Attached files
file | filename |
---|---|
EX-32.2 - Maiden Holdings, Ltd. | v184111_ex32-2.htm |
EX-32.1 - Maiden Holdings, Ltd. | v184111_ex32-1.htm |
EX-31.1 - Maiden Holdings, Ltd. | v184111_ex31-1.htm |
EX-31.2 - Maiden Holdings, Ltd. | v184111_ex31-2.htm |
UNITED
STATES
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 March 31, 2010
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, 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 ý
|
Non-accelerated
filer o (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 May
7, 2010, the Registrant had one class of Common Stock ($.01 par
value),
of which
70,291,289 shares were issued and outstanding.
INDEX
Page
|
||
PART
I - Financial Information
|
||
Item
1. Financial Statements
|
3
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December
31, 2009
|
3
|
|
Condensed
Consolidated Statement of Income for the three months ended March 31, 2010
and 2009 (unaudited)
|
4
|
|
Condensed
Consolidated Statement of Changes in Shareholders’ Equity for the three
months ended March
31, 2010 and 2009 (unaudited)
|
5
|
|
Condensed
Consolidated Statement of Cash Flows for the three months ended March 31,
2010 and 2009
(unaudited)
|
6
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
24
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
41
|
|
Item
4. Controls and Procedures
|
42
|
|
PART
II - Other Information
|
||
Item
5. Other Information – Submission of Matters to a Vote of Security
Holders
|
43
|
|
Item
6. Exhibits
|
44
|
|
Signatures
|
45
|
2
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
March
31, 2010
(Unaudited)
|
December
31, 2009
(Audited)
|
|||||||
ASSETS
|
|
|
||||||
Investments:
|
|
|
||||||
Fixed
maturities, available for sale, at fair value
(Amortized cost 2010:
$1,669,433; 2009: $1,623,382)
|
$
|
1,726,472
|
$
|
1,661,692
|
||||
Other
investments, at fair value (Cost 2010: $ 5,681;
2009:$5,684)
|
5,601
|
5,549
|
||||||
Total
investments
|
1,732,073
|
1,667,241
|
||||||
Cash
and cash equivalents
|
62,743
|
107,396
|
||||||
Restricted
cash and cash equivalents
|
117,639
|
144,944
|
||||||
Accrued
investment income
|
12,582
|
11,405
|
||||||
Reinsurance
balances receivable (includes $87,326 and $43,382 from related party in
2010 and 2009, respectively)
|
299,237
|
208,495
|
||||||
Prepaid
reinsurance
|
26,268
|
28,752
|
||||||
Reinsurance
recoverable on unpaid losses
|
16,464
|
11,984
|
||||||
Loan
to related party
|
167,975
|
167,975
|
||||||
Deferred
commission and other acquisition costs (includes $95,244 and $85,979 from
related party in 2010 and 2009, respectively)
|
178,254
|
172,983
|
||||||
Other
assets
|
12,464
|
11,818
|
||||||
Intangible
assets, net
|
49,832
|
51,284
|
||||||
Goodwill
|
52,617
|
52,617
|
||||||
Total
assets
|
$
|
2,728,148
|
$
|
2,636,894
|
||||
LIABILITIES
|
|
|
||||||
Reserve
for loss and loss adjustment expenses (includes $195,683 and $174,046 from
related party in 2010 and 2009, respectively)
|
$
|
1,048,930
|
$
|
1,006,320
|
||||
Unearned
premiums (includes $292,030 and $264,751 from related party in 2010 and
2009, respectively)
|
629,940
|
583,478
|
||||||
Accrued
expenses and other liabilities
|
47,864
|
60,044
|
||||||
Securities
sold under agreements to repurchase, at contract value
|
76,324
|
95,401
|
||||||
Junior
subordinated debt
|
215,140
|
215,125
|
||||||
Total
liabilities
|
2,018,198
|
1,960,368
|
||||||
Commitments
and Contingencies
|
|
|||||||
Shareholders’
equity
|
|
|||||||
Common
shares ($0.01 par
value;71,254,093 and 71,253,625 shares issued in 2010 and 2009,
respectively;70,291,757 and 70,291,289 shares outstanding in 2010 and
2009, respectively)
|
713
|
713
|
||||||
Additional
paid-in capital
|
576,298
|
576,086
|
||||||
Accumulated
other comprehensive income
|
56,959
|
32,747
|
||||||
Retained
earnings
|
79,781
|
70,781
|
||||||
Treasury
shares, at cost (2010
and 2009: 962,336 shares)
|
(3,801
|
)
|
(3,801
|
)
|
||||
Total
shareholders’ equity
|
709,950
|
676,526
|
||||||
Total
liabilities and shareholders’ equity
|
$
|
2,728,148
|
$
|
2,636,894
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
3
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(In
Thousands of United States Dollars, Except Per Share Data)
(Unaudited)
For
the
Three
Months
Ended
March
31, 2010
|
For
the
Three
Months
Ended
March
31, 2009
|
|||||||
Revenues:
|
||||||||
Gross
premiums written
|
$ | 327,382 | $ | 336,548 | ||||
Net
premiums written
|
311,291 | 336,548 | ||||||
Change
in unearned premiums
|
(47,362 | ) | (126,456 | ) | ||||
Net
earned premium
|
263,929 | 210,092 | ||||||
Net
investment income
|
17,581 | 14,259 | ||||||
Net
realized investment gains (losses)
|
312 | (1,930 | ) | |||||
Total
revenues
|
281,822 | 222,421 | ||||||
Expenses:
|
||||||||
Loss
and loss adjustment expenses
|
170,285 | 146,288 | ||||||
Commission
and other acquisition expenses
|
77,396 | 46,631 | ||||||
Other operating
expenses
|
8,552 | 7,535 | ||||||
Subordinated
debt interest expense
|
9,115 | 7,090 | ||||||
Amortization
of intangible assets
|
1,452 | 1,564 | ||||||
Foreign
exchange loss
|
1,153 | 213 | ||||||
Total
expenses
|
267,953 | 209,321 | ||||||
Income
before income taxes
|
13,869 | 13,100 | ||||||
Income
taxes:
|
||||||||
Current
tax expense
|
— | — | ||||||
Deferred
tax expense
|
300 | — | ||||||
Income
tax expense
|
300 | — | ||||||
Net
income
|
$ | 13,569 | $ | 13,100 | ||||
Basic
and diluted earnings per common share
|
$ | 0.19 | $ | 0.19 | ||||
Dividends
declared per common share
|
$ | 0.065 | $ | 0.06 |
For the Three
Months Ended
March 31,
2010
|
For the Three
Months Ended
March 31,
2009
|
|||||||
Net
realized investment gains (losses):
|
||||||||
Total
other-than-temporary impairment losses
|
$
|
—
|
$
|
—
|
||||
Portion
of loss recognized in other comprehensive income
|
—
|
—
|
||||||
Net
impairment losses recognized in earnings
|
—
|
—
|
||||||
Other
net realized gain (loss) on investments
|
312
|
(1,930
|
)
|
|||||
Net
realized investment gains (losses)
|
$
|
312
|
$
|
(1,930
|
)
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
4
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY AND
COMPREHENSIVE
INCOME (LOSS)
(In
Thousands of United States Dollars)
(Unaudited)
For
the
Three
Months
Ended
March
31, 2010
|
For
the
Three
Months
Ended
March
31, 2009
|
|||||||
Common
shares
|
|
|
||||||
Balance – beginning
of period
|
$ | 713 | $ | 596 | ||||
Exercise
of options and issuance of shares, net
|
— | 117 | ||||||
Balance – end
of period
|
713 | 713 | ||||||
Additional
paid-in capital
|
||||||||
Balance – beginning
of period
|
576,086 | 530,519 | ||||||
Exercise
of options and issuance of shares, net
|
2 | 44,928 | ||||||
Share
based compensation
|
210 | 159 | ||||||
Balance – end
of period
|
576,298 | 575,606 | ||||||
Accumulated
other comprehensive income (loss)
|
||||||||
Balance – beginning
of period
|
32,747 | (44,499 | ) | |||||
Net
unrealized gains (losses) on securities
|
24,212 | (16,486 | ) | |||||
Balance – end
of period
|
56,959 | (60,985 | ) | |||||
Retained
earnings
|
||||||||
Balance – beginning
of period
|
70,781 | 26,944 | ||||||
Net
income
|
13,569 | 13,100 | ||||||
Dividends
on common shares
|
(4,569 | ) | (4,217 | ) | ||||
Balance – end
of period
|
79,781 | 35,827 | ||||||
Treasury
shares
|
||||||||
Balance – beginning
of period
|
(3,801 | ) | (3,801 | ) | ||||
Shares
repurchased
|
— | — | ||||||
Balance – end
of period
|
(3,801 | ) | (3,801 | ) | ||||
Total
Shareholders’ Equity
|
$ | 709,950 | $ | 547,360 | ||||
Comprehensive
income (loss)
|
||||||||
Net
income
|
$ | 13,569 | $ | 13,100 | ||||
Other
comprehensive income (loss)
|
24,212 | (16,486 | ) | |||||
Comprehensive
income (loss)
|
$ | 37,781 | $ | (3,386 | ) | |||
Disclosure
regarding net unrealized gains (losses)
|
||||||||
Unrealized
holding gains (losses) during the period
|
$ | 24,524 | $ | (18,416 | ) | |||
Adjustment
for reclassification of realized (gains) losses and other-than-temporary
losses recognized in net income
|
(312 | ) | 1,930 | |||||
Net
unrealized gains (losses) on securities
|
$ | 24,212 | $ | (16,486 | ) |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
5
MAIDEN
HOLDINGS, LTD.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In
Thousands of United States Dollars)
(Unaudited)
For
the
Three
Months
Ended
March
31, 2010
|
For
the
Three
Months
Ended
March
31, 2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 13,569 | $ | 13,100 | ||||
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
||||||||
Depreciation
and amortization of intangibles
|
1,749 | 1,636 | ||||||
Net
realized (gain) loss on sales of investments
|
(312 | ) | 1,930 | |||||
Foreign
exchange loss on revaluation
|
1,153 | 213 | ||||||
Amortization
of share-based compensation expense, bond premium and discount and
subordinated debt discount
|
(1,334 | ) | (927 | ) | ||||
Changes
in assets - (increase) decrease:
|
||||||||
Reinsurance
balances receivable
|
(87,416 | ) | (110,157 | ) | ||||
Prepaid
reinsurance
|
2,484 | — | ||||||
Accrued
investment income
|
(1,177 | ) | 840 | |||||
Deferred
commission and other acquisition costs
|
(5,271 | ) | (48,146 | ) | ||||
Other
assets
|
(270 | ) | (40 | ) | ||||
Changes
in liabilities – increase (decrease):
|
||||||||
Loss
and loss adjustment expenses, net
|
38,252 | 28,160 | ||||||
Unearned
premiums
|
46,462 | 126,457 | ||||||
Accrued
expenses and other liabilities
|
(10,717 | ) | 1,763 | |||||
Net
cash (used in) provided by operating activities
|
(2,828 | ) | 14,829 | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of investments:
|
||||||||
Purchases
of fixed-maturity securities
|
(205,443 | ) | (222,323 | ) | ||||
Purchases
of other investments
|
— | (138 | ) | |||||
Sale
of investments:
|
||||||||
Proceeds
from sales of fixed-maturity securities
|
37,737 | 85,769 | ||||||
Proceeds
from maturities and calls of fixed-maturity securities
|
123,558 | 19,423 | ||||||
Proceeds
from redemption of other investments
|
3 | 22 | ||||||
Decrease
in restricted cash and cash equivalents
|
27,305 | 46,694 | ||||||
Purchase
of capital assets
|
(673 | ) | (381 | ) | ||||
Net
cash used in investing activities
|
(17,513 | ) | (70,934 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Repurchase
agreements, net
|
(19,077 | ) | (232,646 | ) | ||||
Common
share issuance
|
2 | 117 | ||||||
Junior
subordinated debt issuance
|
— | 260,000 | ||||||
Junior
subordinated debt issuance cost
|
— | (4,342 | ) | |||||
Dividend
paid
|
(4,569 | ) | (3,515 | ) | ||||
Net
cash (used in) provided by financing activities
|
(23,644 | ) | 19,614 | |||||
Effect
of exchange rate changes on foreign currency cash
|
(668 | ) | (213 | ) | ||||
Net
decrease in cash and cash equivalents
|
(44,653 | ) | (36,704 | ) | ||||
Cash
and cash equivalents, beginning of period
|
107,396 | 131,897 | ||||||
Cash
and cash equivalents, end of period
|
$ | 62,743 | $ | 95,193 | ||||
Supplemental
information about non-cash investing and financing
activities
|
||||||||
Discount
on junior subordinated debt
|
$ | — | $ | (44,928 | ) | |||
Additional
paid in Capital
|
— | 44,928 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
6
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
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 generally accepted accounting principles in the United States
(“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, 2009.
Certain
reclassifications have been made for 2009 to conform to the 2010
presentation and have no impact on net income previously reported.
2. Recent
Accounting Pronouncements
Adoption
of new accounting pronouncements
On June
12, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets,” an amendment of FASB Statement 140 and the FASB subsequently
codified it as Accounting Standard Update (“ASU”) 2009-16, updating Accounting
Standards Codification (“ASC”) Topic 860 “Transfers and Servicing” 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. ASU 2009-16 is effective on a
prospective basis in fiscal years beginning on or after November 15, 2009 and
interim periods within those fiscal years. The adoption of ASU 2009-16 did not
have a material impact on the Company’s 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)” and the FASB subsequently codified as ASU 2009-17,
updating ASC Topic 810 “Consolidation” 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. ASU 2009-17
is effective on a prospective basis in fiscal years beginning on or after
November 15, 2009, and interim periods within those fiscal years. The adoption
of ASU 2009-17 did not have a material impact on the Company’s consolidated
results of operations and financial condition.
New
accounting pronouncements issued during 2010 impacting the Company are as
follows:
In
February 2010, the FASB issued ASU 2010-09, which requires SEC filers to
evaluate subsequent events through the date the financial statements are issued.
It exempts SEC filers from disclosing the date through which subsequent events
have been evaluated.
7
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
On
January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, Fair
Value Measurements and Disclosures (“ASC 820”), to require a number of
additional disclosures regarding fair value measurements. ASU 2010-06
specifically requires the disclosure of the amounts of significant transfers
between Level 1 and Level 2 of the fair value hierarchy and the reasons for the
transfers, the reasons for any transfers in or out of Level 3 and the disclosure
of information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlement on a gross basis. ASU
2010-06 also amends ASC 820 to clarify that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities. ASU 2010-06 also clarified the requirement for entities
to disclose information about the valuation techniques and inputs used in
estimating Level 2 and Level 3 fair value measurements. ASU 2010-06 is effective
for interim and annual reporting periods beginning after December 15,
2009. The adoption of ASU 2010-06 did not have a material impact on
the Company’s consolidated results of operations and financial
condition.
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 March
31, 2010 and December 31, 2009 are as follows:
March
31, 2010
|
Original
or
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
Fixed
Maturities:
|
|
|
|
|
||||||||||||
U.S. treasury
bonds
|
$ | 39,228 | $ | 211 | $ | (180 | ) | $ | 39,259 | |||||||
U.S.
agency bonds – mortgage and asset-backed
|
814,465 | 21,396 | (937 | ) | 834,924 | |||||||||||
U.S.
agency bonds – other
|
189,913 | 4,818 | (1 | ) | 194,730 | |||||||||||
Corporate
fixed maturities
|
604,449 | 42,920 | (12,069 | ) | 635,300 | |||||||||||
Municipal
bonds
|
21,378 | 881 | — | 22,259 | ||||||||||||
Total
available for sale fixed maturities
|
1,669,433 | 70,226 | (13,187 | ) | 1,726,472 | |||||||||||
Other
investments
|
5,681 | — | (80 | ) | 5,601 | |||||||||||
Total
investments
|
$ | 1,675,114 | $ | 70,226 | $ | (13,267 | ) | $ | 1,732,073 |
December
31, 2009
|
Original
or
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
Fixed
Maturities:
|
|
|
|
|
||||||||||||
U.S. treasury
bonds
|
$ | 39,297 | $ | 224 | $ | (283 | ) | $ | 39,238 | |||||||
U.S.
agency bonds – mortgage and asset-backed
|
779,400 | 17,504 | (2,321 | ) | 794,583 | |||||||||||
U.S.
agency bonds – other
|
217,192 | 4,772 | (447 | ) | 221,517 | |||||||||||
Corporate
fixed maturities
|
564,750 | 37,985 | (20,071 | ) | 582,664 | |||||||||||
Municipal
bonds
|
22,743 | 947 | — | 23,690 | ||||||||||||
Total
available for sale fixed maturities
|
1,623,382 | 61,432 | (23,122 | ) | 1,661,692 | |||||||||||
Other
investments
|
5,684 | — | (135 | ) | 5,549 | |||||||||||
Total
investments
|
$ | 1,629,066 | $ | 61,432 | $ | (23,257 | ) | $ | 1,667,241 |
The
contractual maturities of our fixed maturities as of March 31, 2010 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.
8
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
As
at March 31, 2010
|
Amortized
Cost
|
Fair
Value
|
%
of Total
Fair
Value
|
|||||||||
Maturity
|
|
|
|
|||||||||
Due
in one year or less
|
$
|
168,341
|
$
|
171,972
|
9.96
|
%
|
||||||
Due
after one year through five years
|
181,342
|
187,816
|
10.88
|
%
|
||||||||
Due
after five years through ten years
|
415,670
|
433,300
|
25.10
|
%
|
||||||||
Due
after ten years
|
89,615
|
98,460
|
5.70
|
%
|
||||||||
|
854,968
|
891,548
|
51.64
|
%
|
||||||||
Mortgage
and asset-backed securities
|
814,465
|
834,924
|
48.36
|
%
|
||||||||
Total
|
$
|
1,669,433
|
$
|
1,726,472
|
100.00
|
%
|
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
|
||||||||||||||||||||||
March
31, 2010
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Available-for-sale
securities:
|
|
|
|
|
|
|
||||||||||||||||||
U.S. treasury
bonds
|
$ | 7,615 | $ | (180 | ) | $ | — | $ | — | $ | 7,615 | $ | (180 | ) | ||||||||||
U.S.
agency bonds – mortgage and asset backed
|
181,777 | (931 | ) | 31,417 | (6 | ) | 213,194 | (937 | ) | |||||||||||||||
U.S.
agency bonds - other
|
2,004 | (1 | ) | — | — | 2,004 | (1 | ) | ||||||||||||||||
Corporate
fixed maturities
|
40,527 | (621 | ) | 192,120 | (11,448 | ) | 331,851 | (12,069 | ) | |||||||||||||||
|
$ | 231,923 | $ | (1,733 | ) | $ | 223,537 | $ | (11,454 | ) | $ | 455,460 | $ | (13,187 | ) | |||||||||
Other
investments
|
$ | — | $ | — | $ | 4,919 | $ | (80 | ) | $ | 4,919 | $ | (80 | ) | ||||||||||
Total
temporarily impaired available-for-sale securities and other
investments
|
$ | 231,923 | $ | (1,733 | ) | $ | 228,456 | $ | (11,534 | ) | $ | 460,379 | $ | (13,267 | ) |
As
of March 31, 2010, there were approximately 32 securities in an unrealized loss
position with a fair value of $460,379 and unrealized losses of $13,267. Of
these securities, there are 14 securities that have been in an unrealized loss
position for 12 months or greater with a fair value of $228,456 and unrealized
losses of $11,534.
Less
than 12 Months
|
12
Months or More
|
Total
|
||||||||||||||||||||||
December
31, 2009
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
U.S. treasury
bonds
|
$ | 8,632 | $ | (283 | ) | $ | — | $ | — | $ | 8,632 | $ | (283 | ) | ||||||||||
U.S.
agency bonds – mortgage and asset-backed
|
235,013 | (2,319 | ) | 694 | (2 | ) | 235,707 | (2,321 | ) | |||||||||||||||
U.S.
agency bonds – other
|
59,511 | (447 | ) | — | — | 59,511 | (447 | ) | ||||||||||||||||
Corporate
fixed maturities
|
11,687 | (619 | ) | 193,676 | (19,452 | ) | 205,363 | (20,071 | ) | |||||||||||||||
|
$ | 314,843 | $ | (3,668 | ) | $ | 194,370 | $ | (19,454 | ) | $ | 509,213 | $ | (23,122 | ) | |||||||||
Other
investments
|
$ | — | $ | — | $ | 4,864 | $ | (135 | ) | $ | 4,864 | $ | (135 | ) | ||||||||||
Total
temporarily impaired available-for-sale securities and other
investments
|
$ | 314,843 | $ | (3,668 | ) | $ | 199,234 | $ | (19,589 | ) | $ | 514,077 | $ | (23,257 | ) |
As
of December 31, 2009, there were approximately 34 securities in an unrealized
loss position with a fair value of $514,077 and unrealized losses of $23,257. Of
these securities, there are 14 securities that have been in an unrealized loss
position for 12 months or greater with a fair value of $199,234 and unrealized
losses of $19,589.
9
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
3. Investments
(continued)
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 March 31, 2010, 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
period ended March 31, 2010 and 2009, the Company recognized no other than
temporary impairment losses. Based on our qualitative and
quantitative OTTI review of each asset class within our fixed maturity
portfolio, the remaining unrealized losses on fixed maturities at March 31,
2010, were primarily due to widening of credit spreads relating to the market
illiquidity, rather than credit events. Because it is more likely than not that
we will not 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 March
31, 2010.
(b) Realized
and unrealized gains and losses
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 March 31, 2010
|
Gross
Gains
|
Gross
Losses
|
Net
|
|||||||||
Fixed
maturity securities
|
$ | 312 | $ | — | $ | 312 | ||||||
Other
investments
|
— | — | — | |||||||||
Net
realized gains (losses)
|
$ | 312 | $ | — | $ | 312 |
For
the Three Months Ended March 31, 2009
|
Gross
Gains
|
Gross
Losses
|
Net
|
|||||||||
Fixed
maturity securities
|
$
|
1,755
|
$
|
(3,670
|
)
|
$
|
(1,915
|
)
|
||||
Other
investments
|
—
|
(15
|
)
|
(15
|
)
|
|||||||
Net
realized gains (losses)
|
$
|
1,755
|
$
|
(3,685
|
)
|
$
|
(1,930
|
)
|
Proceeds
from sales of fixed maturities classified as available for sale were $37,737 and
$85,769 for the periods ended March 31, 2010 and 2009,
respectively.
Net
unrealized gain (loss) was as follows:
March
31, 2010
|
March
31, 2009
|
|||||||
Fixed
maturities
|
$
|
57,039
|
$
|
(60,452
|
)
|
|||
Other
investments
|
(80
|
)
|
(533
|
)
|
||||
Total
net unrealized gain (loss)
|
56,959
|
(60,985
|
)
|
|||||
Deferred
income tax expense
|
—
|
—
|
||||||
Net
unrealized losses, net of deferred income tax
|
$
|
56,959
|
$
|
(60,985
|
)
|
|||
Change
in unrealized gain (loss), net of deferred income tax
|
$
|
24,212
|
$
|
(16,486
|
)
|
(c) 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:
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
March
31,
2010 |
December
31,
2009 |
|||||||
Restricted
cash – third party agreements
|
$ | 106,444 | $ | 133,029 | ||||
Restricted
cash – related party agreements
|
10,979 | 11,485 | ||||||
Restricted
cash – U.S. state regulatory authorities
|
216 | 430 | ||||||
Total
restricted cash
|
117,639 | 144,944 | ||||||
Restricted
investments – in Trust for third party agreements at fair value
(amortized cost:
2010 – $914,105; 2009 – $1,011,582)
|
946,098 | 1,022,337 | ||||||
Restricted
investments – in Trust for related party agreements at fair
value (amortized cost: 2010 – $210,275;
2009 – $177,537)
|
235,110 | 195,474 | ||||||
Restricted
investments – in Trust for U.S. state regulatory authorities
(amortized cost: 2010 – $13,316;
2009 – $13,032)
|
13,190 | 12,867 | ||||||
Total
restricted investments
|
1,194,398 | 1,230,678 | ||||||
Total
restricted cash and investments
|
$ | 1,312,037 | $ | 1,375,622 |
(d) 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 March 31, 2010, there were $76,324 principal
amount outstanding at interest rate of 0.22%. Interest expense associated with
these repurchase agreements was $57 for the three months ended March 31, 2010,
out of which $11 was accrued as of March 31, 2010. The Company has approximately
$76,324 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.
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
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.
Junior subordinated debt. The
carrying values reported in the accompanying balance sheets for these financial
instruments approximate their fair value.
(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 March 31, 2010 and December 31, 2009:
March
31, 2010
|
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
|
||||||||||||||||
U.S. treasury
bonds
|
$ | 39,259 | $ | — | $ | — | $ | 39,259 | ||||||||
U.S.
agency bonds – mortgage and asset - backed
|
— | 834,924 | — | 834,924 | ||||||||||||
U.S.
agency bonds – other
|
— | 194,730 | — | 194,730 | ||||||||||||
Corporate
fixed maturities
|
— | 635,300 | — | 635,300 | ||||||||||||
Municipal
bonds
|
— | 22,259 | — | 22,259 | ||||||||||||
Other
investments
|
— | — | 5,601 | 5,601 | ||||||||||||
Total
|
$ | 39,259 | $ | 1,687,213 | $ | 5,601 | $ | 1,732,073 | ||||||||
As
a percentage of total assets
|
1.4 | % | 61.9 | % | 0.2 | % | 63.5 | % | ||||||||
Liabilities
|
||||||||||||||||
Securities
sold under agreements to repurchase
|
$ | — | $ | 76,324 | $ | — | $ | 76,324 | ||||||||
As
a percentage of total liabilities
|
— | 3.8 | % | — | 3.8 | % |
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
December
31, 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
|
||||||||||||||||
U.S. treasury
bonds
|
$ | 39,238 | $ | — | $ | — | $ | 39,238 | ||||||||
U.S.
agency bonds – mortgage and asset-backed
|
— | 794,583 | — | 794,583 | ||||||||||||
U.S.
agency bonds – other
|
— | 221,517 | — | 221,517 | ||||||||||||
Corporate
fixed maturities
|
— | 582,664 | — | 582,664 | ||||||||||||
Municipal
bonds
|
— | 23,690 | — | 23,690 | ||||||||||||
Other
investments
|
— | — | 5,549 | 5,549 | ||||||||||||
Total
|
$ | 39,238 | $ | 1,622,454 | $ | 5,549 | $ | 1,667,241 | ||||||||
As
a percentage of total assets
|
1.5 | % | 61.5 | % | 0.2 | % | 63.2 | % | ||||||||
Liabilities
|
||||||||||||||||
Securities
sold under agreements to repurchase
|
$ | — | $ | 95,401 | $ | — | $ | 95,401 | ||||||||
As
a percentage of total liabilities
|
— | 4.9 | % | — | 4.9 | % |
(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 ended March 31,
2010 and 2009:
Three Months
Ended
March
31, 2010
|
Three Months
Ended
March
31, 2009
|
|||||||
Balance at
beginning of period
|
$ | 5,549 | $ | 5,291 | ||||
Net
realized and unrealized gains – included in net
income
|
— | — | ||||||
Net
realized and unrealized losses – included in net income
|
— | (15 | ) | |||||
Change
in net unrealized gains – included in other comprehensive income
(loss)
|
— | — | ||||||
Change
in net unrealized losses – included in other comprehensive income
(loss)
|
55 | (6 | ) | |||||
Purchases
|
— | 138 | ||||||
Sales
and redemptions
|
(3 | ) | (22 | ) | ||||
Transfers
into Level 3
|
— | — | ||||||
Transfers
out of Level 3
|
— | — | ||||||
Balance
at end of period
|
$ | 5,601 | $ | 5,386 | ||||
Level
3 gains (losses) included in net income attributable to the change in
unrealized gains (losses) relating to assets held at the reporting
date
|
$ | — | $ | (15 | ) |
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.
MAIDEN HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
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.
The
following table shows an analysis of goodwill and intangible assets as of March
31, 2010 and December 31, 2009:
March
31, 2010
|
Gross
|
Accumulated
Amortization
|
Net
|
Useful
Life
|
|||||||||
Goodwill
|
$ | 52,617 | $ | — | $ | 52,617 |
Indefinite
|
||||||
State
licenses
|
7,727 | — | 7,727 |
Indefinite
|
|||||||||
Customer
relationships
|
51,400 | (9,295 | ) | 42,105 |
15 years double declining
|
||||||||
Net
balance
|
$ | 111,744 | $ | (9,295 | ) | $ | 102,449 |
December
31, 2009
|
Gross
|
Accumulated
Amortization
|
Net
|
Useful
Life
|
|||||||||
Goodwill
|
$
|
52,617
|
$
|
—
|
$
|
52,617
|
Indefinite
|
||||||
State
licenses
|
7,727
|
—
|
7,727
|
Indefinite
|
|||||||||
Customer
relationships
|
51,400
|
(7,843
|
)
|
43,557
|
15 years double declining
|
||||||||
Net
balance
|
$
|
111,744
|
$
|
(7,843
|
)
|
$
|
103,901
|
The
goodwill and intangible assets were recognized in 2009 and 2008 as a result of
the GMAC Acquisition and are assigned to Diversified Reinsurance segment.
Goodwill and intangible assets are subject to annual impairment testing. No
impairment was recorded during the three months ended March 31, 2010. The
estimated amortization expense for the next five years is:
March
31,
2010 |
||||
2010
|
$ | 4,356 | ||
2011
|
5,033 | |||
2012
|
4,362 | |||
2013
|
3,781 | |||
2014
|
3,276 |
6. Junior
Subordinated Debt
On
January 20, 2009, the Company completed a private placement of 260,000 units
(the “Units” or the “TRUPS Offering”), each Unit consisting of $1,000 principal
amount of capital securities (the “Trust Preferred Securities”) of Maiden
Capital Financing Trust (the “Trust”), a special purpose trust established by
Maiden Holdings North America, Ltd. ("Maiden NA"), and 45 common shares, $0.01
par value, of the Company (the “Common Shares”), for a purchase price of
$1,000.45 per Unit. We also issued 11,700,000 common shares to the purchasers in
the “TRUPS Offering”. This resulted in gross proceeds to the Company of
$260,117, before $4,342 of placement agent fees and expenses. 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 61.12%.
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.
Under the
terms of the Trust Preferred Securities, the Company can repay the principal
balance in full or in part at any time. However, if the Company repays such
principal within five years of the date of issuance, it is required to pay an
additional amount equal to one full year of interest on the amount of Trust
Preferred Securities repaid. If the full amount of the Trust Preferred
Securities were repaid within five years of the date of issuance, the additional
amount due would be $36,400, which would be a reduction in
earnings.
14
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
6. Junior
Subordinated Debt (continued)
Pursuant
to separate Guarantee Agreements dated as of January 20, 2009 with Wilmington
Trust Company, 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 Topic 810 “Consolidation”, the Trust is a variable interest entity and the
Company is deemed not to be the Primary beneficiary of the Trust and therefore
it is not consolidated. The issuance of common shares associated with the Trust
Preferred Securities resulted in an original issuance discount of $44,928 based
on market price of $3.85 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
March 31, 2010, the stated value of the Trust Preferred Securities was $215,140
which comprises the principal amount of $260,000 and unamortized discount of
$44,860. Amortization expense for the three months ended March 31, 2010 was
$15.
7. Earnings
Per Share
The
following is a summary of the elements used in calculating basic and diluted
earnings per share:
Three
months
ended
March
31, 2010
|
Three
months
ended
March
31, 2009
|
|||||||
Net
income available to common shareholders
|
$
|
13,569
|
$
|
13,100
|
||||
Weighted
average number of common shares outstanding - basic
|
70,291,312
|
67,687,664
|
||||||
Potentially
dilutive securities:
|
||||||||
Warrants
|
—
|
—
|
||||||
Share
options
|
485,482
|
250,126
|
||||||
Weighted
average number of common shares outstanding - diluted
|
70,776,794
|
67,937,790
|
||||||
Basic
and diluted earnings per common share:
|
$
|
0.19
|
$
|
0.19
|
As of
March 31, 2010, 4,050,000 (2009: 4,050,000) warrants and 1,584,964 (2009:
662,000) share options were excluded from the calculation of diluted earnings
per share as they were anti-dilutive.
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 Topic 718 "Compensation - Stock
Compensation" fair value method has resulted in share-based expense (a
component of salaries and benefits) in the amount of approximately $210 and $159
for the three months ended March 31, 2010 and 2009,
respectively.
The key
assumptions used in determining the fair value of options granted in the three
months ended March 31, 2010 and a summary of the methodology applied to develop
each assumption are as follows:
Assumptions:
|
March
31,
2010 |
|||
Volatility
|
29.8-46.0
|
%
|
||
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
|
%
|
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
8. Share
Based Compensation (continued)
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 on NASDAQ. 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 also 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 March 31, 2010:
Three
Months Ended March 31, 2010
|
Number
of
Share
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
|||||||||
Outstanding,
December 31, 2009
|
2,036,542 | $ | 5.79 |
8.86
years
|
||||||||
Granted
|
300,000 | 7.25 |
9.93
years
|
|||||||||
Exercised
|
(468 | ) | 3.28 | — | ||||||||
Cancelled
|
(250 | ) | 3.28 | — | ||||||||
Outstanding,
March 31, 2010
|
2,335,824 | $ | 5.98 |
8.78
years
|
The
following schedule shows all options granted, exercised, expired and exchanged
under the Plan for the three months ended March 31, 2009:
Three
Months Ended March 31, 2009
|
Number
of
Share
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
|||||||||
Outstanding,
December 31, 2008
|
1,519,834 | $ | 10.00 |
9.44
years
|
||||||||
Granted
|
150,000 | 4.39 |
9.91
years
|
|||||||||
Exercised
|
— | — | — | |||||||||
Cancelled
|
(200,000 | ) | 8.32 | — | ||||||||
Outstanding,
March 31, 2009
|
1,469,834 | $ | 5.55 |
9.31
years
|
The weighted
average grant date fair value was $1.76 and $0.82 for all options outstanding at
March 31, 2010 and 2009, respectively. There was approximately $2,647 and $1,878
of total unrecognized compensation cost related to non-vested share-based
compensation arrangements as of March 31, 2010 and 2009,
respectively.
16
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
On March
3, 2010, the Company’s Board of Directors approved a quarterly cash dividend of
$0.065 per common share. This dividend was paid on April 15, 2010 to
shareholders of record on April 1, 2010.
10. Related
Party Transactions
The
Founding Shareholders of Maiden, Michael Karfunkel, George Karfunkel and Barry
Zyskind, are also the principal shareholders, and, respectively, the Chairman of
the Board of Directors, a Director, and the President and Chief Executive
Officer and Director of AmTrust Financial Services, Inc.
(“AmTrust”). In January 2009, Barry Karfunkel was hired as a managing
director of capital investments of Maiden Re Insurance Services, LLC. Barry
Karfunkel is the son of Michael Karfunkel and the brother-in-law of Barry D.
Zyskind. Barry Karfunkel’s employment ended in March 2010. The following
describes transactions between the Company and AmTrust.
AmTrust
Quota Share Reinsurance Agreement
Effective
July 1, 2007, the Company and AmTrust entered into a master agreement, as
amended (the “Master Agreement”), by which they caused AmTrust’s Bermuda
reinsurance subsidiary, AmTrust International Insurance, Ltd. (“AII”) and Maiden
Insurance Company Ltd. (“Maiden Insurance” or “Maiden Bermuda”) to enter into
the Reinsurance Agreement by which (a) AII retrocedes to Maiden Insurance an
amount equal to 40% of the premium written by subsidiaries of AmTrust, net of
the cost of unaffiliated inuring reinsurance (and in the case of AmTrust’s U.K.
insurance subsidiary, IGI Insurance Company Limited (“IGI”), net of commissions)
and 40% of losses and (b) AII transferred to Maiden Insurance 40% of the AmTrust
subsidiaries’ unearned premium reserves, effective as of July 1, 2007, with
respect to the current lines of business, excluding risks for which the AmTrust
subsidiaries’ net retention exceeds $5,000 (“Covered Business”). AmTrust also
has agreed to cause AII, subject to regulatory requirements, to reinsure any
insurance company which writes Covered Business in which AmTrust acquires a
majority interest to the extent required to enable AII to cede to Maiden
Insurance 40% of the premiums and losses related to such Covered Business. The
Agreement further provides that AII receives a ceding commission of 31% of ceded
written premiums. The Reinsurance Agreement has an initial term of three years,
which has been extended for three years through June 30, 2013, and will
automatically renew for successive three year terms thereafter, unless either
AII or Maiden Insurance notifies the other of its election not to renew not less
than nine months prior to the end of any such three year term. In addition,
either party is entitled to terminate on thirty days notice or less upon the
occurrence of certain early termination events, which include a default in
payment, insolvency, change in control of AII or Maiden Insurance, run-off, or a
reduction of 50% or more of the shareholders’ equity of Maiden Insurance or the
combined shareholders’ equity of AII and the AmTrust subsidiaries.
On June
11, 2008, the Company and AmTrust amended the Reinsurance Agreement to add
Retail Commercial Package Business to the Covered Business as a consequence of
AmTrust’s acquisition of Unitrin Business Insurance (UBI). Under the amendment,
AmTrust’s subsidiaries cede, upon collection, to Maiden 100% of $82.2 million of
unearned premium (net of inuring reinsurance) from the acquisition of UBI’s
in-force book of business. Additionally, AmTrust cedes to Maiden 40% of net
premium written, effective as of June 1, 2008. Maiden will pay to AmTrust a
ceding commission of 34.375% on the unearned premium cession and the Retail
Commercial Package Business. The $2,000 maximum liability for a single loss
provided in the Quota Share Reinsurance Agreement shall not be applicable to
Retail Commercial Package Business.
On
February 9, 2009, AII and Maiden Insurance amended the Reinsurance Agreement to
clarify that (i) AII would offer Maiden Insurance the opportunity to reinsure
Excess Retention Business, which is defined as a policy issued by an AmTrust
insurance subsidiary with respect to which the insurance subsidiary’s retention
is greater than $5 million and (ii) the deduction for the cost of inuring
reinsurance from Affiliate Subject Premium (as defined in the Reinsurance
Agreement) retroceded to Maiden Insurance is net of ceding
commission.
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
The
Company recorded approximately $34,765 and $29,254 of ceding commission expense
for the three months ended March 31, 2010 and 2009, respectively as a result of
this transaction.
Other
Reinsurance Agreements
Effective
January 1, 2008 the Company and AmTrust entered into an agreement to reinsure a
45% participation in the $9 million in excess of $1 million layer of AmTrust’s
workers’ compensation excess of loss program. This layer provides reinsurance to
AmTrust for losses per occurrence in excess of $1 million up to $10 million,
subject to an annual aggregate deductible of $1.25 million. This participation
was sourced through a reinsurance intermediary via open market placement in
which competitive bids were solicited by an independent broker. The remaining
55% participation was placed with a single carrier. This coverage expired on
January 1, 2010; as a
result, under the Master Agreement the Company therefore now reinsures 40% of
the subject workers’ compensation business up to $10 million, subject to certain
additional inuring reinsurance protection AmTrust has
purchased.
As of
January 1, 2008, the Company had a 50% participation in a $4 million in excess
of $1 million specialty transportation program written by AmTrust. Starting
January 1, 2009, we had a 30% participation in a $4 million in excess of $1
million specialty transportation program written by AmTrust. This program
provides primarily commercial auto coverage and, to a lesser extent, general
liability coverage to private non-emergency para-transit and school bus service
operators. This participation was sourced through a reinsurance intermediary via
open market placement in which competitive bids were solicited by an independent
broker. Several other broker market reinsurers hold the other 50% and 70%
participation for 2008 and 2009 policies, respectively. The agreement was not
renewed as of January 1, 2010.
Collateral
provided to AmTrust
In order
to provide AmTrust’s U.S. insurance subsidiaries with credit for reinsurance on
their statutory financial statements, AII, as the direct reinsurer of the
AmTrust’s insurance subsidiaries, has established trust accounts (“Trust
Accounts”) for their benefit. Maiden Insurance has agreed to provide appropriate
collateral to secure its proportional share under the Quota Share Agreement of
AII’s obligations to the AmTrust subsidiaries to whom AII is required to provide
collateral. This collateral may be in the form of (a) assets loaned by Maiden
Insurance to AII, for deposit into the Trust Accounts, pursuant to a loan
agreement between those parties, (b) assets transferred by Maiden Insurance, for
deposit into the Trust Accounts, (c) a letter of credit obtained by Maiden
Insurance and delivered to an AmTrust subsidiary on AII’s behalf (a “Letter of
Credit”), or (d) premiums withheld by an AmTrust subsidiary at Maiden
Insurance’s request in lieu of remitting such premiums to AII (“Withheld
Funds”). Maiden Insurance may provide any or a combination of these forms of
collateral, provided that the aggregate value thereof equals Maiden Insurance’s
proportionate share of its obligations under the Quota Share Agreement with AII.
If collateral is required to be provided to any AmTrust subsidiary under
applicable law or regulatory requirements, Maiden Insurance will provide
collateral to the extent required, although Maiden Insurance does not expect
that such collateral will be required unless an AmTrust subsidiary is domiciled
in the United States.
Maiden
Insurance satisfied its collateral requirements under the Quota Share Agreement
with AII as follows:
·
|
by
lending funds in the amount of $167,975 as at March 31, 2010 and December
31, 2009 to AII pursuant to a loan agreement entered into between those
parties. This loan is carried at cost. The amount of collateral Maiden
Insurance is required to maintain, which is determined quarterly, equals
its proportionate share of (a) the amount of ceded paid losses for which
AII is responsible to such AmTrust subsidiaries but has not yet paid, (b)
the amount of ceded loss reserves (including ceded reserves for claims
reported but not resolved and losses incurred but not reported) for which
AII is responsible to AmTrust subsidiaries, and (c) the amount of ceded
reserves for unearned premiums ceded by AmTrust subsidiaries to AII.
Pursuant to the Master Agreement, AmTrust has agreed to cause AII not to
commingle Maiden Insurance’s assets with AII’s other assets and to cause
the AmTrust subsidiaries not to commingle Maiden Insurance’s assets with
the AmTrust subsidiaries’ other assets if an AmTrust subsidiary withdraws
those assets. AII has agreed that, if an AmTrust subsidiary returns to AII
excess assets withdrawn from a Trust Account, drawn on a Letter of Credit
or maintained by such AmTrust subsidiary as Withheld Funds, AII will
immediately return to Maiden Insurance its proportionate share of such
excess assets. AII has further agreed that if the aggregate fair market
value of the amount of Maiden Insurance’s assets held in the Trust Account
exceeds Maiden Insurance’s proportionate share of AII’s obligations, or if
an AmTrust subsidiary misapplies any such collateral, AII will immediately
return to Maiden Insurance an amount equal to such excess or misapplied
collateral, less any amounts AII has paid to Maiden Insurance. In
addition, if an AmTrust subsidiary withdraws Maiden Insurance’s assets
from a Trust Account and maintains those assets on its books as withheld
funds, AII has agreed to pay to Maiden Insurance interest at the rate
equivalent to the one-month London Interbank Offered Rate (“LIBOR”) plus
90 basis points per annum computed on the basis of a 360-day year on the
loan (except to the extent Maiden Insurance’s proportionate share of AII’s
obligations to that AmTrust subsidiary exceeds the value of the collateral
Maiden Insurance has provided), and net of unpaid fees Maiden Insurance
owes to AIIM and its share of fees owed to the trustee of the Trust
Accounts.
|
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
·
|
effective
December 1, 2008, the Company entered into a Reinsurer Trust Assets
Collateral agreement to provide to AII sufficient collateral to secure its
proportional share of AII’s obligations to the U.S. AmTrust subsidiaries.
The amount of the collateral, as at March 31, 2010 was approximately
$246,089 (December 31, 2009 – $206,960) and the accrued interest
was $2,718 (December 31,
2009 – $1,956).
|
Reinsurance
Brokerage Agreements
Effective
July 1, 2007, the Company entered into a reinsurance brokerage agreement with
AII Reinsurance Broker Ltd., a subsidiary of AmTrust. Pursuant to the brokerage
agreement, AII Reinsurance Broker Ltd. provides brokerage services relating to
the Quota Share Reinsurance Agreement for a fee equal to 1.25% of the premium
reinsured from AII. The brokerage fee is payable in consideration of AII
Reinsurance Broker Ltd’s brokerage services. AII Reinsurance Broker Ltd. is not
the Company’s exclusive broker. AII Reinsurance Broker Ltd. may, if
mutually agreed, also produce reinsurance for the Company from other ceding
companies, and in such cases the Company will negotiate a mutually acceptable
commission rate. The Company recorded approximately $1,383 and $1,155 of
reinsurance brokerage expense for the three months ended March 31, 2010 and
2009, respectively, and deferred reinsurance brokerage of $3,401 and $3,265 as
at March 31, 2010 and December 31, 2009, respectively, as a result of this
agreement.
Effective
April 1, 2008, the Company entered into brokerage services agreements with IGI
Intermediaries Limited and IGI Inc. (“IGI”), both subsidiaries of AmTrust.
Pursuant to the brokerage services agreements, IGI provides marketing services
to us which includes providing marketing material to potential policyholders,
providing us with market information on new trends and business opportunities
and referring new brokers and potential policyholders to us. A fee equal to
IGI‘s costs in providing such services plus 8% is payable in consideration of
IGI’s marketing services. The Company recorded approximately $nil and $152
expense, which is included in other operating expenses, for the three ended
March 31, 2010 and 2009, respectively.
Effective
July 1, 2007 and as amended, the Company entered into an asset management
agreement with AII Insurance Management Limited (“AIIM”), an AmTrust subsidiary,
pursuant to which AIIM has agreed to provide investment management services to
the Company. Pursuant to the asset management agreement, AIIM
provides investment management services for an annual fee equal to 0.35% of
average invested assets plus all costs incurred. Effective April 1,
2008, the investment management services annual fee has been reduced to 0.20% if
the average value of the account is less than $1 billion and 0.15% if the
average value of the account is greater than $1 billion. The Company
recorded approximately $656 and $597 of investment management fees for the three
months ended March 31, 2010 and 2009, respectively, as a result of this
agreement.
ACAC
Quota Share Reinsurance Agreement
On March
1, 2010, the Company entered into a three year 25% quota share reinsurance
agreement with American Capital Acquisition Corporation (“ACAC”).
ACAC is
an insurance holding company owned by the 2005 Michael Karfunkel Grantor
Retained Annuity Trust (the “Trust”), which in turn is controlled by Michael
Karfunkel (“Karfunkel”), Karfunkel, individually, and AmTrust. ACAC, on March 1,
2010, acquired from GMAC Insurance Holdings, Inc. and Motors Insurance
Corporation (collectively, “GMAC”), GMAC’s personal lines automobile business.
Karfunkel is a Founding Shareholder of the Company. In addition, Karfunkel is
the chairman of the board of directors of ACAC and Barry D. Zyskind, the
Company’s
Chairman, is serving as an executive of ACAC on an interim
basis.
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
10. Related
Party Transactions (continued)
The
Company, subject to all required regulatory approval, effective March 1, 2010,
shall reinsure 25% of the net premiums of the GMAC personal lines business,
pursuant to a 50% quota share reinsurance agreement (“ACAC Quota Share”) with
the GMAC personal lines insurance companies, as cedents, and the Company, MK Re,
Ltd., a Bermuda reinsurer which is a wholly-owned subsidiary of the Trust, and
AmTrust., as reinsurers. The Company has a 50% participation in the ACAC Quota
Share, by which it receives 25% of net premiums of the personal lines business.
The ACAC Quota Share provides that the reinsurers, severally, in accordance with
their participation percentages, shall receive 50% of the net premium of the
GMAC personal lines insurance companies and assume 50% of the related net
losses. The ACAC Quota Share has an initial term of three years and shall renew
automatically for successive three year terms unless terminated by written
notice not less than nine months prior to the expiration of the current term.
Notwithstanding the foregoing, the Company’s participation in the Personal Lines
Quota Share may be terminated by the ACAC on 60 days written notice in the event
the Company becomes insolvent, is placed into receivership, its financial
condition is impaired by 50% of the amount of its surplus at the inception of
the ACAC Quota Share or latest anniversary, whichever is greater, is subject to
a change of control, or ceases writing new and renewal business. ACAC also may
terminate the agreement on nine months written notice following the effective
date of initial public offering or private placement of stock by ACAC or a
subsidiary. The Company may terminate its participation in the ACAC Quota Share
on 60 days written notice in the event ACAC is subject to a change of control,
cease writing new and renewal business, effects a reduction in their net
retention without the Company’s consent or fails to remit premium as required by
the terms of the ACAC Quota Share. The ACAC Quota Share provides that the
reinsurers pay a provisional ceding commission equal to 32.5% of ceded earned
premium, net of premiums ceded by the personal lines companies for inuring
reinsurance, subject to adjustment. The ceding commission is subject to
adjustment to a maximum of 34.5% if the loss ratio for the reinsured business is
60.5% or less and a minimum of 30.5% if the loss ratio is 64.5% or higher. We
believe that the terms, conditions and pricing of the ACAC Quota Share have been
determined by arm’s length negotiations and reflect current market terms and
conditions.
The
Company recorded approximately $679 of ceding commission expense for the three
months ended March 31, 2010 as a result of this transaction.
11. Segments
The
Company currently operates three business segments, Diversified Reinsurance,
AmTrust Quota Share and ACAC Quota Share. The Company evaluates segment
performance based on segment profit separately from the results of our
investment portfolio. Other operating expenses allocated to the segments are
called General and Administrative expenses which are allocated on an actual
basis except salaries and benefits where management’s judgment is applied; the
Company does not allocate general corporate expenses to the segments. In
determining total assets by segment the Company identifies those assets that are
attributable to a particular segment such as reinsurance receivable, deferred
commissions and acquisition cost, loans, goodwill and intangibles, and
restricted cash and investments. All remaining assets are allocated to
Corporate.
20
MAIDEN
HOLDINGS, LTD.
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
11. Segments (continued)
The
following tables summarize the underwriting results of our operating segments:
For
the three months ended March 31, 2010
|
Diversified
Reinsurance
|
AmTrust
Quota Share
|
ACAC
Quota
Share
|
Total
|
||||||||||||
Net
premiums written
|
$
|
167,914
|
$
|
121,556
|
$
|
21,821
|
$
|
311,291
|
||||||||
Net
premiums earned
|
151,180
|
110,659
|
2,090
|
263,929
|
||||||||||||
Net
losses and loss expenses
|
(99,417
|
)
|
(69,562
|
)
|
(1,306
|
)
|
(170,285
|
)
|
||||||||
Commissions
and other acquisition costs
|
(40,514
|
)
|
(36,148
|
)
|
(734
|
)
|
(77,396
|
)
|
||||||||
General
and administrative expenses
|
(5,872
|
)
|
(474
|
)
|
—
|
(6,346
|
)
|
|||||||||
Underwriting
income
|
$
|
5,377
|
$
|
4,475
|
$
|
50
|
$
|
9,902
|
||||||||
Reconciliation
to net income
|
||||||||||||||||
Net
investment income and realized (loss)
|
17,893
|
|||||||||||||||
Amortization
of intangible assets
|
(1,452
|
)
|
||||||||||||||
Foreign
exchange loss
|
(1,153
|
)
|
||||||||||||||
Subordinated
debt interest expense
|
(9,115
|
)
|
||||||||||||||
Other
operating expenses
|
(2,206
|
)
|
||||||||||||||
Net
Income before income taxes
|
$
|
13,869
|
||||||||||||||
Net
loss and loss expense ratio*
|
65.7
|
%
|
62.9
|
%
|
62.5
|
%
|
64.5
|
%
|
||||||||
Acquisition
cost ratio**
|
26.8
|
%
|
32.7
|
%
|
35.1
|
%
|
29.3
|
%
|
||||||||
General
and administrative expense ratio***
|
3.9
|
%
|
0.4
|
%
|
—
|
%
|
3.3
|
%
|
||||||||
Combined
ratio****
|
96.4
|
%
|
96.0
|
%
|
97.6
|
%
|
97.1
|
%
|
For
the three months ended March 31, 2009
|
Diversified
Reinsurance
|
AmTrust
Quota Share
|
ACAC
Quota
Share
|
Total
|
||||||||||||
Net
premiums written
|
$
|
251,177
|
$
|
85,371
|
$
|
—
|
$
|
336,548
|
||||||||
Net
premiums earned
|
117,67
2
|
92,420
|
—
|
210,092
|
||||||||||||
Net
losses and loss expenses
|
(89,016
|
)
|
(57,272
|
)
|
—
|
(146,288
|
)
|
|||||||||
Commissions
and other acquisition costs
|
(16,222
|
)
|
(30,409
|
)
|
—
|
(46,631
|
)
|
|||||||||
General
and administrative expenses
|
(5,726
|
)
|
(374
|
)
|
—
|
(6,100
|
)
|
|||||||||
Underwriting
income
|
$
|
6,708
|
$
|
4,365
|
$
|
—
|
$
|
11,073
|
||||||||
Reconciliation
to net income
|
||||||||||||||||
Net
investment income and realized (loss)
|
12,329
|
|||||||||||||||
Amortization
of intangible assets
|
(1,564
|
)
|
||||||||||||||
Foreign
exchange loss
|
(213
|
)
|
||||||||||||||
Subordinated
debt interest expense
|
(7,090
|
)
|
||||||||||||||
Other
operating expenses
|
(1,435
|
)
|
||||||||||||||