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EX-32.2 - EXHIBIT 32.2 - Maiden Holdings, Ltd.q12017exhibit-322.htm
EX-32.1 - EXHIBIT 32.1 - Maiden Holdings, Ltd.q12017exhibit-321.htm
EX-31.2 - EXHIBIT 31.2 - Maiden Holdings, Ltd.q12017exhibit-312.htm
EX-31.1 - EXHIBIT 31.1 - Maiden Holdings, Ltd.q12017exhibit-311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File No. 001-34042

MAIDEN HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)

Bermuda
(State or other jurisdiction of
incorporation or organization)
98-0570192
(IRS Employer
Identification No.)
 
 
131 Front Street, Hamilton, Bermuda
(Address of principal executive offices)
HM12
(Zip Code)

(441) 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 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
(Do not check if a smaller reporting company)
 
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of May 2, 2017, the number of the Registrant's Common Stock ($.01 par value) outstanding was 86,553,329.





INDEX
 
 
Page
PART I - Financial Information
 
 
 

 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016 (audited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
 
March 31, 2017
 
December 31, 2016
 
 
(Unaudited)
 
(Audited)
ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2017: $3,993,941; 2016: $4,005,642)
 
$
3,967,907

 
$
3,971,666

Fixed maturities, held to maturity, at amortized cost (fair value 2017: $767,657; 2016: $766,135)
 
750,554

 
752,212

Other investments, at fair value (cost 2017: $10,074; 2016: $10,057)
 
13,534

 
13,060

Total investments
 
4,731,995

 
4,736,938

Cash and cash equivalents
 
83,537

 
45,747

Restricted cash and cash equivalents
 
109,697

 
103,788

Accrued investment income
 
36,179

 
36,517

Reinsurance balances receivable, net (includes $232,548 and $132,056 from related parties in 2017 and 2016, respectively)
 
615,556

 
410,166

Reinsurance recoverable on unpaid losses (includes $5,084 and $5,085 from related parties in 2017 and 2016, respectively)
 
108,777

 
99,936

Loan to related party
 
167,975

 
167,975

Deferred commission and other acquisition expenses (includes $393,166 and $339,172 from related parties in 2017 and 2016, respectively)
 
472,459

 
424,605

Goodwill and intangible assets, net
 
77,183

 
77,715

Other assets
 
153,601

 
148,912

Total assets
 
$
6,556,959

 
$
6,252,299

LIABILITIES
 
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,862,125 and $1,776,784 from related parties in 2017 and 2016, respectively)
 
$
2,991,604

 
$
2,896,496

Unearned premiums (includes $1,225,241 and $1,152,484 from related parties in 2017 and 2016, respectively)
 
1,670,884

 
1,475,506

Accrued expenses and other liabilities
 
172,886

 
167,736

Senior notes - principal amount
 
362,500

 
362,500

Less unamortized issuance costs
 
11,012

 
11,091

Senior notes, net
 
351,488

 
351,409

Total liabilities
 
5,186,862

 
4,891,147

Commitments and Contingencies
 


 


EQUITY
 
 
 
 
Preference shares
 
315,000

 
315,000

Common shares ($0.01 par value; 87,641,349 and 87,321,012 shares issued in 2017 and 2016, respectively; 86,553,324 and 86,271,109 shares outstanding in 2017 and 2016, respectively)
 
876

 
873

Additional paid-in capital
 
750,694

 
749,256

Accumulated other comprehensive income
 
15,591

 
14,997

Retained earnings
 
293,164

 
285,662

Treasury shares, at cost (1,088,025 and 1,049,903 shares in 2017 and 2016, respectively)
 
(5,566
)
 
(4,991
)
Total Maiden shareholders’ equity
 
1,369,759

 
1,360,797

Noncontrolling interests in subsidiaries
 
338

 
355

Total equity
 
1,370,097

 
1,361,152

Total liabilities and equity
 
$
6,556,959

 
$
6,252,299

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 March 31,
 
 
2017
 
2016
Revenues
 
 
 
 
Gross premiums written
 
$
923,427

 
$
864,114

Net premiums written
 
$
900,548

 
$
792,831

Change in unearned premiums
 
(191,064
)
 
(176,822
)
Net premiums earned
 
709,484

 
616,009

Other insurance revenue
 
3,781

 
4,826

Net investment income
 
42,157

 
36,302

Net realized gains on investment
 
885

 
2,277

Total revenues
 
756,307

 
659,414

Expenses
 
 
 
 
Net loss and loss adjustment expenses
 
480,569

 
403,621

Commission and other acquisition expenses
 
222,029

 
195,068

General and administrative expenses
 
17,414

 
15,496

Interest and amortization expenses
 
6,856

 
7,265

Amortization of intangible assets
 
533

 
615

Foreign exchange losses (gains)
 
1,921

 
(267
)
Total expenses
 
729,322

 
621,798

Income before income taxes
 
26,985

 
37,616

Less: income tax expense
 
484

 
787

Net income
 
26,501

 
36,829

Add: loss attributable to noncontrolling interests
 
22

 
64

Net income attributable to Maiden
 
26,523

 
36,893

Dividends on preference shares
 
(6,033
)
 
(9,677
)
Net income attributable to Maiden common shareholders
 
$
20,490

 
$
27,216

Basic earnings per share attributable to Maiden common shareholders
 
$
0.24

 
$
0.37

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.23

 
$
0.35

Dividends declared per common share
 
$
0.15

 
$
0.14

Weighted average number of common shares - basic
 
86,350,850

 
73,871,277

Adjusted weighted average number of common shares and assumed conversions - diluted
 
87,436,604

 
85,799,377


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.


4


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands of U.S. dollars)
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Net income
 
$
26,501

 
$
36,829

Other comprehensive income
 
 
 
 
Net unrealized holdings gains on available-for-sale fixed maturities arising during the period
 
6,119

 
103,404

Adjustment for reclassification of net realized losses recognized in net income
 
637

 
632

Foreign currency translation adjustment
 
(6,198
)
 
(10,734
)
Other comprehensive income, before tax
 
558

 
93,302

Income tax benefit (expense) related to components of other comprehensive income
 
41

 
(36
)
Other comprehensive income, after tax
 
599

 
93,266

Comprehensive income
 
27,100

 
130,095

Net loss attributable to noncontrolling interests
 
22

 
64

Other comprehensive income attributable to noncontrolling interests
 
(5
)
 
(29
)
Comprehensive loss attributable to noncontrolling interests
 
17

 
35

Comprehensive income attributable to Maiden
 
$
27,117

 
$
130,130


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 Three Months Ended March 31,

2017

2016
Preference shares – Series A, B and C
 
 
 
 
Beginning balance
 
$
315,000

 
$
480,000

Ending balance
 
315,000

 
480,000

Common shares
 
 
 
 
Beginning balance
 
873

 
747

Exercise of options and issuance of shares
 
3

 
3

Ending balance
 
876

 
750

Additional paid-in capital
 
 
 
 
Beginning balance
 
749,256

 
579,178

Exercise of options and issuance of common shares
 
515

 
345

Share-based compensation expense
 
923

 
1,256

Ending balance
 
750,694

 
580,779

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
14,997

 
(23,767
)
Change in net unrealized gains (losses) on investment
 
6,797

 
104,000

Foreign currency translation adjustment
 
(6,203
)
 
(10,763
)
Ending balance
 
15,591

 
69,470

Retained earnings
 
 
 
 
Beginning balance
 
285,662

 
316,184

Net income attributable to Maiden
 
26,523

 
36,893

Dividends on preference shares
 
(6,033
)
 
(9,677
)
Dividends on common shares
 
(12,988
)
 
(10,365
)
Ending balance
 
293,164

 
333,035

Treasury shares
 
 
 
 
Beginning balance
 
(4,991
)
 
(4,521
)
Shares repurchased
 
(575
)
 
(470
)
Ending balance
 
(5,566
)
 
(4,991
)
Noncontrolling interests in subsidiaries
 
 
 
 
Beginning balance
 
355

 
1,278

Dividend paid to noncontrolling interest
 

 
(11
)
Net loss attributable to noncontrolling interests
 
(22
)
 
(64
)
Foreign currency translation adjustment
 
5

 
29

Ending balance
 
338

 
1,232

Total equity
 
$
1,370,097

 
$
1,460,275

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 Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income
 
$
26,501

 
$
36,829

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization and share-based compensation
 
1,640

 
4,780

Net realized gains on investment
 
(885
)
 
(2,277
)
Foreign exchange losses (gains)
 
1,921

 
(267
)
Changes in assets  (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(204,287
)
 
(218,880
)
Reinsurance recoverable on unpaid losses
 
(8,792
)
 
(12,392
)
Accrued investment income
 
386

 
(1,373
)
Deferred commission and other acquisition expenses
 
(47,280
)
 
(44,002
)
Other assets
 
(6,461
)
 
(35,609
)
Changes in liabilities  increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
89,175

 
54,846

Unearned premiums
 
193,550

 
203,281

Accrued expenses and other liabilities
 
(26
)
 
24,068

Net cash provided by operating activities
 
45,442

 
9,004

Cash flows from investing activities:
 
 
 
 
Purchases of investments:
 
 
 
 
Purchases of fixed-maturities – available-for-sale
 
(118,935
)
 
(268,661
)
Purchases of other investments
 
(120
)
 
(46
)
Sale of investments:
 
 
 
 
Proceeds from sales of fixed-maturities – available-for-sale
 
30,784

 
67,837

Proceeds from maturities and calls of fixed maturities – available-for-sale
 
105,181

 
106,168

Proceeds from sale and redemption of other investments
 
266

 
307

(Increase) decrease in restricted cash and cash equivalents
 
(5,619
)
 
97,701

Other, net
 
(367
)
 
(178
)
Net cash provided by investing activities
 
11,190

 
3,128

Cash flows from financing activities:
 
 
 
 
Issuance of common shares
 
518

 
348

Repurchase of common shares
 
(575
)
 
(470
)
Dividends paid – Maiden common shareholders
 
(12,948
)
 
(10,328
)
Dividends paid – preference shares
 
(6,033
)
 
(9,677
)
Net cash used in financing activities
 
(19,038
)
 
(20,127
)
Effect of exchange rate changes on foreign currency cash
 
196

 
3,594

Net increase (decrease) in cash and cash equivalents
 
37,790

 
(4,401
)
Cash and cash equivalents, beginning of period
 
45,747

 
89,641

Cash and cash equivalents, end of period
 
$
83,537

 
$
85,240

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. ("Maiden Holdings") 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, 2016. Certain reclassifications have been made for 2016 to conform to the 2017 presentation and have no impact on consolidated net income and total equity 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, 2016 except for the following:
Recently Adopted Accounting Standards Updates
Improvements to Employee Share-Based Payment Accounting
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-09 guidance that outlines changes for certain aspects of share-based payments to employees, such as accounting for forfeitures, which applies to the Company. Under the new guidance, the entities can elect to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The guidance is effective for public business entities for fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for all entities, in any annual or interim period for which financial statements haven't been issued or made available for issuance, but all of the guidance must be adopted in the same period. Based on the Company's history, forfeitures have never been material. The Company will account for forfeitures as they occur. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. There were no forfeitures for the three months ended March 31, 2017.
Recently Issued Accounting Standards Not Yet Adopted
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued ASU 2017-08 to amend the amortization period for certain purchased callable debt securities held at a premium. Current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings.
The amendments in ASU 2017-08 affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. The amendments shorten the amortization period for certain callable debt securities held at a premium and require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.
The Company holds a number of securities with callable features on the Condensed Consolidated Balance Sheet and this includes certain securities that have been purchased at a premium that is being amortized to the associated security's maturity date. The Company is currently evaluating the impact of this guidance on the Company's results of operations, financial position or liquidity at the date of adoption.

8

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

3. Segment Information
The Company currently has two reportable segments: Diversified Reinsurance and AmTrust Reinsurance. Our Diversified Reinsurance segment consists of a portfolio of predominantly property and casualty reinsurance business focusing on regional and specialty property and casualty insurance companies located, primarily, in the U.S. and Europe. Our AmTrust Reinsurance segment includes all business ceded to our wholly owned subsidiary, Maiden Reinsurance Ltd. ("Maiden Bermuda") from AmTrust Financial Services, Inc. ("AmTrust"), primarily the AmTrust Quota Share and the European Hospital Liability Quota Share. In addition to our reportable segments, the results of operations of the former NGHC Quota Share segment and the remnants of the U.S. excess and surplus business have been included in the "Other" category. Please refer to "Note 8. Related Party Transactions" for additional information.
The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. General and administrative expenses are allocated to the segments 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 unearned reinsurance premiums ceded (presented as part of other assets in the Condensed Consolidated Balance Sheet). All remaining assets are allocated to Corporate.
The following tables summarize our reporting segment's underwriting results and the reconciliation of our reportable segments and Other category's underwriting results to our consolidated net income:
For the Three Months Ended March 31, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
332,045

 
$
591,382

 
$

 
$
923,427

Net premiums written
 
$
327,496

 
$
573,052

 
$

 
$
900,548

Net premiums earned
 
$
201,842

 
$
507,642

 
$

 
$
709,484

Other insurance revenue
 
3,781

 

 

 
3,781

Net loss and loss adjustment expense ("loss and LAE")
 
(138,649
)
 
(341,631
)
 
(289
)
 
(480,569
)
Commission and other acquisition expenses
 
(57,945
)
 
(164,084
)
 

 
(222,029
)
General and administrative expenses
 
(8,730
)
 
(805
)
 

 
(9,535
)
Underwriting income (loss)
 
$
299

 
$
1,122

 
$
(289
)
 
1,132

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
43,042

Interest and amortization expenses
 
 
 
 
 
 
 
(6,856
)
Amortization of intangible assets
 
 
 
 
 
 
 
(533
)
Foreign exchange losses
 
 
 
 
 
 
 
(1,921
)
Other general and administrative expenses
 
 
 
 
 
 
 
(7,879
)
Income tax expense
 
 
 
 
 
 
 
(484
)
Net income
 
 
 
 
 
 
 
$
26,501

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
67.5
%
 
67.3
%
 
 
 
67.4
%
Commission and other acquisition expense ratio(2)
 
28.2
%
 
32.3
%
 
 
 
31.1
%
General and administrative expense ratio(3)
 
4.2
%
 
0.2
%
 
 
 
2.4
%
Expense ratio(4)
 
32.4
%
 
32.5
%
 
 
 
33.5
%
Combined ratio(5)
 
99.9
%
 
99.8
%
 
 
 
100.9
%

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 Information (continued)
For the Three Months Ended March 31, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
315,804

 
$
548,310

 
$

 
$
864,114

Net premiums written
 
$
286,136

 
$
506,695

 
$

 
$
792,831

Net premiums earned
 
$
172,256

 
$
443,753

 
$

 
$
616,009

Other insurance revenue
 
4,826

 

 

 
4,826

Net loss and LAE
 
(119,076
)
 
(281,774
)
 
(2,771
)
 
(403,621
)
Commission and other acquisition expenses
 
(54,531
)
 
(140,538
)
 
1

 
(195,068
)
General and administrative expenses
 
(8,600
)
 
(586
)
 

 
(9,186
)
Underwriting (loss) income
 
$
(5,125
)
 
$
20,855

 
$
(2,770
)
 
12,960

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
38,579

Interest and amortization expenses
 
 
 
 
 
 
 
(7,265
)
Amortization of intangible assets
 
 
 
 
 
 
 
(615
)
Foreign exchange gains
 
 
 
 
 
 
 
267

Other general and administrative expenses
 
 
 
 
 
 
 
(6,310
)
Income tax expense
 
 
 
 
 
 
 
(787
)
Net income
 
 
 
 
 
 
 
$
36,829

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
67.2
%
 
63.5
%
 
 
 
65.0
%
Commission and other acquisition expense ratio(2)
 
30.8
%
 
31.7
%
 
 
 
31.4
%
General and administrative expense ratio(3)
 
4.9
%
 
0.1
%
 
 
 
2.5
%
Expense ratio(4)
 
35.7
%
 
31.8
%
 
 
 
33.9
%
Combined ratio(5)
 
102.9
%
 
95.3
%
 
 
 
98.9
%
(1)
Calculated by dividing net loss and LAE by the sum of net premiums earned and other insurance revenue.
(2)
Calculated by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue.
(3)
Calculated by dividing general and administrative expenses by the sum of net premiums earned and other insurance revenue.
(4)
Calculated by adding together the commission and other acquisition expense ratio and general and administrative expense ratio.
(5)
Calculated by adding together net loss and LAE ratio and the expense ratio.
The following tables summarize the financial position of our reportable segments including the reconciliation to our consolidated assets at March 31, 2017 and December 31, 2016:
March 31, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Total
Total assets - reportable segments
 
$
1,903,557

 
$
4,095,845

 
$
5,999,402

Corporate assets
 

 

 
557,557

Total Assets
 
$
1,903,557

 
$
4,095,845

 
$
6,556,959

 
 
 
 
 
 
 
December 31, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Total
Total assets - reportable segments
 
$
1,787,320

 
$
3,900,067

 
$
5,687,387

Corporate assets
 

 

 
564,912

Total Assets
 
$
1,787,320

 
$
3,900,067

 
$
6,252,299


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 Information (continued)
The following table sets forth financial information relating to net premiums written by major line of business and reportable segment for the three months ended March 31, 2017 and 2016:
For the Three Months Ended March 31,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums written
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
73,377

 
8.2
%
 
$
61,869

 
7.8
%
Casualty
 
177,558

 
19.7
%
 
155,280

 
19.6
%
Accident and Health
 
48,649

 
5.4
%
 
39,572

 
5.0
%
International
 
27,912

 
3.1
%
 
29,415

 
3.7
%
Total Diversified Reinsurance
 
327,496

 
36.4
%
 
286,136

 
36.1
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
392,566

 
43.6
%
 
362,499

 
45.7
%
Specialty Program
 
91,869

 
10.2
%
 
76,791

 
9.7
%
Specialty Risk and Extended Warranty
 
88,617

 
9.8
%
 
67,405

 
8.5
%
Total AmTrust Reinsurance
 
573,052

 
63.6
%
 
506,695

 
63.9
%
Total Net Premiums Written
 
$
900,548

 
100.0
%
 
$
792,831

 
100.0
%
The following table sets forth financial information relating to net premiums earned by major line of business and reportable segment for the three months ended March 31, 2017 and 2016:
For the Three Months Ended March 31,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums earned
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
39,894

 
5.6
%
 
$
32,710

 
5.3
%
Casualty
 
123,150

 
17.4
%
 
100,166

 
16.3
%
Accident and Health
 
20,689

 
2.9
%
 
17,804

 
2.9
%
International
 
18,109

 
2.6
%
 
21,576

 
3.5
%
Total Diversified Reinsurance
 
201,842

 
28.5
%
 
172,256

 
28.0
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
316,909

 
44.7
%
 
264,491

 
42.9
%
Specialty Program
 
99,748

 
14.0
%
 
84,199

 
13.7
%
Specialty Risk and Extended Warranty
 
90,985

 
12.8
%
 
95,063

 
15.4
%
Total AmTrust Reinsurance
 
507,642

 
71.5
%
 
443,753

 
72.0
%
Total Net Premiums Earned
 
$
709,484

 
100.0
%
 
$
616,009

 
100.0
%


11

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
During the three months ended March 31, 2017, we did not designate any additional fixed maturities as held-to-maturity ("HTM"). During 2016 and 2015, we designated fixed maturities with a total fair value of $155,538 and $608,722, respectively, as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $15,770 and $244, respectively, at the designation date continues to be reported in the carrying value of the HTM securities and is amortized through other comprehensive income over the remaining life of the securities using the effective yield method in a manner consistent with the amortization of any premium or discount.
The original or amortized cost, estimated fair value and gross unrealized gains and losses of fixed maturities and other investments at March 31, 2017 and December 31, 2016, are as follows:
March 31, 2017
 
Original or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
Available-for-sale fixed maturities ("AFS"):
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,188

 
$
211

 
$
(10
)
 
$
5,389

U.S. agency bonds – mortgage-backed
 
1,679,527

 
11,079

 
(19,131
)
 
1,671,475

U.S. agency bonds – other
 
18,082

 
18

 

 
18,100

Non-U.S. government and supranational bonds
 
30,420

 
105

 
(4,169
)
 
26,356

Asset-backed securities
 
244,392

 
3,850

 
(79
)
 
248,163

Corporate bonds
 
1,954,125

 
32,340

 
(53,327
)
 
1,933,138

Municipal bonds
 
62,207

 
3,079

 

 
65,286

Total AFS fixed maturities
 
3,993,941

 
50,682

 
(76,716
)
 
3,967,907

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
750,554

 
18,788

 
(1,685
)
 
767,657

Total HTM fixed maturities
 
750,554

 
18,788

 
(1,685
)
 
767,657

Other investments
 
10,074

 
3,460

 

 
13,534

Total investments
 
$
4,754,569

 
$
72,930

 
$
(78,401
)
 
$
4,749,098

December 31, 2016
 
Original or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,186

 
$
238

 
$
(11
)
 
$
5,413

U.S. agency bonds – mortgage-backed
 
1,720,436

 
12,867

 
(17,265
)
 
1,716,038

U.S. agency bonds – other
 
18,082

 
20

 

 
18,102

Non-U.S. government and supranational bonds
 
35,158

 
73

 
(5,297
)
 
29,934

Asset-backed securities
 
217,232

 
3,713

 
(69
)
 
220,876

Corporate bonds
 
1,947,347

 
30,951

 
(62,093
)
 
1,916,205

Municipal bonds
 
62,201

 
2,897

 

 
65,098

Total AFS fixed maturities
 
4,005,642

 
50,759

 
(84,735
)
 
3,971,666

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
752,212

 
16,370

 
(2,447
)
 
766,135

Total HTM fixed maturities
 
752,212

 
16,370

 
(2,447
)
 
766,135

Other investments
 
10,057

 
3,003

 

 
13,060

Total investments
 
$
4,767,911

 
$
70,132

 
$
(87,182
)
 
$
4,750,861


12

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)
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 prepay obligations with or without call or prepayment penalties.
 
 
AFS fixed maturities
 
HTM fixed maturities
March 31, 2017
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
57,366

 
$
49,562

 
$
20,755

 
$
20,714

Due after one year through five years
 
647,554

 
634,020

 
285,460

 
292,104

Due after five years through ten years
 
1,332,950

 
1,332,615

 
439,252

 
449,764

Due after ten years
 
32,152

 
32,072

 
5,087

 
5,075

 
 
2,070,022

 
2,048,269

 
750,554

 
767,657

U.S. agency bonds – mortgage-backed
 
1,679,527

 
1,671,475

 

 

Asset-backed securities
 
244,392

 
248,163

 

 

Total fixed maturities
 
$
3,993,941

 
$
3,967,907

 
$
750,554

 
$
767,657

The following tables summarize fixed maturities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
 
Less than 12 Months
 
12 Months or More
 
Total
March 31, 2017
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
590

 
$
(10
)
 
$

 
$

 
$
590

 
$
(10
)
U.S. agency bonds – mortgage-backed
 
958,846

 
(16,318
)
 
45,684

 
(2,813
)
 
1,004,530

 
(19,131
)
Non–U.S. government and supranational bonds
 
189

 
(5
)
 
23,891

 
(4,164
)
 
24,080

 
(4,169
)
Asset-backed securities
 
27,138

 
(79
)
 

 

 
27,138

 
(79
)
Corporate bonds
 
578,150

 
(12,520
)
 
319,342

 
(42,492
)
 
897,492

 
(55,012
)
Total temporarily impaired fixed maturities
 
$
1,564,913

 
$
(28,932
)
 
$
388,917

 
$
(49,469
)
 
$
1,953,830

 
$
(78,401
)
At March 31, 2017, there were approximately 235 securities in an unrealized loss position with a fair value of $1,953,830 and unrealized losses of $78,401. Of these securities, there were 86 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $388,917 and unrealized losses of $49,469.

13

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)
 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2016
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
589

 
$
(11
)
 
$

 
$

 
$
589

 
$
(11
)
U.S. agency bonds – mortgage-backed
 
997,943

 
(14,440
)
 
47,969

 
(2,825
)
 
1,045,912

 
(17,265
)
Non-U.S. government and supranational bonds
 
3,169

 
(160
)
 
25,236

 
(5,137
)
 
28,405

 
(5,297
)
Asset-backed securities
 
30,589

 
(69
)
 

 

 
30,589

 
(69
)
Corporate bonds
 
642,599

 
(15,058
)
 
357,954

 
(49,482
)
 
1,000,553

 
(64,540
)
Total temporarily impaired fixed maturities
 
$
1,674,889

 
$
(29,738
)
 
$
431,159

 
$
(57,444
)
 
$
2,106,048

 
$
(87,182
)
At December 31, 2016, there were approximately 251 securities in an unrealized loss position with a fair value of $2,106,048 and unrealized losses of $87,182. Of these securities, there were 91 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $431,159 and unrealized losses of $57,444.
OTTI
The Company performs quarterly reviews of its fixed maturities in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. At March 31, 2017, we have determined that the unrealized losses on fixed maturities were primarily due to widening of credit and interest rate spreads as well as the impact of foreign exchange rate changes on certain foreign currency denominated AFS fixed maturities since their date of purchase. Because we do not intend to sell these securities and it is not more likely than not that we will be required to do so 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 ("OTTI") at March 31, 2017. The Company has therefore recognized no OTTI through earnings for the three months ended March 31, 2017 (2016 - $0).
The following summarizes the credit ratings of our fixed maturities:
Ratings(1) at March 31, 2017
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
5,188

 
$
5,389

 
0.1
%
U.S. agency bonds
 
1,697,609

 
1,689,575

 
35.7
%
AAA
 
165,525

 
167,178

 
3.5
%
AA+, AA, AA-
 
238,927

 
239,078

 
5.0
%
A+, A, A-
 
1,333,851

 
1,329,187

 
28.1
%
BBB+, BBB, BBB-
 
1,144,868

 
1,144,082

 
24.2
%
BB+ or lower
 
158,527

 
161,075

 
3.4
%
Total fixed maturities
 
$
4,744,495

 
$
4,735,564

 
100.0
%

14

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)
Ratings(1) at December 31, 2016
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
5,186

 
$
5,413

 
0.1
%
U.S. agency bonds
 
1,738,518

 
1,734,140

 
36.6
%
AAA
 
170,515

 
171,090

 
3.6
%
AA+, AA, AA-
 
238,315

 
237,169

 
5.0
%
A+, A, A-
 
1,386,023

 
1,374,860

 
29.0
%
BBB+, BBB, BBB-
 
1,053,529

 
1,047,376

 
22.2
%
BB+ or lower
 
165,768

 
167,753

 
3.5
%
Total fixed maturities
 
$
4,757,854

 
$
4,737,801

 
100.0
%
(1)
Based on Standard & Poor’s ("S&P"), or equivalent, ratings
b)
Other Investments
The table below shows our portfolio of other investments:
 
 
March 31, 2017
 
December 31, 2016
 
 
Fair value
 
% of Total
fair value
 
Fair value
 
% of Total
fair value
Investment in limited partnerships
 
$
5,692

 
42.0
%
 
$
5,474

 
41.9
%
Investment in quoted equity
 
6,842

 
50.6
%
 
6,586

 
50.4
%
Other
 
1,000

 
7.4
%
 
1,000

 
7.7
%
Total other investments
 
$
13,534

 
100.0
%
 
$
13,060

 
100.0
%
The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $452 at March 31, 2017 (2016 - $463).
c)
Net Investment Income
Net investment income was derived from the following sources:
For the Three Months Ended March 31,
 
2017
 
2016
Fixed maturities
 
$
42,870

 
$
36,743

Cash and cash equivalents
 
367

 
612

Loan to related party
 
712

 
562

Other
 
31

 
30

 
 
43,980

 
37,947

Investment expenses
 
(1,823
)
 
(1,645
)
Net investment income
 
$
42,157

 
$
36,302


15

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)
d)
Realized Gains (Losses) on Investment
Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. The following provides an analysis of net realized gains on investment included in the Condensed Consolidated Statements of Income:
For the Three Months Ended March 31, 2017
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
722

 
$

 
$
722

Other investments
 
163

 

 
163

Net realized gains on investment
 
$
885

 
$

 
$
885

For the Three Months Ended March 31, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
3,093

 
$
(879
)
 
$
2,214

Other investments
 
63

 

 
63

Net realized gains on investment
 
$
3,156

 
$
(879
)
 
$
2,277

Proceeds from sales of fixed maturities classified as AFS were $30,784 and $67,837 for the three months ended March 31, 2017 and 2016, respectively.
Net unrealized (losses) gains were as follows:
 
 
March 31, 2017
 
December 31, 2016
Fixed maturities
 
$
(17,336
)
 
$
(23,635
)
Other investments
 
3,460

 
3,003

Total net unrealized losses
 
(13,876
)
 
(20,632
)
Deferred income tax
 
(43
)
 
(84
)
Net unrealized losses, net of deferred income tax
 
$
(13,919
)
 
$
(20,716
)
Change, net of deferred income tax
 
$
6,797

 


e)
Restricted Cash and Cash Equivalents 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 maturities. The fair value of our restricted assets was as follows:
 
 
March 31, 2017
 
December 31, 2016
Restricted cash – third party agreements
 
$
76,718

 
$
56,891

Restricted cash – related party agreements
 
32,868

 
46,777

Restricted cash – U.S. state regulatory authorities
 
111

 
120

Total restricted cash
 
109,697

 
103,788

Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2017 – $1,274,642; 2016 – $1,307,926)
 
1,270,138

 
1,299,569

Restricted investments AFS– in trust for related party agreements at fair value (Amortized cost: 2017 – $2,305,257; 2016 – $2,242,565)
 
2,295,156

 
2,225,066

Restricted investments HTM– in trust for related party agreements at fair value (Amortized cost: 2017 – $750,554; 2016 – $752,212)
 
767,657

 
766,135

Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2017 – $4,063; 2016 – $4,059)
 
4,224

 
4,238

Total restricted investments
 
4,337,175

 
4,295,008

Total restricted cash and investments
 
$
4,446,872

 
$
4,398,796


16

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

5. Fair Value of Financial Instruments
(a) Fair Values of Financial Instruments
Fair Value Measurements — Accounting Standards Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between open market participants at the measurement date. Additionally, ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 — Valuations based on unadjusted quoted market prices for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples of assets and liabilities utilizing Level 1 inputs include: exchange-traded equity securities and U.S. Treasury bonds;
Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical 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. Examples of assets and liabilities utilizing Level 2 inputs include: U.S. government-sponsored agency securities; non-U.S. government and supranational obligations; commercial mortgage-backed securities ("CMBS"); collateralized loan obligations ("CLO"); corporate and municipal bonds; and
Level 3 — Valuations based on models where significant inputs are not observable. The unobservable inputs reflect our own assumptions about assumptions that market participants would use. Examples of assets and liabilities utilizing Level 3 inputs include: investments in limited partnerships and an investment in preference shares of a start-up insurance producer.
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. We use prices and inputs that are current at the measurement date. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.
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. The Company receives the quoted market prices from a third party nationally recognized provider, the 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 Company will challenge any prices for its investments which are considered not to be representation of fair value. 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. The Company determines whether the fair value estimate is in the Level 2 or Level 3 hierarchy depending on the level of observable inputs available when estimating the fair value. The Company bases its estimates of fair values for assets on the bid price as it represents what a third party market participant would be willing to pay in an orderly transaction.
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 at March 31, 2017.
U.S. government and U.S. agency — Bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage Association and the Federal National Mortgage Association. The fair values of U.S. treasury bonds are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. treasury bonds is an actively traded market given the high level of daily trading volume. The fair values of U.S. agency bonds are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.

17

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

5. Fair Value of Financial Instruments (continued)
Non-U.S. government and supranational bonds — These securities are generally priced by independent pricing services. The Pricing Service 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 spreads, interest rate data and market/sector news. As the significant inputs used to price non-U.S. government and supranational bonds are observable market inputs, the fair values of non-U.S. government and supranational bonds are included in the Level 2 fair value hierarchy.
Asset-backed securities — These securities comprise CMBS and CLO originated by a variety of financial institutions that on acquisition are rated BBB-/Baa3 or higher. These securities are priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price the CMBS and CLO are observable market inputs, the fair value of the CMBS and CLO is included in the Level 2 fair value hierarchy.
Corporate bonds — Bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher. These securities are generally priced by independent pricing services. The spreads are sourced from broker/dealers, trade prices and the new issue market. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.
Municipal bonds — Bonds issued by U.S. state and municipality entities or agencies. The fair values of municipal bonds are generally priced by independent pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, municipal bonds are classified within Level 2.
Other investments — Includes both quoted and unquoted investments. The fair value of our quoted equity investment is obtained from the Pricing Service and is classified within Level 1. Unquoted other investments comprise investments in limited partnerships and an investment in preference shares of a start-up insurance producer. The fair values of the limited partnerships are determined by the fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals, and as such, the fair values are included in the Level 3 fair value hierarchy. The fair value of the investment in preference shares of a start-up insurance producer was determined using recent private market transactions and as such, the fair value is included in the Level 3 fair value hierarchy.
Cash and cash equivalents (including restricted amounts), accrued investment income, reinsurance balances receivable, and certain other assets and liabilities — The carrying values reported in the condensed consolidated balance sheets for these financial instruments approximate their fair value due to their short term nature and are classified as Level 2.
Loan to related party — The carrying value reported in the condensed consolidated balance sheets for this financial instrument approximates its fair value and it is included in the Level 2 hierarchy.
Senior notes The amount reported in the condensed consolidated balance sheets for these financial instruments represents the carrying value of the notes. The fair values are based on indicative market pricing obtained from a third-party service provider and as such, are included in the Level 2 hierarchy.
(b) Fair Value Hierarchy
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.

18

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

5. Fair Value of Financial Instruments (continued)
At March 31, 2017 and December 31, 2016, we classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
March 31, 2017
 
Quoted Prices
in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Fair Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,389

 
$

 
$

 
$
5,389

U.S. agency bonds – mortgage-backed
 

 
1,671,475

 

 
1,671,475

U.S. agency bonds – other
 

 
18,100

 

 
18,100

Non-U.S. government and supranational bonds
 

 
26,356

 

 
26,356

Asset-backed securities
 

 
248,163

 

 
248,163

Corporate bonds
 

 
1,933,138

 

 
1,933,138

Municipal bonds
 

 
65,286

 

 
65,286

Other investments
 
6,842

 

 
6,692

 
13,534

Total
 
$
12,231

 
$
3,962,518

 
$
6,692

 
$
3,981,441

As a percentage of total assets
 
0.2
%
 
60.4
%
 
0.1
%
 
60.7
%
<
December 31, 2016
 
Quoted Prices
in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Fair Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,413

 
$

 
$

 
$
5,413

U.S. agency bonds – mortgage-backed
 

 
1,716,038

 

 
1,716,038

U.S. agency bonds – other
 

 
18,102

 

 
18,102

Non-U.S. government and supranational bonds