Maiden Holdings, Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unless noted, amounts are U.S. dollars in millions. Maiden is focused on asset and capital management, legacy reinsurance transactions through Genesis Legacy Solutions (GLS), and run-off of legacy reinsurance portfolios; it is not underwriting new prospective reinsurance risks.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenues | $10.0 | $30.0 |
| Net income (loss), before preference-share repurchase gain | $(1.9) | $9.3 |
| Gain on preference-share repurchases | $3.5 | $62.5 |
| Net income available to common shareholders | $1.6; $0.02 per share | $71.7; $0.83 per share |
| Underwriting income (loss), non-GAAP | $(1.7) | $1.6 |
| Net investment income | $6.6 | $9.8 |
| Operating cash flow | $(76.1) | $(102.8) |
| Total assets | $2,216.0 | $2,322.6 at Dec. 31, 2021 |
| Shareholders’ equity | $367.7 | $384.3 at Dec. 31, 2021 |
| Senior notes, principal | $262.5 | $262.5 at Dec. 31, 2021 |
| Cash and cash equivalents, including restricted | $71.9 | $66.1 at Dec. 31, 2021 |
Revenue fell mainly because net premiums earned declined to $1.1 million from $11.8 million, investment income and gains were lower, and the AmTrust run-off produced significant negative premium adjustments. The company reported a $7.3 million net favorable prior-year reserve development benefit. Reported net loss and loss adjustment expenses were a $2.3 million benefit, versus $2.4 million of expense a year earlier.
Book value per common share declined to $2.47 from $2.60 at year-end, principally reflecting investment-related other comprehensive losses and the net loss. Fixed maturities had $22.7 million of gross unrealized losses at quarter-end, largely attributed by management to higher interest rates and foreign exchange movements; no impairment was recorded. The company reported $74.6 million of unrestricted cash and fixed maturities. Total restricted cash and investments were $468.5 million.
Net cash from investing activities was $86.1 million, reflecting investment sales and maturities exceeding purchases; financing used $3.9 million, including $3.1 million for preference-share repurchases. Debt-to-total-capital resources was 41.7%, compared with 40.6% at year-end.
Material changes and management commentary
- Non-GAAP operating loss was $6.9 million, compared with operating earnings of $47.3 million in Q1 2021. The prior-year comparison included a much larger preference-share repurchase gain.
- AmTrust Cession Adjustments—premium reductions tied to workers’ compensation policy surcharges and inuring reinsurance—reduced Q1 2022 underwriting results by approximately $5.1 million. Excluding these adjustments, management reported underwriting income of $3.4 million.
- Fixed-maturity fair value fell from $597.1 million at year-end to $471.2 million at March 31. The 10-year U.S. Treasury yield increased 80 basis points during the quarter. Management estimated an immediate 100-basis-point rate increase, with credit spreads unchanged, would reduce fixed-maturity fair value by $15.7 million.
- Alternative investments totaled $250.4 million, or 31.6% of total cash and investments, up from 25.4% at year-end. Some holdings have redemption restrictions, limited markets, or less observable valuations.
- GLS completed additional transactions during the quarter. Its insurance-related liabilities were $37.1 million at March 31, including $29.2 million of reserves and $7.9 million of deferred gains.
Outlook, liquidity, risks and contingencies
Management expects negative overall cash flows to continue through the remainder of 2022 and beyond as legacy claims run off. It believes available liquidity is adequate for the next 12 months, generally expecting positive investing cash flows to offset negative operating cash flows. It also cautions that capital-management actions depend on unrestricted liquidity, cash flows, regulatory capital and reserve development. No specific earnings or revenue guidance is provided.
Key risks include reserve-estimation uncertainty, adverse claim-cost inflation, interest-rate and credit-spread volatility, foreign-exchange exposure, and collection risk on reinsurance recoverables and related-party balances. The company reported no foreign-exchange hedges in force. It remains exposed to AmTrust-related balances and arrangements; management believes these balances are collectible. A $167.975 million loan to a related party matures January 1, 2025.
The Cavello LPT/ADC arrangement provides recovery protection for specified AmTrust losses, but deferred-gain amortization is not expected until losses paid exceed the agreement’s minimum retention, estimated in 2024. Reinsurance recoverables on unpaid losses were $558.3 million. Real-estate joint-venture guarantees totaled $36.2 million; management considered the likelihood of loss remote and recorded no liability. Unfunded commitments included $67.3 million on other investments, $17.8 million on equity-method investments and $22.1 million on privately held equity securities.
Legal matters include a securities class action alleging inadequate AmTrust loss reserves and a former executive’s whistleblower claim; the company disputes the claims and intends to defend them. Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. Preference-share dividends have not been declared or paid since 2018; the company says it cannot repurchase or pay dividends on common shares until preference-share dividends are paid.
Investor verification points
- Reconcile the AmTrust Cession Adjustments, their effects on written and earned premiums, and whether further adjustments may arise.
- Assess reserve adequacy and the sustainability of favorable prior-year development, including the terms, collateral and timing of recoveries under the Cavello LPT/ADC agreement.
- Review unrestricted liquidity versus restricted collateral, projected claims payments and the expected continuation of negative operating cash flows.
- Evaluate fixed-income rate sensitivity and the liquidity, valuation assumptions, redemption restrictions and unfunded commitments of alternative investments.
- Monitor related-party exposures, the loan maturity, securities litigation and the conditions required for any future preference-share or common-share capital actions.