Maiden Holdings, Ltd. annual report, FY2022

Maiden Holdings, Ltd. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. Amounts are U.S. dollars unless noted. The company is a Bermuda-based holding company focused on asset and capital management, legacy reinsurance solutions, and run-off of older reinsurance business. It is not underwriting new prospective reinsurance risks, though it writes retroactive risks through Genesis Legacy Solutions (GLS) and primary short-term income-protection insurance in Europe.

Financial results and position

Metric	2022	2021
Total revenue	$58.1 million	$98.7 million
Net income (loss), before preference-share gains	$(60.0) million	$26.6 million
Gain on preference-share repurchases and exchange	$115.5 million	$91.0 million
Net income available to common shareholders	$55.4 million; $0.63 per diluted share	$117.6 million; $1.35 per diluted share
Net premiums earned	$37.7 million	$53.0 million
Underwriting result (non-GAAP)	$(54.9) million	$11.6 million
Net investment income	$30.1 million	$32.0 million
Net realized and unrealized investment gains (losses)	$(5.1) million	$12.6 million
Operating cash flow	$(195.9) million	$(394.4) million

The $55.4 million reported for common shareholders reflects the $115.5 million preference-share transaction gain; excluding that gain, the company had a $60.0 million net loss.
Net premiums earned fell 28.8%. Net premiums written declined 51.1% to $5.1 million, reflecting the run-off of legacy business and negative AmTrust premium adjustments.
Adverse prior-year reserve development was $32.6 million, versus favorable development of $27.6 million in 2021. The AmTrust segment contributed $28.1 million of adverse development; Diversified Reinsurance contributed $4.6 million.
Total assets were $1.85 billion, down from $2.32 billion. Loss and LAE reserves were $1.13 billion, down from $1.49 billion. Shareholders’ equity was $284.6 million, versus $384.3 million; common shareholders’ equity was $284.6 million, versus $225.0 million.
Book value per common share increased 7.7% to $2.80. The filing attributes the increase principally to preference-share transactions, despite a net loss and a $29.0 million decline in accumulated other comprehensive income.
Total investments and cash, including restricted amounts, were $633.7 million. Unrestricted cash and fixed-maturity investments were $64.3 million, down from $81.1 million. Restricted cash and fixed maturities used as collateral totaled $296.8 million.
Senior-note principal remained $262.5 million: $152.5 million of 2013 notes and $110.0 million of 2016 notes. Interest and amortization expense was $19.3 million; debt was 48.0% of total capital resources, compared with 40.6% in 2021.

Material changes and notable items

On December 27, 2022, all outstanding Series A, C and D preference shares were exchanged for common shares at three common shares per preference share. The transaction generated an $87.2 million gain; together with 2022 repurchases, preference-share gains totaled $115.5 million. No preference shares remained outstanding at year-end.
Maiden Reinsurance received 41.4 million common shares in the exchange. These are treated as treasury shares for consolidated reporting; Maiden Reinsurance owns 29% of total common shares, with voting power capped at 9.5% under the company’s bye-laws.
The alternative-investment portfolio grew 21% to $272.5 million. It represented 43.0% of total cash and investments; 2022 return was 2.0%, with losses in hedge funds partly offset by gains in other alternative asset classes. The company had $113.0 million of unfunded alternative-investment commitments.
Higher interest rates contributed to a $17.7 million decline in the fair value of fixed maturities and reduced book value per share by $0.17. Fixed-maturity fair value was $314.5 million, compared with $597.1 million in 2021.
Maiden Reinsurance paid $18.8 million in dividends to Maiden NA under a Vermont-approved annual dividend program. Other subsidiary distributions remain subject to regulatory restrictions.

Outlook, risks and contingencies

Management says it expects sufficient liquidity to meet obligations for the next 12 months, including senior-note payments, and expects negative operating cash flows to be offset by positive investing cash flows. It also warns that deterioration in results, additional collateral demands, or delayed collateral releases could impair liquidity. These are management expectations, not guaranteed outcomes.
Strategy centers on asset management, selective legacy underwriting through GLS, and capital management. Management has no immediate plan to resume prospective reinsurance underwriting but continues to evaluate it. GLS is early-stage and reported an $8.9 million underwriting loss in 2022; management notes that reaching scale and profitability may take time.
The $1.13 billion loss reserve is inherently uncertain. Management’s reasonable-reserve range indicates net reserves could be approximately $153 million higher, or $73 million higher when considering the LPT/ADC agreement. The auditor identified valuation of IBNR reserves as a critical audit matter.
The Cavello reinsurance recoverable totaled $550.5 million, including $490.4 million under the LPT/ADC agreement and $60.1 million under another retrocession agreement. The LPT/ADC agreement provides $155 million of adverse-development cover over specified AmTrust reserves; recoveries are subject to contractual terms. Recognition of its deferred gain is not expected until paid losses exceed the contractual retention, currently estimated in 2025. European Hospital Liability is not covered by that agreement.
The AmTrust relationship remains significant: $820.4 million of collateral was provided to AmTrust, AII and AEL at year-end, and AmTrust accounted for 25.8% of 2022 net premiums earned. Related-party exposures, collateral access and counterparty collectability are material considerations.
Other risks include volatile investment markets, illiquid alternative investments, foreign-exchange exposure (no hedges were in force at year-end), claims inflation, regulatory limits on distributions, and the absence of a major-agency financial-strength rating. The company does not anticipate common-share cash dividends for the foreseeable future.
A securities class action alleging inadequate AmTrust-related reserves remained pending; the company says it intends to defend the claims. A separate former-employee whistleblower matter was also still under review after an administrative law judge denied the complaint in 2021.
The company reported effective disclosure controls and internal control over financial reporting. The independent auditor issued unqualified opinions on the financial statements and internal controls.

Important facts for investors to verify

Whether adverse reserve development continues, especially in AmTrust liability lines and uncovered European Hospital Liability, and whether the stated reserve range remains appropriate.
The recoverability, collateral support and timing of cash receipts from Cavello, including the assumptions behind the expected 2025 LPT/ADC recovery recognition.
Whether unrestricted liquidity remains adequate as claims are paid, collateral requirements change, and subsidiaries’ distributions remain regulator-dependent.
Performance, valuation and liquidity terms of alternative investments, including the $113.0 million unfunded commitments and the company’s growing allocation to these assets.
Progress toward GLS profitability and any decision to resume prospective reinsurance underwriting.
The effect of the preference-share exchange on ownership, voting, per-share measures and potential future sales of Maiden Reinsurance’s shares.
The status and potential financial impact of pending litigation, guarantees, and other contingencies; the filing says the likelihood of losses on $42.1 million of real-estate joint-venture guarantees was remote and records no related liability.