1. ORGANIZATION, CONSOLIDATION AND BASIS OF PREPARATION Organization FedNat Holding Company (FNHC, the Company, we, us, or "our") is an insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents. The Company, through its wholly owned subsidiaries, is authorized to underwrite and/or place homeowners multi-peril ("homeowners"), federal flood and other lines of insurance in Florida and other states. The Company markets, distributes and services its own and third-party insurers products and other services through a network of independent and general agents. FedNat Insurance Company (FNIC), our largest wholly owned insurance subsidiary, is licensed as an admitted carrier, to write specific lines of insurance by the states insurance departments, in Florida, Louisiana, Texas, Georgia, South Carolina and Alabama. Monarch National Insurance Company (MNIC), our other insurance subsidiary, is licensed as an admitted carrier in Florida. Admitted carriers are bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices. Admitted carriers are also required to financially contribute to the state guarantee fund used to pay for losses if an insurance carrier becomes insolvent or unable to pay loss amounts due to their policyholders. Maison Acquisition On February 25, 2019, the Company executed a definitive agreement for the acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. ("PIH"). Specifically, the Company will purchase Maison Insurance Company, Maison Managers, Inc., and ClaimCor LLC (collectively, the "Maison Companies"). The purchase price is $51.0 million , which includes $25.5 million in cash and $25.5 million in shares of the Companys common stock. The resale of the shares to be issued will be subsequently registered and will be subject to a five -year standstill agreement. Additionally, in connection with the pending acquisition, on March 5, 2019, the Company closed on an offering of $100 million of Senior Unsecured Notes due 2029, which bear interest at the annual rate of 7.5% . A portion of the cash from the offering was used to retire the full $45.0 million of outstanding debt (thereby lowering our overall cost of borrowing) and the remainder will be used to purchase the Maison Companies and for other general corporate purposes. In addition to the purchase price, PIH will receive five -year rights of first refusal to provide reinsurance of up to 7.5% of any layer in FedNats catastrophe reinsurance program and a five -year agreement for PIH to provide investment advisory services to FedNat. PIH has also agreed to a non-compete for five years following the closing with respect to residential property insurance in Alabama, Florida, Georgia, Louisiana, South Carolina and Texas. The transaction, which is subject to the Maison Companies having consolidated GAAP net book value of at least $42 million as of closing and satisfaction of other customary closing conditions, including insurance regulatory approvals in Louisiana and Florida, is expected to close in the latter part of the second quarter of 2019. Refer to Basis of Presentation and Principles of Consolidation and below. 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 the Companys homeowners insurance products to consumers in Florida. As a percentage of the total homeowners premiums we underwrote, 22.8% and 22.8% were from Allstates network of Florida agents, for the three months ended March 31, 2019 and 2018 , 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, 19.6% and 11.8% , respectively, of the Companys premiums were underwritten by SageSure, for the three months ended March 31, 2019 and 2018 , respectively. 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 Companys 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 Companys 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 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.