XML 30 R19.htm IDEA: XBRL DOCUMENT

Related Party Transactions

6 Months Ended

Jun. 30, 2019

11.	Related Party Transactions

Positive Insurance Company is managed by Diversus Management. Prior to March 27, 2019, Diversus Management, through former attorneys-in-fact of PPIX, PCA, and PIPE, earned 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 on March 27, 2019, Positive Insurance Company and Diversus Management entered into a 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. For the three months ended June 30, 2019, Diversus Management earned management fees at 12% of gross written premiums of Positive Insurance Company. 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 three months ended June 30, 2019 and 2018 were $530,180 and $852,872, respectively, which is recorded in other underwriting expenses in the consolidated statements of operations. Management fees incurred by us for the six months ended June 30, 2019 and 2018 were $2,579,559 and $2,989,967, respectively, which is recorded in other underwriting expenses in the consolidated statements 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 June 30, 2019 is being amortized on a straight-line basis over a period of seven years. For the three months and six months ended June 30, 2019, amortization expense was $357,143.

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 $408,875 and $405,775 for the three months ended June 30, 2019 and 2018, respectively. We incurred fees under these contracts of $808,250 and $811,750 for the six months ended June 30, 2019 and 2018, respectively. Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts. These commissions were paid to Specialty Insurance Agency, LLC, a wholly owned subsidiary of Diversus, beginning March 27, 2019. There was earned commission income of $0 and $19,530 for the three months ended June 30, 2019 and 2018, respectively, which is recorded in other underwriting expenses in the consolidated statements of operations. There was earned commission income of $77,850 and $116,470 for the six months ended June 30, 2019 and 2018, respectively, which is recorded in other underwriting expenses in the consolidated statements 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 June 30, 2019, there was no outstanding balance of the credit facility.