1347 Property Insurance Holdings, Inc. (1347 PIH) has announced that it expects to report a net loss of $8.6 million for the first-quarter of 2020, primarily driven by non-cash losses related to the change in fair value of its investment in FedNat Holding Company.
FedNat completed the acquisition of 1347 PIH’s insurance operations in December of last year, taking control of Maison Insurance Company, Maison Managers, Inc., and ClaimCor LLC.
The $51 million cash and stock deal included the issuance of 1,773,102 shares of FedNat common stock, with a cost basis of $25.5 million. 1347 PIH reveals that as of March 31st, 2020 the equity securities were valued at $20.4 million, which is down from the $29.5 million as at the end of December, 2019, as the share price fell in the quarter.
Overall, the firm expects to report an unrealised loss on investments of around $9 million for the first-quarter of the year, and also anticipates recording a valuation allowance of around $1 million against the deferred tax rate asset generated from this loss.
In addition, 1347 PIH notes that on April 3rd, 2020 it made its first quarterly payment of approximately $0.5 million under the Shared Services Agreement with an affiliate of Fundamental Global Investors, LLC (FGM), the beneficial owner of around 45% of the firm’s outstanding common stock.
Under this agreement, FGM provides the company with certain services related to the day-to-day management of the firm. 1347 PIH pays a fee of $0.5 million per quarter for these services as well as reimbursement of certain expenses incurred by FGM.
As previously announced and following the sale of its insurance operations, 1347 PIH plans to operate as a diversified holding company of reinsurance and investment management business.
At the end of March, the company announced plans to change its name to Fundamental Global Financial Corporation and said that the process of forming its own reinsurance subsidiary, called Fundamental Global Reinsurance, is underway.
The change in the fair value of its investment in FedNat is another sign of the uncertainty being caused by the impacts of the COVID-19 coronavirus pandemic. As the outbreak has continued to intensify and accelerate in many parts of the world, there’s been significant financial market volatility and some substantial decreases in share prices.
