Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the quarterly period ended June 30, 2008


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. 001-33143

Maiden Holdings, Ltd.

(Exact name of registrant as specified in its charter)


Bermuda
(State or other jurisdiction of
incorporation or organization)
04-3106389
(IRS Employer Identification No.)
   
48 Par-la-Ville Road, Suite 1141 HM11
(Address of principal executive offices)
HM11
(Zip Code)
   
(441) 292-7090
(Registrant’s telephone number, including area code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated Filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes o No x
 
As of August 15, 2008, the Registrant had one class of Common Stock ($.01 par value), of which 59,550,000 shares were issued and outstanding.



INDEX

 
 
 
 
Page
 
 
 
 
 
PART I
 
FINANCIAL INFORMATION
 
 
 
 
 
 
 
Item 1.
 
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007
 
3
 
 
 
 
 
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007 (Unaudited)
 
4
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (Unaudited)
 
5
 
 
 
 
 
   
Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2008 and 2007 (Unaudited)
 
6
         
   
 
Notes to Consolidated Financial Statements (Unaudited)
 
7
 
 
 
 
 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
 
 
 
 
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
   
 
 
 
 
 
Item 4.
 
Controls and Procedures
   
 
 
 
 
 
PART II
 
OTHER INFORMATION
   
 
 
 
 
 
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
   
   
 
 
 
Item 4.
 
Submission of Matters to a vote of Security Holders
   
         
Item 6.
 
Exhibits
   
         
   
Signatures
   
 
2


PART 1 - FINANCIAL INFORMATION
 
  Item 1. Financial Statements
 
 
MAIDEN HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands (000’s), except per share data)
 
 
 
 (Unaudited)
     
 
 
June 30, 2008
 
December 31, 2007
 
Assets
     
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost $752,990 ; $488,765)
 
$
721,496
 
$
474,789
 
Other investments, at fair value (cost $15,485; $15,176)
    12,134    
15,656
 
Total investments
    733,630    
490,445
 
Cash and cash equivalents
    74,170    
35,729
 
Accrued investment income
    4,827    
3,204
 
Reinsurance balances receivable, net (primarily with related parties - see note 8)
    101,933    
27,990
 
Loan to related party (see note 8)
    167,975    
113,542
 
Prepaid expenses and other assets
    62    
454
 
Deferred commission and other acquisition costs (primarily with related parties - see note 8)
    91,011    
44,215
 
Furniture and equipment, net
    70    
29
 
               
Total Assets
 
$
1,173,678
 
$
715,608
 
Liabilities and Shareholders’ Equity
             
Liabilities
             
Loss and loss adjustment expense reserves (primarily with related parties - see note 8)
 
$
83,340
 
$
38,508
 
Unearned premiums (primarily with related parties - see note 8)
    268,206    
137,166
 
Accrued expenses and other liabilities
    4,175    
2,589
 
Due to broker
    26,660    
-
 
Securities sold under agreements to repurchase, at contract value
    254,557    
-
 
               
Total Liabilities
    636,938    
178,263
 
               
Shareholders’ Equity:
             
Common shares, $0.01 par value; 100,000,000 shares authorized, 59,550,000 issued and outstanding
    596    
596
 
Additional paid-in capital
    530,038    
529,647
 
Accumulated other comprehensive loss
    (34,845 )  
(13,496
)
Retained earnings
    40,951    
20,598
 
Total Shareholders’ Equity
    536,740    
537,345
 
Total Liabilities and Shareholders’ Equity
 
$
1,173,678
 
$
715,608
 

 
See accompanying notes to the unaudited consolidated financial statements.
3

 
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands (000’s), except per share data)
(Unaudited)
 
                   
 
 
For the
Three Months
Ended
June 30, 2008
 
Period from
May 31, 2007 (inception) to
June 30, 2007
 
For the
Six Months
Ended
June 30, 2008
 
Period from
May 31, 2007 (inception) to
June 30, 2007
 
Revenues:
                    
Premium income:
                    
Net premiums written (primarily with related parties - see note 8)
 
$
171,251
 
$
-
 
$
273,683
 
$
-
 
Change in unearned premiums
    (93,913 )  
-
   
(131,040
)
 
-
 
Net earned premium
    77,338    
-
   
142,643
   
-
 
Net investment income
    7,763    
59
   
15,372
   
59
 
Net realized investment gains
    39    
-
   
163
   
-
 
Total revenues
    85,140    
59
   
158,178
   
59
 
Expenses:
                         
Loss and loss adjustment expenses (primarily with related parties - see note 8)
    43,610    
-
   
81,446
   
-
 
Commission and other acquisition expenses (primarily with related parties - see note 8)
    25,498    
-
   
46,758
   
-
 
Salaries and benefits
    615    
-
   
1,147
   
-
 
Other operating expenses
    1,625    
136
   
2,519
   
136
 
Total expenses
    71,348    
136
   
131,870
   
136
 
                           
Net income (loss)
 
$
13,792
 
$
(77
)
 
26,308
 
$
(77
)
                           
Basic and diluted earnings per common share
 
$
0.23
 
$
(0.02
)
 
0.44
 
$
(0.02
)
Dividends declared per common share
 
$
0.05
 
$
-
   
0.10
 
$
-
 
 
 
See accompanying notes to the unaudited consolidated financial statements.
4

 
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands (000’s), except per share data)
(Unaudited)
 
   
For the Six
Months Ended
June 30, 2008
 
Period from
May 31, 2007
(inception) to
June 30, 2007
 
Cash flows from operating activities:
          
Net income
 
$
26,308
 
$
(77
)
Adjustments to reconcile net income to net cash provided by operating activities :
             
Depreciation
   
11
   
-
 
Net realized gain on sales of investments
   
(163
)
 
-
 
Amortization of bond premium and discount
   
(787
)
 
-
 
Amortization of share-based compensation expense
   
391
   
-
 
Changes in assets - (increase) decrease:
             
Reinsurance balances receivable
   
(73,943
)
 
-
 
Accrued investment income
   
(1,623
)
 
(59
)
Deferred commission and other acquisition costs
   
(46,796
)
 
-
 
Prepaid expenses and other assets
   
392
   
-
 
Changes in liabilities - increase (decrease):
             
Accrued expenses and other liabilities
   
(1,391
)
 
(26
)
Loss and loss adjustment expense reserves
   
44,832
   
-
 
Unearned premiums
   
131,040
   
-
 
Net cash provided by (used in) operating activities
   
78,271
   
(162
)
Cash flows from investing activities:
             
Purchases of investments:
             
Purchases of fixed-maturity securities
   
(309,980
)
 
-
 
Purchases of other investments
   
(309
)
 
-
 
Sale of investments:
             
Proceeds from sales of fixed-maturity securities
   
73,365
   
-
 
Purchase of furniture and equipment
   
(52
)
 
-
 
Loan to related party
   
(54,433
)
 
-
 
Net cash used in investing activities
   
(291,409
)
 
-
 
Cash flows from financing activities:
             
Repurchase agreements, net
   
254,557
   
-
 
Common shares issuance
   
-
   
50,000
 
Dividend paid
   
(2,978
)
 
-
 
Net cash provided by financing activities
   
251,579
   
50,000
 
Net increase in cash and cash equivalents
   
38,441
   
49,838
 
Cash and cash equivalents, beginning of period
   
35,729
   
-
 
Cash and cash equivalents, end of period
 
$
74,170
 
$
49,838
 

 
See accompanying notes to the unaudited consolidated financial statements. 
 
5


MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands (000’s), except per share data)
(Unaudited)
 
For the Period
from May 31, 2007 (inception)
to June 30, 2007
 
 
 
Common
Shares
 
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Retained
Earnings
 
 
Total
Shareholders’
Equity
 
                       
Balance at May 31, 2007
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
Shares issued, net
   
78
   
49,922
               
50,000
 
                                 
Net income
   
-
   
-
   
-
   
(77
)
 
(77
)
Net unrealized losses
   
-
   
-
   
-
   
-
   
-
 
Comprehensive Income
                            (77 )
Share based compensation
   
-
   
-
   
-
   
-
   
-
 
Dividends to shareholders
   
-
   
-
   
-
   
-
    -  
 
                               
Balance at June 30, 2007
 
$
78
 
$
49,922
 
$
-
 
$
(77
)
$
49,923
 

 
For the Six Months Ended
June 30, 2008
 
Common
Shares
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
 
Total
Shareholders’
Equity
 
                       
Balance at December 31, 2007
 
$
596
 
$
529,647
 
$
(13,496
)
$
20,598
 
$
537,345
 
                                 
Net income
   
-
   
-
   
-
   
26,308
   
26,308
 
Net unrealized losses
   
-
   
-
   
(21,349
)
 
-
   
(21,349
)
Comprehensive Income
                            4,959  
Share based compensation
   
-
   
391
   
-
   
-
   
391
 
Dividends to shareholders
   
-
   
-
   
-
   
(5,955
)
  (5,955 )
 
                               
Balance at June 30, 2008
 
$
596
 
$
530,038
 
$
(34,845
)
$
40,951
 
$
536,740
 

 
See accompanying notes to the unaudited consolidated financial statements.
6

 
Notes to Consolidated Financial Statements
(in thousands (000’s), except per share data)
 (Unaudited)
 
1.
Basis of Presentation — Summary of Significant Accounting Policies
 
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These interim statements should be read in conjunction with the financial statements and notes thereto included in the Maiden Holdings, Ltd. (“Maiden” or the “Company”) Annual Report to Security Holders for the year ended December 31, 2007, previously filed with the Securities and Exchange Commission (“SEC”) on May 15, 2008. The balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
 
These interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

A detailed description of the Company’s significant accounting policies and management judgments is located in the audited consolidated financial statements for the year ended December 31, 2007, included in the Company’s Form ARS filed with the SEC.

All significant inter-company transactions and accounts have been eliminated in the consolidated financial statements. 
 
2.
Recent Accounting Pronouncements
 
In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP 03-6-1”).  FSP 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in Statement of Financial Accounting Standards No. 128 (“SFAS No. 128”), “Earnings Per Share.” This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and requires all presented prior-period earnings per share data to be adjusted retrospectively.  We are currently evaluating the impact, if any, that FSP 03-6-1 will have on our consolidated financial statements.

In May 2008, the FASB issued FASB Statement No. 163 (“SFAS 163”), “Accounting for Financial Guarantee Insurance Contracts”, an interpretation of SFAS Statement No. 60. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 163 also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. SFAS 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. We are currently evaluating the impact, if any, that SFAS 163 will have on our consolidated financial statements.

In May 2008, the FASB issued FASB Statement No. 162 (“SFAS 162”), “The hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles) in the United States. This Statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe the adoption will have a material impact on its financial condition or results of operations.

In March 2008, the FASB issued FASB Statement No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging Activities ”. SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact, if any, that SFAS 161 will have on our consolidated financial statements.
 
7

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which SFAS No. 160 is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. The Company does not have a noncontrolling interest in one or more subsidiaries. The Company does not believe the adoption will have a material impact on its financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, SFAS No. 141(R) will be applied by the Company to business combinations occurring on or after January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. Under SFAS 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 was effective for the Company beginning in the first quarter of fiscal 2008. We chose not elect the fair value option. Therefore, the adoption of SFAS No. 159 in the first quarter of fiscal 2008 did not impact our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB FSP 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective January 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis. The partial adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on our consolidated financial position, results of operations or cash flows. See Note 4. “Fair Value of Financial Instruments” for information and related disclosures regarding our fair value measurements.

3.
Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of June 30, 2008 and December 31, 2007, are as follows:
 
(a) Available-for-Sale Fixed Maturities and Other Investments

 June 30, 2008
 
Original or
amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
 
Fair
value
 
Fixed Maturities:
                     
U.S. Agency - mortgage backed securities
 
$
397,730
 
$
479
 
$
(2,416
)
$
395,793
 
Corporate fixed maturities
   
355,260
   
428
   
(29,985
)
 
325,703
 
Total available for sale fixed maturities
   
752,990
   
907
   
(32,401
)
 
721,496
 
Other investments
   
15,485
   
-
   
(3,351
)
 
12,134
 
 Total investments
 
$
768,475
 
$
907
 
$
(35,752
)
$
733,630
 

 
  December 31, 2007
 
Original or
amortized
cost
 
Gross
unrealized gains
 
Gross
unrealized
losses
 
 
Fair
value
 
Fixed Maturities:
                     
U.S. Agency - mortgage backed securities
 
$
204,363
 
$
660
 
$
-
 
$
205,023
 
Corporate fixed maturities
   
284,402
   
445
   
(15,081
)
 
269,766
 
Total available for sale fixed maturities
   
488,765
   
1,105
   
(15,081
)
 
474,789
 
Other investments
   
15,176
   
480
   
-
   
15,656
 
      Total investments
 
$
503,941
 
$
1,585
 
$
(15,081
)
$
490,445
 
 
8

(b) Investment Income
 
Net investment income was derived from the following sources:
 
 
 
For the Three Months Ended June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
For the Six Months Ended June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
Fixed maturities
 
$
7,128
 
$
-
 
$
13,968
 
$
-
 
Cash and cash equivalents
    1,093    
59
   
1,384
   
59
 
Loan to related party
    934    
-
   
2,285
   
-
 
 
    9,155    
59
   
17,637
   
59
 
Less:
                         
Investment expenses
    (316 )  
-
   
(813
)
 
-
 
Interest expense on securities sold under agreements to repurchase
    (1,076 )  
-
   
(1,452
)
 
-
 
   
$
7,763
 
$
59
 
$
15,372
 
$
59
 
 

(c) Other-Than-Temporary Impairment
 
We review our investment portfolio for impairment on a quarterly basis. Impairment of investments results in a charge to operations when a fair value decline below cost is deemed to be other-than-temporary. As of June 30, 2008, we reviewed our portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. During the three months and six months ended June 30, 2008, respectively there were no other-than-temporary declines in the fair values of investments held in our investment portfolio. 
 
The tables below summarize the gross unrealized losses of our available-for-sale securities and other investments as of June 30, 2008:
 
   
Less than 12 months
 
12 months or more
 
Total
 
 
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
Losses
 
Fair
value
 
Unrealized
losses
 
Available-for-sale securities:
                                     
U.S. Agency mortgage backed securities
 
$
323,578
   
(2,416
)
$
-
   
-
 
$
323,578
   
(2,416
)
Corporate fixed maturities
   
302,093
   
(29,985
)
 
-
   
-
   
302,093
   
(29,985
)
     
625,671
   
(32,401
)
 
-
   
-
   
625,671
   
(32,401
)
Other investments
 
$
12,134
   
(3,351
)
$
-
   
-
 
$
12,134
   
(3,351
)
Total temporarily impaired available-for-sale securities and other investments
 
$
637,805
   
(35,752
)
$
-
   
-
 
$
637,805
   
(35,752
)

The tables below summarize the gross unrealized losses of our available-for-sale securities and other investments as of December 31, 2007:
 
   
Less than 12 months
 
12 months or more
 
Total
 
 
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
Losses
 
Fair
value
 
Unrealized
losses
 
Available-for-sale securities:
                               
U.S. Agency mortgage backed securities
 
$
-
   
-
 
$
-
   
-
 
$
-
   
-
 
Corporate fixed maturities
   
249,233
   
(15,081
)
 
-
   
-
   
249,233
   
(15,081
)
     
249,233
   
(15,081
)
 
-
   
-
   
249,233
   
(15,081
)
Other investments
 
$
-
   
-
 
$
-
   
-
 
$
-
   
-
 
Total temporarily impaired available-for-sale securities and other investments
 
$
249,233
   
(15,081
)
$
-
   
-
 
$
249,233
   
(15,081
)
 
9


(d) Other
 
The Company enters into repurchase agreements. The agreements are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities, that it invests or holds in short term or fixed income securities. As of June 30, 2008, there were $254,557 principal amount outstanding at interest rates between 2.5% and 2.8%. Interest expense associated with these repurchase agreements was $1,076 and $1,452 for the three and six months ended June 30, 2008, respectively; out of which $115 was accrued as of June 30, 2008. The Company has approximately $254,557 of collateral pledged in support of these agreements.
 
4.
Fair Value of Financial Instruments
 
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in SFAS 157. 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 SFAS 157 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The three levels of the hierarchy are as follows:

 
·
Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

 
·
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

 
·
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.
 
In accordance with SFAS 157, the Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value, including an indication of the level within the fair value hierarchy in which each asset or liability is generally classified.

Investments available for sale. Investments available for sale are recorded at fair value on a recurring basis and include fixed maturities and securities sold under agreements to repurchase. Fair value of investments is measured based upon quoted prices in active markets, if available. If quoted prices in active markets are not available, the Company estimates the fair value of fixed maturities not traded in active markets, by referring to traded securities with similar attributes, using dealer quotations, a matrix pricing methodology, discounted cash flow analyses or internal valuation models. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. Level 1 investments include those traded on an active exchange, such as the NASDAQ. Since fixed maturities other than U.S. treasury securities generally do not trade on a daily basis, these investments are classified as Level 2 investments and include obligations of U.S. government agencies, corporate debt securities and other mortgage backed securities.
 
Other investments. Other investments consist primarily of hedge funds where the fair value estimate is determined by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company includes other investments in the amount disclosed in Level 3.

 
Fair Value Hierarchy

The following table presents the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis as of June 30, 2008:

 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
Available-for-sale fixed maturities
 
$
721,496
 
$
-
 
$
721,496
 
$
-
 
Other investments
   
12,134
   
-
         
12,134
 
 
 
$
733,630
 
$
-
 
$
721,496
 
$
12,134
 
Liabilities:
                     
Securities sold under agreements to repurchase, at contract value
   
(254,557
)
 
-
   
(254,557
)
 
-
 
  
 
$
479,073
 
$
-
 
$
466,939
 
$
12,134
 
 
10


The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of June 30, 2008:
 
 
 
Three months ended
June 30, 2008
 
Six months ended
June 30, 2008
 
Beginning balance
 
$
12,383
 
$
15,656
 
Total net losses for the period included in:
           
Net income
   
-
   
-
 
Other comprehensive loss
   
(535
)
 
(3,831
)
Purchases, sales, issuances and settlements, net
   
286
   
309
 
Net transfers into (out of) Level 3
   
-
   
-
 
Ending balance as of June 30, 2008
 
$
12,134
 
$
12,134
 


5.
Earnings Per Share

The following is a summary of the elements used in calculating basic and diluted earnings per share:
 
 
 
Three months ended
June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
Six months ended June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
Net income available to common shareholders
 
$
13,792
 
$
(77
)
$
26,308
 
$
(77
)
 
                       
Weighted average number of common shares outstanding - basic
    59,550,000    
4,026,000
   
59,550,000
   
4,026,000
 
Potentially dilutive securities:
   
-
   
-
   
-
   
-
 
Warrants
                         
Share options
   
-
   
-
   
-
   
-
 
Weighted average number of common shares outstanding - diluted
    59,550,000    
4,026,000
   
59,550,000
   
4,026,000
 
                           
Basic and diluted earnings per common share:
 
$
0.23
 
$
(0.02
)
$
0.44
 
$
(0.02
)
 
As of June 30, 2008, the total weighted-average of 4,050,000 warrants and 859,707 share options were excluded from diluted earnings per share as they were anti-dilutive.
 
6.

The Company’s 2007 Share Incentive Plan (the “Plan”) provides for grants of options and restricted shares. The total number of shares currently reserved for issuance under the Plan is 2,800,000 common shares. The Plan is administered by the Compensation Committee of the Board of Directors. Exercise prices of options will be established at or above the fair market value of the Company’s common shares at the date of grant. Under the 2007 Share Incentive Plan, unless otherwise determined by the compensation committee and provided in an award agreement, 25% of the options will become exercisable on the first anniversary of the grant date, with an additional 6.25% of the options vesting each quarter thereafter based on the grantee’s continued employment over a four-year period, and will expire ten years after grant date.
 
Share Options
 
The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all share option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The adoption of SFAS No. 123R’s fair value method has resulted in share-based expense (a component of salaries and benefits) in the amount of approximately $204 and $391 for the three and six months ended June 30, 2008, respectively.

11

 
The Company awarded options during the three months and six months ended June 30, 2008, respectively. The key assumptions used in determining the fair value of options granted in 2008 and a summary of the methodology applied to develop each assumption are as follows:
 
Assumptions :
 
2008
 
Volatility
 
29.8
%
 
Risk-free interest rate
 
3.30
%
 
Weighted average expected lives in years
 
6.1 years 
 
Forfeiture rate
 
0
%
 
Dividend yield rate
 
1
%
 
 
Expected Price Volatility - This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. At the times the Company granted options, there was no external market for the Company’s common shares. Thus, it was not possible to use actual experience to estimate the expected volatility of the price of the common shares in estimating the value of the options granted. As a substitute for such estimate, the Company used the historical volatility of companies in the industry in which the Company operates.
 
Risk-Free Interest Rate - This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense. 

Expected Lives - This is the period of time over which the options granted are expected to remain outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns. The Company uses the simplified method outlined in SEC Staff Accounting Bulletin No. 107 to estimate expected lives for options granted during the period as historical exercise data is not available and the options meet the requirements set out in the Bulletin. Options granted have a maximum term of ten years. An increase in the expected life will increase compensation expense.


Forfeiture Rate - This is the estimated percentage of options granted that are expected to be forfeited or cancelled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.

The following schedule shows all options granted, exercised, expired and exchanged under the Plan for the three months ended June 30, 2008:

 
 
Number of
Share Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining
Contractual Term
 
Outstanding, March 31, 2008
   
883,000
 
$
10.00
   
9.5 years
 
Granted
   
79,000
   
10.00
   
9.9 years
 
Exercised
   
-
   
-
       
Cancelled
   
-
   
-
       
Outstanding, June 30, 2008
   
962,000
 
$
10.00
   
9.3 years
 
 
The following schedule shows all options granted, exercised, expired and exchanged under the Plan for the six months ended June 30, 2008:
 
 
 
Number of
Share Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining
Contractual Term
 
Outstanding, December 31, 2007
   
716,000
 
$
10.00
   
9.1 years
 
Granted
   
246,000
   
10.00
   
9.7 years
 
Exercised
   
-
   
-
       
Cancelled
   
-
   
-
       
Outstanding, June 30, 2008
   
962,000
 
$
10.00
   
9.3 years
 

The weighted average grant date fair value was $3.33 for all options outstanding at June 30, 2008. There was approximately $2,471 of total unrecognized compensation cost related to non-vested share-based compensation arrangements as of June 30, 2008.
 
7.
Dividend Declared
 
A dividend was declared on June 4, 2008. The Company’s Board of Directors approved a quarterly cash dividend of $0.05 per common share payable to shareholders of record as of July 1, 2008. The dividend was paid on July 15, 2008.

On July 31, 2008, the Company’s Board of Directors approved a quarterly cash dividend of $0.05 per common share . This dividend is payable October 13, 2008 to shareholders of record on October 2, 2008.
 
12

 
8.
Related Party Transactions

The Founding Shareholders of Maiden, Michael Karfunkel, George Karfunkel and Barry Zyskind, are also the principal shareholders, and, respectively, the Chairman of the Board of Directors, a Director, and the Chief Executive Officer and Director of AmTrust. The following describes transactions between the Company and AmTrust.

Quota Share Reinsurance Agreement

Effective July 1, 2007, the Company and AmTrust entered into a master agreement, as amended, by which they caused AmTrust’s Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd. (“AII”) and Maiden Insurance Company Ltd. (“Maiden Insurance”) to enter into the Reinsurance Agreement by which (a) AII retrocedes to Maiden Insurance an amount equal to 40% of the premium written by the AmTrust Ceding Insurers, net of the cost of unaffiliated inuring reinsurance (and in the case of AmTrust’s U.K. insurance subsidiary, IGI Insurance Company Limited (“IGI”), net of commissions) and 40% of losses and (b) AII transferred to Maiden Insurance 40% of the AmTrust Ceding Insurers’ unearned premium reserves, effective as of July 1, 2007, with respect to the current lines of business, excluding risks for which the AmTrust Ceding Insurers’ net retention exceeds $5,000 (“Covered Business”). AmTrust also has agreed to cause AII, subject to regulatory requirements, to reinsure any insurance company which writes Covered Business in which AmTrust acquires a majority interest to the extent required to enable AII to cede to Maiden Insurance 40% of the premiums and losses related to such Covered Business. The Agreement further provides that AII receives a ceding commission of 31% of ceded written premiums. The Reinsurance Agreement has an initial term of three years and will automatically renew for successive three year terms thereafter, unless either AII or Maiden Insurance notifies the other of its election not to renew not less than nine months prior to the end of any such three year term. In addition, either party is entitled to terminate on thirty days notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden Insurance, run-off, or a reduction of 50% or more of the shareholders’ equity of Maiden Insurance or the combined shareholders’ equity of AII and the AmTrust Ceding Insurers.

On June 11, 2008, the Company and AmTrust amended the Reinsurance Agreement to add Retail Commercial Package Business to the Covered Business as a consequence of AmTrust’s acquisition of Unitrin Business Insurance (UBI). Under the amendment, AmTrust's subsidiaries cede, upon collection, to Maiden 100% of $82.2 million of unearned premium (net of inuring reinsurance) from the acquisition of UBI's in-force book of business. Additionally, AmTrust cedes to Maiden 40% of net premium written, effective as of June 1, 2008. Maiden will pay to AmTrust a ceding commission of 34.375% on the unearned premium cession and the Retail Commercial Package Business.

The Company recorded approximately $24,090 and $43,865 of ceding commission expense for the three and six months ended June 30, 2008, respectively as a result of this transaction.

Other Reinsurance Agreement

Effective January 1, 2008 the Company and AmTrust entered into an agreement to reinsure a 45% participation in the $9 million in excess of $1 million layer of AmTrust's workers' compensation excess of loss program. This layer provides reinsurance to AmTrust for losses per occurrence in excess of $1 million up to $10 million, subject to an annual aggregate deductible of $1.25 million. This participation was sourced through a reinsurance intermediary via open market placement in which competitive bids were solicited by an independent broker. The remaining 55% participation was placed with a single carrier.

The following is the effect on the Company’s balance sheet as of June 30, 2008 and December 31, 2007 and the results of operations for the three and six months ended June 30, 2008 related to the Reinsurance Agreements with AmTrust:
 
Assets and (liabilities):
 
June 30, 2008
 
 December 31, 2007
 
Loan to related party
 
$
167,975
 
$
113,542
 
Reinsurance balances receivable, net
   
94,301
   
27,891
 
Accrued interest on loan to related party
   
962
   
240
 
Deferred commission and other acquisition costs
    84,840    
42,501
 
Loss and loss adjustment expense reserves
    (82,667 )  
(38,485
)
Unearned premiums
    (255,119 )  
(137,099
)
               
 
           
Results of operations:
 
Three months ended
June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
Six months ended
June 30, 2008
 
Period from May 31, 2007 (inception) to June 30, 2007
 
Net premium written - assumed
 
$
171,245
 
$
-
 
$
258,959
 
$
-
 
Change in unearned premium - assumed
   
(94,602
)
 
-
   
(118,020
)
 
-
 
Net earned premium - assumed
   
76,643
   
-
   
140,939
   
-
 
 
                       
Commission and other acquisition costs on premium written
   
58,077
   
-
   
86,543
   
-
 
Commission and other acquisition costs- deferred
   
(32,913
)
 
-
   
(40,625
)
 
-
 
Ceding commission expensed
   
25,164
   
-
   
45,918
   
-
 
                           
Loss and loss adjustment expense
    43,363    
-
   
80,762
   
-
 

The Reinsurance Agreement requires that Maiden Insurance provide to AII sufficient collateral to secure its proportional share of AII’s obligations to the U.S. AmTrust Ceding Insurers. The amount of the collateral, in the form of a loan at June 30, 2008 was $167,975 and the accrued interest was $962. AII is required to return to Maiden Insurance any assets of Maiden Insurance in excess of the amount required to secure its proportional share of AII’s collateral requirements, subject to certain deductions.
 
13


Reinsurance Brokerage Agreements

Effective July 1, 2007, the Company entered into a reinsurance brokerage agreement with AII Reinsurance Broker Ltd., a subsidiary of AmTrust. Pursuant to the brokerage agreement, AII Reinsurance Broker Ltd. provides brokerage services relating to the Reinsurance Agreement for a fee equal to 1.25% of the premium reinsured from AII. The brokerage fee is payable in consideration of AII Reinsurance Broker Ltd.’s brokerage services. AII Reinsurance Broker Ltd. is not the Company’s exclusive broker. AII Reinsurance Broker Ltd. may, if mutually agreed, also produce reinsurance for the Company from other ceding companies, and in such cases the Company will negotiate a mutually acceptable commission rate. The Company recorded approximately $953 and $1,750 of reinsurance brokerage expense for the three and six months ended June 30, 2008, respectively and deferred reinsurance brokerage of $3,101 as at June 30, 2008 as a result of this agreement.

Effective April 1, 2008, the Company entered into brokerage services agreements with IGI Intermediaries Limited and IGI Inc (IGI), both subsidiaries of AmTrust. Pursuant to the brokerage services agreements, IGI provides marketing services to us which includes providing marketing material to potential policyholders, providing us with market information on new trends and business opportunities and referring new brokers and potential policyholders to us. A fee equal to IGI ‘s costs in providing such services plus 8% is payable in consideration of IGI’s marketing services. The Company recorded approximately $410 expense, which is included in other operating expenses, for the three and six months ended June 30, 2008.

Asset Management Agreement

Effective July 1, 2007, the Company entered into an asset management agreement with AII Insurance Management Limited (“AIIM”), an AmTrust subsidiary, pursuant to which AIIM has agreed to provide investment management services to Maiden Insurance. Pursuant to the asset management agreement, AIIM provides investment management services for an annual fee equal to 0.35% of average invested assets plus all costs incurred. Effective April 1, 2008, the investment management services annual fee has been reduced to 0.20%. The Company recorded approximately $258 and $716 of investment management fees for the three and six months ended June 30, 2008, respectively as a result of this agreement.

9.

The Company currently operates two business segments, Reinsurance - AmTrust Quota Share and Reinsurance - Other. The Company evaluates segment performance based on segment profit and includes an allocation of investment income based on the average investment return on the actual cash generated by the segment as the Company does not manage its investment portfolio by segment. Other expenses are allocated on an actual basis except salaries and benefits where management’s judgment is applied, the Company does not allocate general corporate expenses to the segments. The following tables summarize business segments as follows:   

 Three months ended June 30, 2008
 
Reinsurance - AmTrust Quota Share
 
 Reinsurance - Other
 
Corporate and
other
 
Total  
 
Revenues
                    
Net premium written
 
$
168,068
 
$
3,183
 
$
-
 
$
171,251
 
Earned premium
   
76,246
   
1,092
   
-
   
77,338
 
Investment income and other revenues
   
1,031
   
-
   
6,771
   
7,802
 
Total revenues
   
77,277
   
1,092
   
6,771
   
85,140
 
Expenses
                         
Loss and loss adjustment expenses
   
43,213
   
397
   
-
   
43,610
 
Commission and other acquisition expenses
   
25,043
   
455
   
-
   
25,498
 
Other expenses
   
201
   
480
   
1,559
   
2,240
 
Total expenses
   
68,457
   
1,332
   
1,559
   
71,348
 
Net income (loss)
 
$
8,820
 
$
(240
)
$
5,212
 
$
13,792
 
 
 Six months ended June 30, 2008
 
Reinsurance - AmTrust Quota Share
 
 Reinsurance - Other
 
Corporate and
other
 
Total  
 
Revenues
                    
Net premium written
 
$
251,016
 
$
22,667
 
$
-
 
$
273,683
 
Earned premium
   
140,036
   
2,607
   
-
   
142,643
 
Investment income and other revenues
   
2,382
   
-
   
13,153
   
15,535
 
Total revenues
   
142,418
   
2,607
   
13,153
   
158,178
 
Expenses
                         
Loss and loss adjustment expenses
   
80,421
   
1,025
   
-
   
81,446
 
Commission and other acquisition expenses
   
45,614
   
1,144
   
-
   
46,758
 
Other expenses
   
377
   
629
   
2,660
   
3,666
 
Total expenses
   
126,412
   
2,798
   
2,660
   
131,870
 
Net income (loss)
 
$
16,006
 
$
(191
)
$
10,493
 
$
26,308
 
 
14

 
 Period from May 31, 2007 (inception) to June 30, 2007
 
Reinsurance - AmTrust Quota Share
 
 Reinsurance - Other
 
Corporate and
other
 
Total  
 
Revenues
                    
Net premium written
 
$
-
 
$
-
 
$
-
 
$
-
 
Earned premium
   
-
   
-
   
-
   
-
 
Investment income and other revenues
   
-
   
-
   
59
   
59
 
Total revenues
   
-
   
-
   
59
   
59
 
Expenses
                         
Loss and loss adjustment expenses
   
-
   
-
   
-
   
-
 
Commission and other acquisition expenses
   
-
   
-
   
-
   
-
 
Other expenses
   
-
   
-
   
136
   
136
 
Total expenses
   
-
   
-
   
136
   
136
 
Net income (loss)
 
$
-
 
$
-
 
$
(77
)
$
(77
)
 
 
 
Reinsurance - AmTrust Quota Share
 
 Reinsurance - Other
 
 Corporate and Other
 
Total  
 
As of June 30, 2008
                    
Reinsurance balances receivable
 
$
89,019
 
$
12,914
 
$
-
 
$
101,933
 
Deferred commission and other acquisition costs
   
82,482
   
8,529
   
-
   
91,011
 
Loan to related party
   
167,975
   
-
   
-
   
167,975
 
Corporate and other assets
   
14,993
   
-
   
797,766
   
812,759
 
Total assets
 
$
354,469
 
$
21,443
 
$
797,766
 
$
1,173,678
 

 
 
Reinsurance - AmTrust Quota Share
 
 Reinsurance - Other
 
 Corporate and Other
 
Total  
 
As of December 31, 2007
                    
Reinsurance balances receivable
 
$
27,990
 
$
-
 
$
-
 
$
27,990
 
Deferred commission and other acquisition costs
   
44,215
   
-
   
-
   
44,215
 
Loan to related party
   
113,542
   
-
   
-
   
113,542
 
Corporate and other assets
   
-
   
-
   
529,861
   
529,861
 
Total assets
 
$
185,747
 
$
-
 
$
529,861
 
$
715,608
 
 
15


The following tables set forth financial information relating to gross and net premiums written and earned by major line of business for the three and six months ended June 30, 2008 and 2007:

       
   
Three months ended June 30, 2008
 
 Period from May 31, 2007 (inception) to
June 30, 2007
 
Six months ended
June 30, 2008
 
Period from May 31, 2007 (inception) to
June 30, 2007
 
 
 
 
Total
 
 % of Total
 
 
Total
 
% of
Total
 
Total
 
% of
Total
 
 
Total
 
 % of
Total
 
Gross and net premiums written
 
 
                       
 
 
  
 
Reinsurance - AmTrust Quota Share
 
 
                       
 
      
Workers Compensation
 
$
29,399
   
17.16
 
$
-
   
-
 
$
73,056
   
26.69
 
$
-
   
-
 
Specialty Middle Market Property & Casualty
    14,614    
8.53
   
-
   
-
   
21,481
   
7.84
    -    
-
 
Specialty Risk and Extended Warranty
    37,251    
21.75
   
-
   
-
   
69,675
   
25.45
    -    
-
 
Unitrin Business Insurance (UBI)
    86,804    
50.70
   
-
   
-
   
86,804
   
31.72
    -    
-
 
Total Reinsurance - AmTrust Quota Share
 
$
168,068
   
98.14
 
$
-
   
-
 
$
251,016
   
91.70
 
$
-
   
-
 
Reinsurance - Other
   
3,183
   
1.86
               
22,667
   
8.30
           
   
$
171,251
   
100.00
 
$
-
   
-
 
$
273,683
   
100.00
 
$
-
   
-
 
Gross and net premiums earned
                                                 
Reinsurance - AmTrust Quota Share
                                                 
Workers Compensation
 
$
32,404
   
41.90
 
$
-
   
-
 
$
64,284
   
45.06
 
$
-
   
-
 
Specialty Middle Market Property & Casualty
    8,989    
11.62
   
-
   
-
   
19,303
   
13.53
    -    
-
 
Specialty Risk and Extended Warranty
    21,408    
27.68
   
-
   
-
   
43,004
   
30.14
    -    
-
 
Unitrin Business Insurance (UBI)
    13,445    
17.39
   
-
   
-
   
13,445
   
9.43
    -    
-
 
Total AmTrust Quota Share
 
$
76,246
   
98.59
 
$
-
   
-
 
$
140,036
   
98.16
 
$
-
   
-
 
Reinsurance - Other
   
1,092
   
1.41
   
-
   
-
   
2,607
   
1.84
   
-
   
-
 
   
$
77,338
   
100.00
 
$
-
   
-
 
$
142,643
   
100.00
 
$
-
   
-
 
 
16

 
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated or unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and similar expressions are references to Maiden Holdings and its consolidated subsidiary.

The following is a discussion and analysis of our results of operations for the three and six month periods ended June 30, 2008 and our financial condition as of June 30, 2008. This discussion and analysis should be read in conjunction with the attached unaudited interim consolidated financial statements and related notes and the audited consolidated financial statements and related notes contained in our Annual Report to Security Holders for the year ended December 31, 2007, previously filed with the Securities and Exchange Commission (“SEC”) on May 15, 2008.

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). We intend that the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 apply to these forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These forward looking statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated by reference herein and in other documents filed by us with the SEC) include, but are not limited to:
 
claims development;
general economic conditions and conditions specific to the reinsurance markets in which we operate;
pricing competition;
rating agency policies and practices;
catastrophic events;
material fluctuations in interest rates;
tax and regulatory changes and conditions; and
loss of key executives.
 
Other factors, such as changes in U.S. and global debt markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations and changes in credit spreads, may adversely impact our investments or impede our access to, or increase the cost of, financing our operations. We caution that the foregoing list of important factors is not intended to be, and is not, exhaustive. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements in this Form 10-Q reflect our current view with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph.

Our policy is to communicate events that we believe may have a material adverse impact on the Company’s operations or financial position, in a timely manner through a public announcement. It is also our policy not to make public announcements regarding events that we believe have a non-material impact to the Company’s operations or financial position based on management’s estimates and current information, other than through regularly scheduled calls, press releases or filings.


Overview

We are a Bermuda holding company organized to provide reinsurance business solutions to the property and casualty industry through Maiden Insurance, our reinsurance company subsidiary incorporated and licensed as a Class 3 insurer in Bermuda. Our solutions include quota share reinsurance as well as excess of loss reinsurance.

We offer our products to small specialty property and casualty insurance companies located in the United States and Europe that are seeking to efficiently manage their capital. We may also reinsure other reinsurers of U.S. and European specialty property and casualty insurance business that have similar objectives. We also conduct business with managing general agents in the United States and Europe that manage programs that fit our expertise in specialty insurance as well as Lloyd’s syndicates and program administrators. We may on occasion, make strategic investments in some of our clients in order to enable those clients to expand their business and therefore the amount of business they do with us. We do not currently hold any such investments.

We manage our business through two operating segments; Reinsurance - Amtrust Quota Share and Reinsurance - Other.

17

Reinsurance - AmTrust Quota Share

We entered into a quota share reinsurance agreement with AmTrust’s Bermuda reinsurance subsidiary, AII, which provides quota share reinsurance to AmTrust’s insurance company subsidiaries. We also entered into a master agreement with AmTrust pursuant to which we will cause Maiden Insurance, and AmTrust will cause its insurance company subsidiaries, through AII, to reinsure 40% of all business (net of reinsurance with unaffiliated reinsurers) of the types written, as of the effective date of the master agreement, by the insurance subsidiaries and Maiden Insurance will have an option to reinsure any new types of business that they may write. Effective as of July 1, 2007, we reinsure 40% of all business (net of reinsurance with unaffiliated reinsurers) written by AmTrust’s insurance company subsidiaries that is subject to the reinsurance agreement. In addition, we also assumed through AII, effective as of July 1, 2007, 40% of the unearned premium reserve of AmTrust’s insurance subsidiaries (and the corresponding loss exposure). Maiden Insurance pays AII a ceding commission of 31% based on ceded written premiums. The reinsurance agreement has an initial term of three years and will be extended for further terms of three years unless either party elects not to renew.

On June 11, 2008, the Company and AmTrust amended the quota share to add Retail Commercial Package Business to the Covered Business as a consequence of AmTrust’s acquisition of Unitrin Business Insurance (UBI). Under the amendment, AmTrust's subsidiaries cede, upon collection, to Maiden Insurance 100% of $82.2 million of unearned premium (net of inuring reinsurance) from the acquisition of UBI's in-force book of business. Additionally, AmTrust agreed to cede to Maiden 40% of net premium written, effective as of June 1, 2008. Maiden Insurance will pay AmTrust a ceding commission of 34.375% on the unearned premium cession and the Retail Commercial Package Business.

We also entered into an asset management agreement with AIIM, a subsidiary of AmTrust, having an initial term of one year which will extend for further terms of one year unless either party elects not to renew. The Company recorded approximately $0.26 million and $0.72 million of investment management fees in the three and six months ended June 30, 2008, respectively.

We also entered into a reinsurance brokerage agreement with a subsidiary of AmTrust pursuant to which we receive reinsurance brokerage services in exchange for a fee of 1.25% of all premiums we reinsure from AmTrust. The Company recorded approximately $0.95 million and $1.75 million of reinsurance brokerage expense for the three month and six month period ended June 30, 2008, respectively.

Reinsurance - Other

We continue to see increased flow of submission of reinsurance opportunities. Reinsurance intermediaries are the primary source of these opportunities. We have adopted a disciplined underwriting posture and thoroughly review all reinsurance opportunities before determining whether to participate. Between November 6, 2007 and July 23, 2008, we have received 267 reinsurance submissions. We have entered into seven reinsurance agreements for business other than the Quota Share Agreement with AmTrust with a gross premium written of $22.7 million. These contracts are, by gross premium written, 65% quota share and 35% excess of loss. By line of risk the split is 40% workers’ compensation, 15% auto liability and 45% is specialty risk and general liability.

Effective April 1, 2008, the Company entered into brokerage services agreements with IGI Intermediaries Limited and IGI Inc (IGI), both subsidiaries of AmTrust. Pursuant to the brokerage services agreements, IGI provides marketing services to us which includes providing marketing material to potential policyholders, providing us with market information on new trends and business opportunities and referring new brokers and potential policyholders to us. A fee equal to IGI‘s costs in providing such services plus 8% is payable in consideration of IGI’s marketing services. The Company recorded approximately $410 expense, which is included in other operating expenses, for the three and six months ended June 30, 2008.

Principal Revenue and Expense Items

Revenues

We derive our revenue primarily from premiums assumed on reinsurance contracts net of any inuring reinsurance. Reinsurance premiums assumed are estimated based on reports and other information provided by brokers and ceding companies, supplemented by the Company's own estimates of premiums where reports have not been received or in cases where the amounts reported by brokers and ceding companies are adjusted to reflect management's best judgments and expectations. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned on a basis consistent with the terms of the underlying related insurance contracts. In addition, our revenues include income from our investment portfolio, comprising net investment income and net realized gains and losses. Investment income is principally derived from interest earned on investments, partially offset by investment management fees and fees paid to our custodian bank. Net realized gains or losses include net realized investment gains or losses from the sale of investments.

Expenses

In our consolidated results, expenses consist of loss and loss adjustment expenses, commission and other acquisition expenses, salaries and benefits and operating expenses. Depending on the terms of the reinsurance agreements that we negotiate, our expenses may also include excise taxes, which are calculated as a percentage (1% for purposes of United States federal excise tax (“FET”)) of premiums ceded to us. Under our quota share reinsurance agreement with AmTrust, all payments of FET are the responsibility of AmTrust.

18

Loss and Loss Adjustment Expenses. We establish loss and loss adjustment expense reserves in an amount equal to our estimate of the ultimate liability for claims under our reinsurance policies and the cost of adjusting and settling those claims. Our provision for loss and loss adjustment expense reserves in any period will include estimates for losses incurred (that is, the total sustained by us under policies, whether paid or unpaid) during such period and changes in estimates for prior periods.

Commission and Other Acquisition Expenses. These expenses include ceding commissions and other acquisition costs. Acquisition costs consist of ceding commission and, reinsurance broking expense. These costs are expected to be capitalized and amortized as an expense as the premiums are earned on the treaties to which they pertain.

Maiden Insurance pays ceding commissions to other insurance companies, including AmTrust, for the reinsurance premiums that we assume. Ceding commissions are intended to compensate the ceding company for the costs incurred to acquire the ceded business. Ceding commissions are typically paid on traditional quota share reinsurance agreements, but not on excess of loss reinsurance agreements.

Under our quota share reinsurance agreement with AII, except for the Retail Commercial Package Business, we pay a ceding commission of 31% calculated as a percentage of ceded premiums. On the Retail Commercial Package Business, we pay to AmTrust a ceding commission of 34.375%.

Reinsurance brokerage expense includes the 1.25% reinsurance brokerage fee that we pay to an AmTrust subsidiary on all reinsurance ceded by AmTrust as well as other reinsurance brokerage fees and commission expense we may incur to other intermediaries.

Salaries and benefits. These payments comprise officers and employees salaries and related costs.

Other Operating Expenses. Other operating expenses consist of other expenses related to our operations. Other operating expenses consist of general & administrative expenses such as fees payable to IGI under the brokerage services agreement, professional fees, rent, office supplies, depreciation and all other operating expenses not otherwise classified separately.

Ratios
    
Management measures results for each segment on the basis of the “net loss ratio,” “net expense ratio,” and the “net combined ratio”.

Net Loss Ratio. The net loss ratio is a measure of the underwriting profitability of an insurance company's business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.

Net Expense Ratio. The net expense ratio is a measure of an insurance company's operational efficiency in administering its business. Expressed as a percentage, this is the ratio of the sum of ceding commissions, policy acquisition expenses, salaries and benefits, and other insurance general and administrative expenses to net premiums earned.
 
Net Combined Ratio. The net combined ratio is a measure of an insurance company's overall underwriting profit. This is the sum of the net loss and net expense ratios. If the net combined ratio is at or above 100%, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.

We also use the following ratios:

Net Leverage Ratio. Net leverage ratio is measured by dividing annualized net premiums written by shareholders’ equity.

Annualized Return on Equity. Return on equity is calculated by dividing net income by the average of shareholders’ equity.

Measurement of Results; Outlook

We use various measures to analyze the growth and profitability of our business operations. We measure growth in terms of gross and net premiums written and we measure underwriting profitability by examining our loss, underwriting expense and combined ratios. We also measure our gross and net written premiums to surplus ratios to measure the adequacy of capital in relation to premiums written. We analyze profitability by evaluating, net income and return on average equity.

Premiums Written and Net Leverage Ratio. We use gross premiums written to measure our sales of reinsurance products. Gross premiums written also correlates to our ability to generate net premiums earned. We target a net leverage ratio, of between approximately 1.2 to 1 and approximately 1.5 to 1 after a start-up period. Our annualized net leverage ratio was 1.28 to 1 and 1.02 to 1 for the three and six months period ended June 30, 2008, respectively.

Net Loss Ratio. The loss ratio measures the underwriting profitability of our reinsurance business. We target the pricing of our products to achieve a loss ratio of approximately 55.0% to 65.0% over time. Our loss ratio was 56.4% and 57.1% for the three and six months ended of June 30, 2008, respectively.

Net Expense Ratio. We calculate our underwriting expense ratio on a gross basis (before the effect of ceded reinsurance) to measure our operational efficiency and on a net basis (after the effect of ceded reinsurance and related ceding commission income) to measure the effects on our consolidated net income. Our underwriting expense ratio on a gross basis was 35.9% and 35.3% for the three and six months ended June 30, 2008, respectively. As we have not retroceded any amounts as of June 30, 2008 the expense ratio on a net basis was also 35.9% and 35.3% for the three and six months ended June 30, 2008, respectively.

19

Net Combined Ratio. We use the combined ratio to measure our underwriting performance. We analyze the combined ratio on a gross (before the effect of reinsurance) and net basis (after the effect of reinsurance). If the combined ratio is at or above 100%, we are not underwriting profitably and will not be profitable unless investment income is sufficient to offset underwriting losses. Our combined ratio was 92.3% and 92.4% for the three and six months ended June 30, 2008, respectively. We plan to write additional premiums without a proportional increase in expenses and further reduce the expenses component of our net combined ratio.

Net Income and Return on Average Equity. We use net income to measure our profits and return on average equity to measure our effectiveness in utilizing our shareholders’ equity to generate net income on a consolidated basis. Our target for return on average equity is 15% or better. Our annualized return on equity was 10.4% and 9.8% for the three and six months ended June 30, 2008, respectively.

Critical Accounting Policies

The Company’s discussion and analysis of its results of operations, financial condition and liquidity are based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. The Company has not made any changes in estimates or judgments that have had a significant effect on the reported amounts as previously disclosed in the Company’s Form ARS filed with the SEC for the fiscal period ended December 31, 2007.

Results of Operations

The Company was incorporated on May 31, 2007 and the Company’s subsidiary Maiden Insurance was incorporated on June 29, 2007 and commenced insurance operations effective July 1, 2007, therefore there are no insurance activities for the three and six month periods ended June 30, 2007. 

 
 
For the Three Months Ended June 30, 2008
 
Period from May 31 (inception) to June 30, 2007
 
For the Six Months Ended June 30, 2008
 
Period from May 31 (inception) to June 30, 2007
 
Revenues:
                    
Premium income:
                    
Net premiums written (primarily with related parties - see note 8)
 
$
171,251
 
$
-
 
$
273,683
 
$
-
 
Change in unearned premiums
    (93,913 )  
-
   
(131,040
)
 
-
 
Net earned premium
    77,338    
-
   
142,643
   
-
 
Net investment income
    7,763    
59
   
15,372
   
59
 
Net realized investment gains
    39    
-
   
163
   
-
 
Total revenues
    85,140    
59
   
158,178
   
59
 
Expenses:
                         
Loss and loss adjustment expenses (primarily with related parties - see note 8)
    43,610    
-
   
81,446
   
-
 
Commission and other acquisition expenses (primarily with related parties - see note 8)
    25,498    
-
   
46,758
   
-
 
Salaries and benefits
    615    
-
   
1,147
   
-
 
Other operating expenses
    1,625    
136
   
2,519
   
136
 
Total expenses
    71,348    
136
   
131,870
   
136
 
                           
Net income (loss)
 
$
13,792
 
$
(77
)
$
26,308
 
$
(77
)
                           
Basic and diluted earnings per common share
 
$
0.23
 
$
(0.02
)
$
0.44
 
$
(0.02
)
Dividends declared per common share
 
$
0.05
 
$
-
 
$
0.10
 
$
-
 
                           
Key measures:    
                         
Net loss ratio    
    56.4 %  
N/A
   
57.1
%
 
N/A
 
Net expense ratio    
    35.9 %  
N/A
   
35.3
%
 
N/A
 
Net combined ratio    
    92.3 %  
N/A
   
92.4
%
 
N/A
 


20


Consolidated Result of Operations for the three and six months ended June 30, 2008.

Net Premium Written. Net premium written was $171.3 million and $273.7 million for the three and six months ended June 30, 2008, respectively. 98.14% and 91.72 % of those premiums for the three and six months ended June 30, 2008, respectively were assumed under the reinsurance agreement with AII. Included in the net premium written for the quarter is a $82.2 million unearned premium (net of inuring reinsurance) transfer from AII relating to the acquisition of UBI's in-force book of business which is non-recurring.

Net Premium Earned. Net premium earned was $77.3 million and $142.6 million for the three and six months ended June 30, 2008, respectively. 98.59% and 98.17 % of those premiums for the three and six months ended June 30, 2008, respectively were assumed under the reinsurance agreement with AII. Included in net premium earned for the quarter is $13.4 million in premium earned on the UBI unearned premium transaction.

Net Investment Income. Net investment income was approximately $7.8 million and $15.3 million for the three and six months ended June 30, 2008, respectively. Average invested assets for the period were approximately $660 million and $667 million for the three and six months ended June 30, 2008, respectively. The yields were approximately 4.7% and 4.6% for the three and six months ended June 30, 2008, respectively. We expect investment income to increase over time as more assets are invested.

Net Realized Gain on Investments. Net realized gains on investments was $0.039 million and $0.163 million for the three and six months ended June 30, 2008, respectively.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses were $43.6 million and $81.4 million for the three and six months ended June 30, 2008, respectively. We establish loss and loss adjustment expense reserves in an amount equal to our estimate of the ultimate liability for claims under our reinsurance policies and the cost of adjusting and settling those claims.

Commission and Other Acquisition Expenses. Commission and other acquisition expenses were $25.4 million and $46.8 million for the three and six months ended June 30, 2008, respectively. The expense resulted primarily from commission and brokerage expenses of $25.1 million and $45.9 million for the three and six months ended June 30, 2008, respectively associated with entering into the reinsurance agreement with AII.

The Company currently operates two business segments, Reinsurance - AmTrust Quota Share and Reinsurance - Other. The Company evaluates segment performance based on segment profit, which excludes realized gains and losses, general corporate expenses and any other non-core business income or expenses. The following tables summarize business segments as follows:   
 
Three months ended June 30, 2008
 
Reinsurance - </