Q2 2013 10Q
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, 2013

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

For the transition period from _________ to _________

Commission File No. 001-34042

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

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

(441) 298-4900
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No   ¬

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

As of August 5, 2013, the number of the Registrant's Common Stock ($.01 par value) outstanding was 72,519,441.






INDEX
 
 
Page
PART I - Financial Information
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II - Other Information
 
 
 
 
Item 4.
 
 
 
Item 6.
 
 
 
 



2



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share data)
 
June 30, 2013 (Unaudited)
 
December 31, 2012
 (Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (Amortized cost 2013: $2,665,870; 2012: $2,475,202)
$
2,714,867


$
2,618,697

Other investments, at fair value (Cost 2013: $4,087; 2012: $2,599)
4,438


2,901

Total investments
2,719,305


2,621,598

Cash and cash equivalents
89,375


81,543

Restricted cash and cash equivalents
96,215


132,327

Accrued investment income
21,515


21,007

Reinsurance balances receivable, net (includes $381,427 and $265,766 from related parties in 2013 and 2012, respectively)
685,095


522,614

Funds withheld
43,706


42,712

Prepaid reinsurance premiums (includes $455 and $743 from related parties in 2013 and 2012, respectively)
48,944


38,725

Reinsurance recoverable on unpaid losses (includes $9,031 and $9,387 from related parties in 2013 and 2012, respectively)
101,143


110,858

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses (includes $230,851 and $187,387 from related parties in 2013 and 2012, respectively)
314,839


270,669

Goodwill and intangible assets, net
92,503


94,393

Other assets
25,235


33,742

Total assets
$
4,405,850

 
$
4,138,163

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $731,720 and $610,810 from related parties in 2013 and 2012, respectively)
$
1,844,086


$
1,740,281

Unearned premiums (includes $770,737 and $612,903 from related parties in 2013 and 2012, respectively)
1,129,796


936,497

Accrued expenses and other liabilities
141,359


111,957

Senior notes
207,500


207,500

Junior subordinated debt
126,348


126,317

Total liabilities
3,449,089

 
3,122,552

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares - Series A
150,000


150,000

Common shares ($0.01 par value; 73,476,773 and 73,306,283 shares issued in 2013 and 2012, respectively; 72,514,437 and 72,343,947 shares outstanding in 2013 and 2012, respectively)
735


733

Additional paid-in capital
577,960


575,869

Accumulated other comprehensive income
48,035


141,130

Retained earnings
183,436


151,308

Treasury shares, at cost (2013 and 2012: 962,336 shares)
(3,801
)

(3,801
)
Total Maiden shareholders’ equity
956,365

 
1,015,239

Noncontrolling interest in subsidiaries
396


372

Total equity
956,761

 
1,015,611

Total liabilities and equity
$
4,405,850

 
$
4,138,163

See accompanying notes to the unaudited condensed consolidated financial statements.

3


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


 
For the Three Months
Ended June 30,

For the Six Months
Ended June 30,
 
2013

2012

2013

2012
Revenues:
 
 
 
 
 
 
 
Gross premiums written
$
535,457


$
445,228


$
1,250,177


$
1,058,440

Net premiums written
$
497,949


$
411,960


$
1,187,008


$
1,002,793

Change in unearned premiums
15,324


25,156


(185,293
)

(127,181
)
Net premiums earned
513,273

 
437,116

 
1,001,715

 
875,612

Other insurance revenue
2,780


2,274


7,995


7,028

Net investment income
20,745


20,085


42,724


38,522

Net realized (losses) gains on investment
(53
)

(2,939
)

3,230


(1,574
)
Total revenues
536,745

 
456,536

 
1,055,664


919,588

Expenses:
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
343,347


300,435


678,242


588,352

Commission and other acquisition expenses
143,572


114,663


275,902


246,921

General and administrative expenses
16,817


15,208


30,912


29,039

Interest and amortization expenses
9,570


9,568


19,140


17,246

Amortization of intangible assets
945


1,091


1,890


2,181

Foreign exchange and other (gains) losses
(1,049
)

874


(2,596
)

(105
)
Total expenses
513,202

 
441,839

 
1,003,490

 
883,634

Income before income taxes
23,543

 
14,697

 
52,174

 
35,954

Income taxes:
 
 
 
 
 
 
 
Current tax (benefit) expense
(53
)

(155
)

520


483

Deferred tax expense
265


246


216


487

Income tax expense
212

 
91

 
736

 
970

Net income
23,331

 
14,606

 
51,438

 
34,984

Less: Income attributable to noncontrolling interest
(32
)

(65
)

(59
)

(66
)
Net income attributable to Maiden shareholders
23,299

 
14,541

 
51,379

 
34,918

Dividends on preference shares
(3,094
)



(6,188
)


Net income attributable to Maiden common shareholders
$
20,205

 
$
14,541

 
$
45,191

 
$
34,918

Basic earnings per share attributable to Maiden common shareholders
$
0.28


$
0.20

 
$
0.62

 
$
0.48

Diluted earnings per share attributable to Maiden common shareholders
$
0.27


$
0.20

 
$
0.61

 
$
0.48

Dividends declared per common share
$
0.09

 
$
0.08

 
$
0.18

 
$
0.16


See accompanying notes to the unaudited condensed consolidated financial statements.
 

4




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


 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2013

2012
 
2013
 
2012
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
23,331

 
$
14,606

 
$
51,438

 
$
34,984

Other comprehensive income (loss)
 
 
 
 
 
 
 
Net unrealized holding (losses) gains on available-for-sale fixed maturities arising during the period (net of tax of $26 and $33 for the three and six months ended June 30, 2013 and $8 and $5 for the three and six months ended June 30, 2012, respectively)
(83,489
)
 
803

 
(91,337
)
 
30,112

Adjustment for reclassification of net realized gains recognized in net income, net of tax

 
(9
)
 
(3,081
)
 
(19
)
Foreign currency translation adjustment
(1,569
)
 
3,909

 
1,317

 
1,408

Other comprehensive (loss) income
(85,058
)
 
4,703

 
(93,101
)
 
31,501

Comprehensive income (loss)
(61,727
)
 
19,309

 
(41,663
)
 
66,485

Net income attributable to noncontrolling interest
(32
)
 
(65
)
 
(59
)
 
(66
)
Other comprehensive (income) loss attributable to noncontrolling interest
(5
)
 
6

 
6

 
(2
)
Comprehensive income attributable to noncontrolling interest
(37
)
 
(59
)
 
(53
)
 
(68
)
Comprehensive income (loss) attributable to Maiden shareholders
$
(61,764
)
 
$
19,250

 
$
(41,716
)
 
$
66,417



See accompanying notes to the unaudited condensed consolidated financial statements.

5




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

For the Six Months Ended June 30,

2013

2012
Preference shares - Series A
 
 
 
 
Beginning balance
 
$
150,000

 
$

Ending balance
 
150,000

 

Common shares
 
 
 
 
Beginning balance
 
733

 
732

Exercise of options and issuance of shares
 
2

 

Ending balance
 
735

 
732

Additional paid-in capital
 
 
 
 
Beginning balance
 
575,869

 
579,004

Exercise of options and issuance of common shares
 
931

 
162

Share based compensation expense
 
1,160

 
652

Ending balance
 
577,960

 
579,818

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
141,130

 
64,059

Change in net unrealized (losses) gains on investments, net
 
(94,418
)
 
30,093

Foreign currency translation adjustments
 
1,323

 
1,406

Ending balance
 
48,035

 
95,558

Retained earnings
 
 
 
 
Beginning balance
 
151,308

 
128,648

Net income attributable to Maiden common shareholders
 
51,379

 
34,918

Dividends on preference shares
 
(6,188
)
 

Dividends on common shares
 
(13,063
)
 
(11,561
)
Ending balance
 
183,436

 
152,005

Treasury shares
 
 
 
 
Beginning balance
 
(3,801
)
 
(3,801
)
Ending balance
 
(3,801
)
 
(3,801
)
Noncontrolling interest in subsidiaries
 
 
 
 
Beginning balance
 
372

 
338

Dividend paid to noncontrolling interest
 
(29
)
 

Net income attributable to noncontrolling interest
 
59

 
66

Foreign currency translation adjustments
 
(6
)
 
2

Ending balance
 
396

 
406

Total equity
 
$
956,761

 
$
824,718


See accompanying notes to the unaudited condensed consolidated financial statements.


6


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income
 
$
51,438

 
$
34,984

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
2,591

 
3,244

Net realized (gains) losses on investment
 
(3,230
)
 
1,574

Foreign exchange and other gains
 
(2,596
)
 
(105
)
Amortization of share-based compensation expense, bond premium and discount and subordinated debt discount, net
 
8,230

 
3,798

Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(167,309
)
 
(73,478
)
Funds withheld
 
(2,873
)
 
(932
)
Prepaid reinsurance premiums
 
(10,219
)
 
(9,056
)
Reinsurance recoverable on unpaid losses
 
9,712

 
(26,367
)
Accrued investment income
 
(540
)
 
(5,307
)
Deferred commission and other acquisition expenses
 
(44,644
)
 
(21,786
)
Other assets
 
10,645

 
(10,154
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
111,408

 
126,981

Unearned premiums
 
195,538

 
144,080

Accrued expenses and other liabilities
 
(8,091
)
 
(1,108
)
Net cash provided by operating activities
 
150,060

 
166,368

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(630,576
)
 
(674,238
)
Purchases of fixed-maturity securities – trading and short sales
 

 
(102,073
)
Purchases of other investments
 
(1,538
)
 
(594
)
Proceeds from sales of fixed maturities – available-for-sale
 
202,486

 
104,125

Proceeds from sales of fixed-maturity securities – trading and short sales
 

 
49,883

Proceeds from maturities and calls of fixed maturities
 
264,264

 
211,807

Proceeds from redemption of other investments
 
168

 
160

Decrease in restricted cash and cash equivalents
 
36,112

 
30,478

Other, net
 
1,055

 
(176
)
Net cash used in investing activities
 
(128,029
)
 
(380,628
)
Cash flows from financing activities:
 
 
 
 
Senior notes issuance, net of issuance costs
 

 
96,594

Common share issuance
 
933

 
162

Dividends paid to common shareholders
 
(6,543
)
 
(11,558
)
Dividends paid to preference shareholders
 
(6,188
)
 

Net cash (used in) provided by financing activities
 
(11,798
)
 
85,198

Effect of exchange rate changes on foreign currency cash
 
(2,401
)
 
(90
)
Net increase (decrease) in cash and cash equivalents
 
7,832

 
(129,152
)
Cash and cash equivalents, beginning of period
 
81,543

 
188,082

Cash and cash equivalents, end of period
 
$
89,375

 
$
58,930

See accompanying notes to the unaudited condensed consolidated financial statements.

7

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





1. Basis of Presentation - Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements include the accounts of Maiden Holdings, Ltd. and its subsidiaries (the "Company" or "Maiden") and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP" or "U.S. GAAP") for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All significant inter-company transactions and accounts have been eliminated in the condensed consolidated financial statements.

These interim unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company's audited consolidated financial statements, and related notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Certain reclassifications have been made for 2012 to conform to the 2013 presentation and have no impact on net income previously reported.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Standards Updates

Comprehensive Income - Reporting of amounts reclassified out of Accumulated Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income. The ASU expands the current disclosure guidance by requiring entities to present separately, for each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income and other amounts of current period other comprehensive income. Entities may present the disaggregation either on the face of the statement where net income is presented or in the notes to the financial statements. The new disclosure requirements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption of the guidance is permitted and shall be applied prospectively. The adoption of this guidance did not have any effect on the Company's results of operations, financial position or liquidity.

Balance Sheet Offsetting

In December 2011, the FASB issued new guidance requiring additional disclosures about financial instruments and derivative instruments that are either: (1) offset for balance sheet presentation purposes or (2) subject to an enforceable master netting arrangement or similar arrangement, regardless of whether they are offset for balance sheet presentation purposes. This guidance is effective at January 1, 2013, with retrospective presentation of the new disclosures required. As this new guidance is disclosure-related only and does not amend the existing balance sheet offsetting guidance, the adoption of this guidance did not have any effect on the Company's results of operations, financial position or liquidity.

Qualitative Impairment Test For Indefinite-Lived Intangibles

On July 27, 2012, the FASB issued final guidance adding an optional qualitative assessment for determining whether an indefinite-lived intangible asset is impaired. This ASU 2012-02 is similar to the goodwill guidance which allows companies to perform a qualitative assessment to test goodwill for impairment. This guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired. If a company determines that it is more likely than not that the fair value of such asset exceeds its carrying amount, it would not need to calculate the fair value of the asset in that year. However, if a company concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying amount and record an impairment charge, if any. To perform a qualitative assessment, a company must identify and evaluate changes in economic, industry and company-specific events and circumstances that could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have any effect on the Company's results of operations, financial position or liquidity.





8

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




2. Recent Accounting Pronouncements (continued)

Technical Corrections and Improvements

In October 2012, FASB issued ASU 2012-04, Technical Corrections and Improvements. The amendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, the amendments will make the Codification easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarifications. Transition guidance is provided for amendments the FASB believes could change practice. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. The adoption of this guidance did not have any effect on the Company's results of operations, financial position or liquidity.
Recently Issued Accounting Standards Updates Not Yet Adopted

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

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

Under this guidance, when a reporting entity that is also the parent entity, ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in ASC 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Additionally, for an equity method investment that is a foreign entity, the partial sale guidance in ASC 830-30-40 continues to be applicable. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

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

The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. The adoption of this guidance is not expected to have an impact on our results of operations, financial condition or liquidity.

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

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

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

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

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


9

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




2. Recent Accounting Pronouncements (continued)

The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of this guidance is not expected to have an impact on our results of operations, financial condition or liquidity.

3. Segments

The Company currently operates three business segments, Diversified Reinsurance, AmTrust Quota Share Reinsurance and the NGHC Quota Share (formerly known as ACAC Quota Share) See "Note 13. Subsequent Events" for additional information related to the NGHC Quota Share segment. The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. Other operating expenses allocated to the segments are called General and Administrative expenses which are allocated on an actual basis except salaries and benefits where management’s judgment is applied; the Company does not allocate general corporate expenses to the segments. In determining total assets by segment, the Company identifies those assets that are attributable to a particular segment such as reinsurance balances receivable, funds withheld, prepaid reinsurance premiums, reinsurance recoverable on unpaid losses, deferred commission and other acquisition expenses, loans, goodwill and intangible assets, and restricted cash and cash equivalents and investments. All remaining assets are allocated to Corporate.

Fee-generating business, which is included in the Diversified Reinsurance segment, is considered part of the underwriting operations of the Company.

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

10

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




3. Segments (continued)

The following tables summarize the underwriting results of our operating segments:
For the Three Months Ended June 30, 2013

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
134,934


$
290,578


$
72,437


$
497,949

Net premiums earned

$
178,336


$
261,404


$
73,533


$
513,273

Other insurance revenue

2,780






2,780

Net loss and loss adjustment expenses

(120,837
)

(172,925
)

(49,585
)

(343,347
)
Commission and other acquisition expenses

(44,438
)

(76,198
)

(22,936
)

(143,572
)
General and administrative expenses

(11,153
)

(505
)

(179
)

(11,837
)
Underwriting income

$
4,688


$
11,776


$
833


$
17,297

Reconciliation to net income attributable to Maiden common shareholders












Net investment income and realized losses on investment










20,692

Amortization of intangible assets










(945
)
Foreign exchange and other gains










1,049

Interest and amortization expenses










(9,570
)
Other general and administrative expenses










(4,980
)
Income tax expense










(212
)
Income attributable to noncontrolling interest










(32
)
Dividends on preference shares
 
 
 
 
 
 
 
(3,094
)
Net income attributable to Maiden common shareholders










$
20,205














Net loss and loss adjustment expense ratio*

66.7
%

66.2
%

67.4
%

66.5
%
Commission and other acquisition expense ratio**

24.5
%

29.1
%

31.2
%

27.8
%
General and administrative expense ratio***

6.2
%

0.2
%

0.3
%

3.3
%
Combined ratio****

97.4
%

95.5
%

98.9
%

97.6
%

11

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




3. Segments (continued)
For the Three Months Ended June 30, 2012
 
Diversified Reinsurance
 
AmTrust Quota Share Reinsurance
 
NGHC
Quota Share
 
Total
Net premiums written
 
$
143,981

 
$
195,629

 
$
72,350

 
$
411,960

Net premiums earned
 
$
199,130

 
$
167,816

 
$
70,170

 
$
437,116

Other insurance revenue
 
2,274

 

 

 
2,274

Net loss and loss adjustment expenses
 
(138,420
)
 
(116,755
)
 
(45,260
)
 
(300,435
)
Commission and other acquisition expenses
 
(47,945
)
 
(44,590
)
 
(22,128
)
 
(114,663
)
General and administrative expenses
 
(12,145
)
 
(530
)
 
(194
)
 
(12,869
)
Underwriting income
 
$
2,894

 
$
5,941

 
$
2,588

 
$
11,423

Reconciliation to net income attributable to Maiden common shareholders
 
 
 
 
 
 
 
 
Net investment income and realized losses on investment
 
 
 
 
 
 
 
17,146

Amortization of intangible assets
 
 
 
 
 
 
 
(1,091
)
Foreign exchange losses
 
 
 
 
 
 
 
(874
)
Interest and amortization expenses
 
 
 
 
 
 
 
(9,568
)
Other general and administrative expenses
 
 
 
 
 
 
 
(2,339
)
Income tax expense
 
 
 
 
 
 
 
(91
)
Income attributable to noncontrolling interest
 
 
 
 
 
 
 
(65
)
Net income attributable to Maiden common shareholders
 
 
 
 
 
 
 
$
14,541

 
 
 
 
 
 
 
 
 
Net loss and loss adjustment expense ratio*
 
68.7
%
 
69.6
%
 
64.5
%
 
68.4
%
Commission and other acquisition expense ratio**
 
23.8
%
 
26.6
%
 
31.5
%
 
26.1
%
General and administrative expense ratio***
 
6.1
%
 
0.3
%
 
0.3
%
 
3.4
%
Combined ratio****
 
98.6
%
 
96.5
%
 
96.3
%
 
97.9
%

12

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




3. Segments (continued)
For the Six Months Ended June 30, 2013

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
402,544


$
635,396


$
149,068


$
1,187,008

Net premiums earned

$
374,585


$
481,692


$
145,438


$
1,001,715

Other insurance revenue

7,995






7,995

Net loss and loss adjustment expenses

(261,600
)

(318,570
)

(98,072
)

(678,242
)
Commission and other acquisition expenses

(89,220
)

(141,330
)

(45,352
)

(275,902
)
General and administrative expenses

(21,951
)

(994
)

(353
)

(23,298
)
Underwriting income

$
9,809


$
20,798


$
1,661


$
32,268

Reconciliation to net income attributable to Maiden common shareholders

 
 
 
 
 

 
Net investment income and realized gains on investment

 
 
 
 
 

45,954

Amortization of intangible assets

 
 
 
 
 

(1,890
)
Foreign exchange and other gains

 
 
 
 
 

2,596

Interest and amortization expenses

 
 
 
 
 

(19,140
)
Other general and administrative expenses

 
 
 
 
 

(7,614
)
Income tax expense

 
 
 
 
 

(736
)
Income attributable to noncontrolling interest

 
 
 
 
 

(59
)
Dividends on preference shares

 
 
 
 
 

(6,188
)
Net income attributable to Maiden common shareholders

 
 
 
 
 

$
45,191



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

68.4
%

66.1
%

67.4
%

67.2
%
Commission and other acquisition expense ratio**

23.3
%

29.3
%

31.2
%

27.3
%
General and administrative expense ratio***

5.7
%

0.3
%

0.3
%

3.1
%
Combined ratio****

97.4
%

95.7
%

98.9
%

97.6
%



13

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




3. Segments (continued)
For the Six Months Ended June 30, 2012

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
432,277


$
421,644


$
148,872


$
1,002,793

Net premiums earned

$
403,593


$
335,695


$
136,324


$
875,612

Other insurance revenue

7,028






7,028

Net loss and loss adjustment expenses

(270,812
)

(229,611
)

(87,929
)

(588,352
)
Commission and other acquisition expenses

(112,094
)

(91,759
)

(43,068
)

(246,921
)
General and administrative expenses

(22,593
)

(909
)

(367
)

(23,869
)
Underwriting income

$
5,122


$
13,416


$
4,960


$
23,498

Reconciliation to net income attributable to Maiden common shareholders

 
 
 
 
 
 
 
Net investment income and realized losses on investment

 
 
 
 
 

36,948

Amortization of intangible assets

 
 
 
 
 

(2,181
)
Foreign exchange gains

 
 
 
 
 

105

Interest and amortization expenses

 
 
 
 
 

(17,246
)
Other general and administrative expenses

 
 
 
 
 

(5,170
)
Income tax expense

 
 
 
 
 

(970
)
Income attributable to noncontrolling interest

 
 
 
 
 

(66
)
Net income attributable to Maiden common shareholders

 
 
 
 
 

$
34,918



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

66.0
%

68.4
%

64.5
%

66.7
%
Commission and other acquisition expense ratio**

27.3
%

27.3
%

31.6
%

28.0
%
General and administrative expense ratio***

5.5
%

0.3
%

0.3
%

3.2
%
Combined ratio****

98.8
%

96.0
%

96.4
%

97.9
%


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

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

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

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

14

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




3. Segments (continued)
June 30, 2013
 
Diversified
Reinsurance
 
AmTrust
Quota Share Reinsurance
 
NGHC Quota Share
 
Total
Reinsurance balances receivable, net
 
$
304,635

 
$
284,286

 
$
96,174

 
$
685,095

Funds withheld
 
43,706

 

 

 
43,706

Prepaid reinsurance premiums
 
48,944

 

 

 
48,944

Reinsurance recoverable on unpaid losses
 
101,143

 

 

 
101,143

Deferred commission and other acquisition expenses
 
84,080

 
195,848

 
34,911

 
314,839

Loan to related party
 

 
167,975

 

 
167,975

Goodwill and intangible assets, net
 
92,503

 

 

 
92,503

Restricted cash and cash equivalents and investments
 
1,096,736

 
964,770

 
95,464

 
2,156,970

Other assets
 
6,485

 

 

 
6,485

Total assets - operating segments
 
1,778,232

 
1,612,879

 
226,549

 
3,617,660

Corporate assets
 

 

 

 
788,190

Total Assets
 
$
1,778,232

 
$
1,612,879

 
$
226,549

 
$
4,405,850


December 31, 2012
 
Diversified
Reinsurance
 
AmTrust
Quota Share Reinsurance
 
NGHC
Quota Share
 
Total
Reinsurance balances receivable, net
 
$
260,161

 
$
170,983

 
$
91,470

 
$
522,614

Funds withheld
 
42,712

 

 

 
42,712

Prepaid reinsurance premiums
 
38,725

 

 

 
38,725

Reinsurance recoverable on unpaid losses
 
110,858

 

 

 
110,858

Deferred commission and other acquisition expenses
 
83,287

 
153,530

 
33,852

 
270,669

Loan to related party
 

 
167,975

 

 
167,975

Goodwill and intangible assets, net
 
94,393

 

 

 
94,393

Restricted cash and cash equivalents and investments
 
1,219,454

 
857,013

 
90,851

 
2,167,318

Other assets
 
5,864

 

 

 
5,864

Total assets - operating segments
 
1,855,454

 
1,349,501

 
216,173

 
3,421,128

Corporate assets
 

 

 

 
717,035

Total Assets
 
$
1,855,454

 
$
1,349,501

 
$
216,173

 
$
4,138,163


15

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




3. Segments (continued)

The following tables set forth financial information relating to net premiums written and earned by major line of business for the three and six months ended June 30, 2013 and 2012:
 
 
For the Three Months Ended June 30,
 
 
2013

2012
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
16,556

 
3.3
%
 
$
35,855

 
8.7
%
Casualty
 
88,793

 
17.8
%
 
82,762

 
20.1
%
Accident and Health
 
7,080

 
1.4
%
 
5,838

 
1.4
%
International
 
22,505

 
4.5
%
 
19,526

 
4.7
%
Total Diversified Reinsurance
 
134,934

 
27.0
%
 
143,981

 
34.9
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
136,208

 
27.4
%
 
81,882

 
19.9
%
Specialty Program
 
38,669

 
7.8
%
 
26,758

 
6.5
%
Specialty Risk and Extended Warranty
 
115,701

 
23.2
%
 
86,989

 
21.1
%
Total AmTrust Quota Share Reinsurance
 
290,578

 
58.4
%
 
195,629

 
47.5
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
41,585

 
8.4
%
 
35,401

 
8.6
%
Automobile Physical Damage
 
30,852

 
6.2
%
 
36,949

 
9.0
%
Total NGHC Quota Share
 
72,437

 
14.6
%
 
72,350

 
17.6
%
 
 
$
497,949

 
100.0
%
 
$
411,960

 
100.0
%
 
 
For the Three Months Ended June 30,
 
 
2013
 
2012
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
27,771

 
5.4
%
 
$
55,903

 
12.8
%
Casualty
 
116,838

 
22.8
%
 
111,008

 
25.4
%
Accident and Health
 
9,729

 
1.9
%
 
10,727

 
2.5
%
International
 
23,998

 
4.7
%
 
21,492

 
4.9
%
Total Diversified Reinsurance
 
178,336

 
34.8
%
 
199,130

 
45.6
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
117,566

 
22.9
%
 
69,907

 
16.0
%
Specialty Program
 
32,115

 
6.2
%
 
22,948

 
5.2
%
Specialty Risk and Extended Warranty
 
111,723

 
21.8
%
 
74,961

 
17.1
%
Total AmTrust Quota Share Reinsurance
 
261,404

 
50.9
%
 
167,816

 
38.3
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
42,473

 
8.3
%
 
36,657

 
8.4
%
Automobile Physical Damage
 
31,060

 
6.0
%
 
33,513

 
7.7
%
Total NGHC Quota Share
 
73,533

 
14.3
%
 
70,170

 
16.1
%
 
 
$
513,273

 
100.0
%
 
$
437,116

 
100.0
%
    

16

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




3. Segments (continued)
 
 
For the Six Months Ended June 30,
 
 
2013
 
2012
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
86,078

 
7.3
%
 
$
115,961

 
11.6
%
Casualty
 
237,216

 
20.0
%
 
234,701

 
23.4
%
Accident and Health
 
22,609

 
1.8
%
 
25,310

 
2.5
%
International
 
56,641

 
4.8
%
 
56,305

 
5.6
%
Total Diversified Reinsurance
 
402,544

 
33.9
%
 
432,277

 
43.1
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
298,226

 
25.1
%
 
172,174

 
17.2
%
Specialty Program
 
73,615

 
6.2
%
 
48,946

 
4.9
%
Specialty Risk and Extended Warranty
 
263,555

 
22.2
%
 
200,524

 
20.0
%
Total AmTrust Quota Share Reinsurance
 
635,396

 
53.5
%
 
421,644

 
42.1
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
85,924

 
7.2
%
 
79,269

 
7.9
%
Automobile Physical Damage
 
63,144

 
5.4
%
 
69,603

 
6.9
%
Total NGHC Quota Share
 
149,068

 
12.6
%
 
148,872

 
14.8
%
 
 
$
1,187,008

 
100.0
%
 
$
1,002,793

 
100.0
%

 
 
For the Six Months Ended June 30,
 
 
2013
 
2012
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
75,318

 
7.5
%
 
$
114,051

 
13.0
%
Casualty
 
233,897

 
23.4
%
 
214,987

 
24.6
%
Accident and Health
 
18,362

 
1.8
%
 
21,371

 
2.4
%
International
 
47,008

 
4.7
%
 
53,184

 
6.1
%
Total Diversified Reinsurance
 
374,585

 
37.4
%
 
403,593

 
46.1
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
219,823

 
22.0
%
 
136,799

 
15.6
%
Specialty Program
 
65,461

 
6.5
%
 
50,586

 
5.8
%
Specialty Risk and Extended Warranty
 
196,408

 
19.6
%
 
148,310

 
16.9
%
Total AmTrust Quota Share Reinsurance
 
481,692

 
48.1
%
 
335,695

 
38.3
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
84,103

 
8.4
%
 
74,794

 
8.6
%
Automobile Physical Damage
 
61,335

 
6.1
%
 
61,530

 
7.0
%
Total NGHC Quota Share
 
145,438

 
14.5
%
 
136,324

 
15.6
%
 
 
$
1,001,715

 
100.0
%
 
$
875,612

 
100.0
%

17

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




4. Investments

(a) Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of June 30, 2013 and December 31, 2012 are as follows:
June 30, 2013
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
16,635

 
$
811

 
$

 
$
17,446

U.S. agency bonds – mortgage-backed
 
1,221,606

 
16,336

 
(19,456
)
 
1,218,486

U.S. agency bonds – other
 
11,683

 
1,173

 

 
12,856

Non-U.S. government bonds
 
58,668

 
731

 
(918
)
 
58,481

Other mortgage-backed bonds
 
27,629

 
28

 
(194
)
 
27,463

Corporate bonds
 
1,317,054

 
74,091

 
(24,505
)
 
1,366,640

Municipal bonds
 
12,595

 
900

 

 
13,495

Total available-for-sale fixed maturities
 
2,665,870

 
94,070

 
(45,073
)
 
2,714,867

Other investments
 
4,087

 
364

 
(13
)
 
4,438

Total investments
 
$
2,669,957

 
$
94,434

 
$
(45,086
)
 
$
2,719,305


December 31, 2012
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
42,671

 
$
1,260

 
$

 
$
43,931

U.S. agency bonds – mortgage-backed
 
962,649

 
30,998

 
(1,473
)
 
992,174

U.S. agency bonds – other
 
11,682

 
1,407

 

 
13,089

Non-U.S. government bonds
 
55,169

 
2,264

 

 
57,433

Other mortgage-backed bonds
 
23,167

 
901

 

 
24,068

Corporate bonds
 
1,247,260

 
113,386

 
(6,492
)
 
1,354,154

Municipal bonds
 
132,604

 
1,244

 

 
133,848

Total available-for-sale fixed maturities
 
2,475,202

 
151,460

 
(7,965
)
 
2,618,697

Other investments
 
2,599

 
353

 
(51
)
 
2,901

Total investments
 
$
2,477,801

 
$
151,813

 
$
(8,016
)
 
$
2,621,598


The contractual maturities of our fixed maturities, available-for-sale as of June 30, 2013 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations prior to contractual maturity.

18

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




4. Investments (continued)

June 30, 2013
 
Amortized cost
 
Fair
value
 
% of Total fair value
Maturity
 
 
 
 
 
 
Due in one year or less
 
$
89,450

 
$
90,778

 
3.3
%
Due after one year through five years
 
397,591

 
419,897

 
15.5
%
Due after five years through ten years
 
880,828

 
907,750

 
33.4
%
Due after ten years
 
48,766

 
50,493

 
1.9
%
 
 
1,416,635

 
1,468,918

 
54.1
%
U.S. agency bonds – mortgage-backed
 
1,221,606

 
1,218,486

 
44.9