Note 17 - Subsequent Events

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Subsequent Events [Text Block]

17. Subsequent Events

On June 30, 2022, a wholly-owned subsidiary of HG Holdings, Inc. (the “Company”), HGMA entered into a Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) with FedNat Underwriters, Inc. (“FNU”) pursuant to which HGMA will assist FNU and its parent, FedNat Holding Company (“FNHC”) in developing a restructuring plan for FNHC’s non-statutory entities, including identifying cost savings and other necessary or advisable steps in connection therewith and, upon approval of such plan by FNHC’s Board of Directors, oversee the implementation of such plan.  The term of the Advisory Services Agreement is until July 1, 2025 and HGMA’s fee for its services under the Advisory Services Agreement equals 1.5% of gross earned premium per annum of Monarch National Insurance Company (“Monarch”).

As background, the Florida Office of Insurance Regulation (OIR) authorized Monarch to assume approximately 78,000 policies effective June 1, 2022 from FedNat Insurance Company (FNIC), a wholly owned subsidiary of FNHC, resulting in Monarch’s total policy count totaling approximately 83,000 policies. FNU will continue as managing general agent for Monarch. As of June 30, 2022, after a $15 million investment by funds managed by Hale Partnership Capital Management LLC (“HPCM”) into Monarch, Monarch is 60% owned by various funds managed by HPCM, and 40% owned by FNHC. HPCM and its affiliates beneficially own in the aggregate 11.27% of the outstanding FNHC common stock (as to which they have filed a disclaimer of control affidavit with the Florida Office of Insurance Regulation). Mr. Hale is also serving as an advisor to the Strategic Review Committee of the FNHC’s Board of Directors. Mr. Hale and HPCM collectively also own approximately 34.9% of the outstanding shares of the Company’s common stock.

Simultaneous with entering into the Advisory Services Agreement, the Company formed White Rock USA Protected Cell 47 (the “Protected Cell”) effective July 1, 2022. The Protected Cell entered into an Excess Catastrophe Reinsurance Contract (the “Reinsurance Contract”) with Maison Insurance Company (“Maison”) effective July 1, 2022 to provide Maison catastrophic windstorm reinsurance protection on approximately 7,650 Texas insurance policies in-force at the inception of the Reinsurance Contract. The Reinsurance Contract provides $7.8 million of limit to Maison in excess of a $5 million retention. The Company’s capital at risk is $1.17 million. Maison will pay the Protected Cell $6.63 million in reinsurance premiums for the term of the contract. The Reinsurance Contract terminates on December 31, 2022.

Also on August 5, 2022, the Board authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.