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. Concurrrent 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 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. Under the new agreement, Diversus Management earns management fees at 12%. Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums.

Management fees are recorded in other underwriting expenses in the consolidated statements of operations. Positive Insurance Company incurred management fees for the respective periods, as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

Management fees

879,615

1,411,065

3,459,174

4,401,032

In connection with the execution of the new management agreement with Diversus Management, the Company paid Diversus $10,000,000 to execute the agreement. Such payment is presented as “Prepaid management fee” in the accompany consolidated balance sheet at September 30, 2019 and is amortized on a straight-line basis over a period of seven years. For the three and nine months ended September 30, 2019, the Company incurred amortization expense of $357,143 and $714,286, respectively.

Positive Insurance Company has 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. Fees incurred by Positive Insurance Company under these contracts were as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

Claims processing and risk management services

416,775

384,875

1,225,025

1,196,625

Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts. Beginning March 27, 2019, these commissions were paid to Specialty Insurance Agency, LLC, a wholly owned subsidiary of Diversus. These commissions are recorded in other underwriting expenses in the consolidated statements of operations. Positive Insurance Company incurred related commission expenses for the respective periods, as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

Commissions

(1,027

)

38,076

85,245

154,546

The Company and Diversus entered into a loan agreement dated 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 convertible into common stock shares of Diversus at a price of $1 per share at the option of the Company. At September 30, 2019, there was no outstanding balance on the credit facility.