Q1 2015 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 March 31, 2015

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

For the transition period from _________ to _________

Commission File No. 001-34042

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x
 
 
 
Non-accelerated filer o (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 May 4, 2015, the number of the Registrant's Common Stock ($.01 par value) outstanding was 73,456,213.






INDEX
 
 
Page
PART I - Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share data)
 
March 31, 2015 (Unaudited)
 
December 31, 2014
 (Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (Amortized cost 2015: $3,279,749; 2014: $3,379,864)
$
3,350,932


$
3,456,904

Other investments, at fair value (Cost 2015: $10,955; 2014: $10,862)
11,730


12,571

Total investments
3,362,662


3,469,475

Cash and cash equivalents
168,121


108,119

Restricted cash and cash equivalents
473,066


284,381

Accrued investment income
25,791


27,524

Reinsurance balances receivable, net (includes $312,349 and $267,490 from related parties in 2015 and 2014, respectively)
636,230


512,996

Reinsurance recoverable on unpaid losses (includes $3,492 and $3,845 from related parties in 2015 and 2014, respectively)
79,271


75,873

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses, net (includes $330,303 and $285,227 from related parties in 2015 and 2014, respectively)
430,871


372,487

Goodwill and intangible assets, net
86,626


87,336

Other assets
76,727


57,926

Total assets
$
5,507,340

 
$
5,164,092

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,218,533 and $1,163,195 from related parties in 2015 and 2014, respectively)
$
2,331,508


$
2,271,292

Unearned premiums (includes $1,047,190 and $913,986 from related parties in 2015 and 2014, respectively)
1,437,492


1,207,757

Accrued expenses and other liabilities
100,755


83,877

Senior notes
360,000


360,000

Total liabilities
4,229,755

 
3,922,926

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
315,000


315,000

Common shares ($0.01 par value; 74,424,539 and 73,900,889 shares issued in 2015 and 2014, respectively; 73,409,894 and 72,932,702 shares outstanding in 2015 and 2014, respectively)
744


739

Additional paid-in capital
580,477


578,445

Accumulated other comprehensive income
107,498


95,293

Retained earnings
277,938


255,084

Treasury shares, at cost (1,014,645 and 968,187 shares in 2015 and 2014, respectively)
(4,521
)

(3,867
)
Total Maiden shareholders’ equity
1,277,136

 
1,240,694

Noncontrolling interest in subsidiaries
449


472

Total equity
1,277,585

 
1,241,166

Total liabilities and equity
$
5,507,340

 
$
5,164,092


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3


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


For the Three Months Ended March 31,
 
2015

2014
Revenues:
 
 
 
 
Gross premiums written
 
$
834,266


$
722,382

Net premiums written
 
$
796,983


$
709,892

Change in unearned premiums
 
(219,664
)

(190,662
)
Net premiums earned
 
577,319

 
519,230

Other insurance revenue
 
4,979


5,162

Net investment income
 
28,260


27,842

Net realized gains on investment
 
869


88

Total revenues
 
611,427

 
552,322

Expenses:
 
 
 
 
Net loss and loss adjustment expenses
 
377,406


351,344

Commission and other acquisition expenses
 
178,342


146,082

General and administrative expenses
 
16,289


14,924

Interest and amortization expenses
 
7,172


8,064

Accelerated amortization of Junior Subordinated Debt discount and issuance cost
 


28,240

Amortization of intangible assets
 
710


819

Foreign exchange gains
 
(7,826
)

(138
)
Total expenses
 
572,093

 
549,335

Income before income taxes
 
39,334

 
2,987

Income tax expense
 
800

 
926

Net income
 
38,534

 
2,061

Less: Income attributable to noncontrolling interest
 
(45
)

(39
)
Net income attributable to Maiden shareholders
 
38,489

 
2,022

Dividends on preference shares
 
(6,084
)
 
(6,084
)
Net income (loss) attributable to Maiden common shareholders
 
$
32,405

 
$
(4,062
)
Basic earnings (loss) per share attributable to Maiden common shareholders
 
$
0.44


$
(0.06
)
Diluted earnings (loss) per share attributable to Maiden common shareholders
 
$
0.41


$
(0.06
)
Dividends declared per common share
 
$
0.13

 
$
0.11


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
 


4



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


For the Three Months Ended March 31,
 
2015

2014
 
Comprehensive income:
 
 
 
 
 
Net income
 
$
38,534

 
$
2,061

 
Other comprehensive income
 
 
 
 
 
Net unrealized holding (losses) gains on available-for-sale fixed maturities arising during the period (net of tax of $7 for the three months ended March 31, 2015 and $(29) for the three months ended March 31, 2014, respectively)
 
(6,934
)
 
38,031

 
Adjustment for reclassification of net realized losses (gains) recognized in net income, net of tax
 
149


(71
)

Foreign currency translation adjustment
 
18,935

 
(166
)
 
Other comprehensive income
 
12,150

 
37,794

 
Comprehensive income
 
50,684

 
39,855

 
Net income attributable to noncontrolling interest
 
(45
)
 
(39
)
 
Other comprehensive loss attributable to noncontrolling interest
 
55

 

 
Comprehensive loss (income) attributable to noncontrolling interest
 
10

 
(39
)
 
Comprehensive income attributable to Maiden shareholders
 
$
50,694

 
$
39,816

 


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 Three Months Ended March 31,

2015

2014
Preference shares
 
 
 
 
Beginning balance
 
$
315,000

 
$
315,000

Ending balance
 
315,000

 
315,000

Common shares
 
 
 
 
Beginning balance
 
739

 
736

Exercise of options and issuance of shares
 
5

 
2

Ending balance
 
744

 
738

Additional paid-in capital
 
 
 
 
Beginning balance
 
578,445

 
574,522

Exercise of options and issuance of common shares
 
1,316

 
182

Share based compensation expense
 
716

 
497

Ending balance
 
580,477

 
575,201

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
95,293

 
25,784

Change in net unrealized (losses) gains on investments, net of reclassification adjustment and deferred income tax expense
 
(6,785
)
 
37,960

Foreign currency translation adjustments
 
18,990

 
(166
)
Ending balance
 
107,498

 
63,578

Retained earnings
 
 
 
 
Beginning balance
 
255,084

 
211,602

Net income attributable to Maiden shareholders
 
38,489

 
2,022

Dividends on preference shares
 
(6,084
)
 
(6,084
)
Dividends on common shares
 
(9,551
)
 
(8,034
)
Ending balance
 
277,938

 
199,506

Treasury shares
 
 
 
 
Beginning balance
 
(3,867
)
 
(3,801
)
Shares repurchased for treasury
 
(654
)
 
(66
)
Ending balance
 
(4,521
)
 
(3,867
)
Noncontrolling interest in subsidiaries
 
 
 
 
Beginning balance
 
472

 
452

Dividend paid to noncontrolling interest
 
(13
)
 
(15
)
Net income attributable to noncontrolling interest
 
45

 
39

Foreign currency translation adjustments
 
(55
)
 

Ending balance
 
449

 
476

Total equity
 
$
1,277,585

 
$
1,150,632


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 Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
38,534

 
$
2,061

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
1,051

 
1,190

Net realized gains on investment
 
(869
)
 
(88
)
Foreign exchange gains
 
(7,826
)
 
(138
)
Amortization of share-based compensation expense, bond premium and discount, subordinated debt discount and accelerated amortization of Junior Subordinated Debt discount and issuance cost, net
 
2,949

 
30,201

Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(131,943
)
 
(114,814
)
Reinsurance recoverable on unpaid losses
 
(3,471
)
 
710

Accrued investment income
 
1,390

 
(17
)
Deferred commission and other acquisition expenses
 
(59,701
)
 
(43,676
)
Other assets
 
(20,898
)
 
13,194

Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
95,458

 
77,580

Unearned premiums
 
237,879

 
183,339

Accrued expenses and other liabilities
 
17,202

 
(5,852
)
Net cash provided by operating activities
 
169,755

 
143,690

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(115,992
)
 
(152,969
)
Purchases of other investments
 
(97
)
 
(787
)
Proceeds from sales of fixed maturities – available-for-sale
 
56,639

 
105,334

Proceeds from maturities and calls of fixed maturities
 
158,078

 
77,292

Proceeds from redemption of other investments
 
29

 
313

Increase in restricted cash and cash equivalents
 
(191,903
)
 
(73,852
)
Other, net
 
(240
)
 
(624
)
Net cash used in investing activities
 
(93,486
)
 
(45,293
)
Cash flows from financing activities:
 
 
 
 
Repayment of Junior Subordinated Debt
 

 
(152,500
)
Common share issuance
 
1,321

 
184

Dividends paid to common shareholders
 
(9,492
)
 
(8,000
)
Dividends paid to preference shareholders
 
(6,084
)
 
(6,084
)
Net cash used in financing activities
 
(14,255
)
 
(166,400
)
Effect of exchange rate changes on foreign currency cash
 
(2,012
)
 
208

Net increase (decrease) in cash and cash equivalents
 
60,002

 
(67,795
)
Cash and cash equivalents, beginning of period
 
108,119

 
139,833

Cash and cash equivalents, end of period
 
$
168,121

 
$
72,038


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

7

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





1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Maiden Holdings, Ltd. 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.

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, 2014.

Certain reclassifications have been made for 2014 to conform to the 2015 presentation and have no impact on net income and total equity previously reported.

2. Significant Accounting Policies

There have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2014.

Recently Issued Accounting Standards Not Yet Adopted

Simplifying the Presentation of Debt Issuance Costs

On April 7, 2015 the Financial Accounting Standards Board ("FSAB") issued Accounting Standards Update ("ASU") 2015- 03 which changes the presentation of debt issuance costs in financial statements. Under this new guidance, the Company will be required to present such cost in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The amortization of such costs shall be reported as an interest expense. For public business entities, this final guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning December 15, 2015. Early adoption is permitted and the Company will be required to apply this new guidance retrospectively to all prior periods presented. The Company will also be required, in the year of adoption (and in interim periods within that year) to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial line items (that is, debt issuance cost asset and the debt liability). The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

3. Segment Reporting

The Company currently has two reportable segments: Diversified Reinsurance and AmTrust Reinsurance. Refer to "Business - Our Reportable Segments" section included under Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2014 for a detailed discussion about these segments.

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 reportable segment, the Company identifies those assets that are attributable to a particular segment such as reinsurance balances receivable, reinsurance recoverable on unpaid losses, deferred commission and other acquisition expenses, loans, goodwill and intangible assets, restricted cash and cash equivalents and investments, and prepaid reinsurance premiums, reinsurance recoverable on paid losses and funds withheld (which are presented as part of other assets in the unaudited Condensed Consolidated Balance Sheets). All remaining assets are allocated to Corporate.

Fee-generating business is considered part of the underwriting operations of the Company and is reported as "Other insurance revenue" in the unaudited Condensed Consolidated Statements of Income. To the extent that these fees are generated from underlying insurance contracts sold to third parties that are subsequently ceded under quota share reinsurance contracts to Maiden Reinsurance Ltd. ("Maiden Bermuda"), a proportionate share of the fee is offset against the related acquisition expense.


8

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




3. Segment Reporting (continued)

The following tables summarize our reporting segment's underwriting results and the reconciliation of our reportable segments and Other category's underwriting results to our consolidated net income:
For the Three Months Ended March 31, 2015

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Gross premiums written
 
$
305,341

 
$
528,926

 
$
(1
)
 
$
834,266

Net premiums written

$
294,198


$
502,784


$
1


$
796,983

Net premiums earned

$
192,684


$
384,633


$
2


$
577,319

Other insurance revenue

4,979






4,979

Net loss and loss adjustment expenses

(132,386
)

(243,094
)

(1,926
)

(377,406
)
Commission and other acquisition expenses

(58,206
)

(120,136
)



(178,342
)
General and administrative expenses

(9,413
)

(747
)



(10,160
)
Underwriting (loss) income

$
(2,342
)

$
20,656


$
(1,924
)

$
16,390

Reconciliation to net income












Net investment income and realized gains on investment










29,129

Interest and amortization expenses
 
 
 
 
 
 
 
(7,172
)
Amortization of intangible assets










(710
)
Foreign exchange gains










7,826

Other general and administrative expenses










(6,129
)
Income tax expense










(800
)
Net income










$
38,534














Net loss and loss adjustment expense ratio(1)

67.0
%

63.2
%

 

64.8
%
Commission and other acquisition expense ratio(2)

29.4
%

31.2
%

 

30.6
%
General and administrative expense ratio(3)

4.8
%

0.2
%

 

2.8
%
Combined ratio(4)

101.2
%

94.6
%

 

98.2
%







9

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




3. Segment Reporting (continued)
For the Three Months Ended March 31, 2014
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
304,187

 
$
419,010

 
$
(815
)
 
$
722,382

Net premiums written
 
$
291,640

 
$
419,010

 
$
(758
)
 
$
709,892

Net premiums earned
 
$
199,547

 
$
304,922

 
$
14,761

 
$
519,230

Other insurance revenue
 
5,162

 

 

 
5,162

Net loss and loss adjustment expenses
 
(138,663
)
 
(200,413
)
 
(12,268
)
 
(351,344
)
Commission and other acquisition expenses
 
(51,214
)
 
(90,485
)
 
(4,383
)
 
(146,082
)
General and administrative expenses
 
(9,876
)
 
(499
)
 
(199
)
 
(10,574
)
Underwriting income (loss)
 
$
4,956

 
$
13,525

 
$
(2,089
)
 
$
16,392

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
27,930

Interest and amortization expenses
 
 
 
 
 
 
 
(8,064
)
Accelerated amortization of Junior Subordinated Debt discount and issuance cost
 
 
 
 
 
 
 
(28,240
)
Amortization of intangible assets
 
 
 
 
 
 
 
(819
)
Foreign exchange gains
 
 
 
 
 
 
 
138

Other general and administrative expenses
 
 
 
 
 
 
 
(4,350
)
Income tax expense
 
 
 
 
 
 
 
(926
)
Net income
 
 
 
 
 
 
 
$
2,061

 
 
 
 
 
 
 
 
 
Net loss and loss adjustment expense ratio(1)
 
67.7
%
 
65.7
%
 
 
 
67.0
%
Commission and other acquisition expense ratio(2)
 
25.0
%
 
29.7
%
 
 
 
27.9
%
General and administrative expense ratio(3)
 
4.9
%
 
0.2
%
 
 
 
2.8
%
Combined ratio(4)
 
97.6
%
 
95.6
%
 
 
 
97.7
%
(1) Calculated by dividing net loss and loss adjustment expenses by net premiums earned and other insurance revenue.
(2) Calculated by dividing commission and other acquisition expenses by net premiums earned and other insurance revenue.
(3) Calculated by dividing general and administrative expenses by net premiums earned and other insurance revenue.
(4) Calculated by adding together the net loss and loss adjustment expense ratio, commission and other acquisition expense ratio and general and administrative expense ratio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


10

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




3. Segment Reporting (continued)

The following tables summarize the total assets of our reportable segments including the reconciliation to our consolidated assets at March 31, 2015 and December 31, 2014:
March 31, 2015
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,746,552

 
$
2,911,618

 
$
4,658,170

Corporate assets
 

 

 
849,170

Total Assets
 
$
1,746,552

 
$
2,911,618

 
$
5,507,340


December 31, 2014
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,624,664

 
$
2,640,488

 
$
4,265,152

Corporate assets
 

 

 
898,940

Total Assets
 
$
1,624,664

 
$
2,640,488

 
$
5,164,092


The following tables set forth financial information relating to net premiums written and earned by major line of business and reportable segment for the three months ended March 31, 2015 and 2014:
For the Three Months Ended March 31,
 
2015

2014
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
68,514

 
8.6
%
 
$
62,602

 
8.8
 %
Casualty
 
171,531

 
21.5
%
 
171,754

 
24.3
 %
Accident and Health
 
30,107

 
3.8
%
 
17,222

 
2.4
 %
International
 
24,046

 
3.0
%
 
40,062

 
5.6
 %
Total Diversified Reinsurance
 
294,198

 
36.9
%
 
291,640

 
41.1
 %
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
323,201

 
40.5
%
 
253,757

 
35.7
 %
Specialty Program
 
74,580

 
9.4
%
 
31,798

 
4.5
 %
Specialty Risk and Extended Warranty
 
105,003

 
13.2
%
 
133,455

 
18.8
 %
Total AmTrust Reinsurance
 
502,784

 
63.1
%
 
419,010

 
59.0
 %
Other
 
1

 
%
 
(758
)
 
(0.1
)%
 
 
$
796,983

 
100.0
%
 
$
709,892

 
100.0
 %

11

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




3. Segment Reporting (continued)

For the Three Months Ended March 31,
 
2015
 
2014
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
40,623

 
7.0
%
 
$
40,826

 
7.9
%
Casualty
 
118,938

 
20.6
%
 
121,887

 
23.5
%
Accident and Health
 
12,201

 
2.1
%
 
8,886

 
1.7
%
International
 
20,922

 
3.6
%
 
27,948

 
5.4
%
Total Diversified Reinsurance
 
192,684

 
33.3
%
 
199,547

 
38.5
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
224,991

 
39.0
%
 
158,605

 
30.5
%
Specialty Program
 
57,010

 
9.9
%
 
32,853

 
6.3
%
Specialty Risk and Extended Warranty
 
102,632

 
17.8
%
 
113,464

 
21.9
%
Total AmTrust Reinsurance
 
384,633

 
66.7
%
 
304,922

 
58.7
%
Other
 
2

 
%
 
14,761

 
2.8
%
 
 
$
577,319

 
100.0
%
 
$
519,230

 
100.0
%
    
 
 
 
 
 
 
 
 
 

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 ("AFS") fixed maturities and other investments as of March 31, 2015 and December 31, 2014 are as follows:
March 31, 2015
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
8,938

 
$
492

 
$

 
$
9,430

U.S. agency bonds – mortgage-backed
 
1,151,287

 
25,560

 
(4,285
)
 
1,172,562

U.S. agency bonds – other
 
7,214

 
756

 

 
7,970

Non-U.S. government and supranational bonds
 
40,109

 

 
(5,352
)
 
34,757

Commercial mortgage-backed securities
 
96,997

 
3,659

 

 
100,656

Corporate bonds
 
1,865,540

 
95,398

 
(49,822
)
 
1,911,116

Municipal bonds
 
62,159

 
4,777

 

 
66,936

Short-term investments
 
47,505

 

 

 
47,505

Total AFS fixed maturities
 
3,279,749

 
130,642

 
(59,459
)
 
3,350,932

Other investments
 
10,955

 
800

 
(25
)
 
11,730

Total investments
 
$
3,290,704

 
$
131,442

 
$
(59,484
)
 
$
3,362,662


12

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)

December 31, 2014
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
8,937

 
$
423

 
$

 
$
9,360

U.S. agency bonds – mortgage-backed
 
1,313,834

 
19,197

 
(10,588
)
 
1,322,443

U.S. agency bonds – other
 
7,213

 
775

 

 
7,988

Non-U.S. government and supranational bonds
 
54,467

 
304

 
(3,128
)
 
51,643

Commercial mortgage-backed securities
 
52,337

 
2,443

 

 
54,780

Corporate bonds
 
1,831,431

 
89,243

 
(25,295
)
 
1,895,379

Municipal bonds
 
62,153

 
3,666

 

 
65,819

Short-term investments
 
49,492

 

 

 
49,492

Total AFS fixed maturities
 
3,379,864

 
116,051

 
(39,011
)
 
3,456,904

Other investments
 
10,862

 
1,709

 

 
12,571

Total investments
 
$
3,390,726

 
$
117,760

 
$
(39,011
)
 
$
3,469,475


The contractual maturities of our fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without prepayment penalties.
March 31, 2015
 
Amortized cost
 
Fair value
 
% of Total fair value
Maturity
 
 
 
 
 
 
Due in one year or less
 
$
70,797

 
$
69,576

 
2.1
%
Due after one year through five years
 
593,546

 
620,145

 
18.5
%
Due after five years through ten years
 
1,328,216

 
1,344,974

 
40.1
%
Due after ten years
 
38,906

 
43,019

 
1.3
%
 
 
2,031,465

 
2,077,714

 
62.0
%
U.S. agency bonds – mortgage-backed
 
1,151,287

 
1,172,562

 
35.0
%
Commercial mortgage-backed securities
 
96,997

 
100,656

 
3.0
%
Total AFS fixed maturities
 
$
3,279,749

 
$
3,350,932

 
100.0
%

The following tables summarize fixed maturities and other investments 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
March 31, 2015
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
AFS fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency bonds – mortgage-backed
 
$
52,898

 
$
(203
)
 
$
200,388

 
$
(4,082
)
 
$
253,286

 
$
(4,285
)
Non–U.S. government and supranational bonds
 
32,052

 
(4,843
)
 
2,705

 
(509
)
 
34,757

 
(5,352
)
Corporate bonds
 
442,101

 
(40,111
)
 
134,841

 
(9,711
)
 
576,942

 
(49,822
)
Total temporarily impaired AFS fixed maturities
 
527,051

 
(45,157
)
 
337,934

 
(14,302
)
 
864,985

 
(59,459
)
Other investments
 
4,975

 
(25
)
 

 

 
4,975

 
(25
)
Total
 
$
532,026

 
$
(45,182
)
 
$
337,934

 
$
(14,302
)
 
$
869,960

 
$
(59,484
)

13

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)

As of March 31, 2015, there were approximately 138 securities in an unrealized loss position with a fair value of $869,960 and unrealized losses of $59,484. Of these securities, there are 35 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $337,934 and unrealized losses of $14,302.
 
 
Less than 12 Months
 
12 Months or more
 
Total
December 31, 2014
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
AFS fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency bonds – mortgage-backed
 
$
84,264

 
$
(806
)
 
$
441,601

 
$
(9,782
)
 
$
525,865

 
$
(10,588
)
Non–U.S. government and supranational bonds
 
43,712

 
(2,822
)
 
2,522

 
(306
)
 
46,234

 
(3,128
)
Corporate bonds
 
397,173

 
(14,485
)
 
143,894

 
(10,810
)
 
541,067

 
(25,295
)
Total temporarily impaired AFS fixed maturities
 
$
525,149

 
$
(18,113
)
 
$
588,017

 
$
(20,898
)
 
$
1,113,166

 
$
(39,011
)

As of December 31, 2014, there were approximately 141 securities in an unrealized loss position with a fair value of $1,113,166 and unrealized losses of $39,011. Of these securities, there are 46 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $588,017 and unrealized losses of $20,898.

Other-Than-Temporary Impairments ("OTTI")

The Company performs quarterly reviews of its investment portfolio in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. At March 31, 2015, we have determined that the unrealized losses on fixed maturities were primarily due to widening of credit spreads since their date of purchase. Because we do not intend to sell these securities and it is not more likely than not that we will be required to do so 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 March 31, 2015. For the three months ended March 31, 2015 and March 31, 2014, the Company recognized no OTTI.

The following summarizes the credit ratings of our AFS fixed maturities:
Ratings* as of March 31, 2015
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
8,938

 
$
9,430

 
0.3
%
U.S. agency bonds  
 
1,158,501

 
1,180,532

 
35.2
%
AAA
 
179,127

 
183,789

 
5.5
%
AA+, AA, AA-
 
161,985

 
163,430

 
4.9
%
A+, A, A-
 
834,585

 
856,875

 
25.6
%
BBB+, BBB, BBB-
 
853,382

 
877,694

 
26.2
%
BB+ or lower
 
83,231

 
79,182

 
2.3
%
Total
 
$
3,279,749

 
$
3,350,932

 
100.0
%

14

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




4. Investments (continued)

Ratings* as of December 31, 2014
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
8,937

 
$
9,360

 
0.3
%
U.S. agency bonds
 
1,321,047

 
1,330,431

 
38.5
%
AAA
 
193,280

 
202,973

 
5.9
%
AA+, AA, AA-
 
116,936

 
120,679

 
3.5
%
A+, A, A-
 
883,092

 
917,544

 
26.5
%
BBB+, BBB, BBB-
 
794,244

 
814,039

 
23.5
%
BB+ or lower
 
62,328

 
61,878

 
1.8
%
Total
 
$
3,379,864

 
$
3,456,904

 
100.0
%
*Ratings as assigned by Standard & Poor’s ("S&P")

(b) Other Investments

The table below shows our portfolio of other investments:
 
 
March 31, 2015
 
December 31, 2014
 
 
Fair value
 
% of Total fair value
 
Fair value
 
% of Total fair value
Investments in limited partnerships
 
$
5,755

 
49.1
%
 
$
5,581

 
44.4
%
Investment in quoted equity
 
4,975

 
42.4
%
 
5,990

 
47.6
%
Other
 
1,000

 
8.5
%
 
1,000

 
8.0
%
Total other investments
 
$
11,730

 
100.0
%
 
$
12,571

 
100.0
%

The Company has an unfunded commitment on its investments in limited partnerships of approximately $643 at March 31, 2015.

(c) Realized Gains on Investment

Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. The following provides an analysis of net realized gains on investment included in the unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and 2014:
For the Three Months Ended March 31, 2015
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
845

 
$

 
$
845

Other investments
 
24

 

 
24

Net realized gains on investment
 
$
869

 
$

 
$
869

For the Three Months Ended March 31, 2014
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
1

 
$

 
$
1

Other investments
 
$
87

 
$

 
$
87

Net realized losses on investment
 
$
88

 
$

 
$
88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales of AFS fixed maturities were $56,639 for the three months ended March 31, 2015 (March 31, 2014 - $105,334).



15

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




4. Investments (continued)

Net unrealized gains were as follows:
 
 
March 31, 2015
 
December 31, 2014
AFS fixed maturities
 
$
71,183

 
$
77,040

Other investments
 
775

 
1,709

Total net unrealized gains
 
71,958

 
78,749

Deferred income tax expense
 
(164
)
 
(170
)
Net unrealized gains, net of deferred income tax
 
$
71,794

 
$
78,579

Change in net unrealized gains, net of deferred income tax
 
$
(6,785
)
 
$
43,851


(d) Restricted Cash and Cash Equivalents 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. We also utilize trust accounts to collateralize business with our reinsurance counterparties. The assets in trust as collateral are primarily cash and highly rated AFS fixed maturity securities. These trust accounts generally take the place of letter of credit requirements.

The fair value of our restricted assets was as follows:
 
 
March 31, 2015

December 31, 2014
Restricted cash and cash equivalents – third party agreements
 
$
77,695

 
$
107,884

Restricted cash and cash equivalents – related party agreements
 
394,869

 
175,817

Restricted cash and cash equivalents – U.S. state regulatory authorities
 
502

 
680

Total restricted cash and cash equivalents
 
473,066

 
284,381

Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2015 – $1,040,802; 2014 – $993,974)
 
1,067,119

 
1,014,878

Restricted investments – in trust for related party agreements at fair value (Amortized cost: 2015 – $1,716,457; 2014 – $1,769,083)
 
1,753,041

 
1,814,478

Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2015 – $7,276; 2014 – $7,269)
 
7,676

 
7,606

Total restricted investments
 
2,827,836

 
2,836,962

Total restricted cash and cash equivalents and investments
 
$
3,300,902

 
$
3,121,343


5. Fair Value of Financial Instruments

(a) Fair Values of Financial Instruments

FASB Accounting Standards Codification ("ASC") Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between open market participants at the measurement date. Additionally, ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 — Valuations based on unadjusted quoted market prices for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples of assets and liabilities utilizing Level 1 inputs include: exchange-traded equity securities, U.S. Treasury bonds, and listed derivatives that are actively traded;

16

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




5. Fair Value of Financial Instruments (continued)

Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical 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. Examples of assets and liabilities utilizing Level 2 inputs include: U.S. government-sponsored agency securities; non-U.S. government and supranational obligations; corporate and municipal bonds; commercial mortgage-backed securities; and

Level 3 — Valuations based on models where significant inputs are not observable. The unobservable inputs reflect our own assumptions about assumptions that market participants would use. Examples of assets and liabilities utilizing Level 3 inputs include: insurance and reinsurance derivative contracts; and hedge and credit funds with partial transparency.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. We use prices and inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in the Level 1 hierarchy. The Company receives the quoted market prices from a third party nationally recognized pricing service provider ("the Pricing Service"). When quoted market prices are unavailable, the Company utilizes the Pricing Service to determine an estimate of fair value. The fair value estimates are included in the Level 2 hierarchy. The Company will challenge any prices for its investments which are considered not to be representation of fair value. If quoted market prices and an estimate from the Pricing Service are unavailable, the Company produces an estimate of fair value based on dealer quotations for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. The Company determines whether the fair value estimate is in the Level 2 or Level 3 hierarchy depending on the level of observable inputs available when estimating the fair value. The Company bases its estimates of fair values for assets on the bid price as it represents what a third party market participant would be willing to pay in an orderly transaction.

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 following describes the valuation techniques used by the Company to determine the fair value of financial instruments held at March 31, 2015.

U.S. government and U.S. government agencies — Bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage Association and the Federal National Mortgage Association. The fair values of U.S. treasury bonds are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. treasury bonds is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency bonds are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency bonds are included in the Level 2 fair value hierarchy.
 
Non-U.S. government and supranational bonds — These securities are generally priced by independent pricing services. The Pricing Service may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the Pricing Service typically uses analytical models which may incorporate spreads, interest rate data and market/sector news. As the significant inputs used to price non-U.S. government and supranational bonds are observable market inputs, the fair values of non-U.S. government and supranational bonds are included in the Level 2 fair value hierarchy.

Commercial mortgage-backed securities ("CMBS") These securities are priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price the CMBS are observable market inputs, the fair value of the CMBS is included in the Level 2 fair value hierarchy.

Corporate bonds — Bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher. These securities are generally priced by independent pricing services. The fair values of corporate bonds are priced, by the pricing services are priced using the spread above the risk-free yield curve. The spreads are sourced from broker/dealers, trade prices and the new issue market. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.

17

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




5. Fair Value of Financial Instruments (continued)
 
Municipal bonds — Bonds issued by U.S. state and municipality entities or agencies. The fair values of municipal bonds are generally priced by independent pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, municipal bonds are classified within Level 2.

Short-term investments — Primarily commercial paper issued by corporations, all with maturities greater than 90 days and less than one year at the date of purchase. The fair values of these short-term investments are priced by independent pricing services, using market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. As the significant inputs used to price the commercial paper securities are observable market inputs, commercial paper securities are classified within Level 2.

Other investments — Includes both quoted and unquoted investments. The fair value of our quoted equity investment is obtained from the Pricing Service, reflecting the closing price quoted for the final trading day of the period and is classified within Level 1. Unquoted other investments comprise investments in limited partnerships and an investment in preference shares of a start-up insurance producer. The fair values of the limited partnerships are determined by the fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals, and as such, the fair values are included in the Level 3 fair value hierarchy. The fair value of the investment in preference shares of a start-up insurance producer was determined using recent private market transactions and as such, the fair value is included in the Level 3 fair value hierarchy.

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

Loan to related party — The carrying value reported in the accompanying condensed consolidated balance sheets for this financial instrument approximates its fair value.

Senior notes The amount reported in the accompanying condensed consolidated balance sheets for these financial instruments represents the carrying value of the notes. The fair values are based on quoted prices of identical instruments in inactive markets and as such, are included in the Level 2 hierarchy.

(b) Fair Value Hierarchy

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.

We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
March 31, 2015
 
Quoted Prices
in Active
Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
9,430

 
$

 
$

 
$
9,430

U.S. agency bonds – mortgage-backed
 

 
1,172,562

 

 
1,172,562

U.S. agency bonds – other
 

 
7,970

 

 
7,970

Non-U.S. government and supranational bonds
 

 
34,757

 

 
34,757

Commercial mortgage-backed securities
 

 
100,656

 

 
100,656

Corporate bonds
 

 
1,911,116

 

 
1,911,116

Municipal bonds 
 

 
66,936

 

 
66,936

Short-term investments
 

 
47,505

 

 
47,505

Other investments
 
4,975

 

 
6,755

 
11,730

Total
 
$
14,405

 
$
3,341,502

 
$
6,755

 
$
3,362,662

As a percentage of total assets
 
0.3
%
 
60.7
%
 
0.1
%
 
61.1
%

18

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




5. Fair Value of Financial Instruments (continued)
December 31, 2014
 
Quoted Prices
in Active
Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
9,360

 
$

 
$

 
$
9,360

U.S. agency bonds – mortgage-backed
 

 
1,322,443

 

 
1,322,443

U.S. agency bonds – other
 

 
7,988

 

 
7,988

Non-U.S. government and supranational bonds
 

 
51,643

 

 
51,643

Commercial mortgage-backed securities
 

 
54,780

 

 
54,780

Corporate bonds
 

 
1,895,379

 

 
1,895,379

Municipal bonds
 

 
65,819

 

 
65,819

Short-term investments
 

 
49,492

 

 
49,492

Other investments
 
5,990

 

 
6,581

 
12,571

Total
 
$
15,350

 
$
3,447,544

 
$
6,581

 
$
3,469,475

As a percentage of total assets
 
0.3
%
 
66.8
%
 
0.1
%
 
67.2
%

The Company utilized a Pricing Service to estimate fair value measurements for approximately 99.7% and 99.9% of its fixed maturities at March 31, 2015 and December 31, 2014, respectively. The Pricing Service utilizes market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury bonds generally do not trade on a daily basis, the Pricing Service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing and these have been classified as Level 2. At March 31, 2015 and December 31, 2014, 0.3% and 0.1%, respectively, of the fixed maturities are valued using the market approach. At those dates, a total of three securities and one security, respectively, or approximately $11,487 and $5,016, respectively, of Level 2 fixed maturities, were priced using a quotation from a broker and/or custodian as opposed to the Pricing Service due to lack of information available. At March 31, 2015 and December 31, 2014, we have not adjusted any pricing provided to us based on the review performed by our investment managers.

Other investments: The Company utilized a Pricing Service to estimate fair value measurement for the quoted equity investment reflecting the closing price quoted for the final trading day of the period and is included in Level 1. For the unquoted other investments, the Company has $5,755, or 0.2%, of its investment portfolio in limited partnerships where the fair value estimate is determined by the fund manager based on recent filings, operating results, balance sheet stability, growth, other business and market sector fundamentals and an investment of $1,000 in preference shares of a start-up insurance producer, the fair value of which was determined using recent private market transactions. Due to the significant unobservable inputs in these valuations, the Company includes the estimate of the fair value of the unquoted investments as Level 3.
 
There have not been any transfers between Level 1 and Level 2 during the periods represented by these unaudited Condensed Consolidated Financial Statements.

(c) Level 3 Financial Instruments

The Company has determined that its investments in Level 3 securities are not material to its financial position or results of operations.


19

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




5. Fair Value of Financial Instruments (continued)

The following table presents changes in Level 3 for our financial instruments measured at fair value on a recurring basis:
 
 
For the Three Months Ended
Other investments:
 
March 31, 2015

March 31, 2014
Balance at beginning of period
 
$
6,581

 
$
5,092

Total realized gains – included in net realized gains on investment
 
24

 
87

Total realized losses – included in net realized gains on investment
 

 

Change in total unrealized gains – included in other comprehensive income (loss)
 
82

 
120

Change in total unrealized losses – included in other comprehensive income (loss)
 

 

Purchases
 
97

 
787

Sales and redemptions
 
(29
)
 
(313
)
Transfers into Level 3
 

 

Transfers out of Level 3
 

 

Balance at end of period
 
$
6,755

 
$
5,773

Level 3 gains (losses) included in net income attributable to the change in unrealized gains (losses) relating to assets held at the reporting date
 
$

 
$

 
 
 
 
 
(d) Fair Value of Liabilities

The following table presents the carrying values and fair values of the Senior Notes:
 
 
 
 
March 31, 2015
 
December 31, 2014
 
 
Interest Rate
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
2011 Senior Notes
 
8.25
%
 
$
107,500

 
$
114,036

 
$
107,500

 
$
113,391

2012 Senior Notes
 
8.00
%
 
100,000

 
106,560

 
100,000

 
106,320

2013 Senior Notes
 
7.75
%
 
152,500

 
164,273

 
152,500

 
162,016


6. Related Party Transactions

The Founding Shareholders of the Company are Michael Karfunkel, George Karfunkel and Barry Zyskind. Michael Karfunkel is the non-executive chairman of the board of AmTrust Financial Services, Inc. ("AmTrust"), George Karfunkel is a director of AmTrust, and Barry Zyskind is the president, chief executive officer and director of AmTrust. The Founding Shareholders, including Leah Karfunkel (wife of Michael Karfunkel), own or control approximately 51.5% of the outstanding shares of AmTrust. AmTrust owns 13.2% of the issued and outstanding shares of National General Holdings Corp. ("NGHC") common stock, and Michael Karfunkel individually and the Michael Karfunkel 2005 Grantor Retained Annuity Trust (which is controlled by Leah Karfunkel) own a combined 48.8% of the outstanding common shares of NGHC. Michael Karfunkel is the chairman and chief executive officer of NGHC, and Barry Zyskind is a director of NGHC.

AmTrust

The following describes transactions between the Company and AmTrust.

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 Maiden Bermuda, a wholly owned subsidiary of the Company, and AmTrust's Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd. ("AII"), to enter into a quota share reinsurance agreement (the "Reinsurance Agreement") by which (a) AII retrocedes to Maiden Bermuda 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, AmTrust Europe Limited ("AEL"), net of commissions) and 40% of losses and (b) AII transferred to Maiden Bermuda 40% of the AmTrust subsidiaries' unearned premiums, effective July 1, 2007, with respect to the current lines of business. The Master Agreement further provided that AII receives a ceding commission of 31% of ceded written premiums.

20

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