Business Context and Reporting Period
Company: Maiden Holdings, Ltd.
Filing Type: Form 8-K (Current Report)
Date of Report: August 4, 2015
Reporting Period: Second Quarter and Six Months Ended June 30, 2015
Business Overview: Maiden is a Bermuda-based holding company providing non-catastrophic, customized reinsurance products to small and mid-size insurers in the U.S. and Europe. Operations are divided into the Diversified Reinsurance and AmTrust Reinsurance segments.
Key Financial Metrics
Quarter Ended June 30, 2015
- Net Operating Earnings: $28.4 million ($0.37 per diluted share).
- Net Income (Common Shareholders): $20.5 million ($0.27 per diluted share).
- Gross Premiums Written: $674.2 million.
- Net Premiums Written: $629.6 million.
- Combined Ratio: 99.2% (Loss Ratio: 67.8%; Expense Ratio: 31.4%).
- Net Investment Income: $35.2 million.
- Annualized Operating Return on Common Equity: 12.2%.
Six Months Ended June 30, 2015
- Net Operating Earnings: $55.0 million ($0.71 per diluted share).
- Net Income (Common Shareholders): $52.9 million ($0.69 per diluted share).
- Gross Premiums Written: $1.5 billion.
- Net Premiums Written: $1.4 billion.
- Combined Ratio: 98.7% (Loss Ratio: 66.3%; Expense Ratio: 32.4%).
- Net Investment Income: $63.4 million.
- Annualized Operating Return on Common Equity: 12.1%.
Balance Sheet Highlights (June 30, 2015)
- Total Assets: $5.7 billion (up 9.7% from year-end 2014).
- Total Liabilities: $4.4 billion.
- Shareholders' Equity: $1.2 billion (down 1.4% from year-end 2014).
- Cash and Cash Equivalents: $309.1 million (including restricted cash).
- Debt: $360 million in Senior Notes.
- Book Value per Common Share: $12.35.
Material Changes vs. Prior Period
- Premium Growth: Gross premiums written increased 20.4% QoQ and 17.6% for the six-month period. Net premiums written increased 16.4% QoQ and 14.1% for the six-month period.
- Segment Performance:
- AmTrust Reinsurance: Net premiums written increased 30.3% QoQ, driven by the Tower Group acquisition and organic growth. Combined ratio improved to 95.2%.
- Diversified Reinsurance: Net premiums written decreased 15.1% QoQ due to the termination of a large U.S. client account and foreign exchange headwinds. Combined ratio worsened to 104.1% due to adverse development in U.S. excess of loss commercial auto liability.
- Investment Income: Net investment income increased 25.1% QoQ and 13.3% for the six-month period, attributed to deploying cash balances into the fixed income portfolio.
- Net Income Variance: GAAP net income for the six months ended June 30, 2015 ($52.9 million) was significantly higher than the prior year ($21.7 million), as the prior year included a non-recurring non-cash charge of $28.2 million related to TRUPs amortization.
Guidance, Outlook, and Risks
Management Commentary
CEO Art Raschbaum highlighted improved underwriting performance in international IIS business and strength in the AmTrust segment. While the Diversified segment faced headwinds from client M&A and foreign exchange, management expects newly won accounts to drive growth in the latter half of 2015 and into 2016. Management noted swift underwriting and actuarial responses to adverse commercial auto claims development.
Risks and Contingencies
- Underwriting Risk: Adverse development in U.S. excess of loss commercial auto liability negatively impacted the Diversified segment's combined ratio.
- Foreign Exchange: A strong U.S. dollar negatively impacted premium levels in international business.
- Market Risks: Forward-looking statements cite risks including changes in interest rates, financial market performance, claim frequency/severity, regulatory changes, and competition.
Investor Verification Checklist
- Verify the reconciliation of Net Operating Earnings (Non-GAAP) to Net Income (GAAP) to understand the impact of excluded items like foreign exchange losses and intangible asset amortization.
- Review the specific details of the "adverse excess of loss commercial auto claims development" in the Diversified segment to assess potential reserve adequacy.
- Confirm the integration progress and financial contribution of the Tower Group acquisition within the AmTrust segment.
- Monitor the deployment of the $309.1 million cash balance and its impact on future investment yields given the current 3.40% average yield on fixed income.
- Assess the sustainability of the 104.1% combined ratio in the Diversified Reinsurance segment and management's pricing actions to correct it.