Maiden Holdings, Ltd. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unless stated otherwise, dollar amounts below are in millions. Maiden is principally managing legacy reinsurance liabilities and assets, writing retroactive business through Genesis Legacy Solutions (GLS), and conducting short-term income protection business in Northern Europe. The company is not currently underwriting new prospective reinsurance risks.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenues | $21.8 | $17.7 | $64.0 | $48.4 |
| Net premiums earned | $12.5 | $12.3 | $32.5 | $23.8 |
| Net investment income | $9.0 | $6.6 | $29.1 | $20.9 |
| Underwriting loss | $(10.9) | $(12.6) | $(28.4) | $(19.4) |
| Net loss attributable to common shareholders | $(3.5) | $(8.2) | $(17.8) | $19.2 |
| Basic and diluted EPS | $(0.03) | $(0.09) | $(0.18) | $0.22 |
- Nine-month 2022 net income included a $28.2 million gain on repurchasing preference shares; excluding that item, the prior-year period had a $9.0 million net loss.
- Q3 underwriting loss improved year over year as current-year underwriting losses fell to $3.1 million from $11.8 million. This was partly offset by $7.8 million of adverse prior-year reserve development versus $0.8 million in Q3 2022.
- Nine-month underwriting results worsened, with $16.0 million of adverse prior-year development versus $5.5 million of favorable development in 2022. Q3 investment results, including equity-method income, were $11.5 million versus $4.7 million a year earlier; nine-month results were $38.4 million versus $21.6 million.
- Net cash used in operating activities was $66.0 million for the nine months, compared with $99.8 million in 2022. Investing activities provided $51.1 million; cash, restricted cash and cash equivalents declined $17.1 million to $29.5 million.
- At September 30, total assets were $1,577.5 million and shareholders’ equity was $263.2 million. Book value per common share was $2.60, down from $2.80 at year-end 2022.
- Senior notes had $262.4 million principal outstanding ($254.6 million net carrying value); debt was 49.9% of total capital resources, compared with 48.0% at year-end. The notes’ disclosed fair value was $176.6 million.
- Total investments and cash were $578.9 million. Management reported investable assets of $976.4 million, including the related-party loan and funds-withheld receivable. Unrestricted cash, cash equivalents and fixed maturities were $69.2 million.
Material changes and management commentary
- Investment income rose as the annualized investment book yield increased to 4.3% in Q3 and 4.1% year to date, from 2.2% and 2.0%, respectively. Management cited higher rates on floating-rate investments, funds withheld and the related-party loan.
- Run-off reduced loss reserves by $219.9 million to $911.5 million and funds withheld receivable by $211.8 million to $229.6 million. Management attributed the latter mainly to settling AmTrust reinsurance claims. Deferred gain on retroactive reinsurance increased $11.1 million to $58.8 million.
- Maiden repurchased 820,105 common shares during the first nine months for approximately $1.6 million. It had $72.7 million of share-repurchase authorization remaining at quarter-end. Subsequent to quarter-end, it repurchased another 226,250 shares through November 7. The board also authorized up to $100 million of senior-note repurchases; $95,000 of notes were repurchased during the nine months.
- Management was evaluating the strategic value and future prospects of Maiden Life and Maiden General. It said it had no immediate plan to resume prospective reinsurance underwriting, while continuing to assess whether market conditions could support suitable risk-adjusted returns.
Outlook, risks and unusual items
- Management expects negative overall cash flows to continue as legacy liabilities run off, reducing the asset base through the remainder of 2023 and beyond. It believes available liquidity is adequate for the next 12 months, subject to maintaining liquidity and subsidiary dividend capacity.
- Key exposures include adverse reserve development, reinsurer collectability and collateral requirements, foreign-exchange movements, interest-rate and credit-spread changes, and limits on redeeming or selling alternative investments. A 100-basis-point immediate rate increase was estimated to reduce fixed-maturity fair value by $6.4 million.
- Alternative investments totaled $291.3 million, or 50.3% of investments and cash; some have redemption restrictions. Unfunded alternative-investment commitments were $105.8 million. Real-estate joint-venture guarantees totaled $55.1 million; management considered loss likelihood remote and accrued no liability.
- The company reported $12.8 million of unrealized losses on fixed maturities, most on securities held for at least 12 months, but recorded no expected-credit-loss allowance on those securities. The 2023 adoption of the expected-credit-loss standard reduced opening retained earnings by $5.5 million.
- The $121.0 million of net U.S. deferred tax assets before valuation allowance, including NOL carryforwards, remains fully reserved; management said more evidence is needed to support utilization.
- The Cavello LPT/ADC recovery is significant to AmTrust reserve risk. The deferred gain is not expected to amortize until paid losses exceed the agreement’s minimum retention, estimated in 2025. Reinsurance recoverables remain exposed to reinsurer performance.
- Legal matters include a securities class action alleging inadequate AmTrust loss reserves; the company’s renewed motion to dismiss or, alternatively, for summary judgment was under consideration. A former executive’s whistleblower matter was appealed to the Second Circuit after the Department of Labor’s final order affirmed dismissal. Management said it intends to defend the class action and considers its claims without merit; litigation outcomes remain uncertain.
- No formal earnings guidance was provided. Management reported disclosure controls were effective and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether adverse reserve development continues, especially in European Hospital Liability and other AmTrust run-off business, and how the Cavello LPT/ADC recoveries and collateral evolve.
- Whether operating cash outflows and shrinking funds-withheld balances remain manageable, and whether regulated subsidiaries can continue making permitted distributions.
- The liquidity, valuation and realized returns of alternative investments, including the ability to meet $105.8 million of unfunded commitments.
- Progress and financial implications of the Maiden LF and Maiden GF strategic review, GLS growth and any change in prospective underwriting plans.
- Debt-service capacity, capital allocation and share-repurchase activity relative to book value, liquidity and reserve uncertainty.
- Developments in the securities class action and executive appeal, and any resulting financial exposure.