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, 2009

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 HM12, Bermuda
(Address of principal executive offices)
HM12
(Zip Code)
   
(441) 292-7090
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes o No x
 
As of November, 13 2009, the Registrant had one class of Common Stock ($.01 par value),
of which 70,287,664 shares were issued and outstanding.
 

 
INDEX

       
Page
         
PART I
 
FINANCIAL INFORMATION
   
         
Item 1.
 
 Financial Statements:
   
         
   
Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008
 
3
         
   
Condensed Consolidated Statement of Income for the three months ended  September 30, 2009 and 2008 (unaudited) and the nine months ended September 30, 2009 and 2008 (unaudited)
 
4
         
   
Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)
 
5
         
   
Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three months ended September 30, 2009 and 2008 (unaudited) and the nine months ended September 30, 2009 and 2008 (unaudited)
 
6
         
   
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
7
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
26
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
35
         
Item 4.
 
Controls and Procedures
 
35
         
PART II
 
OTHER INFORMATION
 
36
         
Item 1.
 
Legal Proceedings
 
36
         
Item 1A
 
Risk Factors
 
36
         
Item 6.
 
Exhibits
 
37
         
   
Signatures
 
38

2

 
PART 1 - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands (000’s), except per share data)
 
   
(unaudited)
       
   
September 30, 2009
   
December 31, 2008
 
Assets
           
Fixed maturities, available-for-sale, at fair value (Amortized cost 2009: $1,506,704;  2008: $1,163,926)
  $ 1,541,704     $ 1,119,955  
Other investments, at fair value (Cost 2009: $5,707; 2008: $5,818)
    5,529       5,291  
Total investments
    1,547,233       1,125,246  
Cash and cash equivalents
    94,582       131,897  
Restricted cash and cash equivalents
    218,595       409,277  
Accrued investment income
    11,078       10,293  
Reinsurance balances receivable (includes $43,048 and $48,837 from related party in 2009 and 2008, respectively - see note 10)
    236,643       71,895  
Loan to related party (see note 10)
    167,975       167,975  
Deferred acquisition costs (includes $77,487 and $80,455 from related party in 2009 and 2008, respectively - see note 10)
    171,120       104,470  
Other assets
    15,527       2,617  
Intangible assets
    52,959       55,147  
Goodwill
    49,747       49,747  
Total Assets
  $ 2,565,459     $ 2,128,564  
                 
Liabilities and Shareholders’ Equity
               
Liabilities
               
Reserve for losses and loss expenses (includes $167,218 and $69,646 from related party in 2009 and 2008, respectively- see note 10)
  $ 967,425     $ 897,656  
Unearned premiums (includes $238,483 and $245,742 from  related parties in 2009 and 2008, respectively- see note 10)
    570,875       444,479  
Accrued expenses and other liabilities
    41,482       44,024  
Securities sold under agreements to repurchase, at contract value
    106,016       232,646  
Trust preferred securities – related parties (see note 6)
    215,110       -  
Total Liabilities
    1,900,908       1,618,805  
Commitments and Contingencies
               
Shareholders’ Equity
               
Common shares, ($0.01 par value;71,250,000 and 59,550,000 shares issued in 2009 and 2008 respectively; 70,287,664 and 58,587,664 shares outstanding in 2009 and 2008 respectively)
    713       596  
Additional paid-in capital
    575,891       530,519  
Accumulated other comprehensive income (loss)
    33,117       (44,499 )
Retained earnings
    58,631       26,944  
Treasury Shares, at cost (2009 and 2008:962,336  shares)
    (3,801 )     (3,801 )
Total Shareholders’ Equity
    664,551       509,759  
Total Liabilities and Shareholders’ Equity
  $ 2,565,459     $ 2,128,564  
 
See accompanying notes to the unaudited condensed consolidated financial statements.

3

 
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands (000’s), except per share data)
(Unaudited)
 
   
For the Three
Months Ended
September 30,
2009
   
For the Three
Months Ended
September 30,
2008
   
For the Nine
Months Ended
September 30,
2009
   
For the Nine
Months Ended
September 30,
2008
 
Revenues:
                       
Premium income:
                       
Net premiums written
  $ 221,400     $ 113,187     $ 796,304     $ 386,870  
Change in unearned premiums
    15,950       408       (125,021 )     (130,631 )
Net earned premium
    237,350       113,595       671,283       256,239  
Net investment income
    16,778       8,974       46,150       24,346  
Net realized investment losses
    (66 )     (42,538 )     (462 )     (42,375 )
Total revenues
    254,062       80,031       716,971       238,210  
Expenses:
                               
Loss and loss adjustment expenses
    165,123       66,915       462,468       148,362  
Commission and other acquisition expenses
    55,313       38,299       159,608       85,057  
Other  operating expenses
    8,059       1,974       22,726       5,636  
Trust preferred interest – related party
    9,114       -       25,316       -  
Amortization of intangible assets
    1,676       -       4,915       -  
Foreign exchange and other (gain) loss
    (210 )     359       (2,401 )     364  
Total expenses
    239,075       107,547       672,632       239,419  
                                 
Net income (loss)
  $ 14,987     $ (27,516 )   44,339     $ (1,209 )
                                 
Basic earnings per common share
  $ 0.21     $ (0.46 )   0.64     $ (0.02 )
Diluted earnings per common share
    0.21       (0.46 )     0.63       (0.02 )
Dividends declared per common share
  $ 0.06     $ 0.05     0.18     $ 0.15  
 
   
For the Three
Months Ended
September 30,
2009
   
For the Three
Months Ended
September 30,
2008
   
For the Nine
Months Ended
September 30,
2009
   
For the Nine
Months Ended
September 30,
2008
 
Net realized investment losses:
                       
Total other-than-temporary impairment losses
  $ -     $ (42,538 )   $ -     $ (42,538 )
Portion of loss recognized in other comprehensive income
    -       -       -       -  
Net impairment losses recognized in earnings
    -       (42,538 )     -       (42,538 )
Other net realized (loss) gain on investments
    (66 )     -       (462 )     163  
Net realized investment losses
  $ (66 )   $ (42,538 )   $ (462 )   $ (42,375 ))
 
See accompanying notes to the unaudited condensed consolidated financial statements.

4

 
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands (000’s), except per share data)
(Unaudited)
 
   
For the Nine
Months Ended
September 30,
2009
   
For the Nine
Months Ended
September 30,
2008
 
Cash flows from operating activities:
           
Net income (loss)
  $ 44,339     $ (1,209 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities :
               
Depreciation and amortization of intangibles
    5,426       18  
Net realized loss (gain) on sales of investments
    462       (163 )
Other than temporary impairment of investments
    -       42,538  
Foreign exchange and other (gain) loss
    (1,462 )     356  
Amortization of share-based compensation expense, bond premium and discount and trust preferred securities discount, net
    (4,615 )     (1,429 )
Changes in assets - (increase) decrease:
               
Reinsurance balances receivable
    (167,608 )     (71,145 )
Accrued investment income
    (695 )     (2,219 )
Deferred commission and other acquisition costs
    (66,604 )     (44,400 )
Other assets
    (1,702 )     34  
Changes in liabilities – increase (decrease):
               
Accrued expenses and other liabilities
    (19,047 )     (897 )
Loss and loss adjustment expense reserves
    72,706       85,113  
Unearned premiums
    125,022       130,633  
Net cash (used in) provided by operating activities
    (13,778 )     137,230  
Cash flows from investing activities:
               
Purchases of investments:
               
Purchases of fixed-maturity securities
    (739,006 )     (379,010 )
Purchases of other investments
    (138 )     (340 )
Sale of investments:
               
Proceeds from sales of fixed-maturity securities
    153,991       -  
Proceeds from maturities and calls of fixed-maturity securities
    263,832       88,499  
Proceeds from redemption of other investments
    127       -  
Decrease in restricted cash
    190,682       -  
Acquisition of subsidiary (net of cash acquired)
    (13,613 )     -  
Loan to related party
    -       (54,433 )
Purchase of furniture and equipment
    (122 )     (52 )
Net cash used in investing activities
    (144,247 )     (345,336 )
Cash flows from financing activities:
               
Repurchase agreements, net
    (126,630 )     260,775  
Common share issuance
    117       -  
Trust preferred securities issuance
    260,000       -  
Trust preferred securities issuance cost
    (4,342 )     -  
Dividend paid
    (8,435 )     (5,955 )
Net cash provided by financing activities
    120,710       254,820  
Net (decrease) increase in cash and cash equivalents
    (37,315 )     46,714  
Cash and cash equivalents, beginning of period
    131,897       35,729  
Cash and cash equivalents, end of period
  $ 94,582     $ 82,443  
Supplemental information about non-cash investing and financing activities
               
Discount on Trust Preferred Securities
  $ (44,928 )  
$
-  
Additional paid in Capital
    44,928       -  

See accompanying notes to the unaudited condensed consolidated financial statements. 

5

 
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
 (in thousands (000’s), except per share data)
(Unaudited)
 
For the nine months ended
September 30, 2009
 
Common
Shares
   
Additional
Paid-In
Capital
   
Accumulated
Other
Comprehensive
Income
   
Retained
Earnings
   
Treasury
Shares
   
Total
Shareholders’
Equity
 
Balance at December 31, 2008
  $ 596     $ 530,519     $ (44,499 )   $ 26,944     $ (3,801 )   $ 509,759  
                                                 
Net income
      -       -         -       44,339       -       44,339  
Unrealized holding gains during the period
    -       -       77,154       -       -       77,154  
Adjustment for re-classification of realized gains and other-than-temporary losses recognized in the net income
    -       -       462       -       -       462  
Comprehensive income
                                            121,955  
Shares issued, net
    117       44,928       -        -       -       45,045  
Share based compensation
     -       444         -        -       -       444  
Dividends to shareholders
      -        -         -       (12,652 )     -       (12,652 )
Balance at September 30, 2009
  $ 713     $ 575,891     $ 33,117     $ 58,631     $ (3,801 )   $ 664,551  
 
For the Nine Months Ended
September 30, 2008
 
Common
Shares
   
Additional
Paid-In
Capital
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Treasury
Shares
   
Total
Shareholders’
Equity
 
Balance at December 31, 2007
  $ 596     $ 529,647     $ (13,496 )   $ 20,598     $ -     $ 537,345  
                                                 
Net loss
      -       -       -       (1,209 )     -       (1,209 )
Unrealized holding losses during the period
    -       -       (91,735 )     -       -       (91,735 )
Adjustment for re-classification of realized gains and other-than-temporary losses recognized in the net income
      -       -       42,375             -       42,375  
Comprehensive loss
                                            (50,569 )
Share based compensation
      -       611       -       -       -       611  
Dividends to shareholders
      -       -       -       (8,933 )     -       (8,933 )
Balance at September 30, 2008
  $ 596     $ 530,258     $ (62,856 )   $ 10,456     $ -     $ 478,454  
 
See accompanying notes to the unaudited condensed consolidated financial statements.

6


MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)

1.     Basis of Presentation — Summary of Significant Accounting Policies
 
The accompanying unaudited condensed consolidated financial statements include the accounts of Maiden Holdings, Ltd. and its subsidiaries and have been prepared in accordance with 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 as promulgated by the U.S. Securities and Exchange Commission (“SEC”). Accordingly they do not include all of the information and footnotes required by GAAP for complete financial statements. All significant inter-company transactions and accounts have been eliminated in the consolidated financial statements.
 
These interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

2.     Recent Accounting Pronouncements

Adoption of new accounting pronouncements 

On September 15, 2009, the Company adopted Financial Accounting Standard Board (“FASB”) ASC Topic 105, “Generally Accepted Accounting Principles” (“ASC 105” or the “Codification”).  ASC 105 is a replacement to FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS 162”), which became effective on November 13, 2008, and identified the sources of accounting principles and the framework for selecting the principles used in preparing financial statements in conformity with GAAP.  It also arranged these sources of GAAP in a hierarchy for users to apply. ASC 105 provides for a single source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities in the preparation of financial statements.  The Codification carries the same level of authority and supersedes SFAS 162 and all other accounting and reporting standards. The GAAP hierarchy has been modified to include two levels of GAAP: authoritative and non-authoritative.

On April 1, 2009, the Company adopted the provisions of the FASB ASC Topic 855, “Subsequent Events” (“ASC 855”), which requires the disclosure of the date after the balance sheet date but before financial statements are issued or available to be issued through which an entity has evaluated subsequent events and the basis for that date, that is, whether the date represents the date the financial statements were issued or were available to be issued.  ASC 855 also alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented.

In April 2009, the FASB issued revised guidance for recognizing and measuring pre-acquisition contingencies in a business combination.  Under the revised guidance which is now part of ASC 805, “Business Combinations”, pre-acquisition contingencies are recognized at their acquisition-date fair value if a fair value can be determined during the measurement period.  If the acquisition-date fair value cannot be determined during the measurement period, a contingency (best estimate) is to be recognized if it is probable that an asset existed or liability had been incurred at the acquisition date and the amount can be reasonably estimated.  The revised guidance does not prescribe specific accounting for subsequent measurement and accounting for contingencies.  The adoption of the revised guidance on January 1, 2009 had no effect on the Company’s results of operations, financial position or liquidity.
 
On April 1, 2009, the Company adopted the provisions of the FASB ASC 820-10-35, “Fair Value Measurements and Disclosures- Overall -Subsequent Measurement” (“ASC 820-10-35”), ASC 825-10-50, “Financial Instruments – Overall – Disclosure”(“ASC 825-10-50”), and ASC 320-10-35, “Investments – Debt and Equity Securities – Overall – Subsequent Measurement” (“ASC 320-10-35”), which are intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities.

ASC 820-10-35 relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms that the objective of fair value measurement is to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of ASC 820-10-35 did not have a material impact on the Company's consolidated shareholders’ equity or net income.
 
7

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)

2.     Recent Accounting Pronouncements (continued)
  
ASC 825-10-50 enhances consistency in financial reporting by increasing the frequency of fair value disclosures. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. Prior to issuing this standard, fair values for these assets and liabilities were only disclosed once a year. ASC 825-10-50 now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.

ASC 320-10-35 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The guidance is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains at fair value. ASC 320-10-35 also requires increased and more timely disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.  Based on guidance in FASB ASC 320-10-65 (Prior authoritative literature: FSP 115-2 “Recognition and Presentation of Other-Than-Temporary-Impairments”), in the event of the decline in fair value of a debt security, a holder of that security that does not intend to sell the debt security and for whom  it is not more than likely than not that such holder will be required to sell the debt security before recovery of its amortized cost basis, is required to separate the decline in fair value into (a) the amount representing the credit loss and (b) the amount related to other factors.  The amount of total decline in fair value related to the credit loss shall be recognized in earnings as an Other Than Temporary Impairment (“OTTI”) with the amount related to other factors recognized in accumulated other comprehensive loss, net of tax.  OTTI credit losses result in a permanent reduction of the cost basis of the underlying investment.  The determination of OTTI is a subjective process, and different judgments and assumptions could affect the timing of the loss realization.

The adoption of ASC 825-10-50 and ASC 320-10-35 as of April 1, 2009 only required new disclosures to be made and did not have an impact on the Company’s consolidated shareholders’ equity or net income.

New accounting pronouncements issued during 2009 impacting the Company are as follows: 

On June 12, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of Financial Assets” (“SFAS 166”).  SFAS 166 has not yet been adopted into the Codification and it requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of financial assets accounted for as a sale. It is a revision to FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets.  SFAS 166 is effective on a prospective basis in fiscal years beginning on or after November 15, 2009 and interim periods within those fiscal years, and will be adopted by the Company in the first quarter of fiscal year 2010.  The Company is assessing the potential impact, if any, of the adoption of SFAS 166 on its consolidated results of operations and financial condition.
 
On June 12, 2009, the FASB issued FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”).  SFAS No. 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities.” It has not yet been adopted into codification and it requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity.  It determines whether a reporting entity is required to consolidate another entity based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.  SFAS No. 167 is effective on a prospective basis in fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years, and will be adopted by the Company in the first quarter of fiscal year 2010.  The Company is assessing the potential impact, if any, of the adoption of SFAS No. 167 on its consolidated results of operations and financial condition.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”).  This update provides amendments to ASC Topic 820, “Fair Value Measurements and Disclosures” for the fair value measurement of liabilities when a quoted price in an active market is not available. ASU 2009-05 is effective for the first interim or annual reporting period beginning after the ASU’s issuance, and will be adopted by the Company in the fourth quarter of fiscal year 2009. The Company is assessing the potential impact, if any, of the adoption of ASU 2009-05 on its consolidated results of operations and financial condition.

In September 2009, the FASB issued Accounting Standards Update No. 2009-12, “Measuring Fair Value of Certain Investments” (“ASU 2009-12”).  This update provides further amendments to ASC Topic 820, “Fair Value Measurements and Disclosures” to offer investors a practical expedient for measuring the fair value of investments in certain entities that calculate net asset value per share (“NAV”). Specifically, measurement using NAV is reasonable for investments within the scope of ASU 2009-12. The ASU 2009-12 is effective for the first interim or annual reporting period beginning after the ASU’s issuance, and will be adopted by the Company in the fourth quarter of fiscal year 2009. The Company is assessing the potential impact, if any, of the adoption of ASU 2009-12 on its consolidated results of operations and financial condition.

8

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

3.   Investments

 
(a)
Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of September 30, 2009 and December 31, 2008 are as follows:
 
 September 30, 2009
 
Original or
amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Fair
value
 
Fixed Maturities:
                       
U.S. – treasury bonds
  $ 39,451     $ 365     $ (158 )   $ 39,658  
U.S. Agency - mortgage backed securities
    880,024       23,969       (2,292 )     901,701  
Corporate fixed maturities
    564,285       35,998       (23,718 )     576,565  
Municipal bonds
    22,944       836       -       23,780  
Total available for sale fixed maturities
    1,506,704       61,168       (26,168 )     1,541,704  
Other investments
    5,707       -       (178 )     5,529  
 Total investments
  $ 1,512,411     $ 61,168     $ (26,346 )   $ 1,547,233  
   
  December 31, 2008
 
Original or
amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Fair
Value
 
Fixed Maturities:
                       
U.S. – treasury bonds
  $ 37,782     $ 775     $ (30 )   $ 38,527  
U.S. Agency - mortgage backed securities
       756,023       21,178       (5,302 )     771,899  
Corporate fixed maturities
    370,121       2,320       (62,912 )     309,529  
Total available for sale fixed maturities 
    1,163,926       24,273       (68,244 )     1,119,955  
Other investments
    5,819       -       (528 )     5,291  
      Total investments
  $ 1,169,745     $ 24,273     $ (68,772 )   $ 1,125,246  

The contractual maturities of our fixed maturities as of September 30, 2009 and December 31, 2008 are shown below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment.
 
   
September 30,
2009
   
December 31,
2008
 
    
Amortized
cost
   
Fair Value
   
Amortized
cost
   
Fair Value
 
Due in one year or less
  $ 60,720     $ 62,597     $ 6,282     $ 6,293  
Due after one year through five years
    174,771       171,756       160,732       149,067  
Due after five years through ten years
    319,124       326,162       228,553       179,843  
Due after ten years
    72,065       79,488       12,337       12,854  
 Mortgage and asset -backed
    880,024       901,701       756,022       771,898  
                                 
Total
  $ 1,506,704     $ 1,541,704     $ 1,163,926     $ 1,119,955   
 
9


MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)

3.   Investments (continued)

Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method and include adjustments to the cost basis of investments for declines in value that are considered to be other-than-temporary. The following provides an analysis of realized gains and losses:

   
For the Three
Months Ended
September 30,
2009
   
For the Three
Months
Ended
September 30,
2008
   
For the Nine
Months
Ended
September 30,
2009
   
For the Nine
Months Ended
September 30,
2008
 
Net realized Investment Losses:
                       
Total other-than-temporary impairment losses
  $ -     $ (42,538 )   $ -     $ (42,538 )
Portion of loss recognized in other comprehensive income
    -       -       -       -  
Net impairment losses recognized in earnings
    -       (42,538 )     -       (42,538 )
Gross realized gains on sale of investments
    42       -       3,519       163  
Gross realized loss on sale of investments
    (108 )     -       (3,981 )     -  
Net realized investment loss
  $ (66 )   $ (42,538 )   $ (462 )   $ (42,375 )
 
The following tables summarize fixed maturities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
  
   
Less than 12 months
   
12 months or more
   
Total
 
 September 30, 2009
 
Fair
value
   
Unrealized
losses
   
Fair
value
   
Unrealized
Losses
   
Fair
value
   
Unrealized
losses
 
Available-for-sale securities:
                                   
U.S. – treasury bonds
  $ 3,277     (158 )   -     -     $ 3,277     (158 )
U.S. Agency mortgage backed securities
    120,097       (1,393 )     31,905       (899 )     152,002       (2,292 )
Corporate fixed maturities
    13,935       (727 )     209,904       (22,991 )     223,839       (23,718 )
Municipal bonds
    -       -       -       -       -       -  
      137,309       (2,278 )     241,809       (23,890 )     379,118       (26,168 )
Other investments
  $ -     -     $ 4,822     (178 )   $ 4,822     (178 )
Total temporarily impaired  available-for-sale securities and other investments
  $ 137,309     $ (2,278 )   $ 246,631     $ (24,068 )   $ 383,940     $ (26,346 )
 
As of September 30, 2009, there were approximately 32 securities in an unrealized loss position with a fair value of $383,940. Of these securities, there were 18 securities that have been in an unrealized loss position for 12 months or more with a value of $246,631.

10

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)
3.   Investments – (continued)

   
Less than 12 months
   
12 months or more
   
Total
 
 December 31, 2008
 
Fair
Value
   
Unrealized
losses
   
Fair
value
   
Unrealized
Losses
   
Fair
value
   
Unrealized
losses
 
Available-for-sale securities:
                                   
U.S. – treasury bonds
  $ 6,521     $ (30 )     -     $ -     $ 6,521       (30 )
U.S. Agency mortgage backed securities
    148,803       (5,302 )     -       -       148,803       (5,302 )
Corporate fixed maturities
    104,279       (13,708 )     153,055       (49,204 )     257,334       (62,912 )
      259,603       (19,040 )     153,055       (49,204 )     412,658       (68,244 )
Other investments
  $ 4,722     $ (528 )   $ -     $ -     $ 4,722       (528 )
Total temporarily impaired  available-for-sale securities and other investments
  $ 264,325     $ (19,568 )   $ 153,055     $ (49,204 )   $ 417,380     $ (68,772 )
 
As of December 31, 2008, there were approximately 40 securities in an unrealized loss position with a fair value of $417,380. Of these securities, there were 10 securities that have been in an unrealized loss position for 12 months or more with a value of $153,055.

Other-than-Temporary Impairments (“OTTI”)

We review our investment portfolio for impairment on a quarterly basis. Impairment of investments results in a charge to operations when a fair value decline below cost is deemed to be other-than-temporary. As of September 30, 2009, we reviewed our portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.  During the three and nine months ended September 30, 2009, the Company recognized $0 as other than temporary impairment on fixed income securities and other investments and for the three and nine months ended September 30, 2008 the Company recognized $42,538 as other than temporary impairment on fixed income securities and other investments. Based on our qualitative and quantitative OTTI review of each asset class within our fixed maturity portfolio, the unrealized losses on fixed maturities at September 30, 2009, were primarily due to widening of credit spreads relating to the market illiquidity, rather than credit events. Because the Company neither intends nor will be required to sell these securities until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore we do not consider these fixed maturities to be other-than-temporarily impaired at September 30, 2009.

(b) Restricted Cash and Investments

We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. The assets on deposit are available to settle reinsurance liabilities. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows:
 
   
September
30, 2009
   
December
31, 2008
 
Restricted cash -  third party agreements
  $ 199,172     $ 335,201  
Restricted cash -  related party agreements
    19,423       74,076  
Total restricted cash
    218,595       409,277  
Restricted investments - in Trust for third party agreements at fair value (Amortized cost: 2009 - $860,641; 2008 - $701,973)
    863,703       660,388  
Restricted investments - in Trust for related party agreements at fair value (Amortized cost: 2009 - $140,310; 2008 -  $1,200)
    158,869       1,203  
Total restricted investments
    1,022,572       661,591  
Total restricted cash and investments
  $ 1,241,167     $ 1,070,868  

11

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

3.   Investments – (continued)

(c) 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 September 30, 2009, there were $106,016 principal amount outstanding at interest rates between 0.35% and 0.50%. Interest expense associated with these repurchase agreements was $117 and $900 for the three and nine months ended September 30, 2009, respectively, out of which $67 was accrued as of September 30, 2009. The Company has approximately $106,016 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 ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The three levels of the hierarchy are as follows:

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

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

 
·
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

In accordance with ASC 820, the Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 825, “Disclosure about Fair Value of Financial Instruments” requires all entities to disclose the fair value of their financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value.

The Company uses the following methods and assumptions in estimating its fair value disclosure for its financial instruments.

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, fair values are measured by an independent pricing service that utilizes valuation techniques based upon observable market data. 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, the independent pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications which include available relevant market information. These investments are classified as Level 2 investments and include obligations of U.S. government agencies, municipals and corporate debt 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.

Reinsurance balance receivable. The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value due to short term nature of the assets.

Loan to related party. The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value.

Trust preferred securities. The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value.

12

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

a)
Fair Value Hierarchy

The following table presents the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis as of September 30, 2009 and December 31, 2008:

  September 30, 2009
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
   
Significant
 Other Observable
 Inputs (Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Total Fair
Value
 
Assets
                       
Fixed maturities
  $ 39,658     $ 1,502,046     $ -     $ 1,541,704  
                                 
Other investments
    -       -       5,529       5,529  
                                 
Total
  $ 39,658     $ 1,502,046     $ 5,529     $ 1,547,233  
As a percentage of total assets
    1.5 %     58.5 %     0.2 %     60.3 %
                                 
Liabilities
                               
Securities sold under agreements to repurchase
  $ -     $ 106,016     $ -     $ 106,016  
As a percentage of total liabilities
    -       5.6 %     -       5.6 %

  December 31, 2008
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
   
Significant
Other Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Total Fair
Value
 
Assets
                       
Fixed maturities
  $ 38,527     $ 1,081,428     $ -     $ 1,119,955  
                                 
Other investments
    -       -       5,291       5,291  
                                 
Total
  $ 38,527     $ 1,081,428     $ 5,291     $ 1,125,246  
As a percentage of total assets
    1.8 %     50.8 %     0.2 %     52.8 %
                                 
Liabilities
                               
Securities sold under agreements to repurchase
  $ -     $ 232,646     $ -     $ 232,646  
As a percentage of total liabilities
    -       14.4 %     -       14.4 %
 
b)
Level 3 Financial Instruments

The following table presents changes in Level 3 for our financial instruments measured at fair value on a recurring basis for the three months and nine months ended September 30, 2009: 
  Other Investments:
 
Three Months
Ended
September 30,
2009
   
Nine Months
Ended
September 30,
2009
 
Balance at beginning of period
  $ 5,392     $ 5,291  
Change in net unrealized gains (losses) – included in other comprehensive loss
    244       350  
Net realized gains (losses) – included in net income
    (108 )     (123 )
Net purchases or (sales)
    1       11  
Net transfers in (out of) of Level 3
    -       -  
Balance at end of period
  5,529     $ 5,529  
 
13

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)

5.
Goodwill and Intangible Assets

Goodwill

Goodwill is calculated as the excess of purchase price over the net fair value of assets acquired. The Company performs an annual impairment analysis to identify potential goodwill impairment and measures the amount of a goodwill impairment loss to be recognized. This annual test is performed during the fourth quarter of each year or more frequently if events or circumstances change in a way that requires the Company to perform the impairment analysis on an interim basis. Goodwill impairment testing requires an evaluation of the estimated fair value of each reporting unit to its carrying value, including the goodwill. An impairment charge is recorded if the estimated fair value is less than the carrying amount of the reporting unit. No impairments have been identified to date.

Intangibles

Intangible assets consist of finite and indefinite life assets. Finite life intangible assets include customer and producer relationships and trademarks. Insurance company licenses are considered indefinite life intangible assets subject to annual impairment testing.

On October 31, 2008, the Company acquired the reinsurance operations of GMAC Insurance (GMACI), including its book of assumed reinsurance business. As part of the transaction the Company’s wholly owned subsidiary Maiden Holdings North America, Ltd. (“Maiden NA”) acquired GMAC RE LLC, the reinsurance managing general agent writing business on behalf of Motors Insurance Corporation and the renewal rights for the business written by GMAC RE.  In connection with the transaction Maiden NA also entered into an agreement to acquire two licensed insurance companies, GMAC Direct Insurance Company (“GMAC Direct”) and Integon Specialty Insurance Company (“Integon”). The acquisitions of GMAC Direct and Integon were closed on December 23, 2008 and September 1, 2009, respectively. GMAC Direct was renamed Maiden Reinsurance Company, and Integon was renamed Maiden Specialty Insurance Company.

The following table shows an analysis of goodwill and intangible assets:

September 30, 2009
Gross
 
Accumulated
Amortization
 
Net
 
Useful Life
Goodwill
  $ 49,747     $ -     $ 49,747  
Indefinite
State licenses
    7,727       -       7,727  
Indefinite
Customer relationships
    51,400       (6,168 )     45,232  
15 years double declining
Net balance
  $ 108,874     $ (6,168 )   $ 102,706    
                           
December 31, 2008  
Gross
 
Accumulated
Amortization
 
Net
 
Useful Life
Goodwill
  $ 49,747     $ -     $ 49,747  
Indefinite
State licenses
    5,000       -       5,000  
Indefinite
Customer relationships
    51,400       (1,253 )     50,147  
15 years double declining
Net balance
  $ 106,147     $ (1,253 )   $ 104,894    
 
Goodwill and intangible assets are subject to annual impairment testing. No impairment was recorded during the three and nine months ended September 30, 2009. The Company currently estimates the amortization of the intangible assets with finite lives for the years ended December 31, 2009, 2010, 2011, 2012 and 2013 to be $6,590, $5,808, $5,033, $4,362 and $3,781, respectively.
 
14

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

6.  Trust Preferred Securities

On January 20, 2009, the Company completed a private placement of 260,000 units (the “Units”), each Unit consisting of $1,000 principal amount of capital securities (the “Trust Preferred Securities”) of Maiden Capital Financing Trust (the “Trust”), a trust established by Maiden NA, and 45 common shares, $.01 par value, of the Company (the “Common Shares”), for a purchase price of $1,000.45 per Unit.  This resulted in gross proceeds to the Company of $260,117, before $4,342 of placement agent fees and expenses.  As a result, the Company issued 11,700,000 of its Common Shares.  Certain trusts established by Michael Karfunkel and George Karfunkel, two of the Company’s founding shareholders, purchased an aggregate of 159,000 of the Units or 61%.  The remaining 101,000 Units were purchased by existing institutional shareholders of the Company.  
 
The Trust used the proceeds from the sale of the Trust Preferred Securities to purchase a subordinated debenture (the “Debenture”) in the principal amount of $260,000 issued by Maiden NA.

The Debenture was issued pursuant to an Indenture dated January 20, 2009 by and between the Maiden NA and Wilmington Trust Company (“Wilmington”).  The terms of the Debenture are substantially the same as the terms of the Trust Preferred Securities.  The interest payments by Maiden NA will be used by the Trust to pay the quarterly distributions to the holders of the Trust Preferred Securities.  The Indenture permits Maiden NA to redeem the Debenture (and thus a like amount of the Trust Preferred Securities) at stated value plus one year’s interest together with accrued and unpaid interest, if any, through the date of redemption at any time until January 15, 2014.  On and after January 15, 2014, Maiden NA may redeem any or all of the Debenture (and thus a like amount of the Trust Preferred Securities) at stated value plus accrued and unpaid interest, if any, through the date of redemption.  If the Company redeems any amount of its Debenture, the Trust must redeem a like amount of the Trust Preferred Securities.  The Indenture permits Maiden NA, as long as no event of default has occurred and continues, to defer interest payments on the Debenture for up to 20 consecutive quarterly periods, during which interest accrues and compounds until paid.

Pursuant to separate Guarantee Agreements dated as of January 20, 2009 with Wilmington, as guarantee trustee, each of the Company and Maiden NA has agreed to guarantee the payment of distributions and payments on liquidation or redemption of the Trust Preferred Securities.

As a consequence of the issuance of a majority of the Units to a related party under ASC 810 Consolidation (“ASC 810”), the Trust is a variable interest entity and the Company is deemed to be the Primary beneficiary and is required to consolidate the Trust. The issuance of Common Shares associated with the Trust Preferred Securities resulted in an original issuance discount of $44,928 based on market price on January 20, 2009. The discount is amortized over 30 years based on the effective interest method. The Debentures and Trust Preferred Securities mature in 2039 and carry a stated or coupon rate of 14% with an effective interest rate of 16.95%. As of September 30, 2009, the stated value of the Trust Preferred Securities was $215,110 which comprises the principal amount of $260,000 and unamortized discount of $44,890.

7.    Earnings Per Share

The following is a summary of the elements used in calculating basic and diluted earnings per share: 
 
   
Three Months
Ended
September 30,
2009
   
Three Months
Ended
September 30,
2008
   
Nine Months
Ended
September 30,
2009
   
Nine Months
Ended
September 30,
2008
 
Net income (loss) available to common shareholders
  $ 14,987     $ (27,516 )   $ 44,339     $ (1,209 )
                                 
Weighted average number of common shares outstanding - basic
    70,287,664       59,550,000       69,430,521       59,550,000  
Potentially dilutive securities:
                               
Warrants
    -       -       -       -  
Share options
    565,231       -       416,193       -  
Weighted average number of common shares outstanding - diluted
    70,852,895       59,550,000       69,846,714       59,550,000  
                                 
Basic earnings per common share:
  $ 0.21     $ (0.46 )   $ 0.64     $ (0.02 )
Diluted earnings per common share:
  $ 0.21     $ (0.46 )   $ 0.63     $ (0.02 )
 
As of September 30, 2009, 4,050,000 (2008: 4,050,000) warrants and 638,000 (2008: 893,529) share options were excluded from the calculation of diluted earnings per share as they were anti-dilutive.
 
15

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

8.    Share Based Compensation

Share Options
 
The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all share option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The adoption of ASC 718 Compensation - Stock Compensation fair value method has resulted in share-based expense (a component of salaries and benefits) in the amount of approximately $168 and $444 for the three and nine months ended September 30, 2009, respectively (2008: $219 and $611, respectively). 

The key assumptions used in determining the fair value of options granted in the three and nine months ended September 30, 2009 and a summary of the methodology applied to develop each assumption are as follows:  

Assumptions :
 
September
30, 2009
 
Volatility
    29.8-43.9 %
Risk-free interest rate
    2.36-3.30 %
Weighted average expected lives in years
 
5-6.1 years
 
Forfeiture rate
    0 %
Dividend yield rate
    1-5.39 %

Expected Price Volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The common shares of Maiden Holdings, Ltd. began trading on May 6, 2008. Since the Company does not have enough history over which to calculate an expected volatility representative of the volatility over the expected lives of the options, the Company considered the historical and current implied volatilities of a set of comparable 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 schedules shows all options granted, exercised, expired and exchanged under the Plan for the three months ended September 30, 2009:

Three Months Ended
 September 30, 2009
 
Number of
Share Options
   
Weighted
Average
Exercise Price
   
Weighted Average
Years Remaining
Contractual Term
 
Outstanding, June 30, 2009
    1,503,834     $ 5.54       9.3  
Granted
    200,000       4.54       9.4  
Exercised
    -       -       -  
Cancelled
    (10,500 )     3.28       -  
Outstanding, September 30, 2009
    1,693,334     $ 5.47       8.9  

16

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
(Unaudited)

8.    Share Based Compensation (continued)

The following schedule shows all options granted, exercised, expired and exchanged under the Plan for the nine months ended September 30, 2009:

 
Nine Months Ended
 September 30, 2009
 
Number of
Share Options
   
Weighted
Average
Exercise Price
   
Weighted Average
Years Remaining
Contractual Term
 
Outstanding, December 31, 2008
    1,519,834     $ 5.92       9.4  
Granted
    384,000       4.51       9.4  
Exercised
    -       -        -  
Cancelled
    (210,500 )     8.07       -  
Outstanding, September 30, 2009
    1,693,334     $ 5.47       8.9  
 
The following schedules shows all options granted, exercised, expired and exchanged under the Plan for the three months ended September 30, 2008:

Three Months Ended
September 30, 2008
 
Number of
Share Options
   
Weighted
Average Exercise
Price
   
Weighted Average
Years Remaining
Contractual Term
 
Outstanding, June 30, 2008
    962,000     $ 10.00       9.3  
Granted
    -       -       -  
Exercised
    -       -        -  
Cancelled
    -       -        -  
Outstanding, September 30, 2008
    962,000     $ 10.00       9.0  

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

 
Nine Months Ended
 September 30, 2008
 
Number of
Share Options
   
Weighted
Average Exercise
Price
   
Weighted Average
Years Remaining
Contractual Term
 
Outstanding, December 31, 2007
    716,000     $ 10.00       9.1  
Granted
    246,000       10.00       9.5  
Exercised
    -       -        -  
Cancelled
    -       -        -  
Outstanding, September 30, 2008
    962,000     $ 10.00       9.0  

The weighted average grant date fair value was $1.50 and $3.30 for all options outstanding at September 30, 2009 and 2008, respectively. There was approximately $1,466 and $2,252 of total unrecognized compensation cost related to non-vested share-based compensation arrangements as of September 30, 2009 and 2008, respectively.

9.    Dividends Declared

On February 25, 2009, the Company’s Board of Directors approved a quarterly cash dividend of $0.06 per common share. This dividend was paid on April 15, 2009 to shareholders of record on April 1, 2009.

On May 11, 2009, the Company’s Board of Directors approved a quarterly cash dividend of $0.06 per common share. This dividend was paid on July 15, 2009 to shareholders of record on July 1, 2009.

On August 10, 2009, the Company’s Board of Directors approved a quarterly cash dividend of $0.06 per common share. This dividend was paid on October 15, 2009 to shareholders of record on October 1, 2009.

17

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)

10.    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 President and Chief Executive Officer and Director of AmTrust Financial Services, Inc. (“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 (the “Master Agreement”), by which they caused AmTrust’s Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd.  (“AII”) and the Company’s wholly owned Bermuda subsidiary Maiden Insurance Company Ltd. (“Maiden Insurance”), to enter into the Quota Share Reinsurance Agreement by which (a) AII retrocedes to Maiden Insurance an amount equal to 40% of the premium written by  subsidiaries of AmTrust, 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 subsidiaries’ unearned premium reserves, effective as of July 1, 2007, with respect to the current lines of business, excluding risks for which the AmTrust subsidiaries’ 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 Quota Share Reinsurance Agreement which has an initial term of three years, has been automatically renewed for another three year term until June 30, 2013 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 subsidiaries.

On June 11, 2008, the Company and AmTrust amended the Quota Share 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 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 $2,000 maximum liability for a single loss provided in the Quota Share Reinsurance Agreement shall not be applicable to Retail Commercial Package Business.

On February 9, 2009, AII and Maiden Insurance amended the Quota Share Reinsurance Agreement to clarify that (i) AII would offer Maiden Insurance the opportunity to reinsure Excess Retention Business, which is defined as a policy issued by an AmTrust insurance subsidiary with respect to which the insurance subsidiary’s retention is greater than $5 million and (ii) the deduction for the cost of inuring reinsurance from Affiliate Subject Premium (as defined in the Quota Share Reinsurance Agreement) retroceded to Maiden Insurance is net of ceding commission. In addition, the Quota Share Reinsurance Agreement has been amended by deleting the limitation on Maiden Insurance’s maximum liability in respect of a single loss, which, under certain circumstances, was $2 million. Pursuant to the Quota Share Reinsurance Agreement, as amended, AII and Maiden Insurance share, proportionally, in all premium and losses ceded thereunder.

The Company recorded approximately $28,132 and $85,005 of ceding commission expense for the three and nine months ended September 30, 2009, respectively (2008: $36,908 and $82,524 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 following is the effect on the Company’s balance sheet as of September 30, 2009 and December 31, 2008, and the results of operations for the three and nine months ended September 30, 2009 and 2008 related to the Reinsurance Agreements with AmTrust:

18

 
MAIDEN HOLDINGS, LTD.
 
Notes to Unaudited Condensed Consolidated Financial Statements
 (in thousands (000’s), except per share data)
 (Unaudited)
10.    Related Party Transactions (continued)

Assets and (liabilities):
 
September 30,
2009
   
December 31,
2008