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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________TO
_______________________
Commission File number 000-25001
FedNat Holding Company
(Exact name of registrant as specified in its charter)
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Florida |
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65-0248866 |
(State or other jurisdiction of incorporation or
organization) |
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(IRS Employer Identification Number) |
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14050 N.W. 14th Street, Suite 180, Sunrise, FL
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33323 |
(Address of principal executive offices) |
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(Zip Code) |
800-293-2532
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol |
Name of each exchange on which registered |
Common Stock |
FNHC |
Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer," “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer ¨
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Accelerated Filer |
þ
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Non-accelerated Filer ¨
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Smaller reporting company
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Emerging growth company
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☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable
date.
As of August 3, 2020, the registrant
had 13,703,175 shares of common stock
outstanding.
FEDNAT HOLDING COMPANY
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION |
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PAGE |
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ITEM 1 |
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ITEM 2 |
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ITEM 3 |
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ITEM 4 |
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PART II: OTHER INFORMATION |
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ITEM 1 |
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ITEM 1A |
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ITEM 2 |
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ITEM 3 |
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ITEM 4 |
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ITEM 5 |
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ITEM 6 |
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SIGNATURES |
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
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June 30, |
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December 31, |
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2020 |
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2019 |
ASSETS |
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Investments: |
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Debt securities, available-for-sale, at fair value (amortized cost
of $536,896 and $512,645, respectively)
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$ |
555,961 |
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$ |
526,265 |
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Debt securities, held-to-maturity, at amortized cost |
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— |
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4,337 |
|
Equity securities, at fair value |
|
18,040 |
|
|
20,039 |
|
Total investments |
|
574,001 |
|
|
550,641 |
|
Cash and cash equivalents |
|
163,910 |
|
|
133,361 |
|
Prepaid reinsurance premiums |
|
81,564 |
|
|
145,659 |
|
Premiums receivable, net of allowance of $150 and $159,
respectively
|
|
49,632 |
|
|
41,422 |
|
Reinsurance recoverable, net of allowance of $34 and $0,
respectively
|
|
228,709 |
|
|
209,615 |
|
Deferred acquisition costs and value of business acquired,
net |
|
63,022 |
|
|
56,136 |
|
Current and deferred income taxes, net |
|
11,408 |
|
|
2,552 |
|
Goodwill |
|
10,997 |
|
|
10,997 |
|
Other assets |
|
31,543 |
|
|
28,633 |
|
Total assets |
|
$ |
1,214,786 |
|
|
$ |
1,179,016 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
Liabilities |
|
|
|
|
Loss and loss adjustment expense reserves |
|
$ |
387,723 |
|
|
$ |
324,362 |
|
Unearned premiums |
|
383,739 |
|
|
360,870 |
|
Reinsurance payable |
|
67,876 |
|
|
102,467 |
|
Long-term debt, net of deferred financing costs of $1,397 and
$1,478, respectively
|
|
98,603 |
|
|
98,522 |
|
Deferred revenue |
|
6,984 |
|
|
6,856 |
|
|
|
|
|
|
Other liabilities |
|
48,181 |
|
|
37,246 |
|
Total liabilities |
|
993,106 |
|
|
930,323 |
|
|
|
|
|
|
Commitments and contingencies (see Note 11)
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
Preferred stock, $0.01 par value: 1,000,000 shares
authorized
|
|
— |
|
|
— |
|
Common stock, $0.01 par value: 25,000,000 shares authorized;
13,703,175 and 14,414,821 issued and outstanding,
respectively
|
|
137 |
|
|
144 |
|
Additional paid-in capital |
|
168,485 |
|
|
167,677 |
|
Accumulated other comprehensive income (loss) |
|
14,390 |
|
|
10,281 |
|
Retained earnings |
|
38,668 |
|
|
70,591 |
|
Total shareholders’ equity |
|
221,680 |
|
|
248,693 |
|
Total liabilities and shareholders' equity |
|
$ |
1,214,786 |
|
|
$ |
1,179,016 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues: |
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
111,478 |
|
|
$ |
92,306 |
|
|
$ |
217,388 |
|
|
$ |
181,090 |
|
Net investment income |
|
3,341 |
|
|
4,259 |
|
|
7,233 |
|
|
7,969 |
|
Net realized and unrealized investment gains (losses) |
|
10,383 |
|
|
1,955 |
|
|
7,558 |
|
|
4,256 |
|
Direct written policy fees |
|
3,593 |
|
|
2,403 |
|
|
7,059 |
|
|
4,794 |
|
Other income |
|
5,224 |
|
|
4,378 |
|
|
10,480 |
|
|
8,389 |
|
Total revenues |
|
134,019 |
|
|
105,301 |
|
|
249,718 |
|
|
206,498 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
129,916 |
|
|
65,340 |
|
|
198,846 |
|
|
132,179 |
|
Commissions and other underwriting expenses |
|
29,270 |
|
|
22,562 |
|
|
65,625 |
|
|
50,796 |
|
General and administrative expenses |
|
5,663 |
|
|
5,779 |
|
|
11,908 |
|
|
12,090 |
|
Interest expense |
|
1,915 |
|
|
1,915 |
|
|
3,830 |
|
|
6,966 |
|
Total costs and expenses |
|
166,764 |
|
|
95,596 |
|
|
280,209 |
|
|
202,031 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
(32,745) |
|
|
9,705 |
|
|
(30,491) |
|
|
4,467 |
|
Income tax expense (benefit) |
|
(11,266) |
|
|
2,595 |
|
|
(11,145) |
|
|
1,222 |
|
Net income (loss) |
|
$ |
(21,479) |
|
|
$ |
7,110 |
|
|
$ |
(19,346) |
|
|
$ |
3,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.57) |
|
|
$ |
0.55 |
|
|
$ |
(1.38) |
|
|
$ |
0.25 |
|
Diluted |
|
(1.57) |
|
|
0.55 |
|
|
(1.38) |
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares of Common Stock
Outstanding |
|
|
|
|
|
|
|
|
Basic |
|
13,714 |
|
|
12,844 |
|
|
13,981 |
|
|
12,820 |
|
Diluted |
|
13,714 |
|
|
12,883 |
|
|
13,981 |
|
|
12,876 |
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Common Share |
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.18 |
|
|
$ |
0.16 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,479) |
|
|
$ |
7,110 |
|
|
$ |
(19,346) |
|
|
$ |
3,245 |
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on investments,
available-for-sale, net of tax
|
|
8,137 |
|
|
6,122 |
|
|
4,109 |
|
|
13,010 |
|
Comprehensive income (loss) |
|
$ |
(13,342) |
|
|
$ |
13,232 |
|
|
$ |
(15,237) |
|
|
$ |
16,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
Total |
|
|
Preferred |
|
Issued |
|
|
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
|
|
Shareholders' |
|
|
Stock |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
|
|
|
|
Equity |
Balance as of April 1, 2020 |
|
$ |
— |
|
|
13,949,971 |
|
|
$ |
139 |
|
|
$ |
168,130 |
|
|
$ |
6,253 |
|
|
$ |
64,652 |
|
|
|
|
|
|
$ |
239,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(21,479) |
|
|
|
|
|
|
(21,479) |
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8,137 |
|
|
— |
|
|
|
|
|
|
8,137 |
|
Dividends declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,258) |
|
|
|
|
|
|
(1,258) |
|
Shares issued under share-based compensation plans |
|
— |
|
|
29,856 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
1 |
|
Repurchases of common stock |
|
— |
|
|
(276,652) |
|
|
(3) |
|
|
— |
|
|
— |
|
|
(3,247) |
|
|
|
|
|
|
(3,250) |
|
Share-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
355 |
|
|
— |
|
|
— |
|
|
|
|
|
|
355 |
|
Balance as of June 30, 2020 |
|
$ |
— |
|
|
13,703,175 |
|
|
$ |
137 |
|
|
$ |
168,485 |
|
|
$ |
14,390 |
|
|
$ |
38,668 |
|
|
|
|
|
|
$ |
221,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
Total |
|
|
Preferred |
|
Issued |
|
|
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
|
|
Shareholders' |
|
|
Stock |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
|
|
|
|
Equity |
Balance as of April 1, 2019 |
|
$ |
— |
|
|
12,836,401 |
|
|
$ |
128 |
|
|
$ |
141,803 |
|
|
$ |
3,138 |
|
|
$ |
72,847 |
|
|
|
|
|
|
$ |
217,916 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,110 |
|
|
|
|
|
|
7,110 |
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,122 |
|
|
— |
|
|
|
|
|
|
6,122 |
|
Dividends declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,046) |
|
|
|
|
|
|
(1,046) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under share-based compensation plans |
|
— |
|
|
12,918 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
683 |
|
|
— |
|
|
— |
|
|
|
|
|
|
683 |
|
Balance as of June 30, 2019 |
|
$ |
— |
|
|
12,849,319 |
|
|
$ |
128 |
|
|
$ |
142,486 |
|
|
$ |
9,260 |
|
|
$ |
78,911 |
|
|
|
|
|
|
$ |
230,785 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(CONTINUED)
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
Total |
|
|
Preferred |
|
Issued |
|
|
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
|
|
Shareholders' |
|
|
Stock |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
|
|
|
|
Equity |
Balance as of January 1, 2020 |
|
$ |
— |
|
|
14,414,821 |
|
|
$ |
144 |
|
|
$ |
167,677 |
|
|
$ |
10,281 |
|
|
$ |
70,591 |
|
|
|
|
|
|
$ |
248,693 |
|
Cumulative effect of new accounting standards |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(25) |
|
|
|
|
|
|
(25) |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(19,346) |
|
|
|
|
|
|
(19,346) |
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,109 |
|
|
— |
|
|
|
|
|
|
4,109 |
|
Dividends declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,560) |
|
|
|
|
|
|
(2,560) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under share-based compensation plans |
|
— |
|
|
88,589 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
1 |
|
Repurchases of common stock |
|
— |
|
|
(800,235) |
|
|
(8) |
|
|
— |
|
|
— |
|
|
(9,992) |
|
|
|
|
|
|
(10,000) |
|
Share-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
808 |
|
|
— |
|
|
— |
|
|
|
|
|
|
808 |
|
Balance as of June 30, 2020 |
|
$ |
— |
|
|
13,703,175 |
|
|
$ |
137 |
|
|
$ |
168,485 |
|
|
$ |
14,390 |
|
|
$ |
38,668 |
|
|
|
|
|
|
$ |
221,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
Total |
|
|
Preferred |
|
Issued |
|
|
|
Paid-in |
|
Comprehensive |
|
Retained |
|
|
|
|
|
Shareholders' |
|
|
Stock |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
|
|
|
|
Equity |
Balance as of January 1, 2019 |
|
$ |
— |
|
|
12,784,444 |
|
|
$ |
128 |
|
|
$ |
141,128 |
|
|
$ |
(3,750) |
|
|
$ |
77,753 |
|
|
|
|
|
|
$ |
215,259 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,245 |
|
|
|
|
|
|
3,245 |
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
13,010 |
|
|
— |
|
|
|
|
|
|
13,010 |
|
Dividends declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,087) |
|
|
|
|
|
|
(2,087) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under share-based compensation plans |
|
— |
|
|
64,875 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
1,358 |
|
|
— |
|
|
— |
|
|
|
|
|
|
1,358 |
|
Balance as of June 30, 2019 |
|
$ |
— |
|
|
12,849,319 |
|
|
$ |
128 |
|
|
$ |
142,486 |
|
|
$ |
9,260 |
|
|
$ |
78,911 |
|
|
|
|
|
|
$ |
230,785 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
Cash flow from operating activities: |
|
|
|
|
Net income (loss) |
|
$ |
(19,346) |
|
|
$ |
3,245 |
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
|
|
|
|
Net realized and unrealized investment (gains) losses |
|
(7,558) |
|
|
(4,256) |
|
Loss (gain) on early extinguishment of debt |
|
— |
|
|
3,575 |
|
Amortization of investment premium or discount, net |
|
1,092 |
|
|
354 |
|
Depreciation and amortization |
|
1,105 |
|
|
725 |
|
Share-based compensation |
|
808 |
|
|
1,358 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Prepaid reinsurance premiums |
|
64,095 |
|
|
25,796 |
|
Premiums receivable, net |
|
(8,210) |
|
|
(1,448) |
|
Reinsurance recoverable, net |
|
(19,126) |
|
|
12,111 |
|
Deferred acquisition costs and value of business acquired,
net |
|
(6,886) |
|
|
(6,103) |
|
Income taxes, net |
|
(10,184) |
|
|
(1,566) |
|
Deferred revenue |
|
128 |
|
|
537 |
|
Loss and loss adjustment expense reserves |
|
63,361 |
|
|
(27,495) |
|
Unearned premiums |
|
22,869 |
|
|
21,816 |
|
Reinsurance payable |
|
(34,591) |
|
|
(10,839) |
|
Other |
|
9,583 |
|
|
7,787 |
|
Net cash provided by (used in) operating activities |
|
57,140 |
|
|
25,597 |
|
Cash flow from investing activities: |
|
|
|
|
Proceeds from sales of equity securities |
|
5,706 |
|
|
2,242 |
|
Proceeds from sales of debt securities |
|
308,760 |
|
|
96,247 |
|
Purchases of equity securities |
|
(4,451) |
|
|
(2,971) |
|
Purchases of debt securities |
|
(349,807) |
|
|
(117,564) |
|
Maturities and redemptions of debt securities |
|
28,339 |
|
|
18,249 |
|
|
|
|
|
|
Purchases of property and equipment |
|
(2,161) |
|
|
(741) |
|
Net cash provided by (used in) investing activities |
|
(13,614) |
|
|
(4,538) |
|
Cash flow from financing activities: |
|
|
|
|
Proceeds from issuance of long-term debt, net of issuance
costs |
|
— |
|
|
98,390 |
|
Payment of long-term debt and prepayment penalties |
|
— |
|
|
(48,000) |
|
|
|
|
|
|
Purchases of FedNat Holding Company common stock |
|
(10,418) |
|
|
— |
|
Issuance of common stock for share-based awards |
|
1 |
|
|
— |
|
Dividends paid |
|
(2,560) |
|
|
(2,085) |
|
Net cash provided by (used in) financing activities |
|
(12,977) |
|
|
48,305 |
|
Net increase (decrease) in cash and cash equivalents |
|
30,549 |
|
|
69,364 |
|
Cash and cash equivalents at beginning-of-period |
|
133,361 |
|
|
64,423 |
|
Cash and cash equivalents at end-of-period |
|
$ |
163,910 |
|
|
$ |
133,787 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
Supplemental disclosure of cash flow information: |
|
|
|
|
Cash paid (received) during the period for interest |
|
$ |
3,750 |
|
|
$ |
902 |
|
Cash paid (received) during the period for income taxes |
|
(923) |
|
|
2,732 |
|
|
|
|
|
|
Significant non-cash investing and financing
transactions: |
|
|
|
|
Right-of-use asset |
|
(7,772) |
|
|
(7,998) |
|
Lease liability |
|
7,772 |
|
|
7,998 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2020
1. ORGANIZATION, CONSOLIDATION AND BASIS OF
PRESENTATION
Organization
FedNat Holding Company (“FNHC,” the “Company,” “we,” “us,” or
“our”) is a regional insurance holding company that controls
substantially all aspects of the insurance underwriting,
distribution and claims processes through our subsidiaries and
contractual relationships with independent agents and general
agents. We, through our wholly owned subsidiaries, are
authorized to underwrite and/or place homeowners multi-peril
(“homeowners”), federal flood and other lines of insurance in
Florida and other states. We market, distribute and service our own
and third-party insurers’ products and other services through a
network of independent and general agents.
FedNat Insurance Company (“FNIC”), our largest wholly owned
insurance subsidiary, is licensed as an admitted carrier to write
homeowners property and casualty insurance by the state’s insurance
departments, in Florida, Louisiana, Texas, Georgia, South Carolina,
Alabama and Mississippi.
Maison Insurance Company ("MIC"), an insurance subsidiary, is
licensed as an admitted carrier to write homeowners property and
casualty insurance as well as wind/hail-only exposures by the
state's insurance departments in Louisiana, Texas and
Florida.
Monarch National Insurance Company (“MNIC”), an insurance
subsidiary, is licensed as an admitted carrier to write homeowners
property and casualty insurance in Florida.
Material Distribution Relationships
Ivantage Select Agency, Inc.
The Company is a party to an insurance agency master agreement with
Ivantage Select Agency, Inc. (“ISA”), an affiliate of Allstate
Insurance Company (“Allstate”), pursuant to which the Company has
been authorized by ISA to appoint Allstate agents to offer our FNIC
homeowners insurance products to consumers in Florida. As a
percentage of the total homeowners premiums we
underwrote, 21.2% and 23.9% were from Allstate’s network of
Florida agents, for the three months ended June 30, 2020 and
2019, respectively. As a percentage of the total homeowners
premiums we underwrote, 20.9% and 23.4% were from Allstate’s
network of Florida agents, for the six months ended June 30,
2020 and 2019, respectively.
SageSure Insurance Managers, LLC
The Company is a party to a managing general underwriting agreement
with SageSure Insurance Managers, LLC (“SageSure”) to facilitate
growth in our FNIC homeowners business outside of Florida. As
a percentage of the total homeowners premiums, 27.2% and 22.0% of
the Company’s premiums were underwritten by SageSure, for the three
months ended June 30, 2020 and 2019, respectively. As a
percentage of the total homeowners premiums, 25.8% and 21.0% of the
Company’s premiums were underwritten by SageSure, for the six
months ended June 30, 2020 and 2019, respectively. As part of
our partnership with SageSure, we entered into a profit share
agreement, whereby we share 50% of net profits of this line of
business, as calculated per the terms of the agreement, subject to
certain limitations. In addition, refer to Note 6 for information
regarding a fully collateralized quota-share treaty.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States (“GAAP”). The consolidated
financial statements include the accounts of FNHC and its
wholly-owned subsidiaries and all entities in which the Company has
a controlling financial interest and any variable interest entity
(“VIE”) of which the Company is the primary beneficiary. The
Company’s management believes the consolidated financial statements
reflect all material adjustments, including normal recurring
adjustments, necessary to fairly state the financial position,
results of operations and cash flows of the Company for the periods
presented. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company identifies a VIE as an entity that does not have
sufficient equity to finance its own activities without additional
financial support or where the equity investors lack certain
characteristics of a controlling financial interest. The
Company assesses its contractual, ownership or other interests in a
VIE to determine if the Company’s interest participates in the
variability the VIE was designed to absorb and pass onto variable
interest holders. The Company performs an ongoing qualitative
assessment of its
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
variable interests in a VIE to determine whether the Company has a
controlling financial interest and would therefore be considered
the primary beneficiary of the VIE. If the Company determines
it is the primary beneficiary of a VIE, the Company consolidates
the assets and liabilities of the VIE in its consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PRACTICES
Our significant accounting policies were described in Note 2 of our
2019 Form 10-K. Other than the changes noted in "Recently Issued
Accounting Pronouncements, Adopted" below, there have been no
significant changes in our significant accounting policies for the
six months ended June 30, 2020.
Accounting Estimates and Assumptions
The Company prepares the accompanying consolidated financial
statements in accordance with GAAP, which requires management to
make estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying
notes. Future events and their effects cannot be determined with
absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results may materially
differ from those estimates.
Similar to other property and casualty insurers, the Company’s
liability for loss and loss adjustment expenses ("LAE") reserves,
although supported by actuarial projections and other data, is
ultimately based on management’s reasoned expectations of future
events. Although considerable variability is inherent in these
estimates, the Company believes that the liability and LAE reserve
is adequate. The Company reviews and evaluates its estimates and
assumptions regularly and makes adjustments, reflected in current
operations, as necessary, on an ongoing basis.
Recently Issued Accounting Pronouncements, Adopted
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments,
which significantly changes the measurement of credit losses for
most financial assets and certain other instruments that are not
measured at fair value through net income. The update requires
entities to record allowances for available-for-sale debt
securities rather than reduce the carrying amount, as currently
performed under the other-than-temporary impairment ("OTTI") model.
The update also requires enhanced disclosures for financial assets
measured at amortized cost and available-for-sale debt securities
to help the financial statement users better understand significant
judgments used in estimating credit losses, as well as the credit
quality and underwriting standards of an entity’s portfolio. The
Company adopted the guidance effective January 1, 2020, by
reflecting a cumulative effect adjustment of less than
$0.1 million, after-tax, which decreased retained earnings,
held-to-maturity debt securities and reinsurance
recoverable.
Refer to Note 7 for additional information regarding allowances for
credit loss.
In August 2018, the FASB issued ASU 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service
Contract.
ASU 2018-15 requires a customer in a cloud computing arrangement
that is a service contract to follow the internal-use software
guidance in Accounting Standards Codification 350-40 to determine
which implementation costs to defer and recognize as an asset. The
Company adopted the guidance effective January 1, 2020, which did
not have any impact on the Company’s consolidated financial
condition or results of operations.
Recently Issued Accounting Pronouncements, Not Yet
Adopted
In January 2020, the FASB issued ASU 2020-1,
Accounting for Equity Securities and Equity Investments,
which clarifies the interaction between accounting standards
related to equity securities (Topic 321), equity method investments
(Topic 323), and certain derivatives (Topic 815). The update
clarifies that an entity should consider observable transactions
that require it to either apply or discontinue the equity method of
accounting for the purposes of applying the measurement alternative
in accordance with Topic 321 immediately before applying or upon
discontinuing the equity method. The update is effective for
interim and annual reporting periods beginning after
December 15, 2021, with early adoption permitted. The Company
is in the early stage of evaluating the impact that the update will
have on the Company’s consolidated financial position or results of
operations.
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
3. ACQUISITIONS
On December 2, 2019, the Company completed its acquisition of the
insurance operations of 1347 Property Insurance Holdings, Inc.
("PIH"). Specifically, the Company purchased from PIH all of the
outstanding equity of MIC, Maison Managers, Inc., and ClaimCor LLC
(collectively, the "Maison Companies"). The Maison Companies
provide multi-peril and wind/hail only coverage to personal
residential dwellings and manufactured/mobile homes in Louisiana,
Texas and Florida. The acquisition enables us to increase
geographic diversification of our book of business outside Florida
and generate additional business with operating synergies and
general and administrative expense savings.
Revenues and net loss of the business acquired were
$16.8 million and $6.8 million, respectively for the
three months ended June 30, 2020. Revenues and net loss of the
business acquired were $32.3 million and $5.1 million,
respectively for the six months ended June 30,
2020.
The following unaudited pro forma condensed consolidated statements
of operations of the Company assume that the acquisition of the
Maison Companies was completed on January 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
Six |
|
|
Months |
|
Months |
|
|
Ended |
|
Ended |
|
|
June 30, 2019 |
|
June 30, 2019 |
|
|
(In thousands) |
|
|
Revenue |
|
$ |
118,995 |
|
|
$ |
237,616 |
|
Net income (loss) |
|
2,848 |
|
|
(547) |
|
Pro forma adjustments include the revenue and net income (loss) of
the Maison Companies for each period as well as estimates for
amortization of identifiable intangible assets acquired and fair
value adjustments associated with investments, VOBA (different than
deferred acquisition costs) and reinsurance recoverable. Other pro
forma adjustments include the incremental increase to interest
expense attributable to financing the acquisition and the impact of
reflecting acquisition and integration costs earlier in
2019.
For more information regarding our acquisition, refer to Note 3 of
our 2019 Form 10-K.
4. FAIR VALUE
Fair Value Disclosures of Financial Instruments
The Company accounts for financial instruments at fair value or the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. Fair value measurements are generally based
upon observable and unobservable inputs. Observable inputs are
based on market data from independent sources, while unobservable
inputs reflect the Company’s view of market assumptions in the
absence of observable market information. All assets and
liabilities that are recorded at fair value are classified and
disclosed in one of the following three categories:
•Level
1
- Quoted market prices (unadjusted) for identical assets or
liabilities in active markets is defined as a market where
transactions for the financial statement occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis, or observable inputs.
•Level
2
- Quoted market prices for similar assets or liabilities and
valuations, using models or other valuation techniques using
observable market data. Significant other observable
that can be corroborated by observable market data;
and
•Level
3
- Instruments that use non-binding broker quotes or model driven
valuations that do not have observable market data or those that
are estimated based on an ownership interest to which a
proportionate share of net assets is attributed.
If the inputs used to measure fair value fall within different
levels of the hierarchy, the category level is based on the lowest
priority level input that is significant to the fair value
measurement of the instrument.
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
The Company’s financial instruments measured at fair value on a
recurring basis and the level of the fair value hierarchy of inputs
used consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
|
|
|
|
|
|
Debt securities - available-for-sale, at fair value: |
|
|
|
|
|
|
|
|
United States government obligations and authorities |
|
$ |
58,888 |
|
|
$ |
136,740 |
|
|
$ |
— |
|
|
$ |
195,628 |
|
Obligations of states and political subdivisions |
|
— |
|
|
23,213 |
|
|
— |
|
|
23,213 |
|
Corporate securities |
|
— |
|
|
308,737 |
|
|
— |
|
|
308,737 |
|
International securities |
|
— |
|
|
28,383 |
|
|
— |
|
|
28,383 |
|
Debt securities, at fair value |
|
58,888 |
|
|
497,073 |
|
|
— |
|
|
555,961 |
|
|
|
|
|
|
|
|
|
|
Equity securities, at fair value |
|
16,858 |
|
|
1,182 |
|
|
— |
|
|
18,040 |
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value |
|
$ |
75,746 |
|
|
$ |
498,255 |
|
|
$ |
— |
|
|
$ |
574,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
|
|
|
|
|
|
Debt securities - available-for-sale, at fair value: |
|
|
|
|
|
|
|
|
United States government obligations and authorities |
|
$ |
83,764 |
|
|
$ |
110,429 |
|
|
$ |
— |
|
|
$ |
194,193 |
|
Obligations of states and political subdivisions |
|
— |
|
|
24,020 |
|
|
— |
|
|
24,020 |
|
Corporate securities |
|
— |
|
|
278,302 |
|
|
— |
|
|
278,302 |
|
International securities |
|
— |
|
|
29,750 |
|
|
— |
|
|
29,750 |
|
Debt securities, at fair value |
|
83,764 |
|
|
442,501 |
|
|
— |
|
|
526,265 |
|
|
|
|
|
|
|
|
|
|
Equity securities, at fair value |
|
17,361 |
|
|
2,678 |
|
|
— |
|
|
20,039 |
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value |
|
$ |
101,125 |
|
|
$ |
445,179 |
|
|
$ |
— |
|
|
$ |
546,304 |
|
Held-to-maturity debt securities reported on the consolidated
balance sheets at amortized cost and disclosed at fair value below
(and in Note 5) and the level of fair value hierarchy of inputs
used consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
|
|
|
|
|
|
June 30, 2020 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
December 31, 2019 |
|
3,453 |
|
|
878 |
|
|
— |
|
|
4,331 |
|
We measure the fair value of our securities based on assumptions
used by market participants in pricing the security. The most
appropriate valuation methodology is selected based on the specific
characteristics of the security, and we consistently apply the
valuation methodology to measure the security’s fair
value. Our fair value measurement is based on a market
approach that utilizes prices and other relevant information
generated by market transactions involving identical or comparable
securities. We review the third-party pricing methodologies on
a quarterly basis and validate the fair value prices to a separate
independent data service and ensure there are no material
differences. Additionally, market indicators, industry and economic
events are monitored.
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
A summary of the significant valuation techniques and market inputs
for each financial instrument carried at fair value includes the
following:
•United
States Government Obligations and Authorities -
In determining the fair value for United States government
securities in Level 1, the Company uses quoted prices (unadjusted)
in active markets for identical or similar assets. In determining
the fair value for United States government securities in Level 2,
the Company uses the market approach utilizing primary valuation
inputs including reported trades, dealer quotes for identical or
similar assets in markets that are not active, benchmark yields,
credit spreads, reference data and industry and economic
events.
•Obligations
of States and Political Subdivisions -
In determining the fair value for state and municipal securities,
the Company uses the market approach utilizing primary valuation
inputs including reported trades, dealer quotes for identical or
similar assets in markets that are not active, benchmark yields,
credit spreads, reference data and industry and economic
events.
•Corporate
and International Securities -
In determining the fair value for corporate securities the Company
uses the market approach utilizing primary valuation inputs
including reported trades, dealer quotes for identical or similar
assets in markets that are not active, benchmark yields, credit
spreads (for investment grade securities), observations of equity
and credit default swap curves (for high-yield corporates),
reference data and industry and economic events.
•Equity
Securities -
In determining the fair value for equity securities in Level 1, the
Company uses quoted prices (unadjusted) in active markets for
identical or similar assets. In determining the fair value for
equity securities in Level 2, the Company uses the market approach
utilizing primary valuation inputs including reported trades,
dealer quotes for identical or similar assets in markets that are
not active, benchmark yields, credit spreads, reference data and
industry and economic events.
We did not have securities trading in less liquid or illiquid
markets with limited or no pricing information, therefore we did
not use unobservable inputs to measure fair value as of June 30,
2020 and December 31, 2019. Additionally, we did not have any
assets or liabilities measured at fair value on a nonrecurring
basis as of June 30, 2020 or December 31, 2019, and we noted no
significant changes in our valuation methodologies between those
periods.
There were no changes to the Company’s valuation methodology and
the Company is not aware of any events or circumstances that would
have a significant adverse effect on the carrying value of its
assets and liabilities measured at fair value as of June 30,
2020 and December 31, 2019. There were no transfers between
the fair value hierarchy levels during the six months ended
June 30, 2020 and 2019.
5. INVESTMENTS
Unrealized Gains and Losses
The difference between amortized cost or cost and estimated fair
value and gross unrealized gains and losses, by major investment
category, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
|
|
|
Cost |
|
Unrealized |
|
Unrealized |
|
|
|
|
or Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
|
(In thousands) |
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
|
|
|
|
Debt securities - available-for-sale: |
|
|
|
|
|
|
|
|
United States government obligations and authorities |
|
$ |
192,968 |
|
|
$ |
2,860 |
|
|
$ |
200 |
|
|
$ |
195,628 |
|
Obligations of states and political subdivisions |
|
22,414 |
|
|
799 |
|
|
— |
|
|
23,213 |
|
Corporate |
|
294,159 |
|
|
15,163 |
|
|
585 |
|
|
308,737 |
|
International |
|
27,355 |
|
|
1,089 |
|
|
61 |
|
|
28,383 |
|
|
|
$ |
536,896 |
|
|
$ |
19,911 |
|
|
$ |
846 |
|
|
$ |
555,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross |
|
Gross |
|
|
|
|
Cost |
|
Unrealized |
|
Unrealized |
|
|
|
|
or Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
|
(In thousands) |
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
Debt securities - available-for-sale: |
|
|
|
|
|
|
|
|
United States government obligations and authorities |
|
$ |
191,546 |
|
|
$ |
3,073 |
|
|
$ |
426 |
|
|
$ |
194,193 |
|
Obligations of states and political subdivisions |
|
23,748 |
|
|
294 |
|
|
22 |
|
|
24,020 |
|
Corporate |
|
268,182 |
|
|
10,252 |
|
|
132 |
|
|
278,302 |
|
International |
|
29,169 |
|
|
593 |
|
|
12 |
|
|
29,750 |
|
|
|
512,645 |
|
|
14,212 |
|
|
592 |
|
|
526,265 |
|
|
|
|
|
|
|
|
|
|
Debt securities - held-to-maturity: |
|
|
|
|
|
|
|
|
United States government obligations and authorities |
|
3,585 |
|
|
12 |
|
|
39 |
|
|
3,558 |
|
Corporate |
|
697 |
|
|
20 |
|
|
— |
|
|
717 |
|
International |
|
55 |
|
|
1 |
|
|
— |
|
|
56 |
|
|
|
4,337 |
|
|
33 |
|
|
39 |
|
|
4,331 |
|
Total investments, excluding equity securities |
|
$ |
516,982 |
|
|
$ |
14,245 |
|
|
$ |
631 |
|
|
$ |
530,596 |
|
Net Realized and Unrealized Gains and Losses
The Company calculates the gain or loss realized on the sale of
investments by comparing the sales price (fair value) to the cost
or amortized cost of the security sold. Net realized gains and
losses on investments are determined in accordance with the
specific identification method.
Net realized and unrealized gains (losses) recognized in earnings,
by major investment category, consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(In thousands) |
|
|
|
|
|
|
Gross realized and unrealized gains: |
|
|
|
|
|
|
|
|
Debt securities |
|
$ |
9,403 |
|
|
$ |
834 |
|
|
$ |
10,789 |
|
|
$ |
1,151 |
|
Equity securities |
|
1,886 |
|
|
1,477 |
|
|
2,205 |
|
|
4,307 |
|
Total gross realized and unrealized gains |
|
11,289 |
|
|
2,311 |
|
|
12,994 |
|
|
5,458 |
|
|
|
|
|
|
|
|
|
|
Gross realized and unrealized losses: |
|
|
|
|
|
|
|
|
Debt securities |
|
(2,339) |
|
|
(120) |
|
|
(2,487) |
|
|
(520) |
|
Equity securities |
|
1,433 |
|
|
(236) |
|
|
(2,949) |
|
|
(682) |
|
Total gross realized and unrealized losses |
|
(906) |
|
|
(356) |
|
|
(5,436) |
|
|
(1,202) |
|
Net realized and unrealized gains (losses) on
investments |
|
$ |
10,383 |
|
|
$ |
1,955 |
|
|
$ |
7,558 |
|
|
$ |
4,256 |
|
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
The above line item, net realized and unrealized gains (losses) on
investments, includes the following equity securities gains
(losses) recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(In thousands) |
|
|
|
|
|
|
Net realized and unrealized gains (losses) |
|
$ |
3,319 |
|
|
$ |
1,241 |
|
|
$ |
(744) |
|
|
$ |
3,625 |
|
Less: |
|
|
|
|
|
|
|
|
Net realized and unrealized gains (losses) on securities
sold |
|
53 |
|
|
(76) |
|
|
(582) |
|
|
250 |
|
Net realized and unrealized gains (losses) recognized during the
period still held as of the end-of-period
|
|
$ |
3,266 |
|
|
$ |
1,317 |
|
|
$ |
(162) |
|
|
$ |
3,375 |
|
Contractual Maturity
Actual maturities may differ from contractual maturities because
issuers may have the right to call or pre-pay
obligations.
Amortized cost and estimated fair value of debt securities, by
contractual maturity, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
Amortized |
|
|
|
|
Cost |
|
Fair Value |
Securities with Maturity Dates |
|
(In thousands) |
|
|
Debt securities, available-for-sale: |
|
|
|
|
One year or less |
|
$ |
36,092 |
|
|
$ |
36,331 |
|
Over one through five years |
|
186,332 |
|
|
193,816 |
|
Over five through ten years |
|
138,456 |
|
|
145,727 |
|
Over ten years |
|
176,016 |
|
|
180,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
536,896 |
|
|
$ |
555,961 |
|
Net Investment Income
Net investment income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(In thousands) |
|
|
|
|
|
|
Interest income |
|
$ |
3,249 |
|
|
$ |
4,169 |
|
|
$ |
7,071 |
|
|
$ |
7,826 |
|
Dividends income |
|
92 |
|
|
90 |
|
|
162 |
|
|
143 |
|
Net investment income |
|
$ |
3,341 |
|
|
$ |
4,259 |
|
|
$ |
7,233 |
|
|
$ |
7,969 |
|
FedNat Holding Company and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
June 30, 2020
Aging of Gross Unrealized Losses
Gross unrealized losses and related fair values for debt
securities, grouped by duration of time in a continuous unrealized
loss position, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
|
12 months or longer |
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
$ |
52,573 |
|
|
$ |
197 |
|
|
$ |
149 |
|
|
$ |
3 |
|
|
$ |
52,722 |
|
|
$ |
200 |
|
Obligations of states and political subdivisions |
|
105 |
|
|
— |
|
|
— |
|
|
— |
|
|
105 |
|
|
— |
|
Corporate |
|
25,597 |
|
|
585 |
|
|
— |
|
|
— |
|
|
25,597 |
|
|
585 |
|
International |
|
4,962 |
|
|
60 |
|
|
206 |
|
|
1 |
|
|
5,168 |
|
|
61 |
|
|
|
$ |
83,237 |
|
|
$ |
842 |
|
|
$ |
355 |
|
|
$ |
4 |
|
|
$ |
83,592 |
|
|
$ |
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
|
12 months or longer |
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
|
|