Maiden Holdings, Ltd. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; the provided text does not give separate Q4 results. Amounts below are in U.S. dollars and generally shown in millions unless noted.
Business context and reporting period
Maiden is a Bermuda-based holding company in transition from traditional reinsurance toward asset and capital management and legacy insurance services. It is not actively underwriting reinsurance; its AmTrust agreements and other historic reinsurance business are in run-off. Its remaining operations include European reinsurance and Scandinavian income-protection insurance. Maiden formed Genesis Legacy Solutions in November 2020 to pursue run-off portfolio and company transactions. Maiden Reinsurance completed its re-domestication from Bermuda to Vermont on March 16, 2020.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net premiums earned | $106.1 million | $447.8 million |
| Total revenues | $184.1 million | $576.1 million |
| Net income (loss) from continuing operations | $41.8 million | $(109.4) million |
| Net income (loss) attributable to common shareholders | $80.0 million | $(131.9) million |
| Basic and diluted earnings (loss) per common share | $0.93 | $(1.59) |
| Net investment income | $54.8 million | $97.8 million |
| Net cash used in operating activities | $(541.8) million | $(1,142.6) million |
| Total investments and cash, including restricted amounts | $1,456.1 million | $1,974.5 million |
| Total assets | $2,948.5 million | $3,568.2 million |
| Loss and LAE reserves | $1,893.3 million | $2,439.9 million |
| Shareholders’ equity | $527.8 million | $507.7 million |
| Senior notes, principal amount | $262.5 million | $262.5 million |
- Common-shareholder income includes a $38.2 million gain from repurchasing preference shares; income from continuing operations was $41.8 million. Non-GAAP operating earnings were $47.1 million, or $0.55 per diluted common share.
- The reported combined ratio was 111.4%, versus 148.6% in 2019. The 2020 ratio remained above 100%, indicating an underwriting loss on that measure. Underwriting income was $17.3 million, compared with an underwriting loss of $183.8 million in 2019. Management’s non-GAAP combined ratio, which adjusts for development covered by retroactive reinsurance, was 124.8%, versus 123.5%.
- Operating cash outflow was partly offset by $596.0 million of investing cash inflow, primarily from investment sales and maturities; financing cash outflow was $30.1 million, largely for the preference-share tender offer. Cash, cash equivalents and restricted cash increased by $28.5 million.
- At year-end, unrestricted cash and fixed-maturity investments were $269.2 million; restricted cash and investments used as collateral were approximately $1.08 billion. Management said projected liquidity was sufficient for the next 12 months, while cautioning that deterioration in results or additional collateral needs could impair liquidity.
- Net investment income fell 44.0%; average investable assets declined 32.4% and average book yield decreased to 2.2% from 2.7%. Fixed-maturity investments were $1.21 billion, and alternative and equity-method investments together represented 7.3% of cash and investments, up from 1.6%.
- Debt to total capital resources was 33.2%, compared with 34.1%. The $262.5 million principal balance comprises $110.0 million of 6.625% notes and $152.5 million of 7.75% notes. Interest and amortization expense was $19.3 million.
Material changes versus 2019
- Net premiums earned fell 76.3%, reflecting the termination of AmTrust quota-share agreements effective January 1, 2019 and lower European business. The AmTrust segment earned $58.2 million in 2020 versus $364.1 million in 2019; no new AmTrust premiums were written.
- Prior-year reserve development shifted to favorable $16.5 million in 2020 from adverse $112.5 million in 2019, mainly in the AmTrust segment. Reserves declined 22.4%, principally reflecting claims payments and the earlier commutation of workers’ compensation liabilities.
- Net investment income decreased by $43.1 million. General and administrative expenses declined 17.2% to $39.1 million, including lower corporate costs following headcount reductions.
- Shareholders’ equity increased 4.0%. Common shareholders’ equity rose to $133.5 million from $42.7 million, reflecting earnings and the preference-share repurchase gain, among other items. The 2020 tender offer repurchased preference shares for $29.7 million, excluding fees.
- Operating cash flow remained significantly negative as the company paid claims from run-off portfolios. Management expects this trend to continue as the asset base runs down.
Outlook, risks, contingencies and unusual items
- Outlook: Management is prioritizing risk-adjusted returns from investment and capital management and legacy services; it has not decided if or when it will resume active reinsurance underwriting. It expects negative operating cash flows to continue, generally offset by investing cash flows, and believes current liquidity can meet near-term obligations. No quantified earnings or revenue guidance is provided.
- Reserve and reinsurance exposure: Loss reserves are estimates subject to long reporting tails, cedant data and actuarial judgment. Management’s reasonable-reserve range indicates reserves after reinsurance could be about $206.7 million higher (11.3% of net reserves, excluding the LPT/ADC impact). The LPT/ADC agreement provides up to $600 million of cover above a roughly $2.18 billion retention; its $74.9 million deferred gain is not expected to begin amortizing until paid losses exceed the minimum retention, estimated in 2024.
- Counterparty and collateral concentration: The filing reports a $587.9 million net balance due from Cavello, including $519.9 million of recoverables under the retroactive reinsurance agreement and $68.0 million under a retrocession agreement. The company remains exposed to reinsurer collection risk. Approximately 80% of the fair value of fixed maturities and cash was restricted as collateral at year-end; Maiden reported $1.8 billion of collateral provided to AmTrust-related entities.
- Investment and liquidity risks: Investment values and income are exposed to interest rates, credit spreads, foreign exchange and market volatility. A 100-basis-point increase in rates was estimated to reduce fixed-maturity fair value by $28.4 million. Alternative investments may be illiquid; remaining unfunded investment commitments totaled $63.3 million.
- Capital and distributions: No common or preference dividends have been declared since the fourth quarter of 2018. Preference dividends are non-cumulative, and holders elected two additional directors in December 2020 after the dividend nonpayment trigger. The company reported $394.3 million of preference shares at year-end. After year-end, Maiden Reinsurance accepted a further $96.9 million of preference shares for purchase, expected to produce a $67.6 million gain in Q1 2021.
- Other matters: COVID-19 effects on claims and investments remained uncertain; the company characterized known COVID-related claims as limited or immaterial at filing. A securities class action alleging inadequate AmTrust-related reserves was pending, and the company intended to defend it. The filing identifies related-party ties to AmTrust, including the chairman’s leadership roles at both companies. Auditors issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal controls were effective.
Most important facts for investors to verify
- Whether favorable reserve development persists and whether ultimate claims remain within management’s reserve estimates.
- Collectability, collateral sufficiency and timing of recoveries from Cavello and other reinsurers, including the LPT/ADC agreement’s terms and deferred-gain accounting.
- Whether unrestricted liquidity remains adequate as operating cash outflows continue, collateral requirements evolve and debt service comes due.
- Returns, valuations, liquidity restrictions and unfunded commitments associated with expanded alternative and equity-method investments.
- Execution and economics of Genesis Legacy Solutions and the company’s longer-term capital-allocation strategy, including any decision to resume underwriting.
- Developments in the pending securities litigation, AmTrust-related arrangements and preference-share repurchases, dividends and governance rights.