Maiden Holdings, Ltd. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with 2020. Unless noted, amounts are U.S. dollars.
Business context
Maiden is a Bermuda-based insurance and reinsurance holding company. Its legacy reinsurance portfolios, including AmTrust contracts terminated effective January 1, 2019, are in run-off. It is not writing new prospective reinsurance, but is pursuing retroactive legacy transactions through Genesis Legacy Solutions (GLS), alongside European short-term income-protection insurance and expanded asset management. GLS completed its first loss-portfolio-transfer transaction, including adverse-development cover, effective October 1, 2021.
The filing reports two segments: Diversified Reinsurance and AmTrust Reinsurance. AmTrust generated 47.8% of 2021 net premiums earned despite being in run-off. The financial statements received an unqualified audit opinion; management and the auditor also concluded internal control over financial reporting was effective.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenues | $98.7 million | $184.1 million |
| Net premiums earned | $53.0 million | $106.1 million |
| Net investment income | $32.0 million | $54.8 million |
| Net income | $26.6 million | $41.8 million |
| Net income available to common shareholders | $117.6 million | $80.0 million |
| Operating cash flow | $(394.4) million | $(541.8) million |
| Investing cash flow | $464.1 million | $596.0 million |
| Combined ratio | 126.1% | 111.4% |
Common-shareholder income included a $91.0 million gain from repurchasing preference shares at below their stated value; the corresponding 2020 gain was $38.2 million. Excluding that gain, net income fell year over year. The company’s separate non-GAAP operating earnings were $60.5 million versus $47.1 million; investors should review the company’s definition and reconciliation before comparing this measure with GAAP earnings.
Underwriting income, as defined by the company, was $11.6 million versus $17.3 million. Favorable prior-year reserve development was $27.6 million, compared with $16.5 million in 2020; on a current-accident-year basis, underwriting results were a $16.0 million loss. The combined ratio rose above 100%, reflecting expense pressure as premiums declined.
At year-end, total assets were $2.323 billion, total liabilities $1.938 billion, and shareholders’ equity $384.3 million, down from $527.8 million. Common shareholders’ equity was $225.0 million; book value per common share was $2.60, up from $1.57. The $262.5 million principal balance of senior notes was unchanged; debt was 40.6% of total capital resources, versus 33.2% in 2020.
Loss and LAE reserves were $1.489 billion, down $403.9 million, and reinsurance recoverable on unpaid losses was $562.8 million. Cash and investments totaled $888.7 million, including restricted balances. Management reported $81.1 million of unrestricted cash and fixed-maturity investments, while $582.1 million of cash and fixed maturities were restricted as collateral. Operating cash outflow primarily reflected claim payments on run-off AmTrust liabilities.
Material changes versus 2020
- Net premiums earned halved, mainly because the AmTrust agreements and German auto program continued to run off.
- Net investment income declined 41.5%, reflecting a 28.8% decline in average fixed-income assets and a lower investment book yield, 1.9% versus 2.3%.
- Reserve releases increased to $27.6 million from $16.5 million, principally in AmTrust. Reserves and total assets contracted as claims were paid and portfolios ran off.
- The company repurchased 9.4 million preference shares for approximately $136.2 million, reducing preference-share equity and producing the $91.0 million gain. Preference dividends remained undeclared.
- Alternative investments increased to $225.5 million, or 25.4% of total cash and investments, from $106.9 million, or 7.3%.
- Rising interest rates contributed to a $47.7 million decline in the fair value of fixed-maturity investments and a $36.1 million net decrease in accumulated other comprehensive income.
Outlook, risks and unusual items
Management said it expects available liquidity to meet obligations for the next 12 months, while also expecting negative operating cash flows and a continuing reduction in the asset base as legacy claims run off. It expects negative operating cash flows generally to be offset by positive investing cash flows. This assessment depends on claims, collateral requirements, recoveries and investment results; the filing provides no specific earnings or revenue guidance.
Key risks include reserve uncertainty, adverse development, investment volatility and illiquidity, and the availability of unrestricted liquidity. The company had $559.9 million due from Cavello under retrocession and retroactive-reinsurance arrangements; recoverability and timing remain important counterparty risks. Maiden also disclosed approximately $1.3 billion of collateral provided to AmTrust and affiliates. The company has no major-agency financial-strength rating, and regulatory approval constrains distributions from key insurance subsidiaries.
Alternative investments may be illiquid or volatile; the company reported $95.7 million of unfunded investment commitments. It also provided $33.3 million of guarantees to real-estate joint ventures, assessed as remote for loss with no liability accrued. COVID-19, inflation, rising interest rates, foreign-exchange movements and the absence of active prospective reinsurance underwriting could affect results and liquidity.
Common and preference dividends have not been declared since the third quarter of 2018; management does not anticipate common cash dividends for the foreseeable future and gives no assurance that preference dividends will resume. Legal matters include a securities class action alleging inadequate AmTrust reserves, for which the court denied part of defendants’ motion to dismiss and allowed limited discovery, and an appeal in a former employee’s whistleblower matter after the complaint was denied in full by an administrative law judge. The company intends to defend both matters.
Important facts for investors to verify
- Whether reserve releases persist and whether the $1.489 billion reserve estimate, including long-tail AmTrust exposures, proves adequate.
- The collectability, collateral support and payment timing for the $559.9 million due from Cavello and other material reinsurance recoverables.
- Actual unrestricted liquidity, future collateral needs, and access to subsidiary distributions to service $262.5 million of senior-note principal.
- Returns, valuation methods, liquidity terms and remaining funding obligations for alternative investments and related guarantees.
- Progress and economics of GLS transactions, the status of the disclosed legal matters, and any decisions on preference-share repurchases or dividends.