Maiden Holdings, Ltd. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Maiden is primarily managing and running off legacy reinsurance liabilities, alongside a portfolio of Scandinavian and Northern European primary insurance business. It is not actively underwriting new prospective reinsurance risks and has stopped committing new capital to Genesis Legacy Solutions (GLS).
Key financial results
Unless stated otherwise, amounts are in millions of U.S. dollars.
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $28.9 | $19.5 |
| Net premiums earned | $12.4 | $9.0 |
| Net investment income | $7.7 | $9.5 |
| Net realized and unrealized investment gains | $8.8 | $1.0 |
| Net income (loss) | $1.5 | $(11.3) |
| Basic and diluted earnings (loss) per share | $0.01 | $(0.11) |
| Underwriting loss | $(7.5) | $(8.3) |
| Non-GAAP operating loss | $(5.0) | $(7.9) |
| Net cash from (used in) operating activities | $8.0 | $(20.3) |
| Net cash used in investing activities | $(19.7) | Net cash provided: $15.3 |
| Cash, cash equivalents and restricted cash, period-end | $30.2 | $41.4 at March 31, 2023 |
- Investment results: Total investment return included in earnings was $17.1 million, compared with $10.5 million a year earlier. The increase chiefly reflected $8.0 million of private-equity gains. Net investment income fell as the average funds-withheld balance from AmTrust was lower, despite a higher annualized investment book yield of 4.6% versus 3.7%.
- Balance sheet and leverage: Total assets were $1,469.0 million, down $50.0 million from year-end; shareholders’ equity was $249.4 million, up $0.2 million. Loss and LAE reserves were $813.9 million, down $53.6 million. Senior notes totaled $262.4 million principal ($254.6 million net carrying value); debt was 51.3% of GAAP total capital resources and 44.6% using the company’s adjusted, non-GAAP measure.
- Liquidity: Management reported $861.7 million of investable assets, including restricted assets, versus $914.3 million at year-end. Unrestricted cash, cash equivalents and fixed maturities were $62.9 million. Restricted cash and investments totaled $226.8 million. Management believes liquidity is adequate for the next 12 months, while noting operating cash flows are generally expected to be offset by investing cash flows.
Material changes and management commentary
- Net income improved by $12.8 million year over year, principally from higher investment gains, lower corporate general and administrative expenses, and a foreign-exchange swing to a $2.1 million gain from a $2.8 million loss. Underwriting remained loss-making.
- Gross premiums written rose to $8.3 million from $0.8 million. The comparison is affected by a $6.1 million prior-year cession adjustment in an AmTrust Specialty Risk and Extended Warranty program. Diversified Reinsurance premiums also grew, primarily from Credit Life programs.
- Net adverse prior-year reserve development was $6.6 million, versus $3.7 million in Q1 2023. AmTrust Reinsurance accounted for $7.2 million of adverse development, including construction-defect claims and older European hospital-liability claims; Diversified Reinsurance had $0.7 million of favorable development.
- Of the adverse development, $5.0 million related to claims expected to be covered by the Cavello LPT/ADC agreement. The company says this amount is recoverable and will be recognized as GAAP income over time as recoveries are received, subject to the agreement and accounting rules. The related deferred gain liability was $75.9 million; management reported $79.1 million of remaining available coverage.
- Book value per common share was $2.48, unchanged from year-end; adjusted book value, a non-GAAP measure that includes the unamortized LPT/ADC deferred gain, was $3.24, up from $3.19. The alternative-investment portfolio returned 3.4% in the quarter, but management cautions that some investments remain at cost or NAV and returns may take time to emerge.
- Maiden repurchased 352,111 shares during the quarter for $0.7 million at an average $1.91 per share. It reported a further 238,884 shares repurchased through May 8, 2024. No common dividends were paid.
Outlook, risks and contingencies
- Strategic changes: On May 3, 2024, Maiden LF and Maiden GF entered into a renewal-rights transaction with AmTrust Nordic covering the majority of their Nordic primary business. Maiden expects further renewal-rights agreements for certain UK and Ireland business and said it expects to pursue additional transactions to sell or wind up Maiden GF and Maiden LF during 2024. These were subsequent events, after quarter-end.
- Run-off and reserves: The AmTrust and European Hospital Liability treaties are in run-off. Adverse claims development may continue; European hospital-liability development is not covered by the LPT/ADC agreement and could adversely affect results. The company remains responsible if reinsurers fail to pay recoverables.
- Investment and liquidity risk: Alternative investments are 53.0% of total investments and cash and 131.1% of shareholders’ equity, and some are subject to sale or redemption restrictions. A 100-basis-point immediate increase in interest rates was estimated to reduce fixed-maturity fair value by $4.9 million. The portfolio also has foreign-currency exposures and no hedges were in force at quarter-end.
- Related parties and collateral: Significant balances and transactions involve AmTrust, including a $168.0 million related-party loan, funds withheld, and reinsurance balances. The loan’s stated maturity was extended to January 1, 2025. Collateral requirements and regulatory limits on subsidiary distributions can affect parent-company liquidity.
- Other exposures: Unfunded alternative-investment commitments were $98.4 million. The company had $69.7 million of real-estate joint-venture guarantees, with loss considered remote and no liability accrued. A securities class action received summary judgment in the company’s favor, but plaintiffs appealed; a separate former-executive matter is also on appeal. The filing reports a full valuation allowance against net U.S. and international deferred tax assets, including $334.0 million of NOL carryforwards.
- No specific earnings or revenue guidance was provided. Management says it is exploring fee-based and distribution opportunities, may consider selective reinsurance underwriting in the future, and will continue to assess capital allocation and share or debt repurchases. It cautions that results, investment returns, reserve outcomes and liquidity may differ materially from expectations.
Important facts for investors to verify
- Whether adverse reserve development continues, particularly in construction-defect and European hospital-liability claims, and how much is covered by the LPT/ADC agreement.
- Timing and collectability of Cavello recoveries and deferred-gain recognition, including remaining coverage and collateral arrangements.
- Progress, terms and financial consequences of the planned renewal-rights transactions and any sale or wind-up of Maiden LF and Maiden GF.
- Liquidity available without restrictions, subsidiary dividend capacity, and the effect of continued reserve runoff and collateral needs.
- Realized performance, valuation support and liquidity restrictions across the alternative-investment portfolio, including the large direct-lending exposure.
- Updates on litigation appeals, the deferred-tax valuation allowance, and the company’s ability to service and manage its senior notes.