Maiden Holdings, Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited consolidated financial statements; amounts below are in U.S. dollars unless stated otherwise. Maiden is primarily managing assets and legacy insurance liabilities, writing retroactive transactions through Genesis Legacy Solutions (GLS), and does not currently underwrite prospective reinsurance risks.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior year-end |
|---|---|---|
| Total revenue | $19.5 million | $10.0 million |
| Net premiums earned | $9.0 million | $1.1 million |
| Net investment income | $9.5 million | $6.6 million |
| Net realized and unrealized investment gains | $1.0 million | $2.3 million |
| Underwriting result | Loss of $8.3 million | Loss of $1.7 million |
| Net loss attributable to common shareholders | $11.3 million; $0.11 per share | Net income of $1.6 million; $0.02 per share |
| Operating cash flow | Use of $20.3 million | Use of $76.1 million |
| Investing cash flow | Source of $15.3 million | Source of $86.1 million |
| Shareholders’ equity | $270.8 million | $284.6 million at Dec. 31, 2022 |
| Loss and LAE reserves | $1.072 billion | $1.131 billion at Dec. 31, 2022 |
Debt and capital: Senior notes had $262.5 million principal outstanding and $254.6 million carrying value. Their disclosed fair value was $165.2 million. Debt to total capital resources rose to 49.2% from 48.0% at year-end. Book value per common share was $2.66, down from $2.80; management’s non-GAAP adjusted book value was $3.12, including the unamortized LPT/ADC deferred gain.
Liquidity and investments: Cash and cash equivalents were $24.2 million, with another $17.2 million restricted. Unrestricted cash and fixed maturities totaled $68.9 million. Management reported $1.16 billion of investable assets, down from $1.24 billion at year-end. Restricted cash and investments used as collateral totaled $285.8 million. The filing states management believes available liquidity is adequate for the next 12 months.
Changes versus the prior comparable period
- Net loss worsened from $1.9 million in Q1 2022 to $11.3 million in Q1 2023. The prior-year common-shareholder result included a $3.5 million gain from repurchasing preference shares.
- Underwriting loss widened to $8.3 million, principally reflecting $3.7 million of adverse prior-year reserve development versus $7.3 million of favorable development in Q1 2022. Current-year underwriting results were also loss-making, though improved year over year.
- Investment income increased by 45% to $9.5 million; management attributed this to higher yields, including on funds withheld and a related-party loan. Foreign exchange and other items shifted from a $3.9 million gain to a $2.8 million loss.
- Net premiums written were $0.8 million versus negative $10.3 million, largely because AmTrust’s negative cession adjustments were smaller than in Q1 2022. Diversified Reinsurance premiums also grew, mainly from Credit Life programs.
- Operating cash use fell year over year, but remained negative. Management attributed the comparison partly to settlement of AmTrust claims using funds withheld in the current period rather than cash.
- Adoption of the expected-credit-loss standard on January 1, 2023 reduced opening retained earnings by $5.5 million. The quarter-end allowance included $4.3 million on reinsurance recoverables and $1.0 million on direct-lending investments.
Outlook, risks, and notable items
- Management expects negative overall cash flows to continue reducing the asset base through the rest of 2023 and beyond as legacy claims are paid. It expects investment income, asset sales and maturities, and collateralized assets to support claim payments and operating needs.
- Management continues to focus on asset management, legacy underwriting through GLS, and capital management. It has no immediate plan to resume prospective reinsurance underwriting, but says it will continue to evaluate the opportunity. GLS transactions may be irregular, and the business may require time to reach profitability.
- Investment risks include market and interest-rate movements, credit and default risk, currency exposure, and limited liquidity or redemption restrictions on alternatives. A hypothetical immediate 100-basis-point rate increase was estimated to reduce fixed-maturity fair value by $8.6 million. Alternative investments totaled $263.5 million, and returns may be volatile.
- Foreign-currency liabilities exceed certain foreign-currency assets; Q1 foreign-exchange losses were driven mainly by euro and British-pound exposures. The company reported no currency hedges in force at quarter-end.
- Reserve estimates remain uncertain. The AmTrust LPT/ADC agreement provides recovery for covered losses, but adverse development can affect reported results before deferred gains are recognized. The $47.0 million deferred gain is expected to begin amortizing when paid losses exceed the agreement’s minimum retention, estimated in 2025. The company remains exposed to reinsurer nonperformance; its recoverable from Cavello included a $3.9 million expected-credit-loss allowance.
- On May 3, 2023, after quarter-end, the Board authorized repurchases of up to $100 million of senior notes. This is an authorization, not a reported completed repurchase. Shareholders also approved increasing authorized common shares to 200 million.
- Material litigation includes a securities class action alleging, among other things, inadequate AmTrust loss reserves; the company intends to defend itself and expects to file a dispositive motion. It also continues to defend a former executive’s whistleblower claim. The filing says outcomes and any effect of additional litigation are uncertain.
- Common dividends have not been declared since Q3 2018. The company reports no material changes to previously disclosed risk factors or commitments. It reported disclosure controls effective as of quarter-end.
Important facts for investors to verify
- Reserve adequacy and subsequent development, especially in AmTrust General Liability, Auto Liability, and Specialty Risk and Extended Warranty, and the recoverability and collateral supporting the LPT/ADC arrangements.
- Whether operating cash burn, declining investable assets, and subsidiary dividend capacity remain consistent with management’s 12-month liquidity assessment.
- Liquidity, valuation, and realized performance of alternative investments, including redemption restrictions and $109.2 million of unfunded commitments.
- Progress and economics of GLS transactions, and whether investment returns can exceed the company’s stated 7.6% weighted-average debt cost.
- Execution, funding, and impact of the authorized senior-note repurchases, alongside debt service needs and regulatory constraints on subsidiary distributions.
- Developments in the securities class action and other litigation, and any changes to foreign-exchange, interest-rate, credit, or collateral exposures.