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Related Party Transactions

3 Months Ended

Mar. 31, 2019

11.	Related Party Transactions

Positive Insurance Company is managed by Diversus Management. For the interim periods ended March 31, 2019 and 2018, Diversus Management, through former attorneys-in-fact of PPIX, PCA, and PIPE, received management fees at 25% of gross written premiums of the exchanges. Simultaneously with the acquisition of PPIX, PCA, and PIPE and the initial public offering, Positive Insurance Company and Diversus Management entered into the new management agreement effective as of March 27, 2019 whereby Diversus Management provides administrative services to Positive Insurance Company in exchange for fees based on a percentage of Positive Insurance Company’s gross written premium, less return premium. Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums. Management fees incurred by us for the interim periods ended March 31, 2019 and 2018 were $2,049,380 and $2,137,095, respectively, which is recorded in other underwriting expenses in the statement of operations. In connection with the execution of the new management agreement with Diversus Management, the Company incurred costs of $10,000,000 to execute the agreement; such costs are presented as “prepaid management fees” in the accompany consolidated balance sheet at March 31, 2019 and is to be amortized over a period of seven years.

We have contracts with Gateway Risk Services, LLC and Andrews Outsource Solutions LLC, both of which are wholly owned subsidiaries of Diversus, under which those companies provide claims processing and risk management services to us. We incurred fees under these contracts of $399,375 and $405,975, respectively, for the interim periods ended March 31, 2019 and 2018. Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts. The attorney-in-fact earned commission income of $77,850 and $97,631 for the interim periods ended March 31, 2019 and 2018, respectively, which is recorded in other underwriting expenses in the statement of operations.

The Company and Diversus entered into a loan agreement dated as of March 29, 2019 to provide a $6,000,000 credit facility to Diversus for working capital purposes. Diversus may borrow in one or more advances up to $5,500,000 under a term loan and up to $500,000 under a revolving loan. Outstanding borrowings under the credit facility will bear interest at 8%, will be unsecured, and will be subordinate to the existing senior debt and other commercial loan obligations of Diversus. The loan is to be convertible into common stock shares of Diversus at a price of $1 per share at the option of the Company. At March 31, 2019, there was no outstanding balance of the credit facility.