors performing an audit of the Reinsurer's records in the normal      course of business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer      advises such parties of the confidential nature of the Confidential Information and their      obligation to maintain its confidentiality.  The Company may require that any third-party      representatives of the Reinsurer agree, in writing, to be bound by this Confidentiality Article      or by a separate written confidentiality agreement, containing terms no less stringent than      those set forth in this Article.  If a third-party representative of the Reinsurer is not bound, in      writing, by this Confidentiality Article or by a separate written confidentiality agreement, the      Reinsurer shall be responsible for any breach of this provision by such third-party      representative of the Reinsurer.    D.  Notwithstanding the above, in the event that the Reinsurer is required by court order, other      legal process or any regulatory authority to release or disclose any or all of the Confidential      Information, the Reinsurer agrees to provide the Company with written notice of same at      least 10 days prior to such release or disclosure, to the extent legally permissible, and to      use its best efforts to assist the Company in maintaining the confidentiality provided for in      this Article.   18\F7V1072  Page 10      

 

                                                                                           E.  Any disclosure of Non-Public Personally Identifiable Information shall comply with all state      and federal statutes and regulations governing the disclosure of Non-Public Personally      Identifiable Information.  "Non-Public Personally Identifiable Information" shall be defined as      this term or a similar term is defined in any applicable state, provincial, territory, or federal      law.  Disclosing or using this information for any purpose not authorized by applicable law is      expressly forbidden without the prior consent of the Company.    F.  The parties agree that any information subject to privilege, including the attorney-client      privilege or attorney work product doctrine (collectively "Privilege") shall not be disclosed to      the Reinsurer until, in the Company's opinion, such Privilege is deemed to be waived or      otherwise compromised by virtue of its disclosure pursuant to this Contract.  Furthermore,      the Reinsurer shall not assert that any Privilege otherwise applicable to the Confidential      Information has been waived or otherwise compromised by virtue of its disclosure pursuant      to this Contract.      G.  The provisions of this Article shall extend to the officers, directors and employees of the      Reinsurer and its affiliates, and shall be binding upon their successors and assigns.      Article 22 - Non-Waiver   The failure of the Company or Reinsurer to insist on compliance with this Contract or to exercise  any right, remedy or option hereunder shall not:  (1) constitute a waiver of any rights contained  in this Contract, (2) prevent the Company or Reinsurer from thereafter demanding full and  complete compliance, (3) prevent the Company or Reinsurer from exercising such remedy in  the future, nor (4) affect the validity of this Contract or any part thereof.      Article 23 - Notices and Contract Execution   A.  Whenever a notice, statement, report or any other written communication is required by this      Contract, unless otherwise specified, such notice, statement, report or other written      communication may be transmitted by certified or registered mail, nationally or      internationally recognized express delivery service, personal delivery, electronic mail, or      facsimile.  With the exception of notices of termination, first class mail is also acceptable.    B.  The use of any of the following shall constitute a valid execution of this Contract or any      amendments thereto:         1.  Paper documents with an original ink signature;         2.  Facsimile or electronic copies of paper documents showing an original ink signature;           and/or         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.      18\F7V1072  Page 11      

 

                                                                                         C.  This Contract may be executed in one or more counterparts, each of which, when duly      executed, shall be deemed an original.      Article 24 - Intermediary   Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance  intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business  hereunder.  All communications (including but not limited to notices, statements, premiums,  return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss  settlements) relating to this Contract will be transmitted to the Company or the Reinsurer  through the Intermediary.  Payments by the Company to the Intermediary will be deemed  payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed  payment to the Company only to the extent that such payments are actually received by the  Company.      In Witness Whereof, the Company by its duly authorized representative has executed this  Contract as of the date specified below:    This 9th day of August in the year 2018.    FedNat Insurance Company      /s/ Michael H. Braun            18\F7V1072  Page 12      

 

                                                                                                                               Schedule A                       Non-Florida Reinstatement Premium Protection                                   Reinsurance Contract                                  Effective:  July 1, 2018                                  FedNat Insurance Company                                      Sunrise, Florida                                                              Original Contract                                                        Coverage A                     Reinsurer's Per Occurrence Limit         $5,000,000                     Reinsurer's Term Limit                 $10,000,000                     Minimum Premium                                *****                     AAL                                            *****                     Annual Deposit Premium                         *****                     Deposit Premium Installments                   *****      18\F7V1072  Schedule A      

 

                                                                                         The Interests and Liabilities Agreements, constituting 4 pages in total, have been omitted in  accordance with Rule 24b-2 under the Exchange Act.  These pages have been filed separately  with the Securities and Exchange Commission.    18\F7V1072

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