Attached files
file | filename |
---|---|
EX-31.2 - Maiden Holdings, Ltd. | v166516_ex31-2.htm |
EX-31.1 - Maiden Holdings, Ltd. | v166516_ex31-1.htm |
EX-32.2 - Maiden Holdings, Ltd. | v166516_ex32-2.htm |
EX-32.1 - Maiden Holdings, Ltd. | v166516_ex32-1.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2009
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________________ to ___________________
Commission
file no. 001-34042
Maiden
Holdings, Ltd.
(Exact
name of registrant as specified in its charter)
Bermuda
(State
or other jurisdiction of
incorporation
or organization)
|
98-0570192
(IRS
Employer Identification No.)
|
131 Front Street, Hamilton HM12,
Bermuda
(Address
of principal executive offices)
|
HM12
(Zip
Code)
|
(441) 292-7090
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act). Yes o No x
As of
November, 13 2009, the Registrant had one class of Common Stock ($.01 par
value),
of which
70,287,664 shares were issued and
outstanding.
INDEX
Page
|
||||
PART
I
|
FINANCIAL
INFORMATION
|
|||
Item
1.
|
Financial
Statements:
|
|||
Condensed
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and
December 31, 2008
|
3
|
|||
Condensed
Consolidated Statement of Income for the three months
ended September 30, 2009 and 2008 (unaudited) and the nine
months ended September 30, 2009 and 2008 (unaudited)
|
4
|
|||
Condensed
Consolidated Statement of Cash Flows for the nine months ended September
30, 2009 and 2008 (unaudited)
|
5
|
|||
Condensed
Consolidated Statement of Changes in Shareholders’ Equity for the three
months ended September 30, 2009 and 2008 (unaudited) and the nine months
ended September 30, 2009 and 2008 (unaudited)
|
6
|
|||
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
26
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
35
|
||
Item
4.
|
Controls
and Procedures
|
35
|
||
PART
II
|
OTHER
INFORMATION
|
36
|
||
Item
1.
|
Legal
Proceedings
|
36
|
||
Item
1A
|
Risk
Factors
|
36
|
||
Item
6.
|
Exhibits
|
37
|
||
Signatures
|
38
|
2
PART
1 - FINANCIAL INFORMATION
MAIDEN HOLDINGS,
LTD.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands (000’s), except per share data)
(unaudited)
|
||||||||
September 30,
2009
|
December
31, 2008
|
|||||||
Assets
|
||||||||
Fixed
maturities, available-for-sale, at fair value (Amortized cost 2009:
$1,506,704; 2008: $1,163,926)
|
$ | 1,541,704 | $ | 1,119,955 | ||||
Other
investments, at fair value (Cost 2009: $5,707; 2008:
$5,818)
|
5,529 | 5,291 | ||||||
Total
investments
|
1,547,233 | 1,125,246 | ||||||
Cash
and cash equivalents
|
94,582 | 131,897 | ||||||
Restricted
cash and cash equivalents
|
218,595 | 409,277 | ||||||
Accrued
investment income
|
11,078 | 10,293 | ||||||
Reinsurance
balances receivable (includes $43,048 and $48,837 from related party in
2009 and 2008, respectively - see note 10)
|
236,643 | 71,895 | ||||||
Loan
to related party (see note 10)
|
167,975 | 167,975 | ||||||
Deferred
acquisition costs (includes $77,487 and $80,455 from related party in 2009
and 2008, respectively - see note 10)
|
171,120 | 104,470 | ||||||
Other
assets
|
15,527 | 2,617 | ||||||
Intangible
assets
|
52,959 | 55,147 | ||||||
Goodwill
|
49,747 | 49,747 | ||||||
Total
Assets
|
$ | 2,565,459 | $ | 2,128,564 | ||||
Liabilities
and Shareholders’ Equity
|
||||||||
Liabilities
|
||||||||
Reserve
for losses and loss expenses (includes $167,218 and $69,646 from related
party in 2009 and 2008, respectively- see note 10)
|
$ | 967,425 | $ | 897,656 | ||||
Unearned
premiums (includes $238,483 and $245,742 from related parties
in 2009 and 2008, respectively- see note 10)
|
570,875 | 444,479 | ||||||
Accrued
expenses and other liabilities
|
41,482 | 44,024 | ||||||
Securities
sold under agreements to repurchase, at contract value
|
106,016 | 232,646 | ||||||
Trust
preferred securities – related parties (see note 6)
|
215,110 | - | ||||||
Total
Liabilities
|
1,900,908 | 1,618,805 | ||||||
Commitments and
Contingencies
|
||||||||
Shareholders’
Equity
|
||||||||
Common
shares, ($0.01 par
value;71,250,000 and 59,550,000 shares issued in 2009 and 2008
respectively; 70,287,664 and 58,587,664 shares outstanding in 2009 and
2008 respectively)
|
713 | 596 | ||||||
Additional
paid-in capital
|
575,891 | 530,519 | ||||||
Accumulated
other comprehensive income (loss)
|
33,117 | (44,499 | ) | |||||
Retained
earnings
|
58,631 | 26,944 | ||||||
Treasury
Shares, at cost (2009
and 2008:962,336 shares)
|
(3,801 | ) | (3,801 | ) | ||||
Total
Shareholders’ Equity
|
664,551 | 509,759 | ||||||
Total
Liabilities and Shareholders’ Equity
|
$ | 2,565,459 | $ | 2,128,564 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
3
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(in
thousands (000’s), except per share data)
(Unaudited)
For the Three
Months Ended September 30, 2009 |
For the Three
Months Ended September 30, 2008 |
For the Nine
Months Ended September 30, 2009 |
For the Nine
Months Ended September 30, 2008 |
|||||||||||||
Revenues:
|
||||||||||||||||
Premium
income:
|
||||||||||||||||
Net
premiums written
|
$ | 221,400 | $ | 113,187 | $ | 796,304 | $ | 386,870 | ||||||||
Change
in unearned premiums
|
15,950 | 408 | (125,021 | ) | (130,631 | ) | ||||||||||
Net
earned premium
|
237,350 | 113,595 | 671,283 | 256,239 | ||||||||||||
Net
investment income
|
16,778 | 8,974 | 46,150 | 24,346 | ||||||||||||
Net
realized investment losses
|
(66 | ) | (42,538 | ) | (462 | ) | (42,375 | ) | ||||||||
Total
revenues
|
254,062 | 80,031 | 716,971 | 238,210 | ||||||||||||
Expenses:
|
||||||||||||||||
Loss
and loss adjustment expenses
|
165,123 | 66,915 | 462,468 | 148,362 | ||||||||||||
Commission
and other acquisition expenses
|
55,313 | 38,299 | 159,608 | 85,057 | ||||||||||||
Other operating
expenses
|
8,059 | 1,974 | 22,726 | 5,636 | ||||||||||||
Trust
preferred interest – related party
|
9,114 | - | 25,316 | - | ||||||||||||
Amortization
of intangible assets
|
1,676 | - | 4,915 | - | ||||||||||||
Foreign
exchange and other (gain) loss
|
(210 | ) | 359 | (2,401 | ) | 364 | ||||||||||
Total
expenses
|
239,075 | 107,547 | 672,632 | 239,419 | ||||||||||||
Net
income (loss)
|
$ | 14,987 | $ | (27,516 | ) | $ | 44,339 | $ | (1,209 | ) | ||||||
Basic
earnings per common share
|
$ | 0.21 | $ | (0.46 | ) | $ | 0.64 | $ | (0.02 | ) | ||||||
Diluted
earnings per common share
|
0.21 | (0.46 | ) | 0.63 | (0.02 | ) | ||||||||||
Dividends
declared per common share
|
$ | 0.06 | $ | 0.05 | $ | 0.18 | $ | 0.15 |
For the Three
Months Ended September 30, 2009 |
For the Three
Months Ended September 30, 2008 |
For the Nine
Months Ended September 30, 2009 |
For the Nine
Months Ended September 30, 2008 |
|||||||||||||
Net
realized investment losses:
|
||||||||||||||||
Total
other-than-temporary impairment losses
|
$ | - | $ | (42,538 | ) | $ | - | $ | (42,538 | ) | ||||||
Portion
of loss recognized in other comprehensive income
|
- | - | - | - | ||||||||||||
Net
impairment losses recognized in earnings
|
- | (42,538 | ) | - | (42,538 | ) | ||||||||||
Other
net realized (loss) gain on investments
|
(66 | ) | - | (462 | ) | 163 | ||||||||||
Net
realized investment losses
|
$ | (66 | ) | $ | (42,538 | ) | $ | (462 | ) | $ | (42,375 | )) |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
4
MAIDEN HOLDINGS,
LTD.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in
thousands (000’s), except per share data)
(Unaudited)
For the Nine
Months Ended September 30, 2009 |
For the Nine
Months Ended September 30, 2008 |
|||||||
Cash flows
from operating activities:
|
||||||||
Net
income (loss)
|
$ | 44,339 | $ | (1,209 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities :
|
||||||||
Depreciation
and amortization of intangibles
|
5,426 | 18 | ||||||
Net
realized loss (gain) on sales of investments
|
462 | (163 | ) | |||||
Other
than temporary impairment of investments
|
- | 42,538 | ||||||
Foreign
exchange and other (gain) loss
|
(1,462 | ) | 356 | |||||
Amortization
of share-based compensation expense, bond premium and discount and trust
preferred securities discount, net
|
(4,615 | ) | (1,429 | ) | ||||
Changes
in assets - (increase) decrease:
|
||||||||
Reinsurance
balances receivable
|
(167,608 | ) | (71,145 | ) | ||||
Accrued
investment income
|
(695 | ) | (2,219 | ) | ||||
Deferred
commission and other acquisition costs
|
(66,604 | ) | (44,400 | ) | ||||
Other
assets
|
(1,702 | ) | 34 | |||||
Changes
in liabilities – increase (decrease):
|
||||||||
Accrued
expenses and other liabilities
|
(19,047 | ) | (897 | ) | ||||
Loss
and loss adjustment expense reserves
|
72,706 | 85,113 | ||||||
Unearned
premiums
|
125,022 | 130,633 | ||||||
Net
cash (used in) provided by operating activities
|
(13,778 | ) | 137,230 | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of investments:
|
||||||||
Purchases
of fixed-maturity securities
|
(739,006 | ) | (379,010 | ) | ||||
Purchases
of other investments
|
(138 | ) | (340 | ) | ||||
Sale
of investments:
|
||||||||
Proceeds
from sales of fixed-maturity securities
|
153,991 | - | ||||||
Proceeds
from maturities and calls of fixed-maturity securities
|
263,832 | 88,499 | ||||||
Proceeds
from redemption of other investments
|
127 | - | ||||||
Decrease
in restricted cash
|
190,682 | - | ||||||
Acquisition
of subsidiary (net of cash acquired)
|
(13,613 | ) | - | |||||
Loan
to related party
|
- | (54,433 | ) | |||||
Purchase
of furniture and equipment
|
(122 | ) | (52 | ) | ||||
Net
cash used in investing activities
|
(144,247 | ) | (345,336 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Repurchase
agreements, net
|
(126,630 | ) | 260,775 | |||||
Common
share issuance
|
117 | - | ||||||
Trust
preferred securities issuance
|
260,000 | - | ||||||
Trust
preferred securities issuance cost
|
(4,342 | ) | - | |||||
Dividend
paid
|
(8,435 | ) | (5,955 | ) | ||||
Net
cash provided by financing activities
|
120,710 | 254,820 | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(37,315 | ) | 46,714 | |||||
Cash
and cash equivalents, beginning of period
|
131,897 | 35,729 | ||||||
Cash
and cash equivalents, end of period
|
$ | 94,582 | $ | 82,443 | ||||
Supplemental
information about non-cash investing and financing
activities
|
||||||||
Discount
on Trust Preferred Securities
|
$ | (44,928 | ) |
$
|
- | |||
Additional
paid in Capital
|
44,928 | - |
See accompanying notes to the
unaudited condensed consolidated financial statements.
5
MAIDEN HOLDINGS,
LTD.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands (000’s), except per share data)
(Unaudited)
For
the nine months ended
September 30, 2009 |
Common
Shares
|
Additional
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Income
|
Retained
Earnings
|
Treasury
Shares |
Total
Shareholders’
Equity
|
||||||||||||||||||
Balance at
December 31, 2008
|
$ | 596 | $ | 530,519 | $ | (44,499 | ) | $ | 26,944 | $ | (3,801 | ) | $ | 509,759 | ||||||||||
Net
income
|
- | - | - | 44,339 | - | 44,339 | ||||||||||||||||||
Unrealized
holding gains during the period
|
- | - | 77,154 | - | - | 77,154 | ||||||||||||||||||
Adjustment
for re-classification of realized gains and other-than-temporary losses
recognized in the net income
|
- | - | 462 | - | - | 462 | ||||||||||||||||||
Comprehensive
income
|
121,955 | |||||||||||||||||||||||
Shares
issued, net
|
117 | 44,928 | - | - | - | 45,045 | ||||||||||||||||||
Share
based compensation
|
- | 444 | - | - | - | 444 | ||||||||||||||||||
Dividends
to shareholders
|
- | - | - | (12,652 | ) | - | (12,652 | ) | ||||||||||||||||
Balance
at September 30, 2009
|
$ | 713 | $ | 575,891 | $ | 33,117 | $ | 58,631 | $ | (3,801 | ) | $ | 664,551 |
For the Nine Months Ended
September 30, 2008
|
Common
Shares
|
Additional
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Treasury
Shares |
Total
Shareholders’
Equity
|
||||||||||||||||||
Balance at December
31, 2007
|
$ | 596 | $ | 529,647 | $ | (13,496 | ) | $ | 20,598 | $ | - | $ | 537,345 | |||||||||||
Net
loss
|
- | - | - | (1,209 | ) | - | (1,209 | ) | ||||||||||||||||
Unrealized
holding losses during the period
|
- | - | (91,735 | ) | - | - | (91,735 | ) | ||||||||||||||||
Adjustment
for re-classification of realized gains and other-than-temporary
losses recognized in the net income
|
- | - | 42,375 | - | - | 42,375 | ||||||||||||||||||
Comprehensive
loss
|
(50,569 | ) | ||||||||||||||||||||||
Share
based compensation
|
- | 611 | - | - | - | 611 | ||||||||||||||||||
Dividends
to shareholders
|
- | - | - | (8,933 | ) | - | (8,933 | ) | ||||||||||||||||
Balance
at September 30, 2008
|
$ | 596 | $ | 530,258 | $ | (62,856 | ) | $ | 10,456 | $ | - | $ | 478,454 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
6
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
1. Basis of Presentation — Summary of
Significant Accounting Policies
The
accompanying unaudited condensed consolidated financial statements include the
accounts of Maiden Holdings, Ltd. and its subsidiaries and have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial statements and with the instructions to Form 10-Q and Article
10 of Regulation S-X as promulgated by the U.S. Securities and Exchange
Commission (“SEC”). Accordingly they do not include all of the information and
footnotes required by GAAP for complete financial statements. All significant
inter-company transactions and accounts have been eliminated in the consolidated
financial statements.
These
interim consolidated financial statements reflect all adjustments that are, in
the opinion of management, necessary for a fair presentation of the results for
the interim period and all such adjustments are of a normal recurring nature.
The results of operations for the interim period are not necessarily indicative,
if annualized, of those to be expected for the full year. The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
These
unaudited condensed consolidated financial statements, including these notes,
should be read in conjunction with the Company’s audited consolidated financial
statements, and related notes thereto, included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008.
2. Recent Accounting
Pronouncements
Adoption of new
accounting pronouncements
On
September 15, 2009, the Company adopted Financial Accounting Standard Board
(“FASB”) ASC Topic 105, “Generally Accepted Accounting Principles” (“ASC 105” or
the “Codification”). ASC 105 is a replacement to FASB Statement No.
162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS 162”),
which became effective on November 13, 2008, and identified the sources of
accounting principles and the framework for selecting the principles used in
preparing financial statements in conformity with GAAP. It also
arranged these sources of GAAP in a hierarchy for users to apply. ASC 105
provides for a single source of authoritative GAAP recognized by the FASB to be
applied to nongovernmental entities in the preparation of financial
statements. The Codification carries the same level of authority and
supersedes SFAS 162 and all other accounting and reporting standards. The GAAP
hierarchy has been modified to include two levels of GAAP: authoritative and
non-authoritative.
On April
1, 2009, the Company adopted the provisions of the FASB ASC Topic 855,
“Subsequent Events” (“ASC 855”), which requires the disclosure of the date after
the balance sheet date but before financial statements are issued or available
to be issued through which an entity has evaluated subsequent events and the
basis for that date, that is, whether the date represents the date the financial
statements were issued or were available to be issued. ASC 855 also
alerts all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented.
In April
2009, the FASB issued revised guidance for recognizing and measuring
pre-acquisition contingencies in a business combination. Under the
revised guidance which is now part of ASC 805, “Business Combinations”,
pre-acquisition contingencies are recognized at their acquisition-date fair
value if a fair value can be determined during the measurement
period. If the acquisition-date fair value cannot be determined
during the measurement period, a contingency (best estimate) is to be recognized
if it is probable that an asset existed or liability had been incurred at the
acquisition date and the amount can be reasonably estimated. The
revised guidance does not prescribe specific accounting for subsequent
measurement and accounting for contingencies. The adoption of the
revised guidance on January 1, 2009 had no effect on the Company’s results of
operations, financial position or liquidity.
On April
1, 2009, the Company adopted the provisions of the FASB ASC 820-10-35, “Fair
Value Measurements and Disclosures- Overall -Subsequent Measurement” (“ASC
820-10-35”), ASC 825-10-50, “Financial Instruments – Overall – Disclosure”(“ASC
825-10-50”), and ASC 320-10-35, “Investments – Debt and Equity Securities –
Overall – Subsequent Measurement” (“ASC 320-10-35”), which are intended to
provide additional application guidance and enhance disclosures regarding fair
value measurements and impairments of securities.
ASC
820-10-35 relates to determining fair values when there is no active market or
where the price inputs being used represent distressed sales. It reaffirms that
the objective of fair value measurement is to reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced
transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive. The adoption of ASC 820-10-35 did not have a
material impact on the Company's consolidated shareholders’ equity or net
income.
7
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
2. Recent Accounting Pronouncements
(continued)
ASC
825-10-50 enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. The guidance relates to fair value
disclosures for any financial instruments that are not currently reflected on
the balance sheet at fair value. Prior to issuing this standard, fair values for
these assets and liabilities were only disclosed once a year. ASC 825-10-50 now
requires these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value.
ASC
320-10-35 provides additional guidance designed to create greater clarity and
consistency in accounting for and presenting impairment losses on securities.
The guidance is intended to bring greater consistency to the timing of
impairment recognition, and provide greater clarity to investors about the
credit and noncredit components of impaired debt securities that are not
expected to be sold. The measure of impairment in comprehensive income remains
at fair value. ASC 320-10-35 also requires increased and more timely disclosures
sought by investors regarding expected cash flows, credit losses, and an aging
of securities with unrealized losses. Based on guidance in FASB ASC
320-10-65 (Prior authoritative literature: FSP 115-2 “Recognition and
Presentation of Other-Than-Temporary-Impairments”), in the event of the decline
in fair value of a debt security, a holder of that security that does not intend
to sell the debt security and for whom it is not more than likely
than not that such holder will be required to sell the debt security before
recovery of its amortized cost basis, is required to separate the decline in
fair value into (a) the amount representing the credit loss and (b) the amount
related to other factors. The amount of total decline in fair value
related to the credit loss shall be recognized in earnings as an Other Than
Temporary Impairment (“OTTI”) with the amount related to other factors
recognized in accumulated other comprehensive loss, net of tax. OTTI
credit losses result in a permanent reduction of the cost basis of the
underlying investment. The determination of OTTI is a subjective
process, and different judgments and assumptions could affect the timing of the
loss realization.
The
adoption of ASC 825-10-50 and ASC 320-10-35 as of April 1, 2009 only
required new disclosures to be made and did not have an impact on the Company’s
consolidated shareholders’ equity or net income.
New accounting
pronouncements issued during 2009 impacting the Company are as
follows:
On June
12, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets” (“SFAS 166”). SFAS 166 has not yet been adopted
into the Codification and it requires that a transferor recognize and initially
measure at fair value all assets obtained (including a transferor’s beneficial
interest) and liabilities incurred as a result of financial assets accounted for
as a sale. It is a revision to FASB Statement No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,” and
requires more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. SFAS 166 is effective
on a prospective basis in fiscal years beginning on or after November 15, 2009
and interim periods within those fiscal years, and will be adopted by the
Company in the first quarter of fiscal year 2010. The Company is
assessing the potential impact, if any, of the adoption of SFAS 166 on its
consolidated results of operations and financial condition.
On June
12, 2009, the FASB issued FASB Statement No. 167, “Amendments to FASB
Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 amends FASB
Interpretation No. 46 (revised December 2003), “Consolidation of Variable
Interest Entities.” It has not yet been adopted into codification and it
requires an enterprise to perform an analysis to determine whether the
enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity. It determines whether a
reporting entity is required to consolidate another entity based on, among other
things, the other entity’s purpose and design and the reporting entity’s ability
to direct the activities of the other entity that most significantly impact the
other entity’s economic performance. SFAS No. 167 is effective on a
prospective basis in fiscal years beginning on or after November 15, 2009, and
interim periods within those fiscal years, and will be adopted by the Company in
the first quarter of fiscal year 2010. The Company is assessing the
potential impact, if any, of the adoption of SFAS No. 167 on its consolidated
results of operations and financial condition.
In
September 2009, the FASB issued Accounting Standards Update No. 2009-12,
“Measuring Fair Value of Certain Investments” (“ASU 2009-12”). This
update provides further amendments to ASC Topic 820, “Fair Value Measurements
and Disclosures” to offer investors a practical expedient for measuring the fair
value of investments in certain entities that calculate net asset value per
share (“NAV”). Specifically, measurement using NAV is reasonable for investments
within the scope of ASU 2009-12. The ASU 2009-12 is effective for the first
interim or annual reporting period beginning after the ASU’s issuance, and will
be adopted by the Company in the fourth quarter of fiscal year 2009. The Company
is assessing the potential impact, if any, of the adoption of ASU 2009-12 on its
consolidated results of operations and financial condition.
8
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
3. Investments
|
(a)
|
Fixed
Maturities and Other Investments
|
The
original or amortized cost, estimated fair value and gross unrealized gains and
losses of available-for-sale fixed maturities and other investments as of
September 30, 2009 and December 31, 2008 are as follows:
September
30, 2009
|
Original or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Fair
value
|
||||||||||||
Fixed Maturities:
|
||||||||||||||||
U.S.
– treasury bonds
|
$ | 39,451 | $ | 365 | $ | (158 | ) | $ | 39,658 | |||||||
U.S.
Agency - mortgage backed securities
|
880,024 | 23,969 | (2,292 | ) | 901,701 | |||||||||||
Corporate
fixed maturities
|
564,285 | 35,998 | (23,718 | ) | 576,565 | |||||||||||
Municipal
bonds
|
22,944 | 836 | - | 23,780 | ||||||||||||
Total
available for sale fixed maturities
|
1,506,704 | 61,168 | (26,168 | ) | 1,541,704 | |||||||||||
Other
investments
|
5,707 | - | (178 | ) | 5,529 | |||||||||||
Total
investments
|
$ | 1,512,411 | $ | 61,168 | $ | (26,346 | ) | $ | 1,547,233 |
December
31, 2008
|
Original or
amortized cost |
Gross
unrealized gains |
Gross
unrealized losses |
Fair
Value |
||||||||||||
Fixed Maturities:
|
||||||||||||||||
U.S.
– treasury bonds
|
$ | 37,782 | $ | 775 | $ | (30 | ) | $ | 38,527 | |||||||
U.S.
Agency - mortgage backed securities
|
756,023 | 21,178 | (5,302 | ) | 771,899 | |||||||||||
Corporate
fixed maturities
|
370,121 | 2,320 | (62,912 | ) | 309,529 | |||||||||||
Total
available for sale fixed maturities
|
1,163,926 | 24,273 | (68,244 | ) | 1,119,955 | |||||||||||
Other
investments
|
5,819 | - | (528 | ) | 5,291 | |||||||||||
Total
investments
|
$ | 1,169,745 | $ | 24,273 | $ | (68,772 | ) | $ | 1,125,246 |
The
contractual maturities of our fixed maturities as of September 30, 2009 and
December 31, 2008 are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment.
September 30,
2009
|
December 31,
2008
|
|||||||||||||||
Amortized
cost |
Fair Value
|
Amortized
cost |
Fair Value
|
|||||||||||||
Due
in one year or less
|
$ | 60,720 | $ | 62,597 | $ | 6,282 | $ | 6,293 | ||||||||
Due
after one year through five years
|
174,771 | 171,756 | 160,732 | 149,067 | ||||||||||||
Due
after five years through ten years
|
319,124 | 326,162 | 228,553 | 179,843 | ||||||||||||
Due
after ten years
|
72,065 | 79,488 | 12,337 | 12,854 | ||||||||||||
Mortgage
and asset -backed
|
880,024 | 901,701 | 756,022 | 771,898 | ||||||||||||
Total
|
$ | 1,506,704 | $ | 1,541,704 | $ | 1,163,926 | $ | 1,119,955 |
9
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
3. Investments
(continued)
Realized
gains or losses on the sale of investments are determined on the basis of the
first in first out cost method and include adjustments to the cost basis of
investments for declines in value that are considered to be
other-than-temporary. The following provides an analysis of realized gains and
losses:
For the Three
Months Ended September 30, 2009 |
For the Three
Months Ended September 30, 2008 |
For the Nine
Months Ended September 30, 2009 |
For the Nine
Months Ended September 30, 2008 |
|||||||||||||
Net
realized Investment Losses:
|
||||||||||||||||
Total other-than-temporary
impairment losses
|
$ | - | $ | (42,538 | ) | $ | - | $ | (42,538 | ) | ||||||
Portion of loss recognized in
other comprehensive income
|
- | - | - | - | ||||||||||||
Net
impairment losses recognized in earnings
|
- | (42,538 | ) | - | (42,538 | ) | ||||||||||
Gross
realized gains on sale of investments
|
42 | - | 3,519 | 163 | ||||||||||||
Gross
realized loss on sale of investments
|
(108 | ) | - | (3,981 | ) | - | ||||||||||
Net
realized investment loss
|
$ | (66 | ) | $ | (42,538 | ) | $ | (462 | ) | $ | (42,375 | ) |
The
following tables summarize fixed maturities in an unrealized loss position and
the aggregate fair value and gross unrealized loss by length of time the
security has continuously been in an unrealized loss position:
Less than 12 months
|
12 months or more
|
Total
|
||||||||||||||||||||||
September 30, 2009
|
Fair
value
|
Unrealized
losses
|
Fair
value
|
Unrealized
Losses
|
Fair
value
|
Unrealized
losses
|
||||||||||||||||||
Available-for-sale
securities:
|
||||||||||||||||||||||||
U.S.
– treasury bonds
|
$ | 3,277 | $ | (158 | ) | $ | - | $ | - | $ | 3,277 | $ | (158 | ) | ||||||||||
U.S.
Agency mortgage backed securities
|
120,097 | (1,393 | ) | 31,905 | (899 | ) | 152,002 | (2,292 | ) | |||||||||||||||
Corporate
fixed maturities
|
13,935 | (727 | ) | 209,904 | (22,991 | ) | 223,839 | (23,718 | ) | |||||||||||||||
Municipal
bonds
|
- | - | - | - | - | - | ||||||||||||||||||
137,309 | (2,278 | ) | 241,809 | (23,890 | ) | 379,118 | (26,168 | ) | ||||||||||||||||
Other
investments
|
$ | - | $ | - | $ | 4,822 | $ | (178 | ) | $ | 4,822 | $ | (178 | ) | ||||||||||
Total
temporarily impaired available-for-sale securities and other
investments
|
$ | 137,309 | $ | (2,278 | ) | $ | 246,631 | $ | (24,068 | ) | $ | 383,940 | $ | (26,346 | ) |
As of
September 30, 2009, there were approximately 32 securities in an unrealized loss
position with a fair value of $383,940. Of these securities, there were 18
securities that have been in an unrealized loss position for 12 months or more
with a value of $246,631.
10
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
3. Investments –
(continued)
Less than 12 months
|
12 months or more
|
Total
|
||||||||||||||||||||||
December 31, 2008
|
Fair
Value
|
Unrealized
losses
|
Fair
value
|
Unrealized
Losses
|
Fair
value
|
Unrealized
losses
|
||||||||||||||||||
Available-for-sale
securities:
|
||||||||||||||||||||||||
U.S.
– treasury bonds
|
$ | 6,521 | $ | (30 | ) | - | $ | - | $ | 6,521 | (30 | ) | ||||||||||||
U.S.
Agency mortgage backed securities
|
148,803 | (5,302 | ) | - | - | 148,803 | (5,302 | ) | ||||||||||||||||
Corporate
fixed maturities
|
104,279 | (13,708 | ) | 153,055 | (49,204 | ) | 257,334 | (62,912 | ) | |||||||||||||||
259,603 | (19,040 | ) | 153,055 | (49,204 | ) | 412,658 | (68,244 | ) | ||||||||||||||||
Other
investments
|
$ | 4,722 | $ | (528 | ) | $ | - | $ | - | $ | 4,722 | (528 | ) | |||||||||||
Total
temporarily impaired available-for-sale securities and other
investments
|
$ | 264,325 | $ | (19,568 | ) | $ | 153,055 | $ | (49,204 | ) | $ | 417,380 | $ | (68,772 | ) |
As of
December 31, 2008, there were approximately 40 securities in an unrealized loss
position with a fair value of $417,380. Of these securities, there were 10
securities that have been in an unrealized loss position for 12 months or more
with a value of $153,055.
Other-than-Temporary
Impairments (“OTTI”)
We review
our investment portfolio for impairment on a quarterly basis. Impairment of
investments results in a charge to operations when a fair value decline below
cost is deemed to be other-than-temporary. As of September 30, 2009, we reviewed
our portfolio to evaluate the necessity of recording impairment losses for
other-than-temporary declines in the fair value of
investments. During the three and nine months ended September 30,
2009, the Company
recognized $0 as other than temporary impairment on fixed income securities and
other investments and for the three and nine months ended September 30,
2008 the Company
recognized $42,538 as other than
temporary impairment on fixed income securities and other investments.
Based on our qualitative and quantitative OTTI review of each asset class
within our fixed maturity portfolio, the unrealized losses on fixed maturities
at September 30, 2009, were primarily due to widening of credit spreads relating
to the market illiquidity, rather than credit events. Because the Company
neither intends nor will be required to sell these securities until a recovery
of fair value to amortized cost, we currently believe it is probable that we
will collect all amounts due according to their respective contractual terms.
Therefore we do not consider these fixed maturities to be other-than-temporarily
impaired at September 30, 2009.
(b)
Restricted Cash and Investments
We are
required to maintain assets on deposit to support our reinsurance operations and
to serve as collateral for our reinsurance liabilities under various reinsurance
agreements. The assets on deposit are available to settle reinsurance
liabilities. We also utilize trust accounts to collateralize business with our
reinsurance counterparties. These trust accounts generally take the place of
letter of credit requirements. The assets in trust as collateral are primarily
cash and highly rated fixed maturity securities. The fair value of our
restricted assets was as follows:
September
30, 2009 |
December
31, 2008 |
|||||||
Restricted
cash - third party agreements
|
$ | 199,172 | $ | 335,201 | ||||
Restricted
cash - related party agreements
|
19,423 | 74,076 | ||||||
Total
restricted cash
|
218,595 | 409,277 | ||||||
Restricted
investments - in Trust for third party agreements at fair value (Amortized
cost: 2009 - $860,641; 2008 - $701,973)
|
863,703 | 660,388 | ||||||
Restricted
investments - in Trust for related party agreements at fair value
(Amortized cost: 2009 - $140,310; 2008
- $1,200)
|
158,869 | 1,203 | ||||||
Total
restricted investments
|
1,022,572 | 661,591 | ||||||
Total
restricted cash and investments
|
$ | 1,241,167 | $ | 1,070,868 |
11
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
3. Investments –
(continued)
(c) Other
The
Company enters into repurchase agreements. The agreements are accounted for as
collateralized borrowing transactions and are recorded at contract amounts. The
Company receives cash or securities, that it invests or holds in short term or
fixed income securities. As of September 30, 2009, there were $106,016 principal
amount outstanding at interest rates between 0.35% and 0.50%. Interest expense
associated with these repurchase agreements was $117 and $900 for the three and
nine months ended September 30, 2009, respectively, out of which $67 was accrued
as of September 30, 2009. The Company has approximately $106,016 of collateral
pledged in support of these agreements.
4.
Fair Value of Financial Instruments
The
Company’s estimates of fair value for financial assets and financial liabilities
are based on the framework established in ASC 820. The framework is based on the
inputs used in valuation and gives the highest priority to quoted prices in
active markets and requires that observable inputs be used in the valuations
when available. The disclosure of fair value estimates in the ASC 820 hierarchy
is based on whether the significant inputs into the valuation are observable. In
determining the level of the hierarchy in which the estimate is disclosed, the
highest priority is given to unadjusted quoted prices in active markets and the
lowest priority to unobservable inputs that reflect the Company’s significant
market assumptions. The three levels of the hierarchy are as
follows:
|
·
|
Level
1
- Unadjusted quoted market prices for identical assets or
liabilities in active markets that the Company has the ability to
access.
|
|
·
|
Level
2
- Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in
inactive markets; or valuations based on models where the significant
inputs are observable (e.g., interest rates, yield curves, prepayment
speeds, default rates, loss severities, etc.) or can be corroborated by
observable market data.
|
|
·
|
Level
3
- Valuations based on models where significant inputs are not
observable. The unobservable inputs reflect the Company’s own assumptions
about the assumptions that market participants would
use.
|
In
accordance with ASC 820, the Company determines fair value based on the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.
ASC 825,
“Disclosure about Fair Value of Financial Instruments” requires all entities to
disclose the fair value of their financial instruments, both assets and
liabilities recognized and not recognized in the balance sheet, for which it is
practicable to estimate fair value.
The
Company uses the following methods and assumptions in estimating its fair value
disclosure for its financial instruments.
Investments available for
sale. Investments available for sale are recorded at fair value on a
recurring basis and include fixed maturities and securities sold under
agreements to repurchase. Fair value of investments is measured based upon
quoted prices in active markets, if available. If quoted prices in active
markets are not available, fair values are measured by an independent pricing
service that utilizes valuation techniques based upon observable market data.
Level 1 investments include those traded on an active exchange, such as the
NASDAQ. Since fixed maturities other than U.S. treasury securities generally do
not trade on a daily basis, the independent pricing service prepares estimates
of fair value measurements for these securities using its proprietary pricing
applications which include available relevant market information. These
investments are classified as Level 2 investments and include obligations of
U.S. government agencies, municipals and corporate debt securities.
Other investments. Other
investments consist primarily of hedge funds where the fair value estimate is
determined by an external fund manager based on recent filings, operating
results, balance sheet stability, growth and other business and market sector
fundamentals. Due to the significant unobservable inputs in these valuations,
the Company includes other investments in the amount disclosed in Level
3.
Reinsurance balance receivable.
The carrying values reported in the accompanying balance sheets for these
financial instruments approximate their fair value due to short term nature of
the assets.
Loan to related party. The
carrying values reported in the accompanying balance sheets for these financial
instruments approximate their fair value.
Trust preferred securities.
The carrying values reported in the accompanying balance sheets for these
financial instruments approximate their fair value.
12
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
a)
|
Fair
Value Hierarchy
|
The
following table presents the level within the fair value hierarchy at which the
Company’s financial assets and financial liabilities are measured on a recurring
basis as of September 30, 2009 and December 31, 2008:
September 30,
2009
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
Significant
Other Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total Fair
Value
|
||||||||||||
Assets
|
||||||||||||||||
Fixed
maturities
|
$ | 39,658 | $ | 1,502,046 | $ | - | $ | 1,541,704 | ||||||||
Other
investments
|
- | - | 5,529 | 5,529 | ||||||||||||
Total
|
$ | 39,658 | $ | 1,502,046 | $ | 5,529 | $ | 1,547,233 | ||||||||
As
a percentage of total assets
|
1.5 | % | 58.5 | % | 0.2 | % | 60.3 | % | ||||||||
Liabilities
|
||||||||||||||||
Securities
sold under agreements to repurchase
|
$ | - | $ | 106,016 | $ | - | $ | 106,016 | ||||||||
As
a percentage of total liabilities
|
- | 5.6 | % | - | 5.6 | % |
December 31,
2008
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
Significant
Other Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total Fair
Value
|
||||||||||||
Assets
|
||||||||||||||||
Fixed
maturities
|
$ | 38,527 | $ | 1,081,428 | $ | - | $ | 1,119,955 | ||||||||
Other
investments
|
- | - | 5,291 | 5,291 | ||||||||||||
Total
|
$ | 38,527 | $ | 1,081,428 | $ | 5,291 | $ | 1,125,246 | ||||||||
As
a percentage of total assets
|
1.8 | % | 50.8 | % | 0.2 | % | 52.8 | % | ||||||||
Liabilities
|
||||||||||||||||
Securities
sold under agreements to repurchase
|
$ | - | $ | 232,646 | $ | - | $ | 232,646 | ||||||||
As
a percentage of total liabilities
|
- | 14.4 | % | - | 14.4 | % |
b)
|
Level
3 Financial Instruments
|
The
following table presents changes in Level 3 for our financial instruments
measured at fair value on a recurring basis for the three months and nine months
ended September 30, 2009:
Other
Investments:
|
Three Months
Ended September 30, 2009 |
Nine Months
Ended September 30, 2009 |
||||||
Balance at
beginning of period
|
$ | 5,392 | $ | 5,291 | ||||
Change
in net unrealized gains (losses) – included in other comprehensive
loss
|
244 | 350 | ||||||
Net
realized gains (losses) – included in net income
|
(108 | ) | (123 | ) | ||||
Net
purchases or (sales)
|
1 | 11 | ||||||
Net
transfers in (out of) of Level 3
|
- | - | ||||||
Balance
at end of period
|
$ | 5,529 | $ | 5,529 |
13
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
5.
|
Goodwill
and Intangible Assets
|
Goodwill
Goodwill
is calculated as the excess of purchase price over the net fair value of assets
acquired. The Company performs an annual impairment analysis to identify
potential goodwill impairment and measures the amount of a goodwill impairment
loss to be recognized. This annual test is performed during the fourth quarter
of each year or more frequently if events or circumstances change in a way that
requires the Company to perform the impairment analysis on an interim basis.
Goodwill impairment testing requires an evaluation of the estimated fair value
of each reporting unit to its carrying value, including the goodwill. An
impairment charge is recorded if the estimated fair value is less than the
carrying amount of the reporting unit. No impairments have been identified to
date.
Intangibles
Intangible
assets consist of finite and indefinite life assets. Finite life intangible
assets include customer and producer relationships and trademarks. Insurance
company licenses are considered indefinite life intangible assets subject to
annual impairment testing.
On
October 31, 2008, the Company acquired the reinsurance operations of GMAC
Insurance (GMACI), including its book of assumed reinsurance business. As part
of the transaction the Company’s wholly owned subsidiary Maiden Holdings North
America, Ltd. (“Maiden NA”) acquired GMAC RE LLC, the reinsurance managing
general agent writing business on behalf of Motors Insurance Corporation and the
renewal rights for the business written by GMAC RE. In connection
with the transaction Maiden NA also entered into an agreement to acquire two
licensed insurance companies, GMAC Direct Insurance Company (“GMAC Direct”) and
Integon Specialty Insurance Company (“Integon”). The acquisitions of GMAC Direct
and Integon were closed on December 23, 2008 and September 1, 2009,
respectively. GMAC Direct was renamed Maiden Reinsurance Company, and Integon
was renamed Maiden Specialty Insurance Company.
The
following table shows an analysis of goodwill and intangible
assets:
September
30, 2009
|
Gross
|
Accumulated
Amortization |
Net
|
Useful Life
|
|||||||||
Goodwill
|
$ | 49,747 | $ | - | $ | 49,747 |
Indefinite
|
||||||
State
licenses
|
7,727 | - | 7,727 |
Indefinite
|
|||||||||
Customer
relationships
|
51,400 | (6,168 | ) | 45,232 |
15
years double declining
|
||||||||
Net
balance
|
$ | 108,874 | $ | (6,168 | ) | $ | 102,706 | ||||||
December 31,
2008
|
Gross
|
Accumulated
Amortization |
Net
|
Useful Life
|
|||||||||
Goodwill
|
$ | 49,747 | $ | - | $ | 49,747 |
Indefinite
|
||||||
State
licenses
|
5,000 | - | 5,000 |
Indefinite
|
|||||||||
Customer
relationships
|
51,400 | (1,253 | ) | 50,147 |
15
years double declining
|
||||||||
Net
balance
|
$ | 106,147 | $ | (1,253 | ) | $ | 104,894 |
Goodwill
and intangible assets are subject to annual impairment testing. No impairment
was recorded during the three and nine months ended September 30, 2009. The
Company currently estimates the amortization of the intangible assets with
finite lives for the years ended December 31, 2009, 2010, 2011, 2012 and
2013 to be $6,590, $5,808, $5,033, $4,362 and $3,781, respectively.
14
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
6. Trust
Preferred Securities
On
January 20, 2009, the Company completed a private placement of 260,000 units
(the “Units”), each Unit consisting of $1,000 principal amount of capital
securities (the “Trust Preferred Securities”) of Maiden Capital Financing Trust
(the “Trust”), a trust established by Maiden NA, and 45 common shares, $.01 par
value, of the Company (the “Common Shares”), for a purchase price of $1,000.45
per Unit. This resulted in gross proceeds to the Company of $260,117,
before $4,342 of placement agent fees and expenses. As a result, the
Company issued 11,700,000 of its Common Shares. Certain trusts
established by Michael Karfunkel and George Karfunkel, two of the Company’s
founding shareholders, purchased an aggregate of 159,000 of the Units or
61%. The remaining 101,000 Units were purchased by existing
institutional shareholders of the Company.
The Trust
used the proceeds from the sale of the Trust Preferred Securities to purchase a
subordinated debenture (the “Debenture”) in the principal amount of $260,000
issued by Maiden NA.
The
Debenture was issued pursuant to an Indenture dated January 20, 2009 by and
between the Maiden NA and Wilmington Trust Company
(“Wilmington”). The terms of the Debenture are substantially the same
as the terms of the Trust Preferred Securities. The interest payments
by Maiden NA will be used by the Trust to pay the quarterly distributions to the
holders of the Trust Preferred Securities. The Indenture permits
Maiden NA to redeem the Debenture (and thus a like amount of the Trust Preferred
Securities) at stated value plus one year’s interest together with accrued and
unpaid interest, if any, through the date of redemption at any time until
January 15, 2014. On and after January 15, 2014, Maiden NA may redeem
any or all of the Debenture (and thus a like amount of the Trust Preferred
Securities) at stated value plus accrued and unpaid interest, if any, through
the date of redemption. If the Company redeems any amount of its
Debenture, the Trust must redeem a like amount of the Trust Preferred
Securities. The Indenture permits Maiden NA, as long as no event of
default has occurred and continues, to defer interest payments on the Debenture
for up to 20 consecutive quarterly periods, during which interest accrues and
compounds until paid.
Pursuant
to separate Guarantee Agreements dated as of January 20, 2009 with Wilmington,
as guarantee trustee, each of the Company and Maiden NA has agreed to guarantee
the payment of distributions and payments on liquidation or redemption of the
Trust Preferred Securities.
As a
consequence of the issuance of a majority of the Units to a related party under
ASC 810 Consolidation (“ASC 810”), the Trust is a variable interest entity and
the Company is deemed to be the Primary beneficiary and is required to
consolidate the Trust. The issuance of Common Shares associated with the Trust
Preferred Securities resulted in an original issuance discount of $44,928 based
on market price on January 20, 2009. The discount is amortized over 30 years
based on the effective interest method. The Debentures and Trust Preferred
Securities mature in 2039 and carry a stated or coupon rate of 14% with an
effective interest rate of 16.95%. As of September 30, 2009, the stated value of
the Trust Preferred Securities was $215,110 which comprises the principal amount
of $260,000 and unamortized discount of $44,890.
7. Earnings Per
Share
The
following is a summary of the elements used in calculating basic and diluted
earnings per share:
Three Months
Ended September 30, 2009 |
Three Months
Ended September 30,
2008
|
Nine Months
Ended September 30, 2009 |
Nine Months
Ended
September 30, 2008
|
|||||||||||||
Net
income (loss) available to common shareholders
|
$ | 14,987 | $ | (27,516 | ) | $ | 44,339 | $ | (1,209 | ) | ||||||
Weighted
average number of common shares outstanding - basic
|
70,287,664 | 59,550,000 | 69,430,521 | 59,550,000 | ||||||||||||
Potentially
dilutive securities:
|
||||||||||||||||
Warrants
|
- | - | - | - | ||||||||||||
Share
options
|
565,231 | - | 416,193 | - | ||||||||||||
Weighted
average number of common shares outstanding - diluted
|
70,852,895 | 59,550,000 | 69,846,714 | 59,550,000 | ||||||||||||
Basic
earnings per common share:
|
$ | 0.21 | $ | (0.46 | ) | $ | 0.64 | $ | (0.02 | ) | ||||||
Diluted
earnings per common share:
|
$ | 0.21 | $ | (0.46 | ) | $ | 0.63 | $ | (0.02 | ) |
As of
September 30, 2009, 4,050,000 (2008: 4,050,000) warrants and 638,000 (2008:
893,529) share options were excluded from the calculation of diluted earnings
per share as they were anti-dilutive.
15
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
8. Share Based
Compensation
Share
Options
The fair
value of each option grant is separately estimated for each vesting date. The
fair value of each option is amortized into compensation expense on a
straight-line basis between the grant date for the award and each vesting date.
The Company has estimated the fair value of all share option awards as of the
date of the grant by applying the Black-Scholes-Merton multiple-option pricing
valuation model. The application of this valuation model involves assumptions
that are judgmental and highly sensitive in the determination of compensation
expense. The adoption of ASC 718 Compensation - Stock
Compensation fair value method has resulted in share-based expense (a
component of salaries and benefits) in the amount of approximately $168 and $444
for the three and nine months ended September 30, 2009, respectively (2008: $219
and $611, respectively).
The key
assumptions used in determining the fair value of options granted in the three
and nine months ended September 30, 2009 and a summary of the methodology
applied to develop each assumption are as follows:
Assumptions
:
|
September
30, 2009 |
|||
Volatility
|
29.8-43.9 | % | ||
Risk-free
interest rate
|
2.36-3.30 | % | ||
Weighted
average expected lives in years
|
5-6.1
years
|
|||
Forfeiture
rate
|
0 | % | ||
Dividend
yield rate
|
1-5.39 | % |
Expected Price Volatility –
This is a measure of the amount by which a price has fluctuated or is expected
to fluctuate. The common shares of Maiden Holdings, Ltd. began trading on May 6,
2008. Since the Company does not have enough history over which to calculate an
expected volatility representative of the volatility over the expected lives of
the options, the Company considered the historical and current implied
volatilities of a set of comparable companies in the industry in which the
Company operates.
Risk-Free Interest Rate –
This is the U.S. Treasury rate for the week of the grant having a term equal to
the expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.
Expected Lives – This is the
period of time over which the options granted are expected to remain outstanding
giving consideration to vesting schedules, historical exercise and forfeiture
patterns. The Company uses the simplified method outlined in SEC Staff
Accounting Bulletin No. 107 to estimate expected lives for options granted
during the period as historical exercise data is not available and the options
meet the requirements set out in the Bulletin. Options granted have a maximum
term of ten years. An increase in the expected life will increase compensation
expense.
Forfeiture Rate – This is the
estimated percentage of options granted that are expected to be forfeited or
cancelled before becoming fully vested. An increase in the forfeiture rate will
decrease compensation expense.
The
following schedules shows all options granted, exercised, expired and exchanged
under the Plan for the three months ended September 30, 2009:
Three
Months Ended
September 30,
2009
|
Number of
Share Options
|
Weighted
Average Exercise Price |
Weighted Average
Years Remaining Contractual Term |
|||||||||
Outstanding,
June 30, 2009
|
1,503,834 | $ | 5.54 | 9.3 | ||||||||
Granted
|
200,000 | 4.54 | 9.4 | |||||||||
Exercised
|
- | - | - | |||||||||
Cancelled
|
(10,500 | ) | 3.28 | - | ||||||||
Outstanding,
September 30, 2009
|
1,693,334 | $ | 5.47 | 8.9 |
16
MAIDEN HOLDINGS,
LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(in
thousands (000’s), except per share data)
(Unaudited)
8. Share Based Compensation
(continued)
The
following schedule shows all options granted, exercised, expired and exchanged
under the Plan for the nine months ended September 30, 2009:
Nine
Months Ended
September 30,
2009
|
Number of
Share Options
|
Weighted
Average Exercise Price |
Weighted Average
Years Remaining Contractual Term |
|||||||||
Outstanding,
December 31, 2008
|
1,519,834 | $ | 5.92 | 9.4 | ||||||||
Granted
|
384,000 | 4.51 | 9.4 | |||||||||
Exercised
|
- | - | - | |||||||||
Cancelled
|
(210,500 | ) | 8.07 | - | ||||||||
Outstanding,
September 30, 2009
|
1,693,334 | $ | 5.47 | 8.9 |
The
following schedules shows all options granted, exercised, expired and exchanged
under the Plan for the three months ended September 30, 2008:
Three
Months Ended
September
30, 2008
|
Number of
Share Options |
Weighted
Average Exercise
Price |
Weighted Average
Years Remaining Contractual Term |
|||||||||
Outstanding,
June 30, 2008
|
962,000 | $ | 10.00 | 9.3 | ||||||||
Granted
|
- | - | - | |||||||||
Exercised
|
- | - | - | |||||||||
Cancelled
|
- | - |