Maiden Holdings, Ltd. - FORM 10-Q - November 9, 2017

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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, 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 November 2, 2017, the number of the Registrant's Common Stock ($.01 par value) outstanding was 84,624,829.




INDEX
 
 
Page
PART I - Financial Information
 
 
 

 
 
Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 (audited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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)
 
 
September 30,
2017
 
December 31,
2016
 
 
(Unaudited)
 
(Audited)
ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2017: $3,844,996; 2016: $4,005,642)
 
$
3,884,587

 
$
3,971,666

Fixed maturities, held to maturity, at amortized cost (fair value 2017: $1,152,106; 2016: $766,135)
 
1,118,368

 
752,212

Other investments, at fair value (cost 2017: $5,640; 2016: $10,057)
 
7,041

 
13,060

Total investments
 
5,009,996

 
4,736,938

Cash and cash equivalents
 
182,677

 
45,747

Restricted cash and cash equivalents
 
131,598

 
103,788

Accrued investment income
 
35,547

 
36,517

Reinsurance balances receivable, net (includes $150,985 and $132,056 from related parties in 2017 and 2016, respectively)
 
479,472

 
410,166

Reinsurance recoverable on unpaid losses (includes $2,374 and $5,085 from related parties in 2017 and 2016, respectively)
 
140,629

 
99,936

Loan to related party
 
167,975

 
167,975

Deferred commission and other acquisition expenses (includes $371,733 and $339,172 from related parties in 2017 and 2016, respectively)
 
469,617

 
424,605

Goodwill and intangible assets, net
 
76,116

 
77,715

Other assets
 
145,470

 
148,912

Total assets
 
$
6,839,097

 
$
6,252,299

LIABILITIES
 
 
 
 
Reserve for loss and loss adjustment expenses (includes $2,131,851 and $1,776,784 from related parties in 2017 and 2016, respectively)
 
$
3,365,011

 
$
2,896,496

Unearned premiums (includes $1,238,085 and $1,152,484 from related parties in 2017 and 2016, respectively)
 
1,601,069

 
1,475,506

Accrued expenses and other liabilities
 
175,540

 
161,334

Liability for investments purchased
 
21,658

 
6,402

Senior notes - principal amount
 
262,500

 
362,500

Less: unamortized debt issuance costs
 
8,070

 
11,091

Senior notes, net
 
254,430

 
351,409

Total liabilities
 
5,417,708

 
4,891,147

Commitments and Contingencies
 


 


EQUITY
 
 
 
 
Preference shares
 
465,000

 
315,000

Common shares ($0.01 par value; 87,728,554 and 87,321,012 shares issued in 2017 and 2016, respectively; 84,624,829 and 86,271,109 shares outstanding in 2017 and 2016, respectively)
 
877

 
873

Additional paid-in capital
 
747,464

 
749,256

Accumulated other comprehensive income
 
46,079

 
14,997

Retained earnings
 
181,510

 
285,662

Treasury shares, at cost (3,103,725 and 1,049,903 shares in 2017 and 2016, respectively)
 
(19,903
)
 
(4,991
)
Total Maiden shareholders’ equity
 
1,421,027

 
1,360,797

Noncontrolling interests in subsidiaries
 
362

 
355

Total equity
 
1,421,389

 
1,361,152

Total liabilities and equity
 
$
6,839,097

 
$
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 September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Gross premiums written
 
$
630,972

 
$
706,854

 
$
2,259,597

 
$
2,259,290

Net premiums written
 
$
617,330

 
$
690,653

 
$
2,201,950

 
$
2,133,911

Change in unearned premiums
 
36,536

 
7,625

 
(127,475
)
 
(182,060
)
Net premiums earned
 
653,866

 
698,278

 
2,074,475

 
1,951,851

Other insurance revenue
 
2,488

 
2,345

 
7,816

 
8,696

Net investment income
 
40,823

 
35,666

 
123,492

 
107,291

Net realized gains on investment
 
5,859

 
1,900

 
8,316

 
4,511

Total revenues
 
703,036

 
738,189

 
2,214,099

 
2,072,349

Expenses
 
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
 
535,968

 
466,751

 
1,545,157

 
1,297,361

Commission and other acquisition expenses
 
193,462

 
206,706

 
625,530

 
587,501

General and administrative expenses
 
19,492

 
16,952

 
52,252

 
49,738

Interest and amortization expenses
 
4,829

 
6,856

 
18,430

 
21,314

Accelerated amortization of senior note issuance cost
 
—

 
—

 
2,809

 
2,345

Amortization of intangible assets
 
533

 
616

 
1,599

 
1,846

Foreign exchange losses (gains)
 
3,550

 
(687
)
 
12,193

 
(6,474
)
Total expenses
 
757,834

 
697,194

 
2,257,970

 
1,953,631

(Loss) income before income taxes
 
(54,798
)
 
40,995

 
(43,871
)
 
118,718

Less: income tax expense
 
256

 
199

 
1,017

 
1,206

Net (loss) income
 
(55,054
)
 
40,796

 
(44,888
)
 
117,512

Add: net loss attributable to noncontrolling interests
 
3

 
56

 
34

 
166

Net (loss) income attributable to Maiden
 
(55,051
)
 
40,852

 
(44,854
)
 
117,678

Dividends on preference shares
 
(8,545
)
 
(9,023
)
 
(20,611
)
 
(27,723
)
Net (loss) income attributable to Maiden common shareholders
 
$
(63,596
)
 
$
31,829

 
$
(65,465
)
 
$
89,955

Basic (loss) earnings per share attributable to Maiden common shareholders
 
$
(0.74
)
 
$
0.42

 
$
(0.76
)
 
$
1.20

Diluted (loss) earnings per share attributable to Maiden common shareholders
 
$
(0.74
)
 
$
0.40

 
$
(0.76
)
 
$
1.15

Dividends declared per common share
 
$
0.15

 
$
0.14

 
$
0.45

 
$
0.42

Weighted average number of common shares - basic
 
85,859,201

 
75,993,451

 
86,256,481

 
74,625,839

Adjusted weighted average number of common shares and assumed conversions - diluted
 
85,859,201

 
86,150,951

 
86,256,481

 
86,018,019


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 September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net (loss) income
 
$
(55,054
)
 
$
40,796

 
$
(44,888
)
 
$
117,512

Other comprehensive income
 
 
 
 
 
 
 
 
Net unrealized holdings gains on available-for-sale fixed maturities arising during the period
 
25,019

 
8,888

 
68,798

 
155,052

Adjustment for reclassification of net realized (gains) losses recognized in net income
 
(3,650
)
 
(1,202
)
 
1,123

 
578

Foreign currency translation adjustment
 
(10,828
)
 
(2,730
)
 
(38,803
)
 
(7,927
)
Other comprehensive income, before tax
 
10,541

 
4,956

 
31,118

 
147,703

Income tax (expense) benefit related to components of other comprehensive income
 
(25
)
 
11

 
5

 
(28
)
Other comprehensive income, after tax
 
10,516

 
4,967

 
31,123

 
147,675

Comprehensive (loss) income
 
(44,538
)
 
45,763

 
(13,765
)
 
265,187

Net loss attributable to noncontrolling interests
 
3

 
56

 
34

 
166

Other comprehensive income attributable to noncontrolling interests
 
(12
)
 
(17
)
 
(41
)
 
(32
)
Comprehensive (income) loss attributable to noncontrolling interests
 
(9
)
 
39

 
(7
)
 
134

Comprehensive (loss) income attributable to Maiden
 
$
(44,547
)
 
$
45,802

 
$
(13,772
)
 
$
265,321


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,

2017

2016
Preference shares
 
 
 
 
Beginning balance
 
$
315,000

 
$
480,000

Issuance of Preference Shares – Series D
 
150,000

 
—

Mandatory conversion of Preference Shares - Series B
 
—

 
(165,000
)
Ending balance
 
465,000

 
315,000

Common shares
 
 
 
 
Beginning balance
 
873

 
747

Exercise of options and issuance of shares
 
4

 
4

Shares issued on mandatory conversion of Preference Shares - Series B
 
—

 
121

Ending balance
 
877

 
872

Additional paid-in capital
 
 
 
 
Beginning balance
 
749,256

 
579,178

Exercise of options and issuance of common shares
 
1,072

 
662

Share-based compensation expense
 
2,194

 
2,625

Issuance costs of Preference Shares - Series D
 
(5,058
)
 
—

Mandatory conversion of Preference Shares - Series B
 
—

 
164,879

Others
 
—

 
(141
)
Ending balance
 
747,464

 
747,203

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
14,997

 
(23,767
)
Change in net unrealized gains on investment
 
69,926

 
155,602

Foreign currency translation adjustment
 
(38,844
)
 
(7,959
)
Ending balance
 
46,079

 
123,876

Retained earnings
 
 
 
 
Beginning balance
 
285,662

 
316,184

Net (loss) income attributable to Maiden
 
(44,854
)
 
117,678

Dividends on preference shares
 
(20,611
)
 
(27,723
)
Dividends on common shares
 
(38,687
)
 
(32,799
)
Ending balance
 
181,510

 
373,340

Treasury shares
 
 
 
 
Beginning balance
 
(4,991
)
 
(4,521
)
Shares repurchased
 
(14,912
)
 
(470
)
Ending balance
 
(19,903
)
 
(4,991
)
Noncontrolling interests in subsidiaries
 
 
 
 
Beginning balance
 
355

 
1,278

Change in minority interest
 
—

 
(54
)
Dividend paid to noncontrolling interest
 
—

 
(31
)
Net loss attributable to noncontrolling interests
 
(34
)
 
(166
)
Foreign currency translation adjustment
 
41

 
32

Ending balance
 
362

 
1,059

Total equity
 
$
1,421,389

 
$
1,556,359

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,
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net (loss) income
 
$
(44,888
)
 
$
117,512

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization and share-based compensation
 
10,472

 
16,841

Net realized gains on investment
 
(8,316
)
 
(4,511
)
Foreign exchange losses (gains)
 
12,193

 
(6,474
)
Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(62,517
)
 
(154,091
)
Reinsurance recoverable on unpaid losses
 
(40,455
)
 
(26,281
)
Accrued investment income
 
1,545

 
(1,537
)
Deferred commission and other acquisition expenses
 
(43,171
)
 
(49,713
)
Other assets
 
(1,865
)
 
(32,027
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
419,660

 
250,937

Unearned premiums
 
117,882

 
204,752

Accrued expenses and other liabilities
 
14,239

 
10,749

Net cash provided by operating activities
 
374,779

 
326,157

Cash flows from investing activities:
 
 
 
 
Purchases of investments:
 
 
 
 
Purchases of fixed-maturities – available-for-sale
 
(715,838
)
 
(732,001
)
Purchases of other investments
 
(986
)
 
(167
)
Sale of investments:
 
 
 
 
Proceeds from sales of fixed-maturities – available-for-sale
 
199,751

 
101,923

Proceeds from maturities and calls of fixed maturities – available-for-sale
 
302,496

 
442,490

Proceeds from maturities and calls of fixed maturities – held to maturity
 
20,744

 
—

Proceeds from sale and redemption of other investments
 
11,119

 
572

Increase in restricted cash and cash equivalents
 
(27,040
)
 
(103,685
)
Other, net
 
(2,299
)
 
(521
)
Net cash used in investing activities
 
(212,053
)
 
(291,389
)
Cash flows from financing activities:
 
 
 
 
Preference shares, net of issuance costs
 
144,942

 
—

Senior notes, net of issuance costs
 
—

 
106,424

Redemption of 2012 senior notes
 
(100,000
)
 
—

Redemption of 2011 senior notes
 
—

 
(107,500
)
Issuance of common shares
 
1,076

 
666

Repurchase of common shares
 
(14,912
)
 
(470
)
Dividends paid – Maiden common shareholders
 
(38,935
)
 
(31,062
)
Dividends paid – preference shares
 
(20,611
)
 
(27,723
)
Net cash used in financing activities
 
(28,440
)
 
(59,665
)
Effect of exchange rate changes on foreign currency cash
 
2,644

 
2,715

Net increase (decrease) in cash and cash equivalents
 
136,930

 
(22,182
)
Cash and cash equivalents, beginning of period
 
45,747

 
89,641

Cash and cash equivalents, end of period
 
$
182,677

 
$
67,459

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"). They have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP" or "U.S. GAAP") for interim financial information 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 Condensed Consolidated Financial Statements. There were no forfeitures for the three and nine months ended September 30, 2017.
Simplified Accounting for Goodwill Impairment
In February 2017, the FASB issued ASU 2017-04 guidance that simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on Step 1 of the two-step impairment test under ASC 350 Intangibles - Goodwill and Other. Under the new guidance, if the carrying value of a reporting unit exceeds its fair value, the Company will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate goodwill impairment under Step 2, which calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount. The Update does not change the guidance on completing Step 1 of the goodwill impairment test. The standard has tiered effective dates, starting in 2020 for calendar public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 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.

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)
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.
Scope of Modification Accounting
In May 2017, the FASB issued ASU 2017-09 to amend the guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met:
1.The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;
2.The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and
3.The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update.
The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.
The Company currently has a number of share based payment awards as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016, however, we do not anticipate any modifications to the terms or conditions at this time. The impact of this guidance on the Company's Condensed Consolidated Financial Statements will be evaluated once ASU-2017-09 is adopted and when the Company makes any modification to any of its current shared based payment awards.

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
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 National General Holdings Corporation Quota Share ("NGHC Quota Share") segment and the remnants of the U.S. excess and surplus ("E&S") 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, funds withheld receivable and reinsurance recoverable on paid losses (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 September 30, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
210,953

 
$
420,019

 
$
—

 
$
630,972

Net premiums written
 
$
207,137

 
$
410,193

 
$
—

 
$
617,330

Net premiums earned
 
$
217,513

 
$
436,353

 
$
—

 
$
653,866

Other insurance revenue
 
2,488

 
—

 
—

 
2,488

Net loss and loss adjustment expense ("loss and LAE")
 
(172,273
)
 
(355,030
)
 
(8,665
)
 
(535,968
)
Commission and other acquisition expenses
 
(54,810
)
 
(138,650
)
 
(2
)
 
(193,462
)
General and administrative expenses
 
(8,595
)
 
(771
)
 
—

 
(9,366
)
Underwriting loss
 
$
(15,677
)
 
$
(58,098
)
 
$
(8,667
)
 
(82,442
)
Reconciliation to net loss
 
 
 
 
 
 
 
 
Net investment income and net realized gains on investment
 
 
 
 
 
 
 
46,682

Interest and amortization expenses
 
 
 
 
 
 
 
(4,829
)
Amortization of intangible assets
 
 
 
 
 
 
 
(533
)
Foreign exchange losses
 
 
 
 
 
 
 
(3,550
)
Other general and administrative expenses
 
 
 
 
 
 
 
(10,126
)
Income tax expense
 
 
 
 
 
 
 
(256
)
Net loss
 
 
 
 
 
 
 
$
(55,054
)
 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
78.3
%
 
81.4
%
 
 
 
81.6
%
Commission and other acquisition expense ratio(2)
 
24.9
%
 
31.7
%
 
 
 
29.5
%
General and administrative expense ratio(3)
 
3.9
%
 
0.2
%
 
 
 
3.0
%
Expense ratio(4)
 
28.8
%
 
31.9
%
 
 
 
32.5
%
Combined ratio(5)
 
107.1
%
 
113.3
%
 
 
 
114.1
%

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)
For the Three Months Ended September 30, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
186,750

 
$
520,104

 
$
—

 
$
706,854

Net premiums written
 
$
179,092

 
$
511,561

 
$
—

 
$
690,653

Net premiums earned
 
$
175,141

 
$
523,137

 
$
—

 
$
698,278

Other insurance revenue
 
2,345

 
—

 
—

 
2,345

Net loss and LAE
 
(132,396
)
 
(334,310
)
 
(45
)
 
(466,751
)
Commission and other acquisition expenses
 
(39,868
)
 
(166,836
)
 
(2
)
 
(206,706
)
General and administrative expenses
 
(9,038
)
 
(759
)
 
—

 
(9,797
)
Underwriting (loss) income
 
$
(3,816
)
 
$
21,232

 
$
(47
)
 
17,369

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and net realized gains on investment
 
 
 
 
 
 
 
37,566

Interest and amortization expenses
 
 
 
 
 
 
 
(6,856
)
Amortization of intangible assets
 
 
 
 
 
 
 
(616
)
Foreign exchange gains
 
 
 
 
 
 
 
687

Other general and administrative expenses
 
 
 
 
 
 
 
(7,155
)
Income tax expense
 
 
 
 
 
 
 
(199
)
Net income
 
 
 
 
 
 
 
$
40,796

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
74.6
%
 
63.9
%
 
 
 
66.6
%
Commission and other acquisition expense ratio(2)
 
22.5
%
 
31.9
%
 
 
 
29.5
%
General and administrative expense ratio(3)
 
5.1
%
 
0.1
%
 
 
 
2.4
%
Expense ratio(4)
 
27.6
%
 
32.0
%
 
 
 
31.9
%
Combined ratio(5)
 
102.2
%
 
95.9
%
 
 
 
98.5
%


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 Information (continued)
For the Nine Months Ended September 30, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
683,839

 
$
1,575,677

 
$
81

 
$
2,259,597

Net premiums written
 
$
671,880

 
$
1,529,980

 
$
90

 
$
2,201,950

Net premiums earned
 
$
623,574

 
$
1,450,811

 
$
90

 
$
2,074,475

Other insurance revenue
 
7,816

 
—

 
—

 
7,816

Net loss and LAE
 
(487,759
)
 
(1,047,222
)
 
(10,176
)
 
(1,545,157
)
Commission and other acquisition expenses
 
(159,744
)
 
(465,789
)
 
3

 
(625,530
)
General and administrative expenses
 
(25,819
)
 
(2,240
)
 
—

 
(28,059
)
Underwriting loss
 
$
(41,932
)
 
$
(64,440
)
 
$
(10,083
)
 
(116,455
)
Reconciliation to net loss
 
 
 
 
 
 
 
 
Net investment income and net realized gains on investment
 
 
 
 
 
 
 
131,808

Interest and amortization expenses
 
 
 
 
 
 
 
(18,430
)
Accelerated amortization of senior note issuance cost
 
 
 
 
 
 
 
(2,809
)
Amortization of intangible assets
 
 
 
 
 
 
 
(1,599
)
Foreign exchange losses
 
 
 
 
 
 
 
(12,193
)
Other general and administrative expenses
 
 
 
 
 
 
 
(24,193
)
Income tax expense
 
 
 
 
 
 
 
(1,017
)
Net loss
 
 
 
 
 
 
 
$
(44,888
)
 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
77.2
%
 
72.2
%
 
 
 
74.2
%
Commission and other acquisition expense ratio(2)
 
25.3
%
 
32.1
%
 
 
 
30.0
%
General and administrative expense ratio(3)
 
4.1
%
 
0.1
%
 
 
 
2.5
%
Expense ratio(4)
 
29.4
%
 
32.2
%
 
 
 
32.5
%
Combined ratio(5)
 
106.6
%
 
104.4
%
 
 
 
106.7
%

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 Information (continued)
For the Nine Months Ended September 30, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
667,388

 
$
1,591,902

 
$
—

 
$
2,259,290

Net premiums written
 
$
626,522

 
$
1,507,389

 
$
—

 
$
2,133,911

Net premiums earned
 
$
538,152

 
$
1,413,699

 
$
—

 
$
1,951,851

Other insurance revenue
 
8,696

 
—

 
—

 
8,696

Net loss and LAE
 
(395,718
)
 
(898,703
)
 
(2,940
)
 
(1,297,361
)
Commission and other acquisition expenses
 
(139,895
)
 
(447,604
)
 
(2
)
 
(587,501
)
General and administrative expenses
 
(26,717
)
 
(2,308
)
 
—

 
(29,025
)
Underwriting (loss) income
 
$
(15,482
)
 
$
65,084

 
$
(2,942
)
 
46,660

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and net realized gains on investment
 
 
 
 
 
 
 
111,802

Interest and amortization expenses
 
 
 
 
 
 
 
(21,314
)
Accelerated amortization of senior note issuance cost
 
 
 
 
 
 
 
(2,345
)
Amortization of intangible assets
 
 
 
 
 
 
 
(1,846
)
Foreign exchange gains
 
 
 
 
 
 
 
6,474

Other general and administrative expenses
 
 
 
 
 
 
 
(20,713
)
Income tax expense
 
 
 
 
 
 
 
(1,206
)
Net income
 
 
 
 
 
 
 
$
117,512

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
72.4
%
 
63.5
%
 
 
 
66.2
%
Commission and other acquisition expense ratio(2)
 
25.6
%
 
31.7
%
 
 
 
30.0
%
General and administrative expense ratio(3)
 
4.8
%
 
0.2
%
 
 
 
2.5
%
Expense ratio(4)
 
30.4
%
 
31.9
%
 
 
 
32.5
%
Combined ratio(5)
 
102.8
%
 
95.4
%
 
 
 
98.7
%
(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 September 30, 2017 and December 31, 2016:
September 30, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Total
Total assets - reportable segments
 
$
1,898,036

 
$
4,362,008

 
$
6,260,044

Corporate assets
 
—

 
—

 
579,053

Total Assets
 
$
1,898,036

 
$
4,362,008

 
$
6,839,097

 
 
 
 
 
 
 
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


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 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 and nine months ended September 30, 2017 and 2016:
For the Three Months Ended September 30,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums written
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
37,962

 
6.2
%
 
$
30,606

 
4.4
%
Casualty
 
129,726

 
21.0
%
 
115,360

 
16.7
%
Accident and Health
 
16,946

 
2.7
%
 
14,845

 
2.2
%
International
 
22,503

 
3.7
%
 
18,281

 
2.6
%
Total Diversified Reinsurance
 
207,137

 
33.6
%
 
179,092

 
25.9
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
295,499

 
47.9
%
 
314,677

 
45.6
%
Specialty Program
 
63,816

 
10.3
%
 
98,895

 
14.3
%
Specialty Risk and Extended Warranty
 
50,878

 
8.2
%
 
97,989

 
14.2
%
Total AmTrust Reinsurance
 
410,193

 
66.4
%
 
511,561

 
74.1
%
Total Net Premiums Written
 
$
617,330

 
100.0
%
 
$
690,653

 
100.0
%
For the Nine Months Ended September 30,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums written
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
132,398

 
6.0
%
 
$
123,991

 
5.8
%
Casualty
 
391,503

 
17.8
%
 
365,332

 
17.1
%
Accident and Health
 
74,504

 
3.4
%
 
68,140

 
3.2
%
International
 
73,475

 
3.3
%
 
69,059

 
3.2
%
Total Diversified Reinsurance
 
671,880

 
30.5
%
 
626,522

 
29.3
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
1,028,905

 
46.7
%
 
983,601

 
46.1
%
Specialty Program
 
255,767

 
11.6
%
 
268,193

 
12.6
%
Specialty Risk and Extended Warranty
 
245,308

 
11.2
%
 
255,595

 
12.0
%
Total AmTrust Reinsurance
 
1,529,980

 
69.5
%
 
1,507,389

 
70.7
%
Other
 
90

 
—
%
 
—

 
—
%
Total Net Premiums Written
 
$
2,201,950

 
100.0
%
 
$
2,133,911

 
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)

3. Segment Information (continued)
The following table sets forth financial information relating to net premiums earned by major line of business and reportable segment for the three and nine months ended September 30, 2017 and 2016:
For the Three Months Ended September 30,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums earned
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
43,362

 
6.6
%
 
$
29,921

 
4.3
%
Casualty
 
130,428

 
20.0
%
 
105,893

 
15.2
%
Accident and Health
 
22,780

 
3.5
%
 
18,436

 
2.6
%
International
 
20,943

 
3.2
%
 
20,891

 
3.0
%
Total Diversified Reinsurance
 
217,513

 
33.3
%
 
175,141

 
25.1
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
314,773

 
48.1
%
 
320,596

 
45.9
%
Specialty Program
 
59,143

 
9.1
%
 
89,856

 
12.9
%
Specialty Risk and Extended Warranty
 
62,437

 
9.5
%
 
112,685

 
16.1
%
Total AmTrust Reinsurance
 
436,353

 
66.7
%
 
523,137

 
74.9
%
Total Net Premiums Earned
 
$
653,866

 
100.0
%
 
$
698,278

 
100.0
%
For the Nine Months Ended September 30,
 
2017
 
2016
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums earned
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
122,888

 
5.9
%
 
$
103,023

 
5.3
%
Casualty
 
375,141

 
18.1
%
 
313,736

 
16.1
%
Accident and Health
 
63,878

 
3.1
%
 
55,788

 
2.8
%
International
 
61,667

 
3.0
%
 
65,605

 
3.4
%
Total Diversified Reinsurance
 
623,574

 
30.1
%
 
538,152

 
27.6
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
946,782

 
45.6
%
 
864,699

 
44.3
%
Specialty Program
 
251,153

 
12.1
%
 
251,543

 
12.9
%
Specialty Risk and Extended Warranty
 
252,876

 
12.2
%
 
297,457

 
15.2
%
Total AmTrust Reinsurance
 
1,450,811

 
69.9
%
 
1,413,699

 
72.4
%
Other
 
90

 
—
%
 
—

 
—
%
Total Net Premiums Earned
 
$
2,074,475

 
100.0
%
 
$
1,951,851

 
100.0
%


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
a)
Fixed Maturities and Other Investments
During the second quarter of 2017, we designated additional fixed maturities with a fair value of $391,934 as held-to-maturity ("HTM") and during 2016 we designated fixed maturities with a total fair value of $155,538 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $4,313 and $15,770, respectively, as at each 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 September 30, 2017 and December 31, 2016, are as follows:
September 30, 2017
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
Available-for-sale ("AFS") fixed maturities :
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,194

 
$
150

 
$
(8
)
 
$
5,336

U.S. agency bonds – mortgage-backed
 
2,004,645

 
14,208

 
(12,451
)
 
2,006,402

Non-U.S. government and supranational bonds
 
33,392

 
216

 
(2,012
)
 
31,596

Asset-backed securities
 
257,969

 
4,456

 
(164
)
 
262,261

Corporate bonds
 
1,541,296

 
52,717

 
(17,624
)
 
1,576,389

Municipal bonds
 
2,500

 
103

 
—

 
2,603

Total AFS fixed maturities
 
3,844,996

 
71,850

 
(32,259
)
 
3,884,587

Held-to-maturity ("HTM") fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
1,057,943

 
34,027

 
(748
)
 
1,091,222

Municipal bonds
 
60,425

 
459

 
—

 
60,884

Total HTM fixed maturities
 
1,118,368

 
34,486

 
(748
)
 
1,152,106

Other investments
 
5,640

 
1,401

 
—

 
7,041

Total investments
 
$
4,969,004

 
$
107,737

 
$
(33,007
)
 
$
5,043,734

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