Federated National Holding Company, is an insurance holding company that controls
substantially all steps in the insurance underwriting, distribution and claims
processes through our subsidiaries and our contractual relationships with our
independent agents and general agents. We are authorized to underwrite, and/or
place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners”),
commercial general liability, federal flood, personal auto and other lines of
insurance in Florida and other states. We market, distribute and service our own
and third-party insurers’ products and our other services through a network
of independent agents.
Our wholly owned insurance subsidiary is Federated National Insurance Company
(“FNIC”), which is licensed as an admitted carrier in Florida, Alabama,
Louisiana and South Carolina. We also serve as managing general agent for Monarch
National Insurance Company (“MNIC”), which was founded in 2015 through
the joint venture, described below, and is licensed as an admitted carrier in
Florida. An admitted carrier is an insurance company that has received a license
from the state department of insurance giving the company the authority to write
specific lines of insurance in that state. These companies are also bound by
rate and form regulations, and are strictly regulated to protect policyholders
from a variety of illegal and unethical practices, including fraud. Admitted
carriers are also required to financially contribute to the state guarantee
fund, which is used to pay for losses if an insurance carrier becomes insolvent
or unable to pay the losses due their policyholders.
On March 19, 2015, the Company entered into a joint venture to organize MNIC,
which received its certificate of authority to write homeowners’ property
and casualty insurance in Florida from the Florida Office of Insurance Regulation
(the “Florida OIR”). The Company’s joint venture partners
are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly
traded Canadian private equity firm and asset manager (“Crosswinds”);
and Transatlantic Reinsurance Company (“TransRe”).
The Company and Crosswinds each invested $14.0 million in Monarch Delaware
Holdings, LLC (“Monarch Delaware”), the indirect parent company
of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting
interests in Monarch Delaware). TransRe invested $5.0 million in debt evidenced
by a six-year promissory note bearing 6% annual interest payable by Monarch
National Holding Company (“MNHC”), a wholly owned subsidiary of
Monarch Delaware and the direct parent company of MNIC.
MNIC entered into a Managing General Agent and Claims Administration Agreement
(the “Monarch MGA Agreement”) with FedNat Underwriters, Inc. (“FNU”),
a wholly owned subsidiary of the Company, pursuant to which FNU provides underwriting,
accounting, reinsurance placement and claims administration services to Monarch.
For its services under the Monarch MGA Agreement, FNU will receive 4% of Monarch’s
total written annual premium, excluding acquisition expenses payable to agents,
for FNU’s managing general agent services; 3.6% of Monarch’s total
earned annual premium for FNU’s claims administration services; and a
per-policy administrative fee of $25 for each policy underwritten for Monarch.
The Company will also receive an annual expense reimbursement for accounting
and related services.
MNIC, MNHC and Monarch Delaware (collectively, the “Monarch Entities”)
entered into an Investment Management Agreement (the “Monarch Investment
Agreement”) with Crosswinds AUM LLC, a wholly owned subsidiary of Crosswinds
(“Crosswinds AUM”), pursuant to which Crosswinds AUM will manage
the investment portfolios of the Monarch Entities. The management fee, on an
annual basis, is 0.75% of assets under management up to $100 million; 0.50%
of assets under management of more than $100 million but less than $200 million;
and 0.30% of assets under management of more than $200 million.
MNIC also entered into a Reinsurance Capacity Right of First Refusal Agreement
with TransRe, pursuant to which TransRe has a right of first refusal for all
quota share and excess of loss reinsurance that Monarch Insurance deems necessary
in its sole discretion for so long as TransRe remains a member of Monarch Delaware
or the MNHC debt remains outstanding. Pursuant to this agreement, TransRe has
the right to provide, at market rates and terms, a maximum of 15% of any reinsurance
coverage obtained by Monarch Delaware in any individual reinsurance contract.
The Company’s CEO and CFO hold their respective positions with Monarch
Entities while they remain employed by the Company.
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