Maiden Holdings, Ltd. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless stated otherwise, dollar amounts are U.S. dollars in millions. Maiden is principally managing and running off legacy reinsurance liabilities, while writing retroactive business through Genesis Legacy Solutions (GLS) and short-term income protection business in Northern Europe. It is not underwriting new prospective reinsurance risks.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $17.7 | $21.7 | $48.4 | $73.7 |
| Net premiums earned | $12.3 | $15.0 | $23.8 | $40.1 |
| Underwriting income (loss) | $(12.6) | $(3.6) | $(19.4) | $6.4 |
| Net income (loss) | $(8.2) | $(3.1) | $(9.0) | $14.3 |
| Net income (loss) available to common shareholders | $(8.2) | $2.9 | $19.2 | $101.4 |
| Net investment income | $6.6 | $7.5 | $20.9 | $24.6 |
Nine-month common-shareholder income includes a $28.2 million gain from repurchasing preference shares; excluding that gain, the period had a $9.0 million net loss. The comparable 2021 period included an $87.2 million preference-share repurchase gain. Basic and diluted earnings per common share were $(0.09) for Q3 and $0.22 for the nine months.
- Underwriting: Q3 results included $0.8 million of adverse prior-year reserve development, versus $5.4 million favorable development a year earlier. Nine-month prior-year development was $5.5 million favorable, versus $23.7 million favorable in 2021. The 2022 nine-month underwriting loss also reflected $15.8 million of AmTrust premium adjustments.
- Investments and comprehensive income: Nine-month net realized and unrealized investment gains were $2.8 million, down from $8.0 million. Other comprehensive loss was $39.3 million for the nine months, largely reflecting unrealized fixed-income losses amid rising interest rates. The filing reports fixed maturities at $372 million fair value against $432 million amortized cost at September 30.
- Cash flow: Nine-month operating cash outflow was $99.8 million, investing cash inflow $119.4 million, and financing cash outflow $11.0 million. Cash and restricted cash together increased $6.4 million to $72.5 million. Operating outflows primarily reflected claims payments and the run-off of AmTrust reinsurance business.
- Balance sheet and leverage: Total assets were $1,989.6 million and shareholders’ equity $327.4 million, down from $2,322.6 million and $384.3 million at year-end 2021. Common book value per share declined to $2.38 from $2.60. Senior notes had $262.5 million principal outstanding; debt was 44.5% of capital resources, compared with 40.6% at year-end.
- Liquidity and reserves: Management reported $1.4 billion of investable assets, including restricted assets, and $72.0 million of unrestricted cash and fixed maturities. Restricted cash and investments totaled $372.5 million. Loss and LAE reserves were $1,146.1 million, down 23% from year-end.
Material changes, outlook and risks
- Premiums earned and investment income declined as legacy reinsurance liabilities ran off and average fixed-income assets fell. Negative AmTrust cession adjustments drove negative net premiums written for the nine-month period.
- Management expects negative overall cash flows and a declining asset base to continue through the rest of 2022 and beyond. It believes current liquidity is adequate for the next 12 months, while noting that capital-management actions depend on maintaining unrestricted liquidity and sufficient subsidiary distributions.
- The investment portfolio remains exposed to interest rates, credit spreads, currency movements and illiquidity in alternative investments. The filing estimates an immediate 100-basis-point rate increase would reduce fixed-maturity fair value by $11.8 million. Alternative investments represented 37.2% of total cash and investments; some are subject to redemption restrictions.
- Reinsurance recoverables and related-party balances create counterparty exposure. The company remains liable if reinsurers fail to perform. Management said it believed significant AmTrust-related balances would be collectible; Cavello’s LPT/ADC recoverable was $480.1 million, with a $35.1 million deferred gain liability. Amortization of that deferred gain is not expected until paid losses exceed the agreement’s minimum retention, estimated in 2025.
- AmTrust Hospital Liability claims experienced higher-than-expected loss emergence in Italian policies. A July 2022 commutation of French Medical Malpractice exposures involved a $31.3 million payment, including a $3.7 million agreed exit cost. The company continues to have Italian medical malpractice exposure.
- On November 9, 2022, after quarter-end, Maiden announced a proposed exchange of all outstanding preference shares for common shares, subject to required preference-holder approval. The proposed ratio is three common shares per preference share; Maiden estimated the transaction could increase book value per common share by about $0.82 and expected completion by year-end 2022.
- Other contingencies include a securities class action alleging inadequate AmTrust loss reserves and a former executive’s whistleblower claim. Maiden said it intends to defend both; the filing says the effect of potential additional litigation is uncertain. Management reported no material change in previously disclosed risk factors and stated disclosure controls were effective.
Guidance: The filing provides no specific earnings or revenue guidance. Management’s outlook statements are forward-looking and subject to the risks described in the filing.
Important facts for investors to verify
- Whether AmTrust premium adjustments, Italian Hospital Liability claims and remaining reserve development are consistent with current estimates.
- The collectibility and collateral status of Cavello and AmTrust-related recoverables, funds withheld and other related-party balances.
- Whether operating cash outflows, asset run-off and regulatory collateral needs leave adequate unrestricted liquidity for claims and planned capital actions.
- The size, valuation, liquidity restrictions and realized performance of alternative investments, alongside the effect of interest-rate and foreign-exchange movements.
- Required approvals, final pricing, share issuance and actual book-value impact of the proposed preference-share exchange.
- Developments in the securities class action and other disclosed legal proceedings.