Agreements with Diversus

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Agreements with Diversus

10. Agreements with Diversus

Positive Insurance Company has a management agreement with Diversus Management, 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 current agreement, which became effective March 27, 2019, 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 June 30, 2020.    

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Management fees	$	823,577	$	887,322	$	2,142,988	$	2,936,702

In connection with the execution of the existing 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 accompanying consolidated balance sheets and is amortized on a straight-line basis over a period of seven years.  For each of the three months ended June 30, 2020 and 2019, the Company incurred amortization expense of $357,143.  For the six months ended June 30, 2020 and 2019, the Company incurred amortization expense of $714,285 and $357,143, respectively.  These amounts are recorded in other underwriting expenses in the consolidated statements of operations and included as part of both the current and prior year amounts disclosed in the table above.

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 are recorded in other underwriting expenses in the consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Claims processing and risk management services	$	402,875	$	408,875	$	795,450	$	808,250

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 June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Commissions	$	16,133	$	-	$	78,206	$	77,850

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.  The Company terminated the loan agreement on May 19, 2020.  There was no outstanding balance on the credit facility prior to the termination of the loan agreement.