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. Monarch National Insurance Company We completed our acquisition of MNIC in February 2018 by acquiring the membership interests in MNICs indirect parent, Monarch Delaware Holdings LLC (Monarch Delaware), held by our joint venture partners. Our joint venture partners were Crosswinds Investor Monarch LP (Crosswinds Investor), a wholly owned subsidiary of Crosswinds Holdings Inc. (Crosswinds Holdings), a private equity firm and asset manager, and Transatlantic Reinsurance Company (TransRe), an international property and casualty reinsurance company. We purchased the 42.4% Class A membership interest in Monarch Delaware held by Crosswinds Investor for $12.3 million and the 15.2% non-voting membership interest in Monarch Delaware held by TransRe for $4.4 million . We also repaid the outstanding principal balance and interest due on the $5.0 million promissory note to TransRe. MNIC was organized in March 2015 and writes homeowners property and casualty insurance in Florida. Crosswinds AUM LLC, a subsidiary of Crosswinds Holdings, served as an investment consultant to FNHC through December 31, 2018 for a quarterly fee of $75,000 . In addition, subsidiaries of Crosswinds Holdings and TransRe each had a right of first refusal through December 31, 2018 to participate in our catastrophe excess of loss reinsurance program, at market rates and terms, up to a placement of $10.0 million in reinsurance limit in the aggregate from Crosswinds Holdings and up to a placement of $10.0 million in reinsurance limit in excess of its placement on our current catastrophe excess of loss reinsurance program from TransRe. TransRe does currently participate in the reinsurance program. Refer to Basis of Presentation and Principles of Consolidation and Note 17 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, 23.8% , 23.8% and 24.1% , were from Allstates network of Florida agents, for the years ended December 31, 2018 , 2017 and 2016 , respectively. SageSure Insurance Managers, LLC The Company is a party to a managing general underwriting agreement with SageSure Insurance Managers, LLC (SageSure) to underwrite our FNIC homeowners business outside of Florida. As a percentage of the total homeowners premiums, 15.0% , 10.2% and 6.9% respectively, of the Companys premiums were underwritten by SageSure, for the years ended December 31, 2018 , 2017 , and 2016 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. As of December 31, 2017, in connection with the investment in Monarch Delaware, the Company had determined that the Company possessed the power to direct the activities of the VIE that most significantly impact its economic performance and the Company was the primary beneficiary of the VIE. As such, the Company consolidated Monarch Delaware in its consolidated financial statements. Refer to Monarch National Insurance Company above, related to our 100% ownership of Monarch Delaware that became effective on February 21, 2018. In accordance with the accounting standard on consolidation, a primary beneficiary that acquires additional ownership of the previously controlled and consolidated subsidiaries is accounted for as an equity transaction and re-measurement of assets and liabilities of previously controlled and consolidated subsidiaries is not permitted. As a result, we accounted for this transaction by eliminating the carrying value of the non-controlling interest to reflect our 100% ownership interest in MNIC as of February 21, 2018. The difference between the consideration paid and the amount by which the non-controlling interest was eliminated has been recognized in additional paid-in capital. Following the closing, Monarch Delaware and Monarch Holdings were merged into MNIC. Refer to Note 14 below for additional information regarding the VIE.