Maiden Holdings, Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; balance-sheet comparisons are against December 31, 2021. Unless otherwise stated, figures are U.S. dollars in millions. Maiden is a Bermuda-based insurance and financial-services holding company. It is not underwriting new prospective reinsurance risks; its activities include runoff of legacy portfolios, retroactive underwriting through Genesis Legacy Solutions (GLS), Scandinavian short-term income protection, and asset and capital management.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenues | $20.7 | $22.0 | $30.7 | $52.0 |
| Net premiums earned | $10.4 | $13.3 | $11.6 | $25.1 |
| Net investment income | $7.7 | $7.3 | $14.2 | $17.1 |
| Net income (loss), GAAP | $1.1 | $8.1 | $(0.9) | $17.4 |
| Net income available to common shareholders | $25.8 | $26.8 | $27.3 | $98.6 |
| Underwriting income (loss), non-GAAP | $(5.1) | $8.5 | $(6.8) | $10.0 |
| Operating cash flow | Not separately presented | Not separately presented | $(88.8) | $(185.8) |
Common-shareholder income includes gains from repurchasing preference shares: $24.7 million in Q2 and $28.2 million for the first half of 2022. Excluding those gains, GAAP net income was $1.1 million for Q2 and a $0.9 million loss for the first half. Basic and diluted earnings per common share were $0.29 for Q2 and $0.31 for the first half, also reflecting the preference-share repurchase gains.
For the first half, net premiums written were negative $7.1 million, compared with positive $0.6 million in 2021, chiefly reflecting AmTrust premium adjustments. The filing does not present a conventional net profit margin; underwriting results are a non-GAAP measure and should not be treated as equivalent to an operating margin.
Balance sheet, debt and liquidity
- Total assets were $2.16 billion, down $166.4 million from year-end 2021. Total investments were $685.9 million; cash and cash equivalents were $37.8 million, with a further $23.7 million restricted.
- Shareholders’ equity was $347.9 million, down $36.3 million. Common shareholders’ equity was $228.3 million; book value per common share was $2.62, versus $2.60 at year-end.
- Senior-note principal remained $262.5 million; carrying value was $255.5 million. The reported debt-to-capital ratio rose to 43.0% from 40.6%. The notes carry coupons of 6.625% and 7.75%; weighted-average effective interest cost was 7.6%.
- Unrestricted cash and fixed-maturity investments were $79.7 million. Restricted cash and investments used as collateral totaled $417.2 million. Total investable assets, as defined by the company, were $1.5 billion, down from $1.7 billion at year-end.
- First-half investing cash flow was positive $96.3 million and financing cash flow was negative $11.0 million. Cash, restricted cash and equivalents ended at $61.5 million, down $4.6 million from the beginning of the period.
- Loss and loss-adjustment reserves were $1.275 billion, down $214.3 million. Reinsurance recoverables on unpaid losses were $554.8 million. The LPT/ADC agreement with Cavello accounted for $486.4 million of those recoverables; its deferred gain liability was $41.4 million.
Material changes and management commentary
- Q2 underwriting shifted from $8.5 million of income in 2021 to a $5.1 million loss in 2022, reflecting much less favorable prior-year reserve development: $1.0 million adverse in Q2 2022 versus $12.8 million favorable in Q2 2021. First-half underwriting moved from $10.0 million of income to a $6.8 million loss.
- Management attributed $5.1 million of first-half underwriting loss to AmTrust cession adjustments, including $11.0 million of Workers’ Compensation surcharge premium reductions and $4.8 million of adjustments to inuring reinsurance premiums in Specialty Risk and Extended Warranty.
- First-half net investment income fell 16.9%, primarily because average fixed-income assets declined 28.5% as the legacy reinsurance book ran off. Higher yields partly offset the reduction: average book yield was 1.9% versus 1.8% in the comparable period.
- Rising interest rates drove $47.2 million of unrealized fixed-maturity losses in the first half and reduced book value per common share by $0.54, according to management. Fixed maturities had $45.4 million of gross unrealized losses at June 30; the company reported no impairment and said it expected recovery of amortized cost.
- Foreign-exchange gains were $6.6 million in Q2 and $10.5 million for the first half, mainly from the stronger U.S. dollar reducing the reported value of foreign-currency liabilities. The company reported no active foreign-currency hedges.
- Alternative investments rose to $250.6 million, or 33.5% of total cash and investments, from 25.4% at year-end. Management said returns are uncertain and may be volatile; some holdings have restrictions that can limit liquidity.
Outlook, risks and contingencies
- The filing provides no numerical earnings or revenue guidance. Management expects negative overall cash flows to continue reducing the asset base through the rest of 2022 and beyond, as legacy claims run off. It nevertheless believes available liquidity is adequate for the next 12 months, with positive investing cash flows expected to offset negative operating cash flows.
- Management says future asset and capital-management activity depends on maintaining sufficient unrestricted liquidity, subsidiary dividend capacity, and regulatory capital. It cautions that reserve development may change and further preference-share repurchases are not assured. The company had $3.9 million of remaining preference-share repurchase authorization at June 30.
- Maiden Reinsurance received regulatory approval for an annual dividend program and subsequently paid $6.3 million to Maiden NA. No common or preference-share dividends have been paid since 2018. Common-share repurchases are restricted while preference dividends remain unpaid.
- Key exposures include reserve-estimation uncertainty, collection risk on reinsurance recoverables, collateral requirements, interest-rate and credit-spread movements, foreign exchange, and illiquidity or valuation risk in alternative investments. A hypothetical immediate 100-basis-point rate increase was estimated to reduce fixed-maturity fair value by $14.2 million.
- The company remains exposed if reinsurers fail to meet obligations. It identifies substantial related-party balances and arrangements involving AmTrust; AmTrust was rated A- by A.M. Best. A securities class action concerning alleged inadequate AmTrust-related reserves and a long-running former-employee whistleblower claim remain disclosed; the company says it intends to defend the claims. It states that no material changes to previously disclosed risk factors or commitments occurred.
- Management reported effective disclosure controls as of quarter-end and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much reported common-shareholder income depends on preference-share repurchase gains, versus recurring underwriting and investment performance.
- Whether AmTrust cession adjustments, reserve development, and runoff claims continue to pressure underwriting results and cash flow.
- The collectability and collateral protection of the $554.8 million reinsurance recoverable balance, particularly the Cavello LPT/ADC recoverable and related-party exposures.
- Whether unrestricted liquidity and regulated-subsidiary dividend capacity remain adequate as claims are paid and investment assets run off.
- The extent and valuation of unrealized fixed-income losses, alternative-investment liquidity restrictions, and potential further market or foreign-exchange effects on equity.