FG Financial (US:FGF)2021-03-17 16:00Financial Performance - FG Financial Group, Inc. reported a substantial loss of $22.46 million during 2020, the first year following the sale of the Maison Business[44]. - The company received $51.0 million from the sale of the Maison Business, consisting of $25.5 million in cash and $25.5 million in FedNat's common stock[19]. - As of December 31, 2020, the company had approximately $12.1 million in cash and cash equivalents and $18.0 million in investments, indicating a strong cash position relative to its market capitalization[84]. - The company expects to invest significant funds into the implementation of its new business strategy, which will increase operating expenses and may lead to a significant cash loss until additional revenue streams are secured[84]. - The company has incurred significant annual expenses related to compliance with public company regulations, which may affect its financial condition[129]. - The company has a limited operating history as a publicly-traded entity, which may strain its resources and affect its ability to attract qualified board members[126]. - The company has net operating loss carryforwards of approximately $5.4 million for federal income tax purposes, with $0.6 million expiring on December 31, 2039[202]. Investment Activities - FG Financial Group has formed a wholly-owned reinsurance subsidiary, Fundamental Global Reinsurance Ltd., which requires a capital infusion of $5.0 million[31]. - The company has established an investment advisory agreement with FedNat, receiving an annual fee of $100,000 for advisory services[28]. - FG Financial Group has invested $4.0 million in a SPAC sponsor, which involves a high degree of risk, as the investment may be lost if the SPAC fails to complete a business combination[80]. - The company has invested approximately $4 million in FG New America Acquisition Corp (NYSE: FGNA), which completed its initial public offering on October 2, 2020[134]. - The investment in FGNA includes approximately 1.4 million common shares and 0.4 million warrants to purchase common shares at a price of $11.50 per share[134]. - The company has formed an investment advisory firm subsidiary and a joint venture to manage private funds across various asset classes, but investments may be subject to lock-up agreements, increasing the risk of loss[55]. - The Company provided Seed Capital of $2.0 million and $3.0 million on September 14 and September 28, 2020, respectively, totaling $5.0 million to capitalize FG Special Situations Fund Advisor, LLC and launch FG Special Situations Fund, LP[215]. - Of the total $5.0 million invested into the Fund, $4.0 million was utilized by FG New America Investors, LLC as part of an $8.6 million risk capital to launch FG New America Acquisition Corp (NYSE: FGNA)[215]. Reinsurance Strategy - FG Financial Group's strategy focuses on opportunistic collateralized and loss capped reinsurance while allocating capital to SPACs and related businesses[30]. - FG Financial Group plans to provide specialty property and casualty reinsurance through FGRe, but lacks an established reputation in the reinsurance industry, which may hinder its ability to attract business[51]. - The company will depend on clients' evaluations of risks associated with their insurance underwriting, exposing it to potential reinsurance losses[52]. - FG Financial Group will not separately evaluate individual risks under proportional reinsurance contracts, relying instead on the original underwriting decisions made by ceding companies, which could lead to inadequate premium compensation for assumed risks[53]. - The company expects to assume credit risk associated with reinsurance brokers, which may impact its financial obligations if brokers fail to remit payments[54]. - FG Financial Group has entered into a Reinsurance Capacity Right of First Refusal Agreement, allowing it to sell reinsurance coverage to FedNat's insurance subsidiaries, with a limit of $15.0 million annually[27]. - The company plans to participate in a risk retention group to provide directors and officers insurance to SPACs, expecting to begin operations in Q4 2021[36]. Market and Regulatory Environment - The insurance and reinsurance industry is highly competitive, with significant consolidation leading to increased competition and potential rate declines for FG Financial Group[60]. - The cyclical nature of the insurance and reinsurance industry may result in periods of excess underwriting capacity and unfavorable premium rates, impacting profitability[61]. - Climate change and related regulations may adversely affect the company's financial condition and results of operations due to increased frequency and severity of catastrophic events[65][66]. - Adverse developments in financial markets could lead to realized and unrealized capital losses, negatively impacting the company's financial position and access to capital[77]. - The company may face material adverse effects on its business and financial condition if it fails to obtain or maintain approval from insurance regulators for its reinsurance subsidiary[91]. - The company is at risk of inadvertently becoming an investment company under the Investment Company Act, which would impose extensive regulations on its operations[93]. - The company must comply with Nasdaq and SEC regulations, which may be economically burdensome given its limited business operations[87]. - The company may face negative consequences if it fails to establish effective internal controls, potentially leading to regulatory sanctions and loss of investor confidence[99]. Corporate Governance and Management - The company has experienced personnel changes, including the resignations of its President and CEO, which could impact the successful implementation of its business strategy[116]. - The company may experience conflicts of interest due to its directors serving in multiple roles across different entities[120]. - The company is currently classified as a smaller reporting company, allowing it to take advantage of certain exemptions from reporting requirements, but this status may change, increasing costs and demands on management[100]. - The company’s Board of Directors will consider various factors when determining future dividends on Series A Preferred Stock, including financial condition and capital requirements[158]. Shareholder Information - As of December 31, 2020, Fundamental Global Investors, LLC owned approximately 61% of FG Financial Group's outstanding shares[17]. - As of December 31, 2020, FG Financial Group, Inc. had 4,988,310 common shares outstanding held by 14 stockholders of record[156]. - The company has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future[157]. - Holders of Series A Preferred Stock are entitled to receive cash dividends at a rate of 8.00% per annum, equivalent to $2.00 per annum per share, with approximately $10.2 million available for future dividends as of December 31, 2020[158].