Maiden Holdings, Ltd. annual report, FY2018

Vollständiges Dokument

Maiden Holdings, Ltd. — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Unless noted, financial figures are in U.S. dollars.

Business context and reporting period

Maiden is a Bermuda-based insurer and reinsurer. Following a strategic review begun in early 2018, it sold its U.S. treaty reinsurance subsidiary, Maiden US, and moved its AmTrust reinsurance business into run-off effective January 1, 2019. The continuing business is principally international reinsurance and insurance distribution, including branded auto and credit-life products. AmTrust represented 93.5% of 2018 gross premiums written.

Financial performance and condition

  • Revenue: $2.165 billion, up 1.2% from $2.139 billion in 2017. Net premiums earned were $2.026 billion; net investment income was $136.3 million.
  • Losses and profitability: Net loss was $544.4 million versus $169.7 million in 2017; net loss attributable to common shareholders was $570.3 million, or $6.87 per share, versus $199.1 million, or $2.32 per share. Continuing-operations loss was $450.3 million. Underwriting loss was $520.2 million.
  • Margins: Combined ratio rose to 127.7% from 112.5%; loss and LAE ratio increased to 92.3% from 77.7%. Ratios above 100% indicate underwriting losses.
  • Reserve development: Adverse prior-year loss development totaled $403.2 million, compared with $247.2 million in 2017; $399.2 million was in AmTrust Reinsurance.
  • Cash flow: Operating cash flow was $182.3 million, down from $458.6 million. Continuing-operations operating cash flow was $281.6 million. Investing activities provided $32.9 million, including sale proceeds; financing activities used $68.0 million.
  • Investments and liquidity: Total investments were $4.091 billion; cash and cash equivalents, including restricted cash, totaled $331.0 million. Investments and cash totaled $4.422 billion, of which approximately $4.042 billion was pledged as collateral. Management said liquidity should cover expected needs, while noting substantial collateral restrictions.
  • Debt and capital: Senior-note principal was $262.5 million ($254.7 million net carrying value). Shareholders’ equity fell 55% to $554.3 million; common shareholders’ equity was $89.3 million. Debt was 32.1% of total capital resources, versus 17.6%. Book value per common share fell to $1.08 from $9.25.

Material changes versus the prior comparable period

  • Net loss attributable to common shareholders widened by $371.2 million. Higher adverse reserve development and higher current-year loss picks drove the deterioration; increased investment income and foreign-exchange gains only partly offset it.
  • Net premiums written declined 1.1% to $2.015 billion in 2018. The larger structural reduction is expected in 2019 following the U.S. sale and AmTrust contract terminations.
  • Maiden US was sold to Enstar on December 27, 2018 for gross consideration of $286.4 million, subject to final adjustments. The sale generated a $113.3 million disposal loss, including a $74.2 million impairment of goodwill and intangible assets.
  • Common dividends declined to $0.35 per share from $0.60; no fourth-quarter 2018 common dividend was declared. Preferred dividends were also not declared for the December 2018 or March 2019 payment dates.

Outlook, management commentary, risks and unusual items

  • Management expects materially lower gross and net premiums in 2019, with investment income forming a larger share of revenue. It said expenses had been reduced and it expected the strategic actions to support a return to operating profitability, but gave no quantified earnings guidance.
  • The company and Maiden Bermuda failed to meet Bermuda economic capital requirements at September 30 and December 31, 2018. Shareholders injected $125 million into Maiden Bermuda in December and $70 million in January 2019. Management estimated capital would exceed requirements following actions taken, subject to completion and regulatory approval of the Enstar transaction.
  • On March 1, 2019, Maiden replaced its earlier Enstar agreement with a loss portfolio transfer/adverse development cover. An Enstar subsidiary is to assume covered AmTrust reserve liabilities above a $2.441 billion retention, up to $675 million; the agreement provides $175 million of adverse development cover. The transaction remained subject to regulatory approval and other closing conditions. Cumulative ceded losses above $500 million could produce a deferred accounting gain, delaying earnings recognition.
  • AmTrust returned approximately $716.1 million of unearned premium under the partial termination, netting to approximately $480 million after ceding commission and brokerage, subject to adjustment. The AmTrust quota-share and European Hospital Liability agreements were terminated on a run-off basis effective January 1, 2019.
  • A.M. Best downgraded Maiden Bermuda to B++ with negative outlook in November 2018; the rating was withdrawn in February 2019. Maiden reported no current financial-strength rating from a major rating agency, potentially limiting new business and increasing collateral needs. Any new Bermuda reinsurance business requires BMA approval.
  • Major risks include further adverse reserve development, dependence on AmTrust for legacy liabilities and related-party balances, restricted liquidity and collateral needs, investment-market and interest-rate exposure, and uncertainty in the new business strategy. A securities class action was filed in February 2019; the company said it intended to defend the claim. A long-running former-employee proceeding also remained unresolved.
  • Fourth-quarter 2018 net loss attributable to common shareholders was $269.2 million. The company attributed much of the quarterly loss to reserve strengthening, including approximately $151.9 million of adverse development in the fourth quarter.

Most important facts for investors to verify

  • Final regulatory approval, closing terms and accounting for the Enstar LPT/ADC; track reserve development against the $2.441 billion retention and $675 million limit.
  • Whether Maiden and Maiden Bermuda meet BMA economic capital requirements, and what restrictions the BMA places on capital distributions and new business.
  • Subsequent reserve adequacy, particularly AmTrust workers’ compensation, general liability, commercial auto and European hospital liability exposures.
  • Actual unearned-premium adjustment and settlement of the AmTrust termination, including collateral and funds-withheld balances.
  • Unrestricted liquidity after collateral requirements and run-off claim payments; most reported cash and investments were restricted or pledged.
  • Any resumption of preferred dividends, which are non-cumulative, and common dividends; preferred holders could gain board-election rights after six missed dividend periods.
  • Final proceeds and terms of the AVS sale, completed January 10, 2019; the filing does not disclose the cash payment amount.