MHLA

Business Context and Reporting Period

Company: Maiden Holdings, Ltd.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Maiden Holdings is a Bermuda-based holding company providing reinsurance solutions, primarily through a Quota Share agreement with AmTrust and a "Reinsurance - Other" segment. The company's operations were significantly expanded by the acquisition of GMAC Insurance reinsurance operations in late 2008.

Key Financial Metrics (Six Months Ended June 30, 2009)

Material Changes vs. Prior Period

• Revenue Growth: Net premiums written increased 110.1% to $574.9 million, and net earned premiums increased 204.2% to $433.9 million compared to the six months ended June 30, 2008. This growth is primarily attributed to the GMAC Acquisition in Q4 2008.
• Profitability: Net income rose to $29.4 million from $26.3 million in the prior year period. Underwriting income for the total company was $21.4 million.
• Expense Increases: Loss and loss adjustment expenses increased 265.1% to $297.3 million. General and administrative expenses increased 300.5% to $14.7 million, driven by infrastructure build-out and the GMAC acquisition.
• Capital Structure: In January 2009, the company issued $260 million in Trust Preferred Securities (14% coupon, 16.95% effective rate), resulting in $16.2 million of interest expense for the six-month period. There was no comparable interest expense in 2008.
• Investment Portfolio: Total investments grew to $1.3 billion. The portfolio includes $48.8 million in gross unrealized losses, primarily in corporate fixed maturities, which management does not consider other-than-temporarily impaired.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management expects investment income and yields to increase over time as cash from the GMAC acquisition and Trust Preferred issuance is fully deployed. The company anticipates continued increases in general and administrative expenses as it builds infrastructure.
• Acquisitions: Regulatory approval was received for the acquisition of Integon Specialty Insurance Company, expected to close on September 1, 2009.
• Risks:
  • Credit Risk: A recent downgrade of Motors Insurance Corporation (a key partner in the GMAC transition) to B++ could adversely affect the ability to retain GMAC RE customers.
  • Liquidity: Significant assets ($1.19 billion) are held in trust accounts or pledged as collateral to meet regulatory requirements, limiting immediate liquidity.
  • Legal Proceedings: The company is defending a whistleblower claim filed by a former executive regarding the termination of his employment and the terms of the January 2009 Trust Preferred offering.
• Unusual Items: The financial results are heavily influenced by the non-recurrence of a one-time unearned premium portfolio transfer of approximately $82 million related to AmTrust's acquisition of Unitrin Business Insurance in Q2 2008.

Investor Verification Checklist

• GMAC Transition Status: Verify the progress of transitioning GMAC RE clients from Motors Insurance Corporation to Maiden Reinsurance, given the recent credit rating downgrade of Motors.
• Integon Acquisition: Confirm the closing date and financial impact of the Integon Specialty Insurance Company acquisition expected in September 2009.
• Investment Impairments: Monitor the $48.8 million in unrealized losses on corporate fixed maturities to ensure they do not require other-than-temporary impairment charges in future quarters.
• Related Party Transactions: Review the terms and financial impact of the Quota Share agreement with AmTrust, which represents a significant portion of the company's business.
• Legal Exposure: Assess the potential financial impact of the whistleblower lawsuit filed by former COO Bentzion S. Turin.