Maiden Holdings, Ltd. - FORM 10-Q - November 10, 2014

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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 September 30, 2014

¬
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) 298-4900
(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 ¬

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 x No   ¬

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 ¬
 
Accelerated filer x
 
 
 
Non-accelerated filer    ¬ (Do not check if a smaller reporting
company)
 
Smaller reporting company ¬

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ¬ No x

As of November 3, 2014, the number of the Registrant's Common Stock ($.01 par value) outstanding was 72,910,082





INDEX
 
 
Page
PART I - Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share data)
 
September 30, 2014 (Unaudited)
 
December 31, 2013
 (Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (Amortized cost 2014: $3,372,234; 2013: $3,127,792)
$
3,450,359


$
3,162,067

Other investments, at fair value (Cost 2014: $10,746; 2013: $4,522)
11,489


5,092

Total investments
3,461,848


3,167,159

Cash and cash equivalents
52,382


139,833

Restricted cash and cash equivalents
220,845


77,360

Accrued investment income
26,912


25,238

Reinsurance balances receivable, net (includes $217,492 and $299,645 from related parties in 2014 and 2013, respectively)
516,416


560,145

Reinsurance recoverable on unpaid losses (includes $4,658 and $7,263 from related parties in 2014 and 2013, respectively)
82,158


84,036

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses (includes $274,064 and $216,508 from related parties in 2014 and 2013, respectively)
369,149


304,908

Goodwill and intangible assets, net
88,155


90,613

Other assets
73,952


96,112

Total assets
$
5,059,792

 
$
4,713,379

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,064,081 and $885,381 from related parties in 2014 and 2013, respectively)
$
2,157,221


$
1,957,835

Unearned premiums (includes $872,020 and $711,950 from related parties in 2014 and 2013, respectively)
1,231,417


1,034,754

Accrued expenses and other liabilities
97,064


110,114

Senior notes
360,000


360,000

Junior subordinated debt
—


126,381

Total liabilities
3,845,702

 
3,589,084

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
315,000


315,000

Common shares ($0.01 par value; 73,877,519 and 73,595,897 shares issued in 2014 and 2013, respectively; 72,909,332 and 72,633,561 shares outstanding in 2014 and 2013, respectively)
739


736

Additional paid-in capital
577,438


574,522

Accumulated other comprehensive income
87,243


25,784

Retained earnings
237,063


211,602

Treasury shares, at cost (968,187 and 962,336 shares in 2014 and 2013, respectively)
(3,867
)

(3,801
)
Total Maiden shareholders’ equity
1,213,616

 
1,123,843

Noncontrolling interest in subsidiaries
474


452

Total equity
1,214,090

 
1,124,295

Total liabilities and equity
$
5,059,792

 
$
4,713,379


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands of U.S. dollars, except per share data)


 
 
For the Three Months Ended September 30,

For the Nine Months Ended
September 30,
 
 
2014

2013

2014

2013
Revenues:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
622,861


$
491,915


$
1,905,251


$
1,742,092

Net premiums written
 
$
605,456


$
463,418


$
1,856,268


$
1,650,426

Change in unearned premiums
 
(13,014
)

44,708


(212,700
)

(140,585
)
Net premiums earned
 
592,442

 
508,126

 
1,643,568

 
1,509,841

Other insurance revenue
 
2,423


3,271


10,427


11,266

Net investment income
 
29,520


23,253


85,469


65,977

Net realized gains on investment
 
310


477


975


3,707

Total other-than-temporary impairment losses
 
(1,189
)

—


(1,189
)

—

Portion of loss recognized in other comprehensive income (loss)
 
—

 
—

 
—

 
—

Net impairment losses recognized in earnings
 
(1,189
)
 
—

 
(1,189
)
 
—

Total revenues
 
623,506

 
535,127

 
1,739,250


1,590,791

Expenses:
 
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
 
399,815


341,629


1,102,316


1,019,871

Commission and other acquisition expenses
 
166,246


144,194


469,730


420,096

General and administrative expenses
 
15,524


13,251


45,844


44,163

Interest and amortization expenses
 
7,172


9,571


22,408


28,711

Accelerated amortization of junior subordinated debt discount and issuance cost
 
—


—


28,240


—

Amortization of intangible assets
 
820


945


2,458


2,835

Foreign exchange and other (gains) losses
 
(483
)

23


(1,555
)

(2,573
)
Total expenses
 
589,094

 
509,613

 
1,669,441

 
1,513,103

Income before income taxes
 
34,412

 
25,514

 
69,809

 
77,688

Income tax expense
 
486

 
481

 
1,907

 
1,217

Net income
 
33,926

 
25,033

 
67,902

 
76,471

Less: Income attributable to noncontrolling interest
 
(43
)

(36
)

(109
)

(95
)
Net income attributable to Maiden shareholders
 
33,883

 
24,997

 
67,793

 
76,376

Dividends on preference shares
 
(6,085
)
 
(3,093
)

(18,253
)

(9,281
)
Net income attributable to Maiden common shareholders
 
$
27,798

 
$
21,904

 
$
49,540

 
$
67,095

Basic earnings per share attributable to Maiden common shareholders
 
$
0.38


$
0.30

 
$
0.68

 
$
0.92

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.36


$
0.30

 
$
0.67

 
$
0.91

Dividends declared per common share
 
$
0.11

 
$
0.09

 
$
0.33

 
$
0.27


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
 


4


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in thousands of U.S. dollars)


 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended
September 30,
 
 
2014

2013
 
2014
 
2013
Comprehensive income:
 
 
 
 
 
 
 
 
Net income
 
$
33,926

 
$
25,033

 
$
67,902

 
$
76,471

Other comprehensive (loss) income
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale fixed maturities arising during the period (net of tax of $6 and $(37) for the three and nine months ended September 30, 2014 and $(10) and $23 for the three and nine months ended September 30, 2013, respectively)
 
(47,728
)
 
5,743

 
43,446

 
(85,415
)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred tax
 
—

 
—

 
—

 
—

Adjustment for reclassification of net realized losses (gains) recognized in net income, net of tax
 
26


(397
)

538


(3,657
)
Foreign currency translation adjustment
 
16,953

 
(4,744
)
 
17,430

 
(3,427
)
Other comprehensive (loss) income
 
(30,749
)
 
602

 
61,414

 
(92,499
)
Comprehensive income (loss)
 
3,177

 
25,635

 
129,316

 
(16,028
)
Net income attributable to noncontrolling interest
 
(43
)
 
(36
)
 
(109
)
 
(95
)
Other comprehensive loss (income) attributable to noncontrolling interest
 
42

 
(18
)
 
45

 
(12
)
Comprehensive income attributable to noncontrolling interest
 
(1
)
 
(54
)
 
(64
)
 
(107
)
Comprehensive income (loss) attributable to Maiden shareholders
 
$
3,176

 
$
25,581

 
$
129,252

 
$
(16,135
)


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.



5

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(in thousands of U.S. dollars)

For the Nine Months Ended September 30,

2014

2013
Preference shares
 
 
 
 
Beginning balance
 
$
315,000

 
$
150,000

Preference shares - Series B subscribed but unissued
 
—

 
150,000

Subscription receivable
 
—

 
(150,000
)
Ending balance
 
315,000

 
150,000

Common shares
 
 
 
 
Beginning balance
 
736

 
733

Exercise of options and issuance of shares
 
3

 
3

Ending balance
 
739

 
736

Additional paid-in capital
 
 
 
 
Beginning balance
 
574,522

 
575,869

Exercise of options and issuance of common shares
 
462

 
1,633

Share based compensation expense
 
2,454

 
1,668

Ending balance
 
577,438

 
579,170

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
25,784

 
141,130

Change in net unrealized gains (losses) on investments, net of reclassification adjustment
 
43,984

 
(89,072
)
Foreign currency translation adjustments
 
17,475

 
(3,439
)
Ending balance
 
87,243

 
48,619

Retained earnings
 
 
 
 
Beginning balance
 
211,602

 
151,308

Net income attributable to Maiden shareholders
 
67,793

 
76,376

Dividends on preference shares
 
(18,253
)
 
(9,281
)
Dividends on common shares
 
(24,079
)
 
(19,607
)
Ending balance
 
237,063

 
198,796

Treasury shares
 
 
 
 
Beginning balance
 
(3,801
)
 
(3,801
)
Shares repurchased for treasury
 
(66
)
 
—

Ending balance
 
(3,867
)
 
(3,801
)
Noncontrolling interest in subsidiaries
 
 
 
 
Beginning balance
 
452

 
372

Dividend paid to noncontrolling interest
 
(42
)
 
(46
)
Net income attributable to noncontrolling interest
 
109

 
95

Foreign currency translation adjustments
 
(45
)
 
12

Ending balance
 
474

 
433

Total equity
 
$
1,214,090

 
$
973,953


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.


6

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Nine Months Ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
67,902

 
$
76,471

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
3,590

 
3,870

Net realized gains on investment
 
(975
)
 
(3,707
)
Net impairment losses recognized in earnings
 
1,189

 
—

Foreign exchange and other gains
 
(1,555
)
 
(2,573
)
Amortization of share-based compensation expense, bond premium and discount, subordinated debt discount and accelerated amortization of junior subordinated debt discount and issuance cost, net
 
34,748

 
11,641

Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
35,514

 
(28,459
)
Reinsurance recoverable on unpaid losses
 
1,857

 
13,522

Accrued investment income
 
(1,943
)
 
(2,055
)
Deferred commission and other acquisition expenses
 
(65,235
)
 
(40,023
)
Other assets
 
17,510

 
(9,668
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
224,519

 
181,171

Unearned premiums
 
202,624

 
151,492

Accrued expenses and other liabilities
 
(12,773
)
 
7,644

Net cash provided by operating activities
 
506,972

 
359,326

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(599,440
)
 
(725,921
)
Purchases of other investments
 
(6,551
)
 
(2,013
)
Proceeds from sales of fixed maturities – available-for-sale
 
114,007

 
186,957

Proceeds from maturities and calls of fixed maturities
 
236,372

 
387,692

Proceeds from redemption of other investments
 
679

 
259

Increase in restricted cash and cash equivalents
 
(143,485
)
 
(137,617
)
Proceeds from sale of a business unit
 
—

 
1,281

Other, net
 
(853
)
 
(290
)
Net cash used in investing activities
 
(399,271
)
 
(289,652
)
Cash flows from financing activities:
 
 
 
 
Repayment of junior subordinated debt
 
(152,500
)
 
—

Common share issuance
 
465

 
1,636

Dividends paid to common shareholders
 
(24,050
)
 
(13,063
)
Dividends paid to preference shareholders
 
(18,253
)
 
(9,281
)
Net cash used in financing activities
 
(194,338
)
 
(20,708
)
Effect of exchange rate changes on foreign currency cash
 
(814
)
 
787

Net (decrease) increase in cash and cash equivalents
 
(87,451
)
 
49,753

Cash and cash equivalents, beginning of period
 
139,833

 
81,543

Cash and cash equivalents, end of period
 
$
52,382

 
$
131,296


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

7
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)





1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Maiden Holdings, Ltd. and its subsidiaries (the "Company" or "Maiden") and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP" or "U.S. 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.

These interim unaudited Condensed 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, 2013.

Certain reclassifications have been made for 2013 to conform to the 2014 presentation and have no impact on net income previously reported.

2. Significant Accounting Policies

There have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2013, except as discussed below:

Recently Adopted Accounting Standards Updates

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists

On July 18, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11 which provides guidance on the presentation of an unrecognized tax benefit when a net operating loss ("NOL") carry-forward, a similar tax loss, or a tax credit carry-forward exists. Under this ASU, an entity must present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a NOL carry-forward, similar tax loss, or a tax credit carry-forward. There are two exceptions to this form of presentation as follows:

•
To the extent a NOL carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position; and

•
The entity does not intend to use the deferred tax asset for this purpose.

If either of these conditions exists, an entity should present an unrecognized benefit in the financial statements as a liability and should not net the unrecognizable tax benefit with a deferred tax asset.

The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The update was adopted effective January 1, 2014. The adoption of this guidance did not have an impact on our results of operations, financial condition or liquidity.

Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity

In March 2013, FASB issued ASU 2013-05 with the objective of resolving the diversity about whether Accounting Standards Codification ("ASC") 810-10, Consolidation - Overall, or ASC 830-30, Foreign Currency Matters - Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. Under this guidance, when a reporting entity that is also the parent entity, ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in ASC 830-30 to release any related cumulative translation adjustment into net income.

8
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




2. Significant Accounting Policies (continued)

Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Additionally, for an equity method investment that is a foreign entity, the partial sale guidance in ASC 830-30-40 continues to be applicable. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

Furthermore, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity (that is, irrespective of any retained investment); and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.

The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The update was adopted effective January 1, 2014. The adoption of this guidance did not have an impact on our results of operations, financial condition or liquidity.

Recently Issued Accounting Standards Not Yet Adopted

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

On April 10, 2014, the FASB issued ASU 2014-08, which amends the definition of a discontinued operation in ASC 205-20 and requires entities to provide additional disclosures about disposal transactions that both meet and do not meet the discontinued-operations criteria. Under the previous guidance, the results of operations of a component of an entity were classified as a discontinued operation if all of the following conditions were met:

•
The component has been disposed of or is classified as held for sale;

•
The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction; and

•
The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

The revised guidance will change how entities identify disposal transactions under U.S. GAAP by eliminating the second and third criteria above for classifying operations as discontinued. The new guidance instead requires classification of a component or group of components as discontinued operations if it represents a strategic shift that has or will have a major impact on an entity’s operations or financial results.

The amendments in this ASU are effective prospectively to all disposals (or classifications as held for sale) that occur in annual periods (and interim periods therein) beginning on or after December 15, 2014. Early adoption is permitted. Entities are prohibited from applying the new ASU to any component that is classified as held for sale before the adoption date. The Company is currently evaluating the impact of the adoption of this new guidance on its consolidated results of operations and financial condition.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

On June 19, 2014, FASB issued ASU 2014-12 to clarify how entities should treat performance targets that can be met after the requisite service period of a share-based payment award. The ASU states that the share-based payment award should be treated as a performance condition that affects vesting and therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target until it becomes probable that the performance target will be met. No new disclosures are required under the ASU.

ASU 2014-12 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. Early adoption is permitted. In addition, all entities will have the option of applying the guidance either prospectively (i.e. only to awards granted or modified on or after the effective date of the issue) or retrospectively. Retrospective application would only apply to awards with performance targets outstanding at or after the beginning of the first annual period presented (i.e. the earliest presented comparative period). The adoption of this guidance is not expected to have an impact on our results of operations, financial condition or liquidity.

9
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




3. Segment Reporting

The Company currently has two reportable segments: Diversified Reinsurance and AmTrust Reinsurance (previously titled AmTrust Quota Share Reinsurance segment).

As of September 30, 2014, the Company revised the structure of its reportable segments following a review which concluded that the former segment, NGHC Quota Share, currently in run-off, no longer met the reportable segment criteria under FASB ASC 280 Segment Reporting. As a result, the Company determined that it no longer requires separate disclosure of the NGHC Quota Share as a reportable segment. Furthermore, it was concluded that the remnants of the excess & surplus ("E&S") business, which is also in run-off, no longer meets the aggregation criteria under FASB ASC 280 Segment Reporting and therefore is no longer aggregated with the other operating segments of the Diversified Reinsurance reportable segment. Due to these presentation revisions, the results of operations of the former NGHC Quota Share segment and the remnants of the E&S business have been included in "Other" category, and all prior periods presented herein have been reclassified to conform with the current year presentation.

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 reportable segment, the Company identifies those assets that are attributable to a particular segment such as reinsurance balances receivable, reinsurance recoverable on unpaid losses, deferred commission and other acquisition expenses, loans, goodwill and intangible assets, restricted cash and cash equivalents and investments, and prepaid reinsurance premiums, reinsurance recoverable on paid losses and funds withheld (which are presented as part of other assets in the unaudited Condensed Consolidated Balance Sheets). All remaining assets are allocated to Corporate.

Fee-generating business, which is included in the Diversified Reinsurance segment, is considered part of the underwriting operations of the Company. To the extent that the fees are generated on underlying insurance contracts sold to third parties that are then ceded under quota share reinsurance contracts with Maiden Reinsurance Ltd. ("Maiden Bermuda", formerly known as Maiden Insurance Company Ltd.), a proportionate share of the fee is offset against the related acquisition expense. To the extent that fee business is not directly associated with premium revenue generated under the applicable reinsurance contracts, that fee revenue is separately reported on the line captioned “Other insurance revenue” in the Company's unaudited Condensed Consolidated Statements of Income.

10
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




3. Segment Reporting (continued)

The following tables summarize our reporting segment's underwriting results and the reconciliation of our reportable segments and Other category to net income:
For the Three Months Ended September 30, 2014

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Net premiums written

$
219,576


$
385,923


$
(43
)

$
605,456

Net premiums earned

$
233,022


$
359,065


$
355


$
592,442

Other insurance revenue

2,423


—


—


2,423

Net loss and loss adjustment expenses

(166,342
)

(233,166
)

(307
)

(399,815
)
Commission and other acquisition expenses

(56,878
)

(109,241
)

(127
)

(166,246
)
General and administrative expenses

(9,812
)

(538
)

(193
)

(10,543
)
Underwriting income (loss)

$
2,413


$
16,120


$
(272
)

$
18,261

Reconciliation to net income












Net investment income and realized gains on investment










29,830

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(1,189
)
Amortization of intangible assets










(820
)
Foreign exchange and other gains










483

Interest and amortization expenses










(7,172
)
Other general and administrative expenses










(4,981
)
Income tax expense










(486
)
Net income










$
33,926














Net loss and loss adjustment expense ratio*

70.7
%

64.9
%

86.5
%

67.2
%
Commission and other acquisition expense ratio**

24.2
%

30.4
%

35.8
%

27.9
%
General and administrative expense ratio***

4.1
%

0.2
%

54.3
%

2.7
%
Combined ratio****

99.0
%

95.5
%

176.6
%

97.8
%






11
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




3. Segment Reporting (continued)
For the Three Months Ended September 30, 2013
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Net premiums written
 
$
187,864

 
$
259,633

 
$
15,921

 
$
463,418

Net premiums earned
 
$
198,328

 
$
243,408

 
$
66,390

 
$
508,126

Other insurance revenue
 
3,271

 
—

 
—

 
3,271

Net loss and loss adjustment expenses
 
(135,324
)
 
(160,378
)
 
(45,927
)
 
(341,629
)
Commission and other acquisition expenses
 
(52,600
)
 
(71,869
)
 
(19,725
)
 
(144,194
)
General and administrative expenses
 
(9,688
)
 
(504
)
 
(177
)
 
(10,369
)
Underwriting income
 
$
3,987

 
$
10,657

 
$
561

 
$
15,205

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
23,730

Amortization of intangible assets
 
 
 
 
 
 
 
(945
)
Foreign exchange and other losses
 
 
 
 
 
 
 
(23
)
Interest and amortization expenses
 
 
 
 
 
 
 
(9,571
)
Other general and administrative expenses
 
 
 
 
 
 
 
(2,882
)
Income tax expense
 
 
 
 
 
 
 
(481
)
Net income
 
 
 
 
 
 
 
$
25,033

 
 
 
 
 
 
 
 
 
Net loss and loss adjustment expense ratio*
 
67.1
%
 
65.9
%
 
69.2
%
 
66.8
%
Commission and other acquisition expense ratio**
 
26.1
%
 
29.5
%
 
29.7
%
 
28.2
%
General and administrative expense ratio***
 
4.8
%
 
0.2
%
 
0.3
%
 
2.6
%
Combined ratio****
 
98.0
%
 
95.6
%
 
99.2
%
 
97.6
%

12
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)



3. Segment Reporting (continued)
For the Nine Months Ended September 30, 2014

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Net premiums written

$
681,690

 
$
1,176,957

 
$
(2,379
)
 
$
1,856,268

Net premiums earned

$
635,251


$
988,913


$
19,404


$
1,643,568

Other insurance revenue

10,427


—


—


10,427

Net loss and loss adjustment expenses

(439,329
)

(645,358
)

(17,629
)

(1,102,316
)
Commission and other acquisition expenses

(164,850
)

(298,236
)

(6,644
)

(469,730
)
General and administrative expenses

(31,207
)

(1,600
)

(580
)

(33,387
)
Underwriting income (loss)

$
10,292


$
43,719


$
(5,449
)

$
48,562

Reconciliation to net income

 
 
 
 
 

 
Net investment income and realized gains on investment

 
 
 
 
 

86,444

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(1,189
)
Amortization of intangible assets

 
 
 
 
 

(2,458
)
Foreign exchange and other gains

 
 
 
 
 

1,555

Interest and amortization expenses

 
 
 
 
 

(22,408
)
Accelerated amortization of junior subordinated debt discount and issuance costs
 
 
 
 
 
 
 
(28,240
)
Other general and administrative expenses

 
 
 
 
 

(12,457
)
Income tax expense

 
 
 
 
 

(1,907
)
Net income

 
 
 
 
 

$
67,902



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

68.0
%

65.3
%

90.9
%

66.6
%
Commission and other acquisition expense ratio**

25.5
%

30.2
%

34.2
%

28.4
%
General and administrative expense ratio***

4.9
%

0.1
%

3.0
%

2.8
%
Combined ratio****

98.4
%

95.6
%

128.1
%

97.8
%

13
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)



3. Segment Reporting (continued)
For the Nine Months Ended September 30, 2013

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Net premiums written

$
589,612


$
895,029


$
165,785


$
1,650,426

Net premiums earned

$
565,148


$
725,100


$
219,593


$
1,509,841

Other insurance revenue

11,266


—


—


11,266

Net loss and loss adjustment expenses

(392,370
)

(478,722
)

(148,779
)

(1,019,871
)
Commission and other acquisition expenses

(141,740
)

(213,199
)

(65,157
)

(420,096
)
General and administrative expenses

(31,639
)

(1,498
)

(530
)

(33,667
)
Underwriting income

$
10,665


$
31,681


$
5,127


$
47,473

Reconciliation to net income

 
 
 
 
 
 
 
Net investment income and realized gains on investment

 
 
 
 
 

69,684

Amortization of intangible assets

 
 
 
 
 

(2,835
)
Foreign exchange and other gains

 
 
 
 
 

2,573

Interest and amortization expenses

 
 
 
 
 

(28,711
)
Other general and administrative expenses

 
 
 
 
 

(10,496
)
Income tax expense

 
 
 
 
 

(1,217
)
Net income

 
 
 
 
 

$
76,471



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

68.1
%

66.0
%

67.8
%

67.0
%
Commission and other acquisition expense ratio**

24.6
%

29.4
%

29.7
%

27.6
%
General and administrative expense ratio***

5.4
%

0.2
%

0.2
%

3.0
%
Combined ratio****

98.1
%

95.6
%

97.7
%

97.6
%

*
Calculated by dividing net loss and loss adjustment expenses by the sum of net premiums earned and other insurance revenue.

**
Calculated by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue.

***
Calculated by dividing general and administrative expenses by the sum of net premiums earned and other insurance revenue.

****
Calculated by adding together net loss and loss adjustment expense ratio, commission and other acquisition expense ratio and general and administrative expense ratio.

14
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




3. Segment Reporting (continued)

The following table summarizes our reportable segments' identifiable assets reconciled to total assets as of September 30, 2014 and December 31, 2013:
September 30, 2014
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Reinsurance balances receivable, net
 
$
299,310

 
$
211,721

 
$
511,031

Reinsurance recoverable on unpaid losses
 
35,328

 
—

 
35,328

Deferred commission and other acquisition expenses
 
95,081

 
274,070

 
369,151

Loan to related party
 
—

 
167,975

 
167,975

Goodwill and intangible assets, net
 
88,155

 
—

 
88,155

Restricted cash and cash equivalents and investments
 
1,131,883

 
1,579,684

 
2,711,567

Other assets
 
53,266

 
—

 
53,266

Total assets - reportable segments
 
1,703,023

 
2,233,450

 
3,936,473

Corporate assets
 
—

 
—

 
1,123,319

Total Assets
 
$
1,703,023

 
$
2,233,450

 
$
5,059,792


December 31, 2013
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Reinsurance balances receivable, net
 
$
261,317

 
$
278,573

 
$
539,890

Reinsurance recoverable on unpaid losses
 
31,519

 
—

 
31,519

Deferred commission and other acquisition expenses
 
88,755

 
209,439

 
298,194

Loan to related party
 
—

 
167,975

 
167,975

Goodwill and intangible assets, net
 
90,613

 
—

 
90,613

Restricted cash and cash equivalents and investments
 
1,025,629

 
1,102,317

 
2,127,946

Other assets
 
60,652

 
—

 
60,652

Total assets - reportable segments
 
1,558,485

 
1,758,304

 
3,316,789

Corporate assets
 
—

 
—

 
1,396,590

Total Assets
 
$
1,558,485

 
$
1,758,304

 
$
4,713,379



15
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




3. Segment Reporting (continued)

The following tables set forth financial information relating to net premiums written and earned by major line of business and reportable segment for the three and nine months ended September 30, 2014 and 2013:

For the Three Months Ended September 30,
 
2014

2013
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
36,991

 
6.1
 %
 
$
29,027

 
6.3
%
Casualty
 
149,067

 
24.6
 %
 
122,600

 
26.4
%
Accident and Health
 
7,061

 
1.2
 %
 
9,040

 
2.0
%
International
 
26,457

 
4.4
 %
 
27,197

 
5.9
%
Total Diversified Reinsurance
 
219,576

 
36.3
 %
 
187,864

 
40.6
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
211,986

 
35.0
 %
 
136,725

 
29.5
%
Specialty Program
 
57,035

 
9.4
 %
 
41,698

 
9.0
%
Specialty Risk and Extended Warranty
 
116,902

 
19.3
 %
 
81,210

 
17.5
%
Total AmTrust Reinsurance
 
385,923

 
63.7
 %
 
259,633

 
56.0
%
Other
 
(43
)
 
—
 %
 
15,921

 
3.4
%
 
 
$
605,456

 
100.0
 %
 
$
463,418

 
100.0
%
For the Three Months Ended September 30,
 
2014
 
2013
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
45,030

 
7.6
%
 
$
41,014

 
8.1
%
Casualty
 
150,876

 
25.5
%
 
126,091

 
24.8
%
Accident and Health
 
9,001

 
1.5
%
 
8,994

 
1.8
%
International
 
28,115

 
4.7
%
 
22,229

 
4.4
%
Total Diversified Reinsurance
 
233,022

 
39.3
%
 
198,328

 
39.1
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
202,151

 
34.1
%
 
130,472

 
25.7
%
Specialty Program
 
40,654

 
6.9
%
 
39,661

 
7.8
%
Specialty Risk and Extended Warranty
 
116,260

 
19.6
%
 
73,275

 
14.4
%
Total AmTrust Reinsurance
 
359,065

 
60.6
%
 
243,408

 
47.9
%
Other
 
355

 
0.1
%
 
66,390

 
13.0
%
 
 
$
592,442

 
100.0
%
 
$
508,126

 
100.0
%
    

16
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)



3. Segment Reporting (continued)

For the Nine Months Ended September 30,
 
2014

2013
Net premiums written
 
Total

% of Total

Total

% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
126,680

 
6.8
 %
 
$
114,309

 
6.9
%
Casualty
 
428,648

 
23.1
 %
 
359,816

 
21.8
%
Accident and Health
 
32,178

 
1.7
 %
 
31,649

 
1.9
%
International
 
94,184

 
5.1
 %
 
83,838

 
5.1
%
Total Diversified Reinsurance
 
681,690

 
36.7
 %
 
589,612

 
35.7
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
663,766

 
35.8
 %
 
434,951

 
26.4
%
Specialty Program
 
145,162

 
7.8
 %
 
115,313

 
7.0
%
Specialty Risk and Extended Warranty
 
368,029

 
19.8
 %
 
344,765

 
20.9
%
Total AmTrust Reinsurance
 
1,176,957

 
63.4
 %
 
895,029

 
54.3
%
Other
 
(2,379
)
 
(0.1
)%
 
165,785

 
10.0
%
Total
 
$
1,856,268

 
100.0
 %
 
$
1,650,426

 
100.0
%

For the Nine Months Ended September 30,
 
2014
 
2013
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
128,458

 
7.8
%
 
$
108,567

 
7.2
%
Casualty
 
398,148

 
24.2
%
 
359,988

 
23.8
%
Accident and Health
 
29,261

 
1.8
%
 
27,356

 
1.8
%
International
 
79,384

 
4.9
%
 
69,237

 
4.6
%
Total Diversified Reinsurance
 
635,251

 
38.7
%
 
565,148

 
37.4
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
537,810

 
32.7
%
 
350,295

 
23.2
%
Specialty Program
 
118,459

 
7.2
%
 
105,122

 
7.0
%
Specialty Risk and Extended Warranty
 
332,644

 
20.2
%
 
269,683

 
17.9
%
Total AmTrust Reinsurance
 
988,913

 
60.1
%
 
725,100

 
48.1
%
Other
 
19,404

 
1.2
%
 
219,593

 
14.5
%
Total
 
$
1,643,568

 
100.0
%
 
$
1,509,841

 
100.0
%

17
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




4. Investments

(a) Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of September 30, 2014 and December 31, 2013 are as follows:
September 30, 2014
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
11,943

 
$
421

 
$
(13
)
 
$
12,351

U.S. agency bonds – mortgage-backed
 
1,392,159

 
14,897

 
(23,532
)
 
1,383,524

U.S. agency bonds – other
 
7,211

 
893

 
—

 
8,104

Non-U.S. government and supranational bonds
 
55,058

 
571

 
(1,128
)
 
54,501

Other mortgage-backed securities
 
52,595

 
1,363

 
—

 
53,958

Corporate bonds
 
1,791,121

 
93,727

 
(12,306
)
 
1,872,542

Municipal bonds – other
 
62,147

 
3,232

 
—

 
65,379

Total available-for-sale fixed maturities
 
3,372,234

 
115,104

 
(36,979
)
 
3,450,359

Other investments
 
10,746

 
743

 
—

 
11,489

Total investments
 
$
3,382,980

 
$
115,847

 
$
(36,979
)
 
$
3,461,848

December 31, 2013
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
16,622

 
$
587

 
$
—

 
$
17,209

U.S. agency bonds – mortgage-backed
 
1,292,032

 
11,727

 
(41,104
)
 
1,262,655

U.S. agency bonds – other
 
7,207

 
901

 
—

 
8,108

Non-U.S. government and supranational bonds
 
70,377

 
3,547

 
(712
)
 
73,212

Other mortgage-backed securities
 
33,676

 
—

 
(232
)
 
33,444

Corporate bonds
 
1,546,578

 
82,952

 
(22,830
)
 
1,606,700

Municipal bonds – auction rate
 
99,170

 
—

 
—

 
99,170

Municipal bonds – other
 
62,130

 
934

 
(1,495
)
 
61,569

Total available-for-sale fixed maturities
 
3,127,792

 
100,648

 
(66,373
)
 
3,162,067

Other investments
 
4,522

 
570

 
—

 
5,092

Total investments
 
$
3,132,314

 
$
101,218

 
$
(66,373
)
 
$
3,167,159


The contractual maturities of our fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without prepayment penalties.

18
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)




4. Investments (continued)
September 30, 2014
 
Amortized cost
 
Fair value
 
% of Total fair value
Maturity
 
 
 
 
 
 
Due in one year or less
 
$
23,528

 
$
23,114

 
0.7
%
Due after one year through five years
 
521,590

 
562,061

 
16.3
%
Due after five years through ten years
 
1,310,434

 
1,351,440

 
39.2
%
Due after ten years
 
71,928

 
76,262

 
2.2
%
 
 
1,927,480

 
2,012,877

 
58.4