FG FINANCIAL GROUP, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated
financial statements and related notes and information included elsewhere in
this Quarterly Report on Form 10-Q and in our Annual Report for the year ended
December 31, 2020 on Form 10-K filed with the Securities and Exchange Commission
("SEC") on March 18, 2021.

Cautionary Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements are therefore entitled to the
protection of the safe harbor provisions of these laws. These statements may be
identified by the use of forward-looking terminology such as "anticipate,"
"believe," "budget," "can," "contemplate," "continue," "could," "envision,"
"estimate," "expect," "evaluate," "forecast," "goal," "guidance," "indicate,"
"intend," "likely," "may," "might," "outlook," "plan," "possibly," "potential,"
"predict," "probable," "probably," "pro-forma," "project," "seek," "should,"
"target," "view," "will," "would," "will be," "will continue," "will likely
result" or the negative thereof or other variations thereon or comparable
terminology. In particular, discussions and statements regarding the Company's
future business plans and initiatives are forward-looking in nature. We have
based these forward-looking statements on our current expectations, assumptions,
estimates, and projections. While we believe these to be reasonable, such
forward-looking statements are only predictions and involve a number of risks
and uncertainties, many of which are beyond our control. These and other
important factors may cause our actual results, performance, or achievements to
differ materially from any future results, performance or achievements expressed
or implied by these forward-looking statements, and may impact our ability to
implement and execute on our future business plans and initiatives. You should
be aware that many of the risks listed below were, and may continue to be,
exacerbated by the COVID-19 pandemic.



Management cautions that the forward-looking statements in this Quarterly Report
on Form 10-Q are not guarantees of future performance, and we cannot assume that
such statements will be realized or the forward-looking events and circumstances
will occur. Factors that might cause such a difference include, without
limitation: risks associated with our limited business operations since the
closing of the Asset Sale; risks associated with our inability to identify and
realize business opportunities, and the undertaking of any new such
opportunities, following the Asset Sale; our ability to spend or invest the net
proceeds from the Asset Sale in a manner that yields a favorable return; general
conditions in the global economy, including the impact of health and safety
concerns from the current COVID-19 pandemic and the impact of governmental
measures taken in response thereto; the uncertainty and difficulty in predicting
the ultimate impact of the COVID-19 pandemic on our business; our lack of
operating history or established reputation in the reinsurance industry; our
inability to obtain or maintain the necessary approvals to operate reinsurance
subsidiaries; risks associated with operating in the reinsurance industry,
including inadequately priced insured risks, credit risk associated with brokers
we may do business with, and inadequate retrocessional coverage; our inability
to execute on our investment and investment management strategy, including our
strategy to invest in real estate assets; potential loss of value of
investments; risk of becoming an investment company; fluctuations in our
short-term results as we implement our new business strategy; risks of not being
unable to attract and retain qualified management and personnel to implement and
execute on our business and growth strategy; failure of our information
technology systems, data breaches and cyber-attacks; our ability to establish
and maintain an effective system of internal controls; our limited operating
history as a publicly traded company; the requirements of being a public company
and losing our status as a smaller reporting company or becoming an accelerated
filer; any potential conflicts of interest between us and our controlling
stockholders and different interests of controlling stockholders; potential
conflicts of interest between us and our directors and executive officers; the
impact of the COVID-19 pandemic on the business of FedNat Holding Company;
continued volatility or further decline in the value of the shares of FedNat
Holding Company common stock received by us as consideration in the Asset Sale
or limitations and restrictions with respect to our ownership of such shares;
risks of being a minority stockholder of FedNat Holding Company; risks
associated with our related party transactions and investments; and risks
associated with our inability to continue to satisfy the listing standards of
the Nasdaq following completion of the Asset Sale. Our expectations and future
plans and initiatives may not be realized. If one of these risks or
uncertainties materialize, or if our underlying assumptions prove incorrect,
actual results may vary materially from those expected, estimated or projected.
You are cautioned not to place undue reliance on forward-looking statements. The
forward-looking statements are made only as of the date hereof and do not
necessarily reflect our outlook at any other point in time. We do not undertake
and specifically decline any obligation to update any such statements or to
publicly announce the results of any revisions to any such statements to reflect
new information, future events or developments.



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                            FG FINANCIAL GROUP, INC.



Overview



FG Financial Group, Inc. ("FGF", the "Company", "we", or "us") is a reinsurance
and investment management holding company focused on opportunistic
collateralized and loss capped reinsurance, while allocating capital in
partnership with Fundamental Global® to SPAC and SPAC sponsor-related
businesses. Our principal business operations are conducted through our
subsidiaries and affiliates. We were incorporated on October 2, 2012 in the
State of Delaware under the name Maison Insurance Holdings, Inc., and changed
our legal name to 1347 Property Insurance Holdings, Inc. on November 19, 2013.
On March 31, 2014, we completed an initial public offering of our common stock.
Prior to the offering, we were a wholly owned subsidiary of Kingsway America
Inc., which, in turn, is a wholly owned subsidiary of Kingsway Financial
Services Inc., or KFSI, a publicly owned Delaware holding company. From our
inception through December 2, 2019, we operated as an insurance holding company,
writing property and casualty insurance throughout the states of Louisiana,
Florida and Texas through our subsidiaries. On December 2, 2019, we sold our
three insurance subsidiaries, and embarked on a new strategy focused on
insurance, reinsurance, real estate, and asset management. Accordingly, on
December 14, 2020, our shareholders approved a change in our corporate name to
FG Financial Group, Inc., to better align with this new business strategy.



As of September 30, 2021, Fundamental Global GP, LLC, a privately owned
investment management company, and its affiliates, or "FG," beneficially owned
approximately 60% of our outstanding shares of common stock. D. Kyle Cerminara,
Chairman of our Board of Directors, serves as Chief Executive Officer,
Co-Founder and Partner of FG.



Sale of the Maison Business



On December 2, 2019, we completed the sale of all of the issued and outstanding
equity of three of the Company's then wholly-owned subsidiaries, Maison
Insurance Company ("Maison"), Maison Managers Inc. ("MMI") and ClaimCor, LLC
("ClaimCor" and, together with Maison and MMI, the "Maison Business" or the
"Insurance Companies"), to FedNat Holding Company, a Florida corporation
("FedNat"), pursuant to the terms and conditions of the Equity Purchase
Agreement, dated as of February 25, 2019 (the "Purchase Agreement"), by and
among the Company and each of Maison, MMI and ClaimCor, on the one hand, and
FedNat, on the other hand (the "Asset Sale").



As consideration for the Asset Sale, FedNat paid the Company $51.0 million,
consisting of $25.5 million in cash and $25.5 million in FedNat's common stock,
or 1,773,102 shares of FedNat common stock. In addition, upon the closing of the
Asset Sale, $18.0 million of outstanding surplus note obligations payable by
Maison to the Company, plus all accrued but unpaid interest, was repaid to

the
Company.



On December 31, 2019, the shares of FedNat common stock issued to the Company in
connection with the Asset Sale were registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to the terms of the Registration
Rights Agreement entered into by the Company and FedNat at the closing of the
Asset Sale.



In addition to the Registration Rights Agreement, the Company and FedNat entered
into a Standstill Agreement, a Reinsurance Capacity Right of First Refusal
Agreement (the "Reinsurance Agreement"), and an Investment Advisory Agreement at
the closing of the Asset Sale.



Standstill Agreement

The Standstill Agreement imposes certain limitations and restrictions with
respect to the voting securities of FedNat (including shares of FedNat common
stock) that are owned or held beneficially or of record by the Company. Under
the Standstill Agreement, the Company has agreed to vote all of the voting
securities of FedNat beneficially owned by the Company in accordance with the
recommendation of the board of directors of FedNat with respect to any matter
that is before the stockholders of FedNat for a vote by such stockholders. The
Standstill Agreement imposes limitations on the sale of voting securities of
FedNat held by the Company and restricts the Company from taking certain actions
as a holder of voting securities of FedNat. The Standstill Agreement expires on
December 2, 2024.

For insurance regulatory purposes, the Company has waived any rights that it may
have to exercise control of FedNat.

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                            FG FINANCIAL GROUP, INC.

Reinsurance Capacity Right of First Refusal Agreement

The Reinsurance Agreement provides the Company with a right of first refusal to
sell reinsurance coverage to the insurance company subsidiaries of FedNat,
providing reinsurance on up to 7.5% of any layer in FedNat's catastrophe
reinsurance program, subject to the annual reinsurance limit of $15.0 million,
on the terms and subject to the conditions set forth in the Reinsurance
Agreement. All reinsurance sold by the Company pursuant to the right of first
refusal, if any, will be memorialized in an agreement in such form and subject
to such terms and conditions as are customary in the property and casualty
insurance industry. The Reinsurance Agreement is assignable by the Company
subject to conditions set forth in the agreement. The term of the Reinsurance
Agreement is five years, expiring on December 2, 2024. As of September 30, 2021,
the Company has not provided any reinsurance coverage to FedNat under the
Reinsurance Agreement.



Investment Advisory Agreement

Pursuant to the Investment Advisory Agreement, FG Strategic Consulting, LLC
("FGSC"), a wholly-owned subsidiary of the Company, was formed to provide
investment advisory services to FedNat, which include identifying, analyzing and
recommending potential investments, advising as to existing investments and
investment optimization, recommending investment dispositions, and providing
advice regarding macro-economic conditions. In exchange for providing the
investment advisory services, FedNat has agreed to pay FGSC an annual fee of
$100,000. The term of the Investment Advisory Agreement is five years, expiring
on December 2, 2024.



Current Business

Our strategy has evolved to focus on opportunistic collateralized and loss
capped reinsurance, while allocating capital to special purpose acquisition
companies ("SPACs") and SPAC sponsor-related businesses. Accordingly, in the
first quarter 2021, we have launched our "SPAC Platform," as further discussed
below. As part of our refined focus, we have adopted the following capital
allocation philosophy:

"Grow intrinsic value per share with a long-term focus using fundamental
research, allocating capital to asymmetric risk/reward opportunities."

Historically, the Company has operated a real estate business through its
subsidiary, FGI Metrolina Property Income Fund, LP, however, the Company does
not anticipate that its real estate business will be a significant component of
its future business plans.



Reinsurance



The Company has formed a wholly-owned reinsurance subsidiary, FG Reinsurance
Ltd. ("FGRe"), a Cayman Islands limited liability company, to provide specialty
property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer
license in accordance with the terms of The Insurance Law, 2010 and underlying
regulations thereto and is subject to regulation by the Cayman Islands Monetary
Authority (the "Authority"). The terms of the license require FGRe to receive a
capital infusion in the amount of $5.0 million, which the Company effected in
July 2020 via the transfer of 156,000 shares of FedNat common stock from the
Company along with approximately $3.3 million in cash. The terms of the insurer
license also require advance approval from the Authority should FGRe wish to
enter into any reinsurance agreements which are not fully collateralized to
their aggregate exposure limit. In November 2020, FGRe entered into its first
reinsurance transaction, effective January 1, 2021, through a Funds at Lloyds
syndicate ("FAL"). The maximum loss exposure in the transaction is approximately
$2.9 million and covers all risks written by the syndicate during the 2021
calendar year. On November 12, 2020, FGRe initially funded a trust account at
Lloyd's with approximately $2.4 million in cash to collateralize its obligations
under the contract. Effective April 1, 2021 FGRe entered into its second
reinsurance contract with a leading insurtech company that provides automotive
insurance utilizing driver monitoring to predictively segment and price drivers.
FGRe's exposure is limited by a loss-cap stipulated within the quota-share

agreement.



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                            FG FINANCIAL GROUP, INC.



Asset Management



FGSC serves as an investment advisor to FedNat under the investment advisory
agreement entered into at the closing of the Asset Sale. The Company has also
formed Fundamental Global Asset Management, LLC ("FGAM"), a joint venture with a
wholly owned subsidiary of FG, to sponsor investment advisors that will manage
private funds ranging the full spectrum of alternative equities, fixed income,
private equity and real estate. In September 2020, the joint venture sponsored
the launch of FG Special Situations Fund via an investment of $5.0 million.
Approximately $4.0 million of this investment represented the sponsorship of our
first special purpose acquisition company, or "SPAC".



Insurance



FGRe is currently in the process of establishing and seeking regulatory
approvals for a Risk Retention Group ("RRG") to be domiciled in the State of
Vermont for the purpose of providing directors and officers insurance coverage
to special purpose acquisition vehicles. The Company expects to obtain the
necessary regulatory approvals for the RRG in the fourth quarter of 2021. FGRe
also anticipates providing capital, along with other participants, to facilitate
the underwriting of such insurance coverage. The Company will focus on fee
income derived from originating, underwriting, and servicing the insurance
business, while mitigating our financial risk with external reinsurance
partners.



SPAC Platform

On December 21, 2020, we formed FG SPAC Solutions LLC ("FGSS"), a Delaware
company, to facilitate the launch of our "SPAC Platform". Under the SPAC
Platform, we plan to provide various strategic, administrative, and regulatory
support services to newly formed SPACs for a monthly fee. The Company co-founded
a partnership, FG SPAC Partners, LP ("FGSP") to participate as a co-sponsor for
newly formed SPACs. The Company also participates in the risk capital
investments associated with the launch of such SPACs through its Asset
Management business, specifically FG Special Situations Fund, LP. The first
transaction entered into under the SPAC Platform occurred on January 11, 2021,
by and among FGSS and Aldel Investors, LLC, the sponsor of Aldel Financial, Inc.
("Aldel"), a special purpose acquisition company which consummated its initial
public offering on April 12, 2021. Under the services agreement between FGSS and
Aldel Investors, LLC (the "Agreement"), FGSS has agreed to provide certain
accounting, regulatory, strategic advisory, and other administrative services to
Aldel, which include assistance with negotiations with a potential merger target
for the SPAC as well as assistance with the de-SPAC process. Additional
information regarding our formation of FGSS and our SPAC Platform can be found
in Note 10 - Related Party Transactions under the heading "Formation of FG

SPAC
Partners, LP."

Impact of the Coronavirus (COVID-19) Pandemic

We continue to monitor the recent outbreak of the novel coronavirus (COVID-19)
on our operations.

Given the ongoing and dynamic nature of the circumstances, it is difficult to
predict the full impact of the COVID-19 pandemic on our business. Adverse events
such as health-related concerns about working in our offices, the inability to
travel and other matters affecting the general work environment have negatively
impacted and could continue to harm our business and our business strategy. The
extent to which our operations and investments may continue to be impacted by
the COVID-19 pandemic will depend largely on future developments, which are
highly uncertain and cannot be accurately predicted, including new developments
concerning the severity of the pandemic and actions by government authorities to
contain the pandemic or treat its impact. Furthermore, the impacts of a
potential worsening of global economic conditions and the continued disruptions
to and volatility in the financial markets remain unknown. In the event of a
major disruption caused by the pandemic, we may lose the services of our
employees, experience system interruptions or face challenges accessing the
capital or credit markets, which could lead to diminishment of our business
operations. Any of the foregoing could harm our business and delay the
implementation of our business strategy.

Critical Accounting Estimates and Assumptions

Critical accounting policies are those that require us to make significant
judgments, estimates or assumptions that affect amounts reported in our
financial statements or the notes thereto. We base our judgments, estimates and
assumptions on current facts, historical experience and various other factors
that we believe to be reasonable and prudent. Actual results may differ
materially from these estimates. The business and economic uncertainty resulting
from the novel coronavirus (COVID-19) pandemic has made such estimates and
assumptions difficult to calculate. Set forth below is a summary of what we
believe to be our most critical accounting policies and estimates.



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                            FG FINANCIAL GROUP, INC.



Discontinued Operations

Due to the sale of all of the issued and outstanding equity of Maison, MMI and
ClaimCor on December 2, 2019, these operations have been classified as
discontinued operations in the Company's financial statements presented herein.
For the nine months ended September 30, 2021, we recognized a gain from the sale
of the Maison Business of approximately $145,000. This was related to a final
true-up and settlement in the current quarter, for income taxes due to the
Company under the sale agreement.



Valuation of Investments

The Company's equity securities are recorded at fair value using observable
inputs such as quoted prices in both active and inactive markets, quoted prices
in active markets for similar instruments, benchmark interest rates, broker
quotes and other relevant inputs. Certain of the Company's equity securities do
not trade on established markets and are thus valued using unobservable inputs
and other valuation approaches such as an income or market approach and are
accordingly classified as Level 3 valuation inputs under the fair value
hierarchy established by the Financial Accounting and Standards Board. Due to
the inherent uncertainty of valuations, the fair values reflected in the
financial statements as of the measurement date may differ materially from: 1)
values that would have been used had a readily available market existed for
these investments; and 2) the values that may ultimately be realized upon sale
of the investments.

Any change in the estimated fair value of its investments could impact the
amount of unrealized gain or loss the Company has recorded, which could change
the amount the Company has recorded for its investments and on its consolidated
balance sheets and statements of income.

Gains and losses realized on the disposition of investments are determined on
the first-in first-out basis and credited or charged to the consolidated
statements of income and comprehensive income.

The Company performs a quarterly analysis of its investment portfolio to
determine if declines in market value are other-than-temporary. Further
information regarding its detailed analysis and factors considered in
establishing an other-than-temporary impairment on an investment is discussed
within Note 4 - Investments, to the consolidated financial statements.

Variable Interest Entities



The determination of whether or not to consolidate a variable interest entity
under GAAP requires a significant amount of judgment concerning the degree of
control over an entity by its holders of variable interests. To make these
judgments, management has conducted an analysis, on a case-by-case basis, of
whether we are the primary beneficiary and are therefore required to consolidate
the entity. Upon the occurrence of certain events, such as modifications to
organizational documents and investment management agreements, management will
reconsider its conclusion regarding the status of an entity as a variable
interest entity.

Valuation of Net Deferred Income Taxes

The provision for income taxes is calculated based on the expected tax treatment
of transactions recorded in the Company's consolidated financial statements. In
determining its provision for income taxes, the Company interprets tax
legislation in a variety of jurisdictions and makes assumptions about the
expected timing of the reversal of deferred income tax assets and liabilities
and the valuation of net deferred income taxes.



The ultimate realization of the deferred income tax asset balance is dependent
upon the generation of future taxable income during the periods in which the
Company's temporary differences reverse and become deductible. A valuation
allowance is established when it is more likely than not that all or a portion
of the deferred income tax asset balance will not be realized. In determining
whether a valuation allowance is needed, management considers all available
positive and negative evidence affecting specific deferred income tax asset
balances, including the Company's past and anticipated future performance, the
reversal of deferred income tax liabilities, and the availability of tax
planning strategies. To the extent a valuation allowance is established in a
period, an expense must be recorded within the income tax provision in the
consolidated statements of income and comprehensive income.



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                            FG FINANCIAL GROUP, INC.

Premium Revenue Recognition

The Company participates in a quota share contract under a Funds at Lloyds
("FAL") transaction and estimates the ultimate premiums for the contract period.
These estimates are based on information received from the ceding companies,
whereby premiums are recorded as written in the same periods in which the
underlying insurance contracts are written and are based on cession statements
from cedents. These statements are received quarterly, in arrears and thus for
any reporting lag, premiums written are estimated based on the portion of the
ultimate estimated premiums relating to the risks underwritten during the lag
period.



Premium estimates are reviewed by management periodically. Such review includes
a comparison of actual reported premiums to expected ultimate premiums. Based on
management's review, the appropriateness of the premium estimates is evaluated,
and any adjustments to these estimates are recorded in the period in which they
are determined. Changes in premium estimates, including premiums receivable, are
not unusual and may result in significant adjustments in any period. A
significant portion of amounts included in the caption "Reinsurance balances
receivable" in the Company's consolidated balance sheets represent estimated
premiums written, net of commissions, brokerage, and loss and loss adjustment
expense, and are not currently due based on the terms of the underlying
contracts.



Premiums written are generally recognized as earned over the contract period in
proportion to the risk covered. Additional premiums due on a contract that has
no remaining coverage period are earned in full when written. Unearned premiums
represent the unexpired portion of reinsurance provided.



Policy Acquisition Costs

Policy acquisition costs are costs that vary with, and are directly related to,
the successful production of new and renewal business, and consist principally
of commissions, taxes, and brokerage expenses. If the sum of a contract's
expected losses and loss expenses and deferred acquisition costs exceeds
associated unearned premiums and expected investment income, a premium
deficiency is determined to exist. In this event, deferred acquisition costs are
written off to the extent necessary to eliminate the premium deficiency. If the
premium deficiency exceeds deferred acquisition costs, then a liability is
accrued for the excess deficiency. There were no premium deficiency adjustments
recognized during the periods presented herein.

Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense reserve estimates are based on estimates
derived from reports received from ceding companies. These estimates are
periodically reviewed by the Company's management and adjusted as necessary.
Since reserves are estimates, the final settlement of losses may vary from the
reserves established and any adjustments to the estimates, which may be
material, are recorded in the period they are determined.



Loss estimates may also be based upon actuarial and statistical projections, an
assessment of currently available data, predictions of future developments,
estimates of future trends and other factors. The final settlement of losses may
vary, perhaps materially, from the reserves recorded. All adjustments to the
estimates are recorded in the period in which they are determined. U.S. GAAP
does not permit establishing loss reserves, which include case reserves and IBNR
loss reserves, until the occurrence of an event which may give rise to a claim.
As a result, only loss reserves applicable to losses incurred up to the
reporting date are established, with no allowance for the establishment of loss
reserves to account for expected future loss events.



Generally, the Company obtains regular updates of premium and loss related
information for the current and historical periods, which are utilized to update
the initial expected loss ratio. We also experience lag between (i) claims being
reported by the underlying insured to the Company's cedent and (ii) claims being
reported by the Company's cedent to the Company. This lag may impact the
Company's loss reserve estimates. Client reports have pre-determined due dates
(for example, thirty days after each month end). As a result, the lag depends in
part upon the terms of the specific contract. The timing of the reporting
requirements is designed so that the Company receives premium and loss
information as soon as practicable once the client has closed its books.
Accordingly, there should be a short lag in such reporting. Additionally, most
of the contracts that have the potential for large single event losses have
provisions that such loss notifications are provided to the Company immediately
upon the occurrence of an event.



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                            FG FINANCIAL GROUP, INC.

Stock-Based Compensation Expense

The Company uses the fair-value method of accounting for stock-based
compensation awards granted. The Company determines the fair value of the stock
options on their grant date using the Black-Scholes option pricing model and
determines the fair value of restricted stock units ("RSUs") on their grant date
using the fair value of the Company's common stock on the date the RSUs were
issued (for those RSU which vest solely based upon the passage of time), as well
as using multiple Monte Carlo simulations for those RSUs with market-based
vesting conditions. The fair value of these awards is recorded as compensation
expense over the requisite service period, which is generally the expected
period over which the awards will vest, with a corresponding increase to
additional paid-in capital. When the stock options are exercised, or
correspondingly, when the RSUs vest, the amount of proceeds together with the
amount recorded in additional paid-in capital is recorded in shareholders'
equity.

New Accounting Pronouncements

See Note 3 - "Recently Adopted and Issued Accounting Standards" to the
consolidated financial statements included in Part I, Item 1 of this report for
a discussion of recent accounting pronouncements and their effect, if any,

on
the Company.

Analysis of Financial Condition

As of September 30, 2021 compared to December 31, 2020

Investments

The following table summarizes the Company's investments in equity securities as
of September 30, 2021 and December 31, 2020:

                                                    Gross              Gross
                                                  Unrealized         Unrealized
($ in thousands)                Cost Basis          Gains              Losses          Carrying Amount
As of September 30, 2021
FNHC common stock              $     20,751     $            -     $       17,187     $           3,564
SPAC investments                         19                  -                  -                    19
Private placements                   10,469              5,120                  -                15,589
Total equity securities        $     31,239     $        5,120     $       17,187     $          19,172

As of December 31, 2020
FNHC common stock              $     20,751     $            -     $       12,209     $           8,542
Private placements                    4,012                  -                  -                 4,012
Total equity securities        $     24,763     $            -     $       12,209     $          12,554




FedNat Common Stock



On December 2, 2019, the Company received 1,773,102 shares of FedNat Holding
Company common stock (Nasdaq: FNHC), along with $25.5 million cash as
consideration for the Asset Sale. On July 14, 2020, the Company transferred
156,000 shares of FedNat common stock to FGRe, a wholly-owned subsidiary of the
Company, as a capital contribution for no consideration, and, on September 15,
2020, the Company transferred 330,231 shares of FedNat common stock to the Hale
Parties as further discussed in Note 10 - "Related Party Transactions".
Following the transactions, the Company directly holds 1,286,871 shares of
FedNat common stock. As of November 10, 2021, the estimated fair value of the
1,442,871 shares of FedNat common stock held in the aggregate by the Company and
its subsidiary was $3.2 million.



SPAC Investments



SPAC investments consist of the public equity of newly formed special purpose
acquisition companies held by the Fund. The investments typically consist of one
share of common stock of the SPAC, along with one-half of one redeemable warrant
entitling the holder to purchase one share of common stock at an exercise price
of $11.50 per share, although the number of warrants and/or the exercise price
of the warrant may vary. The investments are typically issued by the SPAC as a
combined unit consisting of both the common stock and warrant at a price of
$10.00 per unit however the offering price may also vary. Following the initial
public offering of the SPAC, these units are separated into individual shares of
common stock and warrants. The SPAC investments which we have purchased trade on
either of the Nasdaq Stock Market or New York Stock Exchange.



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                            FG FINANCIAL GROUP, INC.



Private Placements

Private placements typically consist of the private equity and risk capital
associated with the sponsorship of SPACs and are also held by the Fund. In
September 2020, the Company invested $5.0 million into its joint venture,
Fundamental Global Asset Management, LLC ("FGAM"), to capitalize FG Special
Situations Fund Advisor, LLC (the "Advisor"), a Delaware limited liability
company formed on September 2, 2020, and to sponsor the launch of the Fund. FGAM
has invested in the Fund through the Fund's general partner and the Advisor,
both of which are ultimately controlled by Mr. Cerminara, the Chairman of the
Company's Board of Directors. Of the initial $5.0 million investment,
approximately $4.0 million was used by FG New America Investors, LLC (the
"Sponsor") as part of a total $8.6 million of risk capital used to launch FG New
America Acquisition Corp ("FGNA"), a special purpose acquisition company which
consummated its initial public offering on October 2, 2020. On July 20, 2021,
FGNA completed its definitive business combination with Opportunity Financial,
LLC and began operating as OppFi Inc. ("OppFi"), with OppFi's common stock
trading on the NYSE under the ticker symbol "OPFI". The Fund's specific
investment consists of both class A and class A-1 interests of the Sponsor. On
July 15, 2021, the Sponsor entered into a sponsor forfeiture agreement with FGNA
and Opportunity Financial, LLC, under which the Sponsor agreed to forfeit a
portion of FGNA Class B common stock as well as a portion of warrants to
purchase FGNA Class A common stock which the Sponsor previously held. As a
result, as of July 20, 2021, the class A and class A-1 interests represent a
potential beneficial ownership of approximately 0.86 million common shares of
OppFi as well as approximately 0.36 million warrants to purchase common shares
of OppFi at a price of $11.50 per share. The class A and class A-1 interests
have not been registered under the Securities Act of 1933, as amended, and are
not transferrable except as provided for in the operating agreement of the
Sponsor.



The Company has determined that its investment in the Fund represents an
investment in a variable interest entity ("VIE") in which the Company is the
primary beneficiary and as such, has consolidated the financial results of the
Fund as of September 30, 2021. At each reporting date, the Company assesses
whether it is the primary beneficiary and will consolidate or deconsolidate
accordingly.



For the nine months ended September 30, 2021, the Company invested an additional
$1.65 million into the Fund and the Fund also received outside investment of
approximately $4.1 million, resulting in the presentation of noncontrolling
interests in the Company's consolidated balance sheet as of September 30, 2021.
A portion of this additional investment was used by the Fund to sponsor its
second SPAC via an investment of $1.65 million in Aldel Investors, LLC, the
sponsor of Aldel Financial, Inc. (NYSE: ADF). Of the total $1.65 million the
Fund invested in Aldel, $1.0 million was allocated to the Company, with the
remaining $0.65 million allocated to noncontrolling interests.



On August 17, 2021, Aldel entered into a business combination agreement with The
Hagerty Group, LLC, a specialty vehicle and marine insurer ("Hagerty"). Under
the agreement, Aldel has agreed to acquire all of Hagerty' s limited liability
company interests, for $3 billion, less certain transaction expenses, in
aggregate consideration, consisting of Aldel and Hagerty equity securities and
up to $500 million in cash. The Company's investment in Aldel Investors, LLC,
through the Fund represents a beneficial interest in approximately 286,000

Aldel
shares.



Additionally, in the third quarter 2021, the Fund invested approximately $4.8
million in a private placement not related to the sponsorship of a SPAC, but
which instead seeks to benefit from the underlying publicly traded stock which
it owns. Of the total $4.8 million invested by the Fund, approximately $1.5
million has been allocated to the Company.



Other Investments

Other investments consist, in part, of equity investments made in privately held
companies accounted for under the equity method. Equity method investments
include our investment of $4.0 million in FGI Metrolina Property Income Fund, LP
("Metrolina"), which invests in real estate through a real estate investment
trust which is wholly owned by Metrolina. The Company, a limited partner of
Metrolina, does not have a controlling interest, but exerts significant
influence over the entity's operating and financial policies as it owns an
economic interest of approximately 52% as of September 30, 2021. We have
recorded equity method earnings from our investment in Metrolina of
approximately $137,000 and $61,000 and for each of the nine months ended
September 30, 2021 and 2020, respectively. The carrying value of our investment
in Metrolina as of September 30, 2021 was approximately $4.83 million. In the
third quarter, 2021, Metrolina announced it would be liquidating and returning
capital to its investors. Accordingly, on November 11, 2021, we received
approximately $4.4 million in cash back from the Fund, representing our initial
investment of $4.0 million plus approximately $0.4 million in distributed
earnings. We anticipate receiving additional earnings from Metrolina in the
fourth quarter of 2021, based upon the final net asset value calculated by
Metrolina as of November 30, 2021.



Equity method investments also include our investment in FG SPAC Partners, LP
("FGSP"). On January 4, 2021, FGSP was formed as a Delaware limited partnership
to co-sponsor newly formed SPACs with their founders or partners. The Company is
the sole managing member of the general partner of FGSP and holds an approximate
49% limited partner interest in FGSP directly and through its subsidiaries.
Certain of our directors and officers also hold limited partner interests in
FGSP. Mr. Swets holds a limited partner interest through Itasca Financial LLC,
an advisory and investment firm for which Mr. Swets is managing member. Mr.
Baqar also holds a limited partner interest through Sequoia Financial LLC, an
advisory firm for which Mr. Baqar is managing member. Mr. Cerminara also holds a
limited partner interest through Fundamental Global, LLC, a holding company for
which Mr. Cerminara is the manager and one of the members. We have recorded
equity method earnings from our investment in FGSP of approximately $2.39
million for the nine months ended September 30, 2021. The carrying value of our
investment in FGSP as of September 30, 2021 was approximately $2.46 million,
representing $2.39 million in undistributed earnings.



35






                            FG FINANCIAL GROUP, INC.



On January 11, 2021, FGSP purchased 1,075,000 founder shares from Aldel, for
total consideration of $4,674. On March 25, 2021, FGSP entered into a forfeiture
agreement with Aldel whereby FGSP agreed to transfer 575,000 of these founder
shares back to Aldel at no cost. Concurrent with Aldel's initial public
offering, on April 12, 2021, FGSP also purchased 650,000 warrants at a price of
$0.10 per warrant, each exercisable to purchase one share of Aldel's Class A
common stock at an exercise price of $15.00 per share (the "OTM Warrants"), for
a purchase price of $65,000. In addition, as discussed above, the Company,
through the Fund, has invested $1.0 million in the risk capital of Aldel
Investors, LLC, which represent beneficial ownership of approximately 286,000
Aldel founder shares. Altogether, the Company's investment represents beneficial
interests of approximately 533,000 Aldel founder shares and approximately
321,000 OTM Warrants. Our Chief Executive Officer and Director, Larry G. Swets,
serves as senior advisor to Aldel. Hassan R. Baqar, our Chief Financial Officer
effective August 6, 2021, serves as a director and chief financial officer of
Aldel. The Chairman of our Board of Directors, D. Kyle Cerminara serves as

a
director of Aldel.



Other investments also consist of equity we have purchased in a limited
partnership and a limited liability company for which there does not exist
readily determinable fair values. The Company accounts for these investments at
their cost, minus impairment, if any, plus or minus changes resulting from
observable price changes in orderly transactions for identical or similar
investment of the same issuer. Any profit distributions the Company receives on
these investments are included in net investment income. The Company's total
investment in these two entities was approximately $483,000 as of September 30,
2021. For the nine months ended September 30, 2021 and 2020, the Company has
received profit distributions of $73,000 and $42,000 on these investments,
respectively, which has been included in income. Furthermore, both investments
began the process of returning capital back to its investors in 2020. As of
September 30, 2021, the Company has received approximately 38% of its initial
$776,000 investment back from these investments.

We have not recorded an impairment on our investments for either of the nine
months ended September 30, 2021 and 2020.

Funds Deposited with Reinsured Companies

On November 12, 2020, FGRe, our Cayman Islands based reinsurance subsidiary,
initially funded a trust account at Lloyd's with approximately $2.4 million in
cash, to collateralize its obligations under our quota share agreement. The
quota share agreement became effective January 1, 2021. As of September 30,
2021, the balance in the trust account was $2.7 million. On October 20, 2021, we
posted additional collateral in the amount of approximately $1.0 million, to
support our automotive insurance quota-share agreement entered into on April 1,
2021.

Current Income Taxes Recoverable

Current income taxes recoverable were approximately $0 as of September 30, 2021,
compared to approximately $1.7 million as of December 31, 2020, representing the
estimate of both the Company's state and federal income taxes receivable as of
each date. In the third quarter, 2021 we received a refund on our federal taxes
in the amount of approximately $1.5 million associated with a carryback refund
request filed for our 2018, 2017 and 2014 tax years.

Reinsurance Balances Receivable

Reinsurance balances receivable were $3.4 million as of September 30, 2021
compared to $0 as of December 31, 2020 and represent net amounts due to the
Company under our quota share agreements. As the Company estimates the ultimate
premiums, loss expenses and other costs associated with these contracts, based
on information received by us from the ceding companies, a significant portion
of this balance is based on estimates and may not ultimately be collected by the
Company.



36






                            FG FINANCIAL GROUP, INC.



Net Deferred Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes, as compared to the amounts used for income tax purposes. As of
September 30, 2021, the Company has gross net deferred tax assets of
approximately $5.3 million; however the Company has recorded a valuation
allowance against all of its deferred tax assets due to the uncertain nature
surrounding our ability to realize these tax benefits in the future, resulting
in a net deferred tax asset of $0 as of September 30, 2021. Significant
components of the Company's net deferred taxes are as follows:



                                                         September 30, 2021       December 31, 2020
Deferred income tax assets:
Net operating loss carryforward                         $              2,824     $             1,143
Share-based compensation                                                 221                     216
Investments                                                            2,085                   2,570
Unearned premium reserves                                                151                       -
Other                                                                     21                       5
Deferred income tax assets                                             5,302                   3,934
Less: Valuation allowance                                             (5,015 )                (3,934 )
Deferred income tax assets net of valuation allowance   $                287     $                 -

Deferred income tax liabilities:
Deferred policy acquisition costs                       $                214     $                 -
Other                                                                     73                       -
Deferred income tax liabilities                         $                287     $                 -

Net deferred income tax asset (liability)               $                 

-     $                 -

As of September 30, 2021, the Company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $13.4 million, which
may be available to offset future taxable income. The Company's NOLs expire as
follows: $0.5 million in 2039, $0.1 million in 2040, and $1.2 million in 2041.
The remaining $11.6 million in NOLs do not expire under current tax law.

Loss and Loss Adjustment Expense Reserves

A significant degree of judgment is required to determine amounts recorded in
the consolidated financial statements for the provision for loss and loss
adjustment expense ("LAE") reserves. The process for establishing this provision
reflects the uncertainties and significant judgmental factors inherent in
predicting future results of both known and unknown loss events. The process of
establishing the provision for loss and LAE reserves relies on the judgment and
opinions of a large number of individuals, including the opinions of the
Company's management, as well as the management of ceding companies and their
actuaries.



The COVID-19 pandemic is unprecedented, and the Company does not have previous
loss experience on which to base the associated estimate for loss and loss
adjustment expenses. In estimating losses, the Company may assess any of the
following:

? a review of in-force treaties that may provide coverage and incur losses;

? general forecasts, catastrophe and scenario modelling analyses and results

shared by cedents;

? reviews of industry insured loss estimates and market share analyses; and

  ? management's judgement.

Significant assumptions which served as the basis for the Company's estimates of
reserves for the COVID-19 pandemic losses and loss adjustment expenses include:

? the scope of coverage provided by the underlying policies, particularly those

    that provide for business interruption coverage;

  ? the regulatory, legislative, and judicial actions that could influence
    contract interpretations across the insurance industry;

  ? the extent of economic contraction caused by the COVID-19 pandemic and
    associated actions; and

  ? the ability of the cedents and insured to mitigate some or all of their
    losses.




37






                            FG FINANCIAL GROUP, INC.



Under the terms of our quota share agreements, and due to the nature of claims
and premium reporting, a lag exists between (i) claims being reported by the
underlying insured to the Company's cedent and (ii) claims being reported by the
Company's cedent to the Company. This lag may impact the Company's loss reserve
estimates. The reports we receive from our cedents have pre-determined due
dates. In the case of the Company's FAL contract, third quarter 2021 premium and
loss information will not be made available to the Company until subsequent to
the filing of this quarterly report. Thus, our third quarter results, including
the loss and loss adjustment expense reserves presented herein, have been based
upon a combination of first and second quarter actual results as well as
full-year forecasts reported to us by the ceding companies for which we used to
approximate third quarter results. The Company obtains regular updates of
premium and loss related information for the current and historical periods,
which are utilized to update the initial expected loss ratios on our reinsurance
contracts.

While the Company believes its estimate of loss and loss adjustment expense
reserves are adequate as of September 30, 2021, based on available information,
actual losses may ultimately differ materially from the Company's current
estimates. The Company will continue to monitor the appropriateness of its
assumptions as new information is provided.

A summary of changes in outstanding loss and loss adjustment expense reserves
for the nine months ended September 30, 2021 is as follows. There was no
activity with respect to loss and loss adjustment expense reserves for the nine
months ended September 30, 2020.



(in thousands)                                                           2021

Balance, January 1, gross of reinsurance                                $  

-

Less reinsurance recoverable on loss and LAE expense reserves              

-

Balance, January 1, net of reinsurance                                     

  -
Incurred related to:
Current year                                                              1,893
Prior years                                                                   -
Paid related to:
Current year                                                               (549 )
Prior years                                                                   -
Balance, September 30, net of reinsurance                                 

1,344

Plus reinsurance recoverable related to loss and LAE expense reserves

-

Balance, September 30, gross of reinsurance                             $ 1,344




Shareholders' Equity



Share Repurchase Transaction



On September 15, 2020, the Company entered into a Share Repurchase and
Cooperation Agreement (the "Share Repurchase Agreement") with Hale Partnership
Capital Management, LLC and certain of its affiliates (collectively, the "Hale
Parties"), which, prior to the transaction, owned more than 18% of the Company's
outstanding common stock (the "Share Repurchase Transaction").



Pursuant to the Share Repurchase Agreement, the Company agreed to purchase all
of the 1,130,152 shares of the Company's common stock, owned, of record or
beneficially, by the Hale Parties, in exchange for an aggregate of approximately
$2.8 million in cash and 330,231 shares of FedNat common stock previously owned
by the Company (the "FedNat Shares") having an estimated fair value of
approximately $2.7 million on September 15, 2020. As acknowledged by the Hale
Parties in the Share Repurchase Agreement, that certain Standstill Agreement,
dated December 2, 2019, by and between FedNat Holding Company and the Company,
imposes certain restrictions in respect of the FedNat Shares transferred by the
Company to the Hale Parties. FedNat Holding Company is not party to, or a
third-party beneficiary of, the agreement.



As the total consideration paid in the Share Repurchase Transaction exceeded the
fair value of the treasury shares repurchased by the Company, the Company
recorded a charge of approximately $0.2 million to general and administrative
expense for the year ended December 31, 2020, representing the estimated fair
value of the rights conveyed to the Company pursuant to the standstill
provisions in the agreement. The fair value of the 1,130,152 shares of Company
common stock, or approximately $5.2 million, was recorded to treasury stock.

8.00% Cumulative Preferred Stock, Series A

On May 21, 2021, we completed the underwritten public offering of an additional
194,580 shares of our preferred stock designated as 8.00% Cumulative Preferred
Stock, Series A, par value $25.00 per share (the "Series A Preferred Stock"),
for gross proceeds of approximately $4.9 million, before deducting underwriting
commissions and offering expenses. This included the exercise in full by the
underwriters of their over-allotment option to purchase up to an additional
25,380 shares, bringing the total number of Series A Preferred Stock shares
outstanding to 894,580 as of September 30, 2021.



38






                            FG FINANCIAL GROUP, INC.



Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly on the 15th day of March, June,
September and December of each year, when, as and if declared by our Board of
Directors or a duly authorized committee thereof. Dividends are payable out of
amounts legally available therefor at a rate equal to 8.00% per annum per $25.00
of stated liquidation preference per share, or $2.00 per share of Series A
Preferred Stock per year. Our Board of Directors declared the third quarter 2021
dividend on the shares of Series A Preferred Stock on November 12, 2021.



The Series A Preferred Stock is not redeemable prior to February 28, 2023. On
and after that date, the Series A Preferred Stock will be redeemable at our
option, for cash, in whole or in part, at a redemption price of $25.00 per share
of Series A Preferred Stock, plus all accumulated and unpaid dividends to, but
not including, the date of redemption. The Series A Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption.
The affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock and each other class or series of voting
parity stock will be required at any time for us to authorize, create or issue
any class or series of our capital stock ranking senior to the Series A
Preferred Stock with respect to the payment of dividends or the distribution of
assets on liquidation, dissolution or winding up, to amend any provision of our
Certificate of Incorporation so as to materially and adversely affect any rights
of the Series A Preferred Stock or to take certain other actions. The Series A
Preferred Stock shares trade on the Nasdaq Stock Market under the symbol
"FGFPP".



Common Stock

On October 28, 2021, we closed the underwritten public offering of 652,174
shares of our common stock at a public offering price of $4.00 per share.
Furthermore, on November 3, 2021, the underwriters exercised their
over-allotment option, closing on the sale of an additional 97,826 shares of our
common stock under the same terms. The issuance, including the exercise of the
over-allotment, resulted in approximately $2.5 million in net proceeds to us,
after deducting underwriting commissions and other offering expenses.



On October 29, 2021, the Company announced the commencement of its previously
announced rights offering to holders of its common stock. Pursuant to the terms
of the rights offering, the Company distributed, to each holder of its common
stock, one non-transferable subscription right to purchase 0.15 share of common
stock, at a price of $4.00 per whole share, for each share held as of 5:00 p.m.
Eastern Time on October 25, 2021, the record date for the rights offering. The
subscription rights may be exercised at any time during the subscription period,
which commenced on October 29, 2021. The rights will expire if they are not
exercised by 5:00 p.m., Eastern Time, on November 29, 2021, unless the Company
extends the rights offering subscription period. The Company will not issue any
fractional shares of the Company's common stock in the rights offering, and
subscription rights will be rounded down to the nearest whole number of shares.
Stockholders are entitled to purchase, in total, up to 757,720 shares of common
stock, for potential gross proceeds to the Company of approximately $3.0
million. The Company intends to use the net proceeds from this offering for
working capital and other general corporate purposes.



Equity Award Letter Agreement



On January 18, 2021, Company and the Company's Chief Executive Officer, Larry G.
Swets, Jr., entered into an Equity Award Letter Agreement (the "Letter
Agreement"), pursuant to which the Company agreed to grant Mr. Swets a future
award (the "Future Award") of 370,000 stock options, restricted shares or
restricted stock units, subject to the approval of an amended and/or new equity
plan, among other conditions. Specifically, under the Letter Agreement, no such
Future Award may be granted until there is a determination by the Compensation
Committee of the specific vesting and other terms of the award, and an amended
and/or new equity plan, in a form to be prepared and reviewed by the Board of
Directors of the Company (the "Board"), has been approved by the Board and
stockholders of the Company that authorizes a sufficient number of shares of
common stock to make such Future Award.



39






                            FG FINANCIAL GROUP, INC.

Retirement of Treasury Stock

On August 19, 2021, the Board approved the retirement of all 1,281,511 common
stock treasury shares owned by the Company. Accordingly, these shares have been
classified as authorized, but unissued shares on the Company's balance sheet as
of September 30, 2021.