Business Context and Reporting Period
Company: Maiden Holdings, Ltd. (MHLD)
Filing Type: Form 8-K (Current Report)
Report Date: November 13, 2019
Reporting Period: Third Quarter and Nine Months Ended September 30, 2019
Business Overview: Maiden is a Bermuda-based holding company engaged in reinsurance. The period was characterized by significant portfolio restructuring, including the termination of quota share contracts with AmTrust Reinsurance and the execution of a Loss Portfolio and Adverse Development Cover (LPT/ADC) agreement with Enstar Group Limited to de-risk the balance sheet.
Key Financial Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Net Loss (Common Shareholders) | $(58.3) million | $(308.8) million | $(110.4) million | $(301.0) million |
| Loss Per Share (Diluted) | $(0.70) | $(3.72) | $(1.33) | $(3.62) |
| Non-GAAP Operating Earnings | $39.8 million | $(240.9) million | $(9.1) million | $(253.6) million |
| Combined Ratio (GAAP) | 190.8% | 150.8% | 146.0% | 120.7% |
| Combined Ratio (Non-GAAP) | 81.3% | 150.8% | 120.8% | 120.7% |
| Net Premiums Earned | $94.9 million | $520.1 million | $412.0 million | $1.54 billion |
| Total Assets | $3.79 billion | $5.29 billion (Dec 31, 2018) | N/A | |
| Shareholders' Equity | $533.2 million | $554.3 million (Dec 31, 2018) | N/A | |
| Book Value Per Share | $0.82 | $1.08 (Dec 31, 2018) | N/A | |
| Adjusted Book Value Per Share | $2.08 | $1.08 (Dec 31, 2018) | N/A |
Note: Non-GAAP metrics include the recognition of a $104.5 million unamortized deferred gain from retroactive reinsurance.
Material Changes vs. Prior Period
- Significant Reduction in Net Loss: The GAAP net loss improved substantially year-over-year (Q3 2019: $58.3M loss vs. Q3 2018: $308.8M loss). This was driven by lower adverse prior year loss development ($63.2M in Q3 2019 vs. $212.5M in Q3 2018) and the absence of goodwill impairments recorded in the prior year.
- Premium Volume Contraction: Gross premiums written dropped to $35.8M in Q3 2019 from $484.5M in Q3 2018. This decline is primarily due to the termination of quota share contracts with AmTrust and the return of unearned premiums under a Partial Termination Amendment.
- Investment Income Decline: Net investment income fell to $13.2M in Q3 2019 from $34.4M in Q3 2018. This was caused by a reduction in average investable assets and one-time interest payments totaling $13.6M related to the LPT/ADC and Commutation agreements.
- Expense Ratios: While absolute expenses decreased due to lower premium volume, expense ratios increased. The total expense ratio rose to 43.2% in Q3 2019 from 35.8% in Q3 2018, largely due to additional ceding commissions agreed upon in the AmTrust termination.
- Discontinued Operations: Loss from discontinued operations was minimal in Q3 2019 ($0.3M) compared to $59.8M in Q3 2018, which included a $74.2M impairment charge related to the sale of Maiden Reinsurance North America.
Guidance, Outlook, and Management Commentary
- Recovery Strategy: Management states that non-GAAP operating results have turned positive in Q3 2019, signaling the emergence of benefits from strategic steps taken to set the company on a recovery course.
- De-risking: The LPT/ADC agreement with Enstar is described as having a "tempering effect," helping to de-risk the balance sheet and transition away from reserve volatility. The agreement covers adverse development over a $2.179 billion retention up to $600.0 million.
- Underwriting Challenges: Management notes continuing challenges in General Liability and Commercial Auto Liability lines, which are offset partially by favorable development in Workers' Compensation. The company continues to monitor volatility in these liability lines.
- Solvency: Solvency ratios now exceed target levels at both the group and operating company levels, with expectations for further improvement as 2019 closes.
- Dividends: The Board did not declare any dividends on common or preferred shares for the quarter or the year-to-date period.
- Risks: Forward-looking statements highlight risks including non-receipt of expected payments, changes in interest rates, claim development accuracy, and regulatory investigations.
Investor Verification Checklist
- Retroactive Reinsurance Accounting: Verify the treatment of the $104.5 million unamortized deferred gain from the Enstar LPT/ADC agreement and its impact on Non-GAAP metrics versus GAAP results.
- AmTrust Termination Impact: Confirm the long-term revenue implications of the terminated quota share contracts and the Partial Termination Amendment with AmTrust.
- Reserve Development: Monitor future quarters for continued adverse development in General Liability and Commercial Auto lines, despite the Enstar cover.
- Liquidity and Solvency: Review the trend in investable assets and the sufficiency of capital resources ($795.7M) relative to the reduced premium base.
- Dividend Policy: Assess the likelihood of future dividend declarations given the current suspension and the focus on balance sheet strengthening.