Attached files
file | filename |
---|---|
EX-32.2 - Maiden Holdings, Ltd. | v192933_ex32-2.htm |
EX-32.1 - Maiden Holdings, Ltd. | v192933_ex32-1.htm |
EX-31.2 - Maiden Holdings, Ltd. | v192933_ex31-2.htm |
EX-31.1 - Maiden Holdings, Ltd. | v192933_ex31-1.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 June 30, 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
|
98-0570192
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
131 Front Street, Hamilton,
Bermuda
|
HM12
|
(Address
of principal executive offices)
|
(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 x
|
|
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
August 5, 2010, the Registrant had one class of Common Stock ($.01 par
value),
of which
70,293,106 shares were issued and outstanding.
INDEX
Page
|
||
PART
I - Financial Information
|
||
Item
1. Financial Statements
|
||
Condensed
Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December
31, 2009
|
3
|
|
Condensed
Consolidated Statement of Income and Comprehensive Income for the three
and six months ended June 30, 2010 and 2009 (unaudited)
|
4
|
|
Condensed
Consolidated Statement of Changes in Shareholders’ Equity for the six
months ended June 30, 2010 and 2009 (unaudited)
|
5
|
|
Condensed
Consolidated Statement of Cash Flows for the six months ended June 30,
2010 and 2009 (unaudited)
|
6
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
29
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
51
|
|
Item
4. Controls and Procedures
|
53
|
|
PART
II - Other Information
|
||
Item
6. Exhibits
|
54
|
|
Signatures
|
55
|
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)
June 30,
2010
(Unaudited)
|
December 31,
2009
(Audited) |
|||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Fixed
maturities, available for sale, at fair value
(Amortized
cost 2010: $1,576,293; 2009: $1,623,382)
|
$ | 1,633,906 | $ | 1,661,692 | ||||
Other
investments, at fair value (Cost 2010: $5,801;
2009:$5,684)
|
5,677 | 5,549 | ||||||
Total
investments
|
1,639,583 | 1,667,241 | ||||||
Cash
and cash equivalents
|
179,063 | 107,396 | ||||||
Restricted
cash and cash equivalents
|
168,396 | 144,944 | ||||||
Accrued
investment income
|
13,643 | 11,405 | ||||||
Reinsurance
balances receivable (includes $95,610 and $43,382 from related parties in
2010 and 2009, respectively)
|
271,199 | 208,495 | ||||||
Prepaid
reinsurance
|
31,762 | 28,752 | ||||||
Reinsurance
recoverable on unpaid losses
|
12,144 | 11,984 | ||||||
Loan
to related party
|
167,975 | 167,975 | ||||||
Deferred
commission and other acquisition costs (includes $113,425 and $85,979 from
related parties in 2010 and 2009, respectively)
|
196,912 | 172,983 | ||||||
Other
assets
|
54,855 | 11,818 | ||||||
Intangible
assets, net
|
48,380 | 51,284 | ||||||
Goodwill
|
52,617 | 52,617 | ||||||
Total
assets
|
$ | 2,836,529 | $ | 2,636,894 | ||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Liabilities
|
||||||||
Reserve
for loss and loss adjustment expenses (includes $215,506 and $174,046 from
related parties in 2010 and 2009, respectively)
|
$ | 1,077,084 | $ | 1,006,320 | ||||
Unearned
premiums (includes $346,126 and $264,751 from related parties in 2010 and
2009, respectively)
|
664,685 | 583,478 | ||||||
Accrued
expenses and other liabilities
|
83,843 | 60,044 | ||||||
Securities
sold under agreements to repurchase, at contract value
|
70,972 | 95,401 | ||||||
Junior
subordinated debt
|
215,156 | 215,125 | ||||||
Total
liabilities
|
2,111,740 | 1,960,368 | ||||||
Commitments
and Contingencies
|
||||||||
Shareholders’
equity
|
||||||||
Common
shares ($0.01 par
value;71,254,437 and 71,253,625 shares issued in 2010 and 2009,
respectively;70,292,101 and 70,291,289 shares outstanding in 2010 and
2009, respectively)
|
713 | 713 | ||||||
Additional
paid-in capital
|
576,539 | 576,086 | ||||||
Accumulated
other comprehensive income
|
57,489 | 32,747 | ||||||
Retained
earnings
|
93,849 | 70,781 | ||||||
Treasury
shares, at cost (2010
and 2009: 962,336 shares)
|
(3,801 | ) | (3,801 | ) | ||||
Total
shareholders’ equity
|
724,789 | 676,526 | ||||||
Total
liabilities and shareholders’ equity
|
$ | 2,836,529 | $ | 2,636,894 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
3
CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In
Thousands of United States Dollars, Except Per Share Data)
(Unaudited)
For the Three
Months Ended
June 30, 2010
|
For the Three
Months Ended
June 30, 2009
|
For the Six
Months Ended
June 30, 2010
|
For the Six
Months Ended
June 30, 2009
|
|||||||||||||
Revenues:
|
||||||||||||||||
Gross
premiums written
|
$ | 334,784 | $ | 238,356 | $ | 662,166 | $ | 574,905 | ||||||||
Net
premiums written
|
$ | 313,050 | $ | 238,356 | $ | 624,341 | $ | 574,905 | ||||||||
Change
in unearned premiums
|
(29,266 | ) | (14,515 | ) | (76,628 | ) | (140,972 | ) | ||||||||
Net
earned premium
|
283,784 | 223,841 | 547,713 | 433,933 | ||||||||||||
Net
investment income
|
18,875 | 15,113 | 36,456 | 29,372 | ||||||||||||
Net
realized and unrealized investment gains (losses)
|
535 | 1,534 | 847 | (396 | ) | |||||||||||
Total
revenues
|
303,194 | 240,488 | 585,016 | 462,909 | ||||||||||||
Expenses:
|
||||||||||||||||
Loss
and loss adjustment expenses
|
175,354 | 151,057 | 345,639 | 297,345 | ||||||||||||
Commission
and other acquisition expenses
|
88,447 | 57,664 | 165,843 | 104,295 | ||||||||||||
Other
operating expenses
|
9,484 | 7,133 | 18,036 | 14,667 | ||||||||||||
Subordinated
debt interest expense
|
9,116 | 9,112 | 18,231 | 16,202 | ||||||||||||
Amortization
of intangible assets
|
1,452 | 1,675 | 2,904 | 3,239 | ||||||||||||
Foreign
exchange loss (gain)
|
414 | (2,404 | ) | 1,567 | (2,191 | ) | ||||||||||
Total
expenses
|
284,267 | 224,237 | 552,220 | 433,557 | ||||||||||||
Income
before income taxes
|
18,927 | 16,251 | 32,796 | 29,352 | ||||||||||||
Income
taxes:
|
||||||||||||||||
Current
tax expense
|
– | – | – | – | ||||||||||||
Deferred
tax expense
|
290 | – | 590 | – | ||||||||||||
Income
tax expense
|
290 | – | 590 | – | ||||||||||||
Net
income
|
$ | 18,637 | $ | 16,251 | $ | 32,206 | $ | 29,352 | ||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
$ | 18,637 | $ | 16,251 | $ | 32,206 | $ | 29,352 | ||||||||
Other
comprehensive income
|
||||||||||||||||
Net
unrealized holdings gains arising during the period
|
3,784 | 47,423 | 28,308 | 29,006 | ||||||||||||
Adjustment
for reclassification of realized (gains) losses recognized in net
income
|
(3,254 | ) | (1,534 | ) | (3,566 | ) | 396 | |||||||||
Other
comprehensive income
|
530 | 45,889 | 24,742 | 29,402 | ||||||||||||
Comprehensive
income
|
$ | 19,167 | $ | 62,140 | $ | 56,948 | $ | 58,754 | ||||||||
Basic
earnings per common share
|
$ | 0.27 | $ | 0.23 | $ | 0.46 | $ | 0.43 | ||||||||
Diluted
earnings per common share
|
$ | 0.26 | $ | 0.23 | $ | 0.46 | $ | 0.42 | ||||||||
Dividends
declared per common share
|
$ | 0.065 | $ | 0.06 | $ | 0.13 | $ | 0.12 |
For the Three
Months Ended
June 30, 2010
|
For the Three
Months Ended
June 30, 2009
|
For the Six
Months Ended
June 30, 2010
|
For the Six
Months Ended
June 30, 2009
|
|||||||||||||
Net
realized and unrealized 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 and unrealized investment gains (losses)
|
535 | 1,534 | 847 | (396 | ) | |||||||||||
Net
realized and unrealized investment gains (losses)
|
$ | 535 | $ | 1,534 | $ | 847 | $ | (396 | ) |
See accompanying notes to the
unaudited condensed consolidated financial statements.
4
MAIDEN
HOLDINGS, LTD.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In
Thousands of United States Dollars)
(Unaudited)
For the Six
Months Ended
June 30, 2010
|
For the Six
Months Ended
June 30, 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
|
3 | 44,928 | ||||||
Share
based compensation
|
450 | 276 | ||||||
Balance
– end of period
|
576,539 | 575,723 | ||||||
Accumulated
other comprehensive income (loss)
|
||||||||
Balance
– beginning of period
|
32,747 | (44,499 | ) | |||||
Net
unrealized gains on securities
|
24,742 | 29,402 | ||||||
Balance
– end of period
|
57,489 | (15,097 | ) | |||||
Retained
earnings
|
||||||||
Balance
– beginning of period
|
70,781 | 26,944 | ||||||
Net
income
|
32,206 | 29,352 | ||||||
Dividends
on common shares
|
(9,138 | ) | (8,435 | ) | ||||
Balance
– end of period
|
93,849 | 47,861 | ||||||
Treasury
shares
|
||||||||
Balance
– beginning of period
|
(3,801 | ) | (3,801 | ) | ||||
Shares
repurchased
|
– | – | ||||||
Balance
– end of period
|
(3,801 | ) | (3,801 | ) | ||||
Total
Shareholders’ Equity
|
$ | 724,789 | $ | 605,399 |
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 Six
Months Ended
June 30, 2010
|
For the Six
Months Ended
June 30, 2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 32,206 | $ | 29,352 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization of intangibles
|
3,530 | 3,502 | ||||||
Net
realized and unrealized (gain) loss on investments
|
(847 | ) | 396 | |||||
Foreign
exchange loss (gain) on revaluation
|
1,567 | (2,191 | ) | |||||
Amortization
of share-based compensation expense, bond premium and discount and trust
preferred securities discount
|
(3,599 | ) | (2,822 | ) | ||||
Changes
in assets - (increase) decrease:
|
||||||||
Reinsurance
balances receivable
|
(77,450 | ) | (157,679 | ) | ||||
Prepaid
reinsurance
|
(3,010 | ) | – | |||||
Accrued
investment income
|
(2,238 | ) | (308 | ) | ||||
Deferred
commission and other acquisition costs
|
(23,929 | ) | (66,925 | ) | ||||
Other
assets
|
42,745 | (1,041 | ) | |||||
Changes
in liabilities – increase (decrease):
|
||||||||
Loss
and loss adjustment expense reserves
|
70,776 | 42,102 | ||||||
Unearned
premiums
|
81,207 | 140,972 | ||||||
Accrued
expenses and other liabilities
|
36,978 | (24,011 | ) | |||||
Net
cash provided by (used in) operating activities
|
72,446 | (38,653 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of investments:
|
||||||||
Purchases
of fixed-maturity securities – available for sale
|
(406,277 | ) | (415,611 | ) | ||||
Purchases
of fixed-maturity securities – trading
|
(509,394 | ) | – | |||||
Purchases
of other investments
|
(123 | ) | (138 | ) | ||||
Sale
of investments:
|
||||||||
Proceeds
from sales of fixed-maturity securities – available for
sale
|
173,687 | 134,384 | ||||||
Proceeds
from sales of fixed-maturity securities – trading and short
sales
|
558,388 | – | ||||||
Proceeds
from maturities and calls of fixed-maturity securities
|
241,703 | 116,139 | ||||||
Proceeds
from redemption of other investments
|
6 | 127 | ||||||
(Increase)
decrease in restricted cash and cash equivalents
|
(23,452 | ) | 97,394 | |||||
Loan
to related party
|
– | – | ||||||
Purchase
of capital assets
|
(918 | ) | (201 | ) | ||||
Net
cash provided by (used in) in investing activities
|
33,620 | (67,906 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Repurchase
agreements, net
|
(24,429 | ) | (123,849 | ) | ||||
Common
share issuance
|
3 | 117 | ||||||
Junior
subordinated debt issuance
|
– | 260,000 | ||||||
Junior
subordinated debt issuance cost
|
– | (4,342 | ) | |||||
Dividend
paid
|
(9,138 | ) | (7,733 | ) | ||||
Net
cash (used in) provided by financing activities
|
(33,564 | ) | 124,193 | |||||
Effect
of exchange rate changes on foreign currency cash
|
(835 | ) | 1,246 | |||||
Net
increase in cash and cash equivalents
|
71,667 | 18,880 | ||||||
Cash
and cash equivalents, beginning of period
|
107,396 | 131,897 | ||||||
Cash
and cash equivalents, end of period
|
$ | 179,063 | $ | 150,777 | ||||
Supplemental
information on cash flows
|
||||||||
Cash
paid for interest
|
$ | 18,200 | $ | 8,594 | ||||
Reinsurance
balances receivables
|
17,806 | – | ||||||
Investments
- fixed maturity securities
|
(17,806 | ) | – | |||||
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.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and 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 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.
There
were no material changes in the application of our critical accounting estimates
subsequent to that report. However, the Company is amending its disclosure with
regard to Fair Value of Financial Instruments to include the
following:
|
·
|
For
investments that have quoted market prices in active markets, the Company
uses the quoted market prices as fair value and includes these prices in
the amounts disclosed in the Level 1 hierarchy. To date we have only
included U.S. government fixed maturity investments as Level 1. The
Company receives the quoted market prices from a third party, nationally
recognized pricing service (“Pricing Service”). When quoted market prices
are unavailable, the Company utilizes the Pricing Service to determine an
estimate of fair value. The fair value estimates are included in the Level
2 hierarchy. The Pricing Service utilizes evaluated pricing models that
vary by asset class and incorporate available trade, bid and other market
information and for structured securities, cash flow and, when available,
loan performance data. The Pricing Service’s evaluated pricing
applications apply available information as applicable through processes
such as benchmark curves, benchmarking of like securities, sector
groupings and matrix pricing, to prepare evaluations. In addition, the
Pricing Service uses model processes, such as the Option Adjusted Spread
model to assess interest rate impact and develop prepayment scenarios. The
market inputs that the Pricing Service normally seeks for evaluations of
securities, listed in approximate order of priority, include: benchmark
yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers and reference data including
market research publications.
|
|
·
|
The
Company typically utilizes the fair values received from the Pricing
Service. If quoted market prices and an estimate from the Pricing Service
are unavailable, the Company produces an estimate of fair value based on
dealer quotations for recent activity in positions with the same or
similar characteristics to that being valued or through consensus pricing
of a pricing service. Depending on the level of observable inputs, the
Company will then determine if the estimate is Level 2 or Level 3
hierarchy. Approximately 96% of the Company’s fixed maturity investments
are categorized as Level 2 within the fair value hierarchy. At June 30,
2010 and December 31, 2009, we have not adjusted any prices provided by
the Pricing Service.
|
|
·
|
The
Company will challenge any prices for its investments that are not
considered to represent fair value. If a fair value is challenged, the
Company will typically obtain a non-binding quote from a broker-dealer;
multiple quotations are not typically sought. As of June 30, 2010 and
December 31, 2009, only one security was valued using the market approach
at approximately $8,549 and $7,948 was priced using a quotation from a
broker as opposed to the Pricing Service. At June 30, 2010 and December
31, 2009 we have not adjusted any pricing provided by the broker-dealers
based on the review performed by our investment
managers.
|
7
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
1.
|
Basis
of Presentation – Summary of Significant Accounting Policies (continued)
|
|
·
|
To
validate prices, the Company compares the fair value estimates to its
knowledge of the current market and will investigate prices that it
considers not to be representative of fair value. In addition, our process
to validate the market prices obtained from the Pricing Service includes,
but is not limited to, periodic evaluation of model pricing methodologies
and analytical reviews of certain prices. We also periodically perform
testing of the market to determine trading activity, or lack of trading
activity, as well as evaluating the variability of market prices.
Securities sold during the quarter are also “back-tested” (i.e., the sales
prices are compared to the previous month end reported market price to
determine the reasonableness of the reported market price). There were no
material differences between the prices from the Pricing Service and the
prices obtained from our validation procedures as of June 30, 2010 and
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.
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.
8
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
2.
|
Recent
Accounting Pronouncements (continued)
|
The
Emerging Issues Task Force (“EITF”) issued EITF Issue No. 09-G,
Clarification of the
Definition of Deferred Acquisition Costs (DAC) of Insurance Entities and
intends to clarify the definition of what constitutes an acquisition cost and
the types of acquisition costs capitalized by an insurance entity. In
November 2009, the EITF reached a consensus-for-exposure that would limit
the costs an entity can include in DAC to those that are “directly related to”
the acquisition of new and renewal insurance contracts. They clarified that the
direct costs only include those that result in the successful acquisition of a
policy and exclude all costs incurred for unsuccessful efforts, along with
indirect costs. The consensus-for-exposure would require that an entity include
only actual costs, not costs expected to be incurred, in DAC.
On
March 18, 2010, the EITF affirmed the previous conclusions from the
proposed consensus that indirect costs and costs of unsuccessful activities
should not be included in capitalized acquisition costs. The EITF also
agreed that advertising costs should be capitalized only when certain
requirements are met. There were further questions on how accounting for
advertising costs interacts with the DAC impairment model and further analysis
was requested. A working group was formed to assist the staff in advising
the EITF on the effective date and transition questions. They met in
May 2010 and have issued a report that was discussed at an EITF meeting on
July 29, 2010. On July 29, 2010 the EITF affirmed the previous
conclusions from the proposed consensus. This literature has the potential
to significantly impact the way insurance companies account for DAC, and
therefore, could potentially have a significant impact on results of
operations. It would result in the need to identify and recognize, as
period costs, those amounts associated with unsuccessful acquisition efforts in
addition to indirect costs. Amounts associated with successful acquisition
efforts would continue to be capitalized and charged to expense in proportion to
premium revenue recognized. As an example, under current guidance, underwriter
salaries are capitalized and amortized over the period in which the associated
premium written is earned as revenue. Under the proposed guidance,
companies would be required to identify the portion of underwriter salaries that
could be attributed to unsuccessful acquisition efforts and expense that amount
in the current period. The EITF is effective for interim and annual
periods beginning on or after December 15, 2011, with either prospective or
retrospective application being permitted.
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 June
30, 2010 and December 31, 2009 are as follows:
As at June 30, 2010
|
Original or
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
Fixed
Maturities:
|
||||||||||||||||
U.S.
treasury bonds
|
$ | 58,359 | $ | 1,070 | $ | (32 | ) | $ | 59,397 | |||||||
U.S.
agency bonds – mortgage and asset-backed
|
707,139 | 26,283 | (556 | ) | 732,866 | |||||||||||
U.S.
agency bonds – other
|
153,015 | 2,703 | (27 | ) | 155,691 | |||||||||||
Corporate
fixed maturities
|
636,535 | 46,367 | (19,077 | ) | 663,825 | |||||||||||
Municipal
bonds
|
21,245 | 882 | – | 22,127 | ||||||||||||
Total
available for sale fixed maturities
|
1,576,293 | 77,305 | (19,692 | ) | 1,633,906 | |||||||||||
Other
investments
|
5,801 | – | (124 | ) | 5,677 | |||||||||||
Total
investments
|
$ | 1,582,094 | $ | 77,305 | $ | (19,816 | ) | $ | 1,639,583 |
As at 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 |
9
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
3.
|
Investments
(continued)
|
The
contractual maturities of our fixed maturities as of June 30, 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.
As at June 30, 2010
|
Amortized Cost
|
Fair
Value
|
% of Total
Fair Value |
|||||||||
Maturity
|
||||||||||||
Due
in one year or less
|
$ | 141,987 | $ | 144,052 | 8.82 | % | ||||||
Due
after one year through five years
|
182,018 | 184,551 | 11.30 | % | ||||||||
Due
after five years through ten years
|
471,429 | 493,020 | 30.17 | % | ||||||||
Due
after ten years
|
73,720 | 79,417 | 4.86 | % | ||||||||
869,154 | 901,040 | 55.15 | % | |||||||||
Mortgage
and asset-backed securities
|
707,139 | 732,866 | 44.85 | % | ||||||||
Total
|
$ | 1,576,293 | $ | 1,633,906 | 100.00 | % |
The
following tables summarize our available for sale securities and other
investments 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
|
||||||||||||||||||||||
As at June 30, 2010
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
Available-for-sale
securities:
|
||||||||||||||||||||||||
U.S.
treasury bonds
|
$ | – | $ | – | $ | 3,341 | $ | (32 | ) | $ | 3,341 | $ | (32 | ) | ||||||||||
U.S.
agency bonds – mortgage and asset-backed
|
56,504 | (556 | ) | – | – | 56,504 | (556 | ) | ||||||||||||||||
U.S.
agency bonds - other
|
6,033 | (27 | ) | – | – | 6,033 | (27 | ) | ||||||||||||||||
Corporate
fixed maturities
|
47,560 | (1,849 | ) | 176,682 | (17,228 | ) | 224,242 | (19,077 | ) | |||||||||||||||
110,097 | (2,432 | ) | 180,023 | (17,260 | ) | 290,120 | (19,692 | ) | ||||||||||||||||
Other
investments
|
– | – | 4,876 | (124 | ) | 4,876 | (124 | ) | ||||||||||||||||
Total
|
$ | 110,097 | $ | (2,432 | ) | $ | 184,899 | $ | (17,384 | ) | $ | 294,996 | $ | (19,816 | ) |
As of
June 30, 2010, there were approximately 34 securities in an unrealized loss
position with a fair value of $294,996 and unrealized losses of $19,816. 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 $184,899 and unrealized
losses of $17,384.
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
As at 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
|
$ | 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.
10
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
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 June 30, 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 three
and six month periods ended June 30, 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 June 30, 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 June
30, 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 Company has commenced designating upon acquisition,
certain US Treasury bonds as trading for the purpose of augmenting where
possible investment returns. In addition, the Company maintained one open
position in a US Treasury bond sold but not yet purchased valued at $52,328
which to date has resulted in in unrealized loss of
$2,719 which is recorded in net realized and unrealized gains
(losses) on the Company’s consolidated statement of income. The following
provides an analysis of realized and unrealized gains and losses for the three
and six months ended June 30, 2010 and 2009:
For the Three Months Ended June 30, 2010
|
Gross Gains
|
Gross losses
|
Net
|
|||||||||
Available-for-sale
securities
|
$ | 5,488 | $ | (1,619 | ) | $ | 3,869 | |||||
Trading
securities
|
522 | (1,137 | ) | (615 | ) | |||||||
Other
investments
|
– | – | – | |||||||||
Net
realized gains
|
6,010 | (2,756 | ) | 3,254 | ||||||||
Unrealized
loss on short sales
|
– | (2,719 | ) | (2,719 | ) | |||||||
Net
realized and unrealized gains
|
$ | 6,010 | $ | (5,475 | ) | $ | 535 |
For the Six Months Ended June 30, 2010
|
Gross Gains
|
Gross losses
|
Net
|
|||||||||
Available-for-sale
securities
|
$ | 5,800 | $ | (1,619 | ) | $ | 4,181 | |||||
Trading
securities
|
522 | (1,137 | ) | (615 | ) | |||||||
Other
investments
|
– | – | – | |||||||||
Net
realized gains
|
6,322 | (2,756 | ) | 3,566 | ||||||||
Unrealized
loss on short sales
|
– | (2,719 | ) | (2,719 | ) | |||||||
Net
realized and unrealized gains
|
$ | 6,322 | $ | (5,475 | ) | $ | 847 |
For the Three Months Ended June 30, 2009
|
Gross Gains
|
Gross losses
|
Net
|
|||||||||
Available-for-sale
securities
|
$ | 2,143 | $ | (609 | ) | $ | 1,534 | |||||
Other
investments
|
– | – | – | |||||||||
Net
realized gains
|
$ | 2,143 | $ | (609 | ) | $ | 1,534 |
For the Six Months Ended June 30, 2009
|
Gross Gains
|
Gross losses
|
Net
|
|||||||||
Available-for-sale
securities
|
$ | 3,898 | $ | (4,279 | ) | $ | (381 | ) | ||||
Other
investments
|
– | (15 | ) | (15 | ) | |||||||
Net
realized losses
|
$ | 3,898 | $ | (4,294 | ) | $ | (396 | ) |
11
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
3.
|
Investments
(continued)
|
Proceeds
from sales of fixed maturities classified as available for sale were $173,687
and $134,384 for the six months ended June 30, 2010 and 2009,
respectively.
Net
unrealized gain (loss) on available-for-sale investments was as
follows:
June 30,
2010
|
June 30,
2009
|
|||||||
Fixed
maturities
|
$ | 57,613 | $ | (12,287 | ) | |||
Other
investments
|
(124 | ) | (422 | ) | ||||
Total
net unrealized gain (loss)
|
57,489 | (12,709 | ) | |||||
Deferred
income tax expense
|
– | (2,388 | ) | |||||
Net
unrealized losses, net of deferred income tax
|
$ | 57,489 | $ | (15,097 | ) | |||
Change
in unrealized gain (loss), net of deferred income tax
|
$ | 24,742 | $ | 29,402 |
(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:
June 30,
2010
|
December 31,
2009
|
|||||||
Restricted
cash – third party agreements
|
$ | 115,746 | $ | 133,029 | ||||
Restricted
cash – related party agreements
|
52,347 | 11,485 | ||||||
Restricted
cash – U.S. state regulatory authorities
|
303 | 430 | ||||||
Total
restricted cash
|
168,396 | 144,944 | ||||||
Restricted
investments – in Trust for third party agreements at fair value (Amortized
cost: 2010 – $856,511; 2009 – $1,011,582)
|
887,632 | 1,022,337 | ||||||
Restricted
investments – in Trust for related party agreements at fair value
(Amortized cost: 2010 – $226,558; 2009 – $177,537)
|
250,465 | 195,474 | ||||||
Restricted
investments – in Trust for U.S. state regulatory authorities (Amortized
cost: 2010 – $13,280; 2009 – $13,032)
|
13,707 | 12,867 | ||||||
Total
restricted investments
|
1,151,804 | 1,230,678 | ||||||
Total
restricted cash and investments
|
$ | 1,320,200 | $ | 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 June 30, 2010, there were $70,972 principal
amount outstanding at interest rate of 0.27%. Interest expense associated with
these repurchase agreements was $298 and $355 for the three and six months ended
June 30, 2010, respectively (2009 - $10 and $783, respectively), out of which
$262 was accrued as of June 30, 2010 (December 31, 2009 - $33). The Company has
approximately $70,972 of collateral pledged in support of these
agreements.
Securities
sold but not yet purchased represent obligations of the Company to deliver the
specified security at the contracted price and, thereby, create a liability to
purchase the security in the market at prevailing prices. The
Company’s liability for securities to be delivered is measured at their fair
value and as of June 30, 2010 were $52,328 for a US Treasury
bond. This amount is included in accrued expenses and other
liabilities in the condensed consolidated balance sheets. These transactions
result in off-balance sheet risk, as the Company’s ultimate cost to satisfy the
delivery of securities sold but not yet purchased may exceed the amount
reflected at June 30, 2010. Collateral of an equivalent amount has
been pledged to the clearing broker.
12
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
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
following describes the valuation techniques used by the Company to determine
the fair value of financial instruments held as of June 30, 2010.
U.S. government and U.S. government
agencies: Comprised primarily of bonds issued by the U.S. Treasury, the
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association. The fair values of the Company’s U.S.
government securities are based on quoted market prices in active markets and
are included in the Level 1 fair value hierarchy. The Company believes the
market for U.S. Treasury securities is an actively traded market given the high
level of daily trading volume. The fair values of U.S. government agency
securities are generally priced by pricing services. The pricing services may
use current market trades for securities with similar quality, maturity and
coupon. If no such trades are available, the pricing service typically uses
analytical models which may incorporate option adjusted spreads, daily interest
rate data and market/sector news. The Company generally classifies the fair
values of U.S. government agencies securities in Level 2.
Corporate debt: Corporate debt
securities consist primarily of investment-grade debt of a wide variety of
corporate issuers and industries. These securities are generally priced by
pricing services. The pricing services typically use discounted cash flow models
that incorporate benchmark curves for treasury, swap and high issuance credits.
Credit spreads are developed from current market observations for like or
similar securities. Where pricing is unavailable from pricing services, we
obtain non-binding quotes from broker-dealers. The Company generally classifies
the fair values of its corporate securities in Level 2.
Municipals: Municipal securities
comprise bonds issued by U.S. domiciled state and municipality entities. The
fair values of these securities are generally priced by pricing services. The
pricing services typically use is determined using spreads obtained from
broker-dealers, trade prices and the new issue market. As the significant inputs
used to price the municipals are observable market inputs, municipals are
classified within Level 2.
Other investments: The fair
values of the hedge funds are based on the net asset value of the funds as
reported by the fund manager, and as such, the fair values of those hedge funds
are included in the Level 3 fair value hierarchy.
13
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
4.
|
Fair
Value of Financial Instruments
(continued)
|
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 June 30, 2010 and December 31, 2009:
As at June 30, 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
|
$ | 59,397 | $ | – | $ | – | $ | 59,397 | ||||||||
U.S.
agency bonds – mortgage and asset-backed
|
– | 732,866 | – | 732,866 | ||||||||||||
U.S.
agency bonds – other
|
– | 155,691 | – | 155,691 | ||||||||||||
Corporate
fixed maturities
|
– | 663,825 | – | 663,825 | ||||||||||||
Municipal
bonds
|
– | 22,127 | – | 22,127 | ||||||||||||
Other
investments
|
– | – | 5,677 | 5,677 | ||||||||||||
Total
|
$ | 59,397 | $ | 1,574,509 | $ | 5,677 | $ | 1,639,583 | ||||||||
As
a percentage of total assets
|
2.1 | % | 55.5 | % | 0.2 | % | 57.8 | % | ||||||||
Liabilities
|
||||||||||||||||
Securities
sold under agreements to repurchase
|
$ | – | $ | 70,972 | $ | – | $ | 70,972 | ||||||||
Securities
sold but not yet purchased
|
– | 52,328 | – | 52,328 | ||||||||||||
$ | – | $ | 123,300 | $ | – | $ | 123,300 | |||||||||
As
a percentage of total liabilities
|
– | 5.8 | % | – | 5.8 | % |
As at 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 | % |
14
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
4.
|
Fair
Value of Financial Instruments
(continued)
|
(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 and six months ended
June 30, 2010 and 2009:
Three Months
Ended
June 30, 2010
|
Three Months
Ended
June 30, 2009
|
|||||||
Balance
at beginning of period
|
$ | 5,601 | $ | 5,386 | ||||
Net
realized and unrealized gains – included in net income
|
– | – | ||||||
Net
realized and unrealized losses – included in net income
|
– | – | ||||||
Change
in net unrealized gains – included in other comprehensive income
(loss)
|
– | – | ||||||
Change
in net unrealized losses – included in other comprehensive income
(loss)
|
(44 | ) | 112 | |||||
Purchases
|
123 | – | ||||||
Sales
and redemptions
|
(3 | ) | (106 | ) | ||||
Transfers
into Level 3
|
– | – | ||||||
Transfers
out of Level 3
|
– | – | ||||||
Balance
at end of period
|
$ | 5,677 | $ | 5,392 | ||||
Level
3 gains (losses) included in net income attributable to the change in
unrealized gains (losses) relating to assets held at the reporting
date
|
$ | – | $ | – |
Other Investments:
|
Six Months
Ended
June 30, 2010
|
Six Months
Ended
June 30, 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)
|
11 | 106 | ||||||
Purchases
|
123 | 138 | ||||||
Sales
and redemptions
|
(6 | ) | (128 | ) | ||||
Transfers
into Level 3
|
– | – | ||||||
Transfers
out of Level 3
|
– | – | ||||||
Balance
at end of period
|
$ | 5,677 | $ | 5,392 | ||||
Level
3 gains (losses) included in net income attributable to the change in
unrealized gains (losses) relating to assets held at the reporting
date
|
$ | – | $ | – |
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.
The
following table shows an analysis of goodwill and intangible assets as of June
30, 2010 and December 31, 2009:
15
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
5.
|
Goodwill
and Intangible Assets
(continued)
|
As at June 30, 2010
|
Gross
|
Accumulated
Amortization
|
Net
|
Useful Life
|
|||||||||
Goodwill
|
$ | 52,617 | $ | – | $ | 52,617 |
Indefinite
|
||||||
State
licenses
|
7,727 | – | 7,727 |
Indefinite
|
|||||||||
Customer
relationships
|
51,400 | (10,747 | ) | 40,653 |
15 years double declining
|
||||||||
Net
balance
|
$ | 111,744 | $ | (10,747 | ) | $ | 100,997 |
As at 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 and six months ended June 30, 2010. The
estimated amortization expense for the next five years is:
June 30,
2010
|
||||
2010
|
$ | 2,904 | ||
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.
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.
16
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
6.
|
Junior
Subordinated Debt (continued)
|
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
June 30, 2010, the stated value of the Trust Preferred Securities was $215,156
which comprises the principal amount of $260,000 and unamortized discount of
$44,844. Amortization expense for the three and six months ended June 30, 2010
was $16 and $31, respectively (2009 - $12 and $24, respectively).
7.
|
Earnings
Per Share
|
The
following is a summary of the elements used in calculating basic and diluted
earnings per share:
Three Months
Ended
June 30, 2010
|
Three Months
Ended
June 30, 2009
|
Six Months
Ended
June 30, 2010
|
Six Months
Ended
June 30, 2009
|
|||||||||||||
Net
income available to common shareholders
|
$ | 18,637 | $ | 16,251 | $ | 32,206 | $ | 29,352 | ||||||||
Weighted
average number of common shares outstanding – basic
|
70,291,894 | 70,287,664 | 70,291,650 | 68,994,846 | ||||||||||||
Potentially
dilutive securities:
|
||||||||||||||||
Warrants
|
– | – | – | – | ||||||||||||
Share
options
|
478,955 | 379,435 | 482,114 | 315,858 | ||||||||||||
Weighted
average number of common shares outstanding – diluted
|
70,770,849 | 70,667,099 | 70,773,764 | 69,310,704 | ||||||||||||
Basic
earnings per common share:
|
$ | 0.27 | $ | 0.23 | $ | 0.46 | $ | 0.43 | ||||||||
Diluted
earnings per common share:
|
$ | 0.26 | $ | 0.23 | $ | 0.46 | $ | 0.42 |
As of
June 30, 2010, 4,050,000 (2009
– 4,050,000) warrants and 1,689,874 (2009 – 645,626) share options were
excluded from the calculation of diluted earnings per share as they were
anti-dilutive.
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 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 $240 and $450
for the three and six months ended June 30, 2010, respectively (2009 – $117 and
$276, respectively).
The key
assumptions used in determining the fair value of options granted in the three
and six months ended June 30, 2010 and a summary of the methodology applied to
develop each assumption are as follows:
17
MAIDEN
HOLDINGS, LTD.
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)
(Unaudited)
8.
|
Share
Based Compensation (continued)
|
Assumptions:
|
June 30,
2010
|