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. Concurrent 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. No quarterly performance fees were payable under the terms of the agreement at December 31, 2019.

Management fees for 2019 and 2018 are recorded in other underwriting expenses in the consolidated and combined statements of operations, respectively. Positive Insurance Company incurred management fees for the respective periods, as follows:

Year Ended

December 31,

2019

2018

Management fees

4,361,977

6,330,762

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 December 31, 2019 and is amortized on a straight-line basis over a period of seven years. During the year ended December 31, 2019, the Company incurred amortization expense of $1,071,429, which is recorded in other underwriting expenses in the consolidated statement of operations.

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 for 2019 and 2018 were recorded in other underwriting expenses in the consolidated and combined statements of operations, respectively, as follows:

Year Ended

December 31,

2019

2018

Claims processing and risk management services

1,648,100

1,585,400

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 for 2019 and 2018 are recorded in other underwriting expenses in the consolidated and combined statements of operations, respectively. Positive Insurance Company incurred related commission expenses for the respective periods, as follows:

Year Ended

December 31,

2019

2018

Commissions

131,618

176,753

The Company and Diversus entered into a loan agreement dated March 27, 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 December 31, 2019, there was no outstanding balance on the credit facility.