Maiden Holdings, Ltd. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Dollar amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise. Maiden is primarily managing assets and legacy insurance liabilities: it is not actively underwriting reinsurance, while its remaining reinsurance portfolios run off.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 | Prior comparable period |
|---|---|---|---|
| Total revenue | $21.7m | $73.7m | $40.6m; $144.4m |
| Net premiums earned | $15.0m | $40.1m | $24.3m; $76.8m |
| Net investment income | $7.5m | $24.6m | $12.7m; $45.0m |
| Net income (loss), before preference-share repurchase gain | $(3.1)m | $14.3m | $2.2m; $32.2m |
| Gain from preference-share repurchases | $6.0m | $87.2m | None |
| Net income available to common shareholders | $2.9m | $101.4m | $2.2m; $32.2m |
| Underwriting income (loss) | $(3.6)m | $6.4m | $3.4m; $(0.3)m |
| Combined ratio | 154.8% | 137.0% | 109.4%; 124.6% |
| Operating cash flow | Not presented quarterly | $(299.8)m | $(447.7)m |
Prior-period figures in the table are for Q3 2020 and the nine months ended September 30, 2020, respectively. Q3 GAAP net loss before the repurchase gain was $3.1m; the gain lifted common-shareholder income to $2.9m. Nine-month common-shareholder income likewise included the $87.2m gain. Reported diluted earnings per common share were $0.03 for Q3 and $1.17 for nine months, versus $0.03 and $0.38 in 2020.
At September 30, 2021, total assets were $2.46bn, total shareholders’ equity $383.2m, and common shareholders’ equity $215.8m. Loss and LAE reserves were $1.57bn, down $325.8m from year-end 2020. Senior notes were $262.5m principal ($255.3m net carrying value); debt was 40.7% of total capital resources, versus 33.2% at year-end. Book value per common share was $2.50, compared with $1.57 at year-end.
Cash and cash equivalents were $29.3m unrestricted and $21.7m restricted. Unrestricted cash plus unrestricted fixed-maturity investments totaled $127.5m, down from $269.2m at year-end. Total investments and cash, including restricted amounts, were $1.00bn, down from $1.46bn. Net cash used in financing was $129.0m, principally $132.2m spent repurchasing preference shares; investing activities provided $344.2m. Management said current liquidity sources were adequate for the next 12 months, while noting ongoing negative operating cash flows from claims in run-off.
Changes versus 2020
- Premiums earned fell 38.2% in Q3 and 47.8% year to date, largely because terminated AmTrust treaties and German Auto reinsurance moved into run-off. Net investment income declined 41.1% and 45.3%, respectively, reflecting smaller average fixed-income assets and lower book yields.
- Q3 underwriting shifted from $3.4m income to a $3.6m loss; the combined ratio rose to 154.8% from 109.4%. Higher current-year losses on unearned AmTrust run-off premium outweighed favorable prior-year development.
- Nine-month underwriting improved to $6.4m income from a $0.3m loss, primarily because favorable prior-year reserve development increased to $23.7m from $7.8m. Current-accident-year underwriting losses nevertheless worsened, and the combined ratio increased to 137.0% from 124.6%.
- Preference-share repurchases reduced preference-share capital by $226.9m and produced a $87.2m accounting gain. Total equity fell $144.6m from year-end, reflecting repurchases and a $28.7m decline in accumulated other comprehensive income, partly offset by earnings.
- Investment portfolio fair-value movements produced $34.9m of net unrealized losses on fixed maturities during the first nine months, principally amid rising interest rates. Accumulated other comprehensive income moved from $23.9m at year-end to a $4.9m loss.
Outlook, risks and unusual items
- Strategy: Management continued to prioritize asset and capital management, investment returns, and legacy solutions over active reinsurance underwriting, while retaining the option to consider underwriting opportunities. The new Genesis Legacy Solutions business completed its first loss-portfolio-transfer transaction effective October 1, 2021. No quantified earnings or revenue guidance was provided.
- Reserves and reinsurance: Management reported $23.7m favorable prior-year loss development for the first nine months, but cautioned that run-off reserves need further maturity and development may not persist. The Cavello LPT/ADC agreement provides protection for specified AmTrust reserves; the related deferred gain was $50.6m, with amortization not expected until paid losses exceed the retention, estimated in 2024. The company remains exposed if reinsurers fail to meet obligations.
- Liquidity and collateral: Operating cash outflows are expected to continue as claims are paid. About $695.8m of cash and investments was restricted as collateral at quarter-end. Additional collateral requirements, reduced subsidiary dividend capacity, or adverse investment markets could constrain liquidity and capital-management plans.
- Investment risk: Alternative investments rose to 18.0% of total cash and investments; some have redemption restrictions or limited liquidity. A hypothetical immediate 100-basis-point rate increase was estimated to reduce fixed-maturity fair value by $24.3m. Management also identified credit, foreign-exchange, interest-rate, and market risks.
- COVID-19: Management considered reported claims exposure limited and immaterial to date, but said pandemic-related claims, investment effects, and collateral or capital needs remain uncertain.
- Contingencies: A securities class action concerning alleged inadequate AmTrust loss reserves survived a motion to dismiss in part, and limited discovery was permitted; the company intends to defend the case. A former executive’s whistleblower claim was denied by an administrative law judge, but the claimant petitioned for review. The company reported $33.2m of real-estate joint-venture guarantees, with potential loss assessed as remote and no liability accrued.
- Capital actions: The company repurchased 9.08m preference shares for $132.2m in the first nine months, leaving $17.8m authorized at quarter-end. It had not paid common or preference dividends since Q4 2018; unpaid preference dividends prevent common-share dividends and repurchases. Senior-note principal was unchanged at $262.5m.
- Other: The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Key investor verification points
- Separate recurring operating performance from preference-share repurchase gains: Q3 and nine-month reported common income included gains of $6.0m and $87.2m, respectively.
- Track reserve development and the run-off loss experience, especially current-year losses not covered by the Cavello LPT/ADC agreement, and verify the timing and collectability of recoveries.
- Assess unrestricted liquidity, operating cash burn, restricted collateral, and the effect of any further preference-share repurchases on capital resources.
- Review the liquidity, valuation, and performance of alternative and equity-method investments, including unfunded commitments and guarantees.
- Monitor the securities litigation and the former executive’s appeal, as well as any changes in COVID-19 claims, investment exposures, or regulatory collateral requirements.
- Confirm progress and financial contribution from Genesis Legacy Solutions; the filing gives no quantified forward guidance.