Maiden Holdings, Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted. Maiden is primarily managing assets and running off legacy reinsurance liabilities, rather than actively underwriting reinsurance.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior period |
|---|---|---|
| Total revenue | $30.0 | $59.1 |
| Net income | $9.3 | $20.9 |
| Income available to common shareholders | $71.7; includes $62.5 gain on preference-share repurchases | $20.9 |
| Basic and diluted EPS | $0.83 | $0.25 |
| Non-GAAP operating earnings / EPS | $47.3 / $0.55 | $3.1 / $0.04 |
| Net premiums earned | $11.8 | $31.2 |
| Underwriting income (loss) | $1.6 | $(3.7) |
| Combined ratio | 185.3% | 131.6% |
| Operating cash flow | $(102.8) | $(218.5) |
| Investing / financing cash flow | $199.2 / $(99.9) | $288.5 / $0 |
| Total assets / shareholders’ equity | $2,702.6 / $426.6 | $2,948.5 / $527.8 at Dec. 31, 2020 |
| Senior notes, principal | $262.5 | $262.5 at Dec. 31, 2020 |
Net investment income fell 45% to $9.8 million, primarily as average investable assets declined 21.4% and average book yield fell to 1.9% from 2.7%. The combined ratio rose despite reported underwriting income: lower premiums and elevated corporate expenses weighed on the consolidated ratio. Q1 segment combined ratios were 103.6% for Diversified Reinsurance and 67.6% for AmTrust Reinsurance; the latter benefited from favorable prior-year reserve development.
At March 31, total investments and cash, including restricted balances, were $1,228.0 million; cash and cash equivalents, including restricted cash, were $131.2 million. Unrestricted cash and unrestricted fixed maturities were $216.4 million, down from $269.2 million at year-end. Investable assets were approximately $2.0 billion. Restricted cash and investments used as collateral totaled $891.7 million. Debt was 38.1% of total capital resources, up from 33.2%; the adjusted ratio including deferred reinsurance gain was 34.8%.
Material changes and unusual items
- Net premiums written were negative $2.7 million versus positive $10.4 million a year earlier, while earned premiums declined 62.3%. The German Auto reinsurance program entered run-off on January 1, 2021; AmTrust quota-share agreements had been terminated effective January 1, 2019 and continue in run-off.
- Reported net income declined year over year, but common-shareholder income and GAAP EPS rose because Maiden recognized a $62.5 million gain after Maiden Reinsurance bought back $97.4 million of Series A, C and D preference shares for less than their carrying value. The repurchases covered 6.6 million shares.
- Net favorable prior-year loss development was $5.6 million, including $5.6 million favorable in AmTrust, partly offset by adverse development in Diversified Reinsurance. A further $9.8 million favorable reserve adjustment related to the Cavello loss portfolio transfer/adverse development cover (LPT/ADC) is reflected in GAAP results; management excludes it in its non-GAAP operating presentation because it is ceded risk.
- Fixed-maturity fair value declined to $976.9 million from $1,213.4 million at year-end, with $24.7 million of net unrealized investment losses recorded in other comprehensive income. Management attributed the decline principally to higher interest rates; no fixed-maturity impairment was recorded in Q1.
- Shareholders’ equity declined $101.2 million to $426.6 million, reflecting preference-share repurchases and unrealized investment losses, partly offset by net income. Common book value per share increased to $2.29 from $1.57, substantially due to the preference-share repurchase gain.
Outlook, risks and contingencies
Management is evaluating asset and capital management initiatives and legacy-services opportunities through Genesis Legacy Solutions, while retaining the option to consider future underwriting. It expects negative overall cash flows and a shrinking asset base to continue as claims are paid from run-off reserves. Management considers liquidity adequate for the next 12 months, but execution of its strategy depends on preserving unrestricted liquidity and cash flow. No specific earnings or revenue guidance is provided.
- The $1.785 billion loss and LAE reserve remains subject to estimation uncertainty. The LPT/ADC agreement provides protection subject to its terms and limits; the $65.1 million deferred gain is expected to begin amortizing only after paid losses exceed the minimum retention, estimated in 2024. Recoverability and timing depend on the agreement and counterparty performance.
- Maiden remains exposed to counterparty, collateral and liquidity risks. Reinsurance recoverables were $580.7 million, including $510.1 million under the LPT/ADC arrangement. Maiden remains liable to policyholders if reinsurers fail to perform; collateral requirements can increase and restrict available liquidity.
- COVID-19 claims were described as limited and immaterial to date, but the company warned that pandemic-related claims, markets, capital needs and collateral requirements remain uncertain. Rising interest rates, credit spreads, foreign exchange movements and less-liquid alternative investments may affect results and asset values.
- Potential legal exposures include a securities class action alleging inadequate reserves and misstatements, and a former executive’s whistleblower claim. The company disputes the claims and intends to defend them; outcomes are uncertain.
- Preference dividends have not been declared since Q4 2018. The company said it cannot repurchase or pay dividends on common shares while preference dividends remain unpaid. A further preference-share repurchase authorization of up to $50 million was approved May 6, 2021, after quarter-end.
Most important facts for investors to verify
- Separate the $62.5 million preference-share repurchase gain from recurring operating performance; review the company’s non-GAAP adjustments alongside GAAP results.
- Track reserve development by segment, future claim payments, LPT/ADC recoverability and the expected timing of deferred-gain recognition.
- Assess usable liquidity after collateral restrictions, ongoing negative operating cash flow, and any further preference-share repurchases or regulatory collateral requirements.
- Monitor premium runoff, investment income and yield, fixed-income valuation sensitivity, and the growth and liquidity terms of alternative investments.
- Review the status of the securities class action and other legal matters, and any developments in preference dividends or common-share repurchase restrictions.