Q3 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 September 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 November 4, 2013, the number of the Registrant's Common Stock ($.01 par value) outstanding was 72,613,048.






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)
 
September 30, 2013 (Unaudited)
 
December 31, 2012
 (Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (Amortized cost 2013: $2,620,107; 2012: $2,475,202)
$
2,674,305


$
2,618,697

Other investments, at fair value (Cost 2013: $4,500; 2012: $2,599)
5,006


2,901

Total investments
2,679,311


2,621,598

Cash and cash equivalents
131,296


81,543

Restricted cash and cash equivalents
269,944


132,327

Accrued investment income
23,107


21,007

Reinsurance balances receivable, net (includes $272,391 and $265,766 from related parties in 2013 and 2012, respectively)
554,680


522,614

Funds withheld
45,492


42,712

Prepaid reinsurance premiums (includes $360 and $743 from related parties in 2013 and 2012, respectively)
49,515


38,725

Reinsurance recoverable on unpaid losses (includes $9,132 and $9,387 from related parties in 2013 and 2012, respectively)
97,334


110,858

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses (includes $222,785 and $187,387 from related parties in 2013 and 2012, respectively)
310,726


270,669

Goodwill and intangible assets, net
91,558


94,393

Other assets
28,734


33,742

Total assets
$
4,449,672

 
$
4,138,163

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $825,096 and $610,810 from related parties in 2013 and 2012, respectively)
$
1,926,635


$
1,740,281

Unearned premiums (includes $742,204 and $612,903 from related parties in 2013 and 2012, respectively)
1,089,218


936,497

Accrued expenses and other liabilities
126,002


111,957

Senior notes
207,500


207,500

Junior subordinated debt
126,364


126,317

Total liabilities
3,475,719

 
3,122,552

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
150,000


150,000

Common shares ($0.01 par value; 73,575,384 and 73,306,283 shares issued in 2013 and 2012, respectively; 72,613,048 and 72,343,947 shares outstanding in 2013 and 2012, respectively)
736


733

Additional paid-in capital
579,170


575,869

Accumulated other comprehensive income
48,619


141,130

Retained earnings
198,796


151,308

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

(3,801
)
Total Maiden shareholders’ equity
973,520

 
1,015,239

Noncontrolling interest in subsidiaries
433


372

Total equity
973,953

 
1,015,611

Total liabilities and equity
$
4,449,672

 
$
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 September 30,

For the Nine Months
Ended September 30,
 
2013

2012

2013

2012
Revenues:
 
 
 
 
 
 
 
Gross premiums written
$
491,915


$
478,515


$
1,742,092


$
1,536,955

Net premiums written
$
463,418


$
455,847


$
1,650,426


$
1,458,640

Change in unearned premiums
44,708


(6,874
)

(140,585
)

(134,055
)
Net premiums earned
508,126

 
448,973

 
1,509,841

 
1,324,585

Other insurance revenue
3,271


2,622


11,266


9,650

Net investment income
23,253


21,550


65,977


60,072

Net realized gains on investment
477


2,410


3,707


836

Total revenues
535,127

 
475,555

 
1,590,791


1,395,143

Expenses:
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
341,629


309,146


1,019,871


897,498

Commission and other acquisition expenses
144,194


120,923


420,096


367,844

General and administrative expenses
13,251


13,578


44,163


42,617

Interest and amortization expenses
9,571


9,569


28,711


26,815

Amortization of intangible assets
945


1,090


2,835


3,271

Foreign exchange and other losses (gains)
23


(1,213
)

(2,573
)

(1,318
)
Total expenses
509,613

 
453,093

 
1,513,103

 
1,336,727

Income before income taxes
25,514

 
22,462

 
77,688

 
58,416

Income taxes:
 
 
 
 
 
 
 
Current tax expense
136


397


656


880

Deferred tax expense
345


131


561


618

Income tax expense
481

 
528

 
1,217

 
1,498

Net income
25,033

 
21,934

 
76,471

 
56,918

Less: Income attributable to noncontrolling interest
(36
)

(15
)

(95
)

(81
)
Net income attributable to Maiden shareholders
24,997

 
21,919

 
76,376

 
56,837

Dividends on preference shares
(3,093
)



(9,281
)


Net income attributable to Maiden common shareholders
$
21,904

 
$
21,919

 
$
67,095

 
$
56,837

Basic earnings per share attributable to Maiden common shareholders
$
0.30


$
0.30

 
$
0.92

 
$
0.79

Diluted earnings per share attributable to Maiden common shareholders
$
0.30


$
0.30

 
$
0.91

 
$
0.78

Dividends declared per common share
$
0.09

 
$
0.08

 
$
0.27

 
$
0.24


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 September 30,
 
For the Nine Months
Ended September 30,
 
2013

2012
 
2013
 
2012
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
25,033

 
$
21,934

 
$
76,471

 
$
56,918

Other comprehensive income (loss)
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale fixed maturities arising during the period (net of tax of $(10) and $23 for the three and nine months ended September 30, 2013 and $(44) and $(39) for the three and nine months ended September 30, 2012, respectively)
5,922

 
45,986

 
(85,415
)
 
76,098

Adjustment for reclassification of net realized gains recognized in net income, net of tax
(576
)
 
(2,410
)
 
(3,657
)
 
(2,429
)
Foreign currency translation adjustment
(4,744
)
 
(1,700
)
 
(3,427
)
 
(292
)
Other comprehensive income (loss)
602

 
41,876

 
(92,499
)
 
73,377

Comprehensive income (loss)
25,635

 
63,810

 
(16,028
)
 
130,295

Net income attributable to noncontrolling interest
(36
)
 
(15
)
 
(95
)
 
(81
)
Other comprehensive (income) loss attributable to noncontrolling interest
(18
)
 
7

 
(12
)
 
5

Comprehensive income attributable to noncontrolling interest
(54
)
 
(8
)
 
(107
)
 
(76
)
Comprehensive income (loss) attributable to Maiden shareholders
$
25,581

 
$
63,802

 
$
(16,135
)
 
$
130,219



See accompanying notes to the unaudited condensed consolidated financial statements.

5




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

For the Nine Months Ended September 30,

2013

2012
Preference shares
 
 
 
 
Beginning balance
 
$
150,000

 
$

Issuance of preference shares - Series A
 

 
150,000

Preference shares - Series B subscribed but unissued
 
150,000

 

Subscription receivable
 
(150,000
)
 

Ending balance
 
150,000

 
150,000

Common shares
 
 
 
 
Beginning balance
 
733

 
732

Exercise of options and issuance of shares
 
3

 

Ending balance
 
736

 
732

Additional paid-in capital
 
 
 
 
Beginning balance
 
575,869

 
579,004

Exercise of options and issuance of common shares
 
1,633

 
253

Issuance costs of preference shares
 

 
(4,959
)
Share based compensation expense
 
1,668

 
995

Ending balance
 
579,170

 
575,293

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
141,130

 
64,059

Change in net unrealized (losses) gains on investments, net
 
(89,072
)
 
73,669

Foreign currency translation adjustments
 
(3,439
)
 
(287
)
Ending balance
 
48,619

 
137,441

Retained earnings
 
 
 
 
Beginning balance
 
151,308

 
128,648

Net income attributable to Maiden shareholders
 
76,376

 
56,837

Dividends on preference shares
 
(9,281
)
 

Dividends on common shares
 
(19,607
)
 
(17,344
)
Ending balance
 
198,796

 
168,141

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
 
(46
)
 
(18
)
Net income attributable to noncontrolling interest
 
95

 
81

Foreign currency translation adjustments
 
12

 
(5
)
Ending balance
 
433

 
396

Total equity
 
$
973,953

 
$
1,028,202

See accompanying notes to the unaudited condensed consolidated financial statements.


6


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income
 
$
76,471

 
$
56,918

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
3,870

 
4,755

Net realized gains on investment
 
(3,707
)
 
(836
)
Foreign exchange and other gains
 
(2,573
)
 
(1,318
)
Amortization of share-based compensation expense, bond premium and discount and subordinated debt discount, net
 
11,641

 
6,493

Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(28,459
)
 
(26,003
)
Funds withheld
 
(3,319
)
 
883

Prepaid reinsurance premiums
 
(10,790
)
 
(8,240
)
Reinsurance recoverable on unpaid losses
 
13,522

 
(8,818
)
Accrued investment income
 
(2,055
)
 
(8,094
)
Deferred commission and other acquisition expenses
 
(40,023
)
 
(26,164
)
Other assets
 
4,441

 
(9,551
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
181,171

 
148,304

Unearned premiums
 
151,492

 
145,203

Accrued expenses and other liabilities
 
7,644

 
(5,385
)
Net cash provided by operating activities
 
359,326

 
268,147

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(725,921
)
 
(1,013,988
)
Purchases of fixed-maturity securities – trading and short sales
 

 
(102,073
)
Purchases of other investments
 
(2,013
)
 
(794
)
Proceeds from sales of fixed maturities – available-for-sale
 
186,957

 
120,865

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

 
49,883

Proceeds from maturities and calls of fixed maturities
 
387,692

 
331,162

Proceeds from redemption of other investments
 
259

 
274

Increase in restricted cash and cash equivalents
 
(137,617
)
 
(429
)
Proceeds from sale of a business unit
 
1,281

 

Other, net
 
(290
)
 
(307
)
Net cash used in investing activities
 
(289,652
)
 
(615,407
)
Cash flows from financing activities:
 
 
 
 
Senior notes issuance, net of issuance costs
 

 
96,594

Preference shares issuance, net of issuance costs
 

 
145,041

Common share issuance
 
1,636

 
254

Dividends paid to common shareholders
 
(13,063
)
 
(17,339
)
Dividends paid to preference shareholders
 
(9,281
)
 

Net cash (used in) provided by financing activities
 
(20,708
)
 
224,550

Effect of exchange rate changes on foreign currency cash
 
787

 
1,505

Net increase (decrease) in cash and cash equivalents
 
49,753

 
(121,205
)
Cash and cash equivalents, beginning of period
 
81,543

 
188,082

Cash and cash equivalents, end of period
 
$
131,296

 
$
66,877

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.




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)

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.

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). 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.

The following tables summarize the underwriting results of our operating segments:

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)

For the Three Months Ended September 30, 2013

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
185,620


$
259,633


$
18,165


$
463,418

Net premiums earned

$
198,966


$
243,408


$
65,752


$
508,126

Other insurance revenue

3,271






3,271

Net loss and loss adjustment expenses

(137,080
)

(160,212
)

(44,337
)

(341,629
)
Commission and other acquisition expenses

(51,657
)

(71,869
)

(20,668
)

(144,194
)
General and administrative expenses

(9,688
)

(504
)

(177
)

(10,369
)
Underwriting income

$
3,812


$
10,823


$
570


$
15,205

Reconciliation to net income attributable to Maiden common shareholders












Net investment income and realized gains on investment










23,730

Amortization of intangible assets










(945
)
Foreign exchange and other losses










(23
)
Interest and amortization expenses










(9,571
)
Other general and administrative expenses










(2,882
)
Income tax expense










(481
)
Income attributable to noncontrolling interest










(36
)
Dividends on preference shares
 
 
 
 
 
 
 
(3,093
)
Net income attributable to Maiden common shareholders










$
21,904














Net loss and loss adjustment expense ratio*

67.8
%

65.8
%

67.4
%

66.8
%
Commission and other acquisition expense ratio**

25.5
%

29.5
%

31.4
%

28.2
%
General and administrative expense ratio***

4.8
%

0.3
%

0.3
%

2.6
%
Combined ratio****

98.1
%

95.6
%

99.1
%

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 September 30, 2012
 
Diversified Reinsurance
 
AmTrust Quota Share Reinsurance
 
NGHC
Quota Share
 
Total
Net premiums written
 
$
193,943

 
$
186,258

 
$
75,646

 
$
455,847

Net premiums earned
 
$
200,020

 
$
177,293

 
$
71,660

 
$
448,973

Other insurance revenue
 
2,622

 

 

 
2,622

Net loss and loss adjustment expenses
 
(141,625
)
 
(120,942
)
 
(46,579
)
 
(309,146
)
Commission and other acquisition expenses
 
(47,801
)
 
(50,525
)
 
(22,597
)
 
(120,923
)
General and administrative expenses
 
(9,256
)
 
(535
)
 
(199
)
 
(9,990
)
Underwriting income
 
$
3,960

 
$
5,291

 
$
2,285

 
$
11,536

Reconciliation to net income attributable to Maiden common shareholders
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
23,960

Amortization of intangible assets
 
 
 
 
 
 
 
(1,090
)
Foreign exchange gains
 
 
 
 
 
 
 
1,213

Interest and amortization expenses
 
 
 
 
 
 
 
(9,569
)
Other general and administrative expenses
 
 
 
 
 
 
 
(3,588
)
Income tax expense
 
 
 
 
 
 
 
(528
)
Income attributable to noncontrolling interest
 
 
 
 
 
 
 
(15
)
Net income attributable to Maiden common shareholders
 
 
 
 
 
 
 
$
21,919

 
 
 
 
 
 
 
 
 
Net loss and loss adjustment expense ratio*
 
69.9
%
 
68.2
%
 
65.0
%
 
68.5
%
Commission and other acquisition expense ratio**
 
23.6
%
 
28.5
%
 
31.5
%
 
26.8
%
General and administrative expense ratio***
 
4.5
%
 
0.3
%
 
0.3
%
 
2.9
%
Combined ratio****
 
98.0
%
 
97.0
%
 
96.8
%
 
98.2
%


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 Nine Months Ended September 30, 2013

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
588,164

 
$
895,029

 
$
167,233

 
$
1,650,426

Net premiums earned

$
573,551


$
725,100


$
211,190


$
1,509,841

Other insurance revenue

11,266






11,266

Net loss and loss adjustment expenses

(398,680
)

(478,782
)

(142,409
)

(1,019,871
)
Commission and other acquisition expenses

(140,877
)

(213,199
)

(66,020
)

(420,096
)
General and administrative expenses

(31,639
)

(1,498
)

(530
)

(33,667
)
Underwriting income

$
13,621


$
31,621


$
2,231


$
47,473

Reconciliation to net income attributable to Maiden common shareholders

 
 
 
 
 

 
Net investment income and realized gains on investment

 
 
 
 
 

69,684

Amortization of intangible assets

 
 
 
 
 

(2,835
)
Foreign exchange and other gains

 
 
 
 
 

2,573

Interest and amortization expenses

 
 
 
 
 

(28,711
)
Other general and administrative expenses

 
 
 
 
 

(10,496
)
Income tax expense

 
 
 
 
 

(1,217
)
Income attributable to noncontrolling interest

 
 
 
 
 

(95
)
Dividends on preference shares

 
 
 
 
 

(9,281
)
Net income attributable to Maiden common shareholders

 
 
 
 
 

$
67,095



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

68.2
%

66.0
%

67.4
%

67.0
%
Commission and other acquisition expense ratio**

24.1
%

29.4
%

31.3
%

27.6
%
General and administrative expense ratio***

5.4
%

0.2
%

0.2
%

3.0
%
Combined ratio****

97.7
%

95.6
%

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 Nine Months Ended September 30, 2012

Diversified Reinsurance

AmTrust Quota Share Reinsurance

NGHC
Quota Share

Total
Net premiums written

$
626,220


$
607,902


$
224,518


$
1,458,640

Net premiums earned

$
603,613


$
512,988


$
207,984


$
1,324,585

Other insurance revenue

9,650






9,650

Net loss and loss adjustment expenses

(412,437
)

(350,553
)

(134,508
)

(897,498
)
Commission and other acquisition expenses

(159,895
)

(142,284
)

(65,665
)

(367,844
)
General and administrative expenses

(31,849
)

(1,444
)

(566
)

(33,859
)
Underwriting income

$
9,082


$
18,707


$
7,245


$
35,034

Reconciliation to net income attributable to Maiden common shareholders

 
 
 
 
 
 
 
Net investment income and realized gains on investment

 
 
 
 
 

60,908

Amortization of intangible assets

 
 
 
 
 

(3,271
)
Foreign exchange gains

 
 
 
 
 

1,318

Interest and amortization expenses

 
 
 
 
 

(26,815
)
Other general and administrative expenses

 
 
 
 
 

(8,758
)
Income tax expense

 
 
 
 
 

(1,498
)
Income attributable to noncontrolling interest

 
 
 
 
 

(81
)
Net income attributable to Maiden common shareholders

 
 
 
 
 

$
56,837



 
 
 
 
 

 
Net loss and loss adjustment expense ratio*

67.3
%

68.3
%

64.7
%

67.3
%
Commission and other acquisition expense ratio**

26.1
%

27.7
%

31.6
%

27.6
%
General and administrative expense ratio***

5.1
%

0.4
%

0.2
%

3.1
%
Combined ratio****

98.5
%

96.4
%

96.5
%

98.0
%


*
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)

September 30, 2013
 
Diversified
Reinsurance
 
AmTrust
Quota Share Reinsurance
 
NGHC Quota Share
 
Total
Reinsurance balances receivable, net
 
$
283,368

 
$
210,447

 
$
60,865

 
$
554,680

Funds withheld
 
45,492

 

 

 
45,492

Prepaid reinsurance premiums
 
49,515

 

 

 
49,515

Reinsurance recoverable on unpaid losses
 
97,334

 

 

 
97,334

Deferred commission and other acquisition expenses
 
88,060

 
202,691

 
19,975

 
310,726

Loan to related party
 

 
167,975

 

 
167,975

Goodwill and intangible assets, net
 
91,558

 

 

 
91,558

Restricted cash and cash equivalents and investments
 
1,107,671

 
1,095,601

 
101,397

 
2,304,669

Other assets
 
8,164

 

 

 
8,164

Total assets - operating segments
 
1,771,162

 
1,676,714

 
182,237

 
3,630,113

Corporate assets
 

 

 

 
819,559

Total Assets
 
$
1,771,162

 
$
1,676,714

 
$
182,237

 
$
4,449,672


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



The following tables set forth financial information relating to net premiums written and earned by major line of business for the three and nine months ended September 30, 2013 and 2012:

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)

 
 
For the Three Months Ended September 30,
 
 
2013

2012
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
26,783

 
5.8
%
 
$
41,667

 
9.1
%
Casualty
 
122,600

 
26.4
%
 
114,655

 
25.2
%
Accident and Health
 
9,040

 
2.0
%
 
9,174

 
2.0
%
International
 
27,197

 
5.9
%
 
28,447

 
6.2
%
Total Diversified Reinsurance
 
185,620

 
40.1
%
 
193,943

 
42.5
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
136,725

 
29.5
%
 
84,024

 
18.4
%
Specialty Program
 
41,698

 
9.0
%
 
14,931

 
3.3
%
Specialty Risk and Extended Warranty
 
81,210

 
17.5
%
 
87,303

 
19.2
%
Total AmTrust Quota Share Reinsurance
 
259,633

 
56.0
%
 
186,258

 
40.9
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
9,707

 
2.1
%
 
39,019

 
8.6
%
Automobile Physical Damage
 
8,458

 
1.8
%
 
36,627

 
8.0
%
Total NGHC Quota Share
 
18,165

 
3.9
%
 
75,646

 
16.6
%
 
 
$
463,418

 
100.0
%
 
$
455,847

 
100.0
%
 
 
For the Three Months Ended September 30,
 
 
2013
 
2012
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
41,652

 
8.2
%
 
$
50,688

 
11.3
%
Casualty
 
126,091

 
24.8
%
 
119,572

 
26.6
%
Accident and Health
 
8,994

 
1.8
%
 
11,176

 
2.5
%
International
 
22,229

 
4.4
%
 
18,584

 
4.1
%
Total Diversified Reinsurance
 
198,966

 
39.2
%
 
200,020

 
44.5
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
130,472

 
25.7
%
 
81,287

 
18.1
%
Specialty Program
 
39,661

 
7.8
%
 
9,828

 
2.2
%
Specialty Risk and Extended Warranty
 
73,275

 
14.4
%
 
86,178

 
19.2
%
Total AmTrust Quota Share Reinsurance
 
243,408

 
47.9
%
 
177,293

 
39.5
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
38,015

 
7.5
%
 
38,374

 
8.6
%
Automobile Physical Damage
 
27,737

 
5.4
%
 
33,286

 
7.4
%
Total NGHC Quota Share
 
65,752

 
12.9
%
 
71,660

 
16.0
%
 
 
$
508,126

 
100.0
%
 
$
448,973

 
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 Nine Months Ended September 30,
 
 
2013
 
2012
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
112,861

 
6.8
%
 
$
157,628

 
10.8
%
Casualty
 
359,816

 
21.8
%
 
349,356

 
24.0
%
Accident and Health
 
31,649

 
1.9
%
 
34,484

 
2.3
%
International
 
83,838

 
5.1
%
 
84,752

 
5.8
%
Total Diversified Reinsurance
 
588,164

 
35.6
%
 
626,220

 
42.9
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
434,951

 
26.4
%
 
256,198

 
17.6
%
Specialty Program
 
115,313

 
7.0
%
 
63,877

 
4.4
%
Specialty Risk and Extended Warranty
 
344,765

 
20.9
%
 
287,827

 
19.7
%
Total AmTrust Quota Share Reinsurance
 
895,029

 
54.3
%
 
607,902

 
41.7
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
95,631

 
5.8
%
 
118,288

 
8.1
%
Automobile Physical Damage
 
71,602

 
4.3
%
 
106,230

 
7.3
%
Total NGHC Quota Share
 
167,233

 
10.1
%
 
224,518

 
15.4
%
 
 
$
1,650,426

 
100.0
%
 
$
1,458,640

 
100.0
%

 
 
For the Nine Months Ended September 30,
 
 
2013
 
2012
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
116,970

 
7.7
%
 
$
164,739

 
12.4
%
Casualty
 
359,988

 
23.8
%
 
334,559

 
25.3
%
Accident and Health
 
27,356

 
1.8
%
 
32,547

 
2.5
%
International
 
69,237

 
4.6
%
 
71,768

 
5.4
%
Total Diversified Reinsurance
 
573,551

 
37.9
%
 
603,613

 
45.6
%
AmTrust Quota Share Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
350,295

 
23.2
%
 
218,086

 
16.4
%
Specialty Program
 
105,122

 
7.0
%
 
60,414

 
4.6
%
Specialty Risk and Extended Warranty
 
269,683

 
17.9
%
 
234,488

 
17.7
%
Total AmTrust Quota Share Reinsurance
 
725,100

 
48.1
%
 
512,988

 
38.7
%
NGHC Quota Share
 
 
 
 
 
 
 
 
Automobile Liability
 
122,118

 
8.1
%
 
113,168

 
8.5
%
Automobile Physical Damage
 
89,072

 
5.9
%
 
94,816

 
7.2
%
Total NGHC Quota Share
 
211,190

 
14.0
%
 
207,984

 
15.7
%
 
 
$
1,509,841

 
100.0
%
 
$
1,324,585

 
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 September 30, 2013 and December 31, 2012 are as follows:
September 30, 2013
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
Available-for-sale fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
16,629

 
$
745

 
$

 
$
17,374

U.S. agency bonds – mortgage-backed
 
1,138,860

 
16,083

 
(24,230
)
 
1,130,713

U.S. agency bonds – other
 
7,205

 
1,093

 

 
8,298

Non-U.S. government bonds
 
64,992

 
2,734

 
(444
)
 
67,282

Other mortgage-backed bonds
 
22,624

 
97

 
(59
)
 
22,662

Corporate bonds
 
1,324,209

 
81,247

 
(23,810
)
 
1,381,646

Municipal bonds
 
45,588

 
743

 
(1
)
 
46,330

Total available-for-sale fixed maturities
 
2,620,107

 
102,742

 
(48,544
)
 
2,674,305

Other investments
 
4,500

 
506

 

 
5,006

Total investments
 
$
2,624,607

 
$
103,248

 
$
(48,544
)
 
$
2,679,311


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 September 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)

September 30, 2013
 
Amortized cost
 
Fair
value
 
% of Total fair value
Maturity
 
 
 
 
 
 
Due in one year or less
 
$
95,601

 
$