Maiden Holdings, Ltd. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Maiden is a Bermuda-based reinsurer operating through Diversified Reinsurance and AmTrust Reinsurance. Unless indicated otherwise, financial figures below are in U.S. dollars; amounts are shown in millions.
Key financial results
| Metric | Q1 2017 | Q1 2016 / prior period |
|---|---|---|
| Gross premiums written | $923.4 | $864.1 |
| Net premiums written | $900.5 | $792.8 |
| Net premiums earned | $709.5 | $616.0 |
| Total revenues | $756.3 | $659.4 |
| Net income | $26.5 | $36.8 |
| Net income attributable to common shareholders | $20.5 | $27.2 |
| Basic / diluted EPS | $0.24 / $0.23 | $0.37 / $0.35 |
| Underwriting income | $1.1 | $13.0 |
| Combined ratio | 100.9% | 98.9% |
| Net investment income | $42.2 | $36.3 |
| Operating cash flow | $45.4 | $9.0 |
Premium growth reflected expansion in both segments and lower retrocessional cessions. AmTrust accounted for 64.0% of gross premiums written. Net loss and loss adjustment expenses rose 19.1% to $480.6 million; the loss ratio increased to 67.4%, while the expense ratio improved to 33.5%. Net investment income grew 16.1%, supported by 8.4% growth in average invested assets, a higher average book yield (3.3% versus 3.1%), and $3.0 million of additional amortization income from calls of four securities.
Balance sheet, debt and liquidity
- Total assets were $6.56 billion and total liabilities $5.19 billion at March 31, 2017. Maiden shareholders’ equity was $1.37 billion; book value per common share was $12.19, up 0.6% from year-end.
- Cash and cash equivalents were $83.5 million, with restricted cash of $109.7 million. Operating cash flow increased from $9.0 million, partly because Q1 2016 included settlement of a $107 million AmTrust commutation. Investing cash flow was $11.2 million and financing cash flow was negative $19.0 million, including common and preference dividends.
- Senior notes totaled $362.5 million principal ($351.5 million net carrying value); debt was 20.9% of total capital resources of $1.73 billion. No short-term borrowings were reported.
- Restricted cash and investments used as collateral totaled $4.45 billion, approximately 90% of fixed-maturity investments and cash. The filing says collateral requirements and regulatory restrictions affect funds available to the holding company.
- Fixed maturities were predominantly investment grade; 96.6% were investment grade. Unrealized losses were $78.4 million, which management attributed primarily to credit and interest-rate spreads and currency movements; it recorded no other-than-temporary impairment.
Changes, outlook and risks
- Common-shareholder income fell 24.7%, and non-GAAP operating earnings declined 20.1% to $22.6 million. Management cited weaker underwriting results, including higher initial loss ratios and $16.8 million of adverse prior-year reserve development, partly offset by higher investment income.
- Diversified Reinsurance’s combined ratio improved to 99.9% from 102.9%, with underwriting income of $0.3 million. AmTrust Reinsurance’s combined ratio worsened to 99.8% from 95.3%, and underwriting income fell to $1.1 million from $20.9 million. AmTrust adverse development was $10.3 million, primarily in general liability and workers’ compensation; Diversified adverse development was $6.2 million, including commercial auto and international personal auto.
- Management reported continued industry pricing pressure and said it would decline business that does not meet underwriting standards. It expects recent underwriting initiatives to support progress toward its long-term 15% operating return on average common equity target over the next 12–24 months; Q1 annualized operating return was 8.7%. The filing provides no specific quarterly or full-year earnings guidance.
- Risks include reserve-estimation uncertainty, claims inflation, interest-rate and credit exposure, foreign exchange movements, and dependence on AmTrust-related business and collateral arrangements. The company had no foreign-currency hedges in force; it reported a $1.9 million foreign-exchange loss for the quarter. A 10% or 20% strengthening of the U.S. dollar against currencies held could reduce net assets by an estimated $3.2 million or $6.4 million, respectively, all else equal.
- AmTrust is a significant related party: related-party arrangements include reinsurance, collateral and a $168.0 million loan. One whistleblower-related employment claim remains pending; management says it will vigorously defend the claim. The filing reports no material changes to previously disclosed risk factors or contractual obligations.
Important facts for investors to verify
- Whether adverse reserve development and higher initial loss assumptions persist, especially in AmTrust general liability and workers’ compensation and Diversified auto business.
- The quality, collectibility and concentration of AmTrust-related receivables, the $168.0 million related-party loan, and the adequacy and availability of collateral supporting reinsurance obligations.
- Whether underwriting improvement lifts combined ratios below 100% and moves operating returns toward management’s 15% long-term target.
- The effect of interest rates, credit spreads, foreign exchange movements and mortgage-backed securities prepayments on investment values, income and equity.
- Holding-company liquidity and dividend capacity given the substantial restricted collateral, subsidiary regulatory requirements, and common and preference dividend commitments.