SEC Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

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 x
 
Accelerated filer o
 
 
 
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 3, 2016, the number of the Registrant's Common Stock ($.01 par value) outstanding was 73,992,275.






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, 2016 (Unaudited)
 
December 31, 2015
(Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2016: $3,657,447; 2015: $3,562,864)
$
3,705,631


$
3,508,088

Fixed maturities, held-to-maturity, at amortized cost (fair value 2016: $620,327; 2015: $598,975)
607,170

 
607,843

Other investments, at fair value (cost 2016: $10,619; 2015: $10,816)
13,065


11,812

Total investments
4,325,866


4,127,743

Cash and cash equivalents
85,240


89,641

Restricted cash and cash equivalents
145,501


242,859

Accrued investment income
33,775


32,288

Reinsurance balances receivable, net (includes $263,751 and $147,365 from related parties in 2016 and 2015, respectively)
598,302


377,318

Reinsurance recoverable on unpaid losses (includes $1,694 and $2,177 from related parties in 2016 and 2015, respectively)
83,515


71,248

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses, net (includes $369,039 and $341,025 from related parties in 2016 and 2015, respectively)
446,122


397,548

Goodwill and intangible assets, net
81,388


81,920

Other assets
151,989


115,038

Total assets
$
6,119,673

 
$
5,703,578

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,495,788 and $1,443,639 from related parties in 2016 and 2015, respectively)
$
2,572,405


$
2,510,101

Unearned premiums (includes $1,165,078 and $1,077,460 from related parties in 2016 and 2015, respectively)
1,571,350


1,354,572

Accrued expenses and other liabilities
165,616


139,873

Senior notes
 
 
 
Principal amount
360,000


360,000

Less unamortized debt issuance costs
9,973

 
10,067

Senior notes, net
350,027

 
349,933

Total liabilities
4,659,398

 
4,354,479

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
480,000


480,000

Common shares ($0.01 par value: 75,042,178 and 74,735,785 shares issued in 2016 and 2015, respectively; 73,992,275 and 73,721,140 shares outstanding in 2016 and 2015, respectively)
750


747

Additional paid-in capital
580,779


579,178

Accumulated other comprehensive income (loss)
69,470


(23,767
)
Retained earnings
333,035


316,184

Treasury shares, at cost (1,049,903 and 1,014,645 shares in 2016 and 2015, respectively)
(4,991
)

(4,521
)
Total Maiden shareholders’ equity
1,459,043

 
1,347,821

Noncontrolling interest in subsidiaries
1,232


1,278

Total equity
1,460,275

 
1,349,099

Total liabilities and equity
$
6,119,673

 
$
5,703,578

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,
 
2016

2015
Revenues:
 
 
 
 
Gross premiums written
 
$
864,114


$
834,266

Net premiums written
 
$
792,831


$
796,983

Change in unearned premiums
 
(176,822
)

(219,664
)
Net premiums earned
 
616,009

 
577,319

Other insurance revenue
 
4,826


4,979

Net investment income
 
36,302


28,260

Net realized gains on investment
 
2,277


869

Total revenues
 
659,414

 
611,427

Expenses:
 
 
 
 
Net loss and loss adjustment expenses
 
403,621


377,406

Commission and other acquisition expenses
 
195,068


178,342

General and administrative expenses
 
15,496


16,197

Interest and amortization expenses
 
7,265


7,264

Amortization of intangible assets
 
615


710

Foreign exchange and other gains
 
(267
)

(7,826
)
Total expenses
 
621,798

 
572,093

Income before income taxes
 
37,616

 
39,334

Income tax expense
 
787

 
800

Net income
 
36,829

 
38,534

Loss (income) attributable to noncontrolling interest
 
64


(45
)
Net income attributable to Maiden shareholders
 
36,893

 
38,489

Dividends on preference shares
 
(9,677
)
 
(6,084
)
Net income attributable to Maiden common shareholders
 
$
27,216

 
$
32,405

Basic earnings per share attributable to Maiden common shareholders
 
$
0.37


$
0.44

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.35


$
0.41

Dividends declared per common share
 
$
0.14

 
$
0.13


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,
 
2016

2015
Comprehensive income:
 
 
 
 
Net income
 
$
36,829

 
$
38,534

Other comprehensive income, before tax
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale fixed maturities arising during the period
 
103,404

 
(6,941
)
Adjustment for reclassification of net realized losses recognized in net income
 
632


149

Foreign currency translation adjustment
 
(10,734
)
 
18,935

Other comprehensive income, before tax
 
93,302

 
12,143

Income tax (expense) benefit related to components of other comprehensive income
 
(36
)
 
7

Other comprehensive income, after tax
 
93,266

 
12,150

Comprehensive income
 
130,095

 
50,684

Net loss (income) attributable to noncontrolling interest
 
64

 
(45
)
Other comprehensive (income) loss attributable to noncontrolling interest
 
(29
)
 
55

Comprehensive loss attributable to noncontrolling interest
 
35

 
10

Comprehensive income attributable to Maiden shareholders
 
$
130,130

 
$
50,694


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,

2016

2015
Preference shares
 
 
 
 
Beginning balance
 
$
480,000

 
$
315,000

Ending balance
 
480,000

 
315,000

Common shares
 
 
 
 
Beginning balance
 
747

 
739

Exercise of options and issuance of shares
 
3

 
5

Ending balance
 
750

 
744

Additional paid-in capital
 
 
 
 
Beginning balance
 
579,178

 
578,445

Exercise of options and issuance of common shares
 
345

 
1,316

Share-based compensation expense
 
1,256

 
716

Ending balance
 
580,779

 
580,477

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
(23,767
)
 
95,293

Change in net unrealized gains (losses) on investments, net of reclassification adjustment and deferred income tax expense
 
104,000

 
(6,785
)
Foreign currency translation adjustments
 
(10,763
)
 
18,990

Ending balance
 
69,470

 
107,498

Retained earnings
 
 
 
 
Beginning balance
 
316,184

 
255,084

Net income attributable to Maiden shareholders
 
36,893

 
38,489

Dividends on preference shares
 
(9,677
)
 
(6,084
)
Dividends on common shares
 
(10,365
)
 
(9,551
)
Ending balance
 
333,035

 
277,938

Treasury shares
 
 
 
 
Beginning balance
 
(4,521
)
 
(3,867
)
Shares repurchased for treasury
 
(470
)
 
(654
)
Ending balance
 
(4,991
)
 
(4,521
)
Noncontrolling interest in subsidiaries
 
 
 
 
Beginning balance
 
1,278

 
472

Dividend paid to noncontrolling interest
 
(11
)
 
(13
)
(Loss) income attributable to noncontrolling interest
 
(64
)
 
45

Foreign currency translation adjustments
 
29

 
(55
)
Ending balance
 
1,232

 
449

Total equity
 
$
1,460,275

 
$
1,277,585


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,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
36,829

 
$
38,534

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
4,780

 
4,000

Net realized gains on investment
 
(2,277
)
 
(869
)
Foreign exchange and other gains
 
(267
)
 
(7,826
)
Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(218,880
)
 
(131,943
)
Reinsurance recoverable on unpaid losses
 
(12,392
)
 
(3,471
)
Accrued investment income
 
(1,373
)
 
1,390

Deferred commission and other acquisition expenses
 
(44,002
)
 
(59,701
)
Other assets
 
(35,609
)
 
(20,898
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
54,846

 
95,458

Unearned premiums
 
203,281

 
237,879

Accrued expenses and other liabilities
 
24,068

 
17,856

Net cash provided by operating activities
 
9,004

 
170,409

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(268,661
)
 
(115,992
)
Purchases of other investments
 
(46
)
 
(97
)
Proceeds from sales of fixed maturities – available-for-sale
 
67,837

 
56,639

Proceeds from maturities and calls of fixed maturities
 
106,168

 
158,078

Proceeds from redemption of other investments
 
307

 
29

Decrease (increase) in restricted cash and cash equivalents, net
 
97,701

 
(191,903
)
Other, net
 
(178
)
 
(240
)
Net cash provided by (used in) investing activities
 
3,128

 
(93,486
)
Cash flows from financing activities:
 
 
 
 
Common share issuance
 
348

 
1,321

Repurchase of common shares
 
(470
)
 
(654
)
Dividends paid to common shareholders
 
(10,328
)
 
(9,492
)
Dividends paid to preference shareholders
 
(9,677
)
 
(6,084
)
Net cash used in financing activities
 
(20,127
)
 
(14,909
)
Effect of exchange rate changes on foreign currency cash
 
3,594

 
(2,012
)
Net (decrease) increase in cash and cash equivalents
 
(4,401
)
 
60,002

Cash and cash equivalents, beginning of period
 
89,641

 
108,119

Cash and cash equivalents, end of period
 
$
85,240

 
$
168,121


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, 2015.

Certain reclassifications have been made for 2015 to conform to the 2016 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, 2015 with the exception of the following:

Transition related to Accounting Standards Update ("ASU") No. 2015-03: Simplifying the Presentation of Debt Issuance Costs

Effective January 1, 2016, the Company adopted the new guidance under ASU 2015-03 which requires that debt issuance costs be presented as a direct deduction from the related debt liability rather than as an asset in the balance sheet. The amortization of such costs is reported as an interest expense. The Company applied this new guidance retrospectively to all prior periods presented. The adoption of this new guidance reduced the December 31, 2015 audited consolidated total assets and total liabilities by $10,067, respectively, representing the amount of unamortized issuance costs related to our Senior Notes which was previously presented as part of other assets. There was no impact on the net income, related per-share amounts or the retained earnings for the periods affected by the adoption of this guidance.

Recently Issued Accounting Standards Not Yet Adopted

Disclosures about Short-Duration Contracts

In May 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-09 which is aimed at providing users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgments in estimating claims, and the timing, frequency and severity of claims. The new disclosures are required for short-duration insurance contracts issued by insurers. For public business entities, this guidance will be effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted and should be applied retrospectively by providing comparative disclosures for each period presented. As this guidance is disclosure-related only, the adoption of this guidance is not expected to have a material impact on the Company’s statements of operations and financial position.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01 that will change how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. It does not change the guidance for classifying and measuring investments in debt securities and loans. Under the new guidance, entities will have to measure many equity investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. This includes investments in partnerships, unincorporated joint ventures and limited liability companies that do not result in consolidation and are not accounted for under the equity method. Entities will no longer be able to recognize unrealized holding gains and losses on equity securities they classify today as available for sale ("AFS") in AOCI. They also will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

8

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

2. Significant Accounting Policies (continued)

Accounting for Leases

In February 2016, the FASB issued final Accounting Standards Codification ("ASC") 842 guidance that requires lessees to put most leases on their balance sheets but recognize expenses on their income statement in a manner similar to today's accounting. The guidance also eliminates today's real-estate-specific provisions for all entities. All entities classify leases to determine how to recognize lease-related revenue and expense. The U.S. GAAP standard is effective for public business entities and certain not-for-profit entities and employee benefit plans for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued ASU 2016-09 guidance that outlines changes for certain aspects of share-based payments to employees, such as accounting for forfeitures, which applies to the Company. Under the new guidance, the entities can elect to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The guidance is effective for public business entities for fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for all entities, in any annual or interim period for which financial statements haven't been issued or made available for issuance, but all of the guidance must be adopted in the same period. 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. Our Diversified Reinsurance segment consists of a portfolio of predominantly property and casualty reinsurance business focusing on regional and specialty property and casualty insurance companies located, primarily in the U.S. and Europe. Our AmTrust Reinsurance segment includes all business ceded to Maiden Reinsurance Ltd. ("Maiden Bermuda") from AmTrust Financial Services, Inc. ("AmTrust"), primarily the AmTrust Quota Share and the European Hospital Liability Quota Share. Please refer to "Note 6. Related Party Transactions" for additional information. In addition to our reportable segments, the results of operations of the former NGHC Quota Share segment and the remnants of the U.S. excess and surplus business have been included in the "Other" category.

The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. General and administrative expenses are allocated to the segments 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. All remaining assets are allocated to Corporate.

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:



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, 2016

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Gross premiums written
 
$
315,804

 
$
548,310

 
$

 
$
864,114

Net premiums written

$
286,136


$
506,695


$


$
792,831

Net premiums earned

$
172,256


$
443,753


$


$
616,009

Other insurance revenue

4,826






4,826

Net loss and loss adjustment expenses ("LAE")

(119,076
)

(281,774
)

(2,771
)

(403,621
)
Commission and other acquisition expenses

(54,531
)

(140,538
)

1


(195,068
)
General and administrative expenses

(8,600
)

(586
)



(9,186
)
Underwriting income (loss)

$
(5,125
)

$
20,855


$
(2,770
)

$
12,960

Reconciliation to net income












Net investment income and realized gains on investment










38,579

Interest and amortization expenses
 
 
 
 
 
 
 
(7,265
)
Amortization of intangible assets










(615
)
Foreign exchange and other gains










267

Other general and administrative expenses










(6,310
)
Income tax expense










(787
)
Net income










$
36,829














Net loss and LAE ratio (1)

67.2
%

63.5
%

 

65.0
%
Commission and other acquisition expense ratio (2)

30.8
%

31.7
%

 

31.4
%
General and administrative expense ratio (3)

4.9
%

0.1
%

 

2.5
%
Combined ratio (4)

102.9
%

95.3
%

 

98.9
%



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)
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 LAE
 
(132,386
)
 
(243,094
)
 
(1,926
)
 
(377,406
)
Commission and other acquisition expenses
 
(58,206
)
 
(120,136
)
 

 
(178,342
)
General and administrative expenses
 
(9,320
)
 
(747
)
 

 
(10,067
)
Underwriting income (loss)
 
$
(2,249
)
 
$
20,656

 
$
(1,924
)
 
$
16,483

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
29,129

Interest and amortization expenses
 
 
 
 
 
 
 
(7,264
)
Amortization of intangible assets
 
 
 
 
 
 
 
(710
)
Foreign exchange and other gains
 
 
 
 
 
 
 
7,826

Other general and administrative expenses
 
 
 
 
 
 
 
(6,130
)
Income tax expense
 
 
 
 
 
 
 
(800
)
Net income
 
 
 
 
 
 
 
$
38,534

 
 
 
 
 
 
 
 
 
Net loss and LAE 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)
 
4.7
%
 
0.2
%
 
 
 
2.8
%
Combined ratio (4)
 
101.1
%
 
94.6
%
 
 
 
98.2
%
(1) Calculated by dividing net loss and LAE 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 LAE ratio, commission and other acquisition expense ratio and general and administrative expense ratio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following tables summarize the total assets of our reportable segments including the reconciliation to our consolidated assets at March 31, 2016 and December 31, 2015:
March 31, 2016
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,803,795

 
$
3,491,418

 
$
5,295,213

Corporate assets
 

 

 
824,460

Total Assets
 
$
1,803,795

 
$
3,491,418

 
$
6,119,673

December 31, 2015
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,644,541

 
$
3,178,859

 
$
4,823,400

Corporate assets
 

 

 
880,178

Total Assets
 
$
1,644,541

 
$
3,178,859

 
$
5,703,578




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)

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, 2016 and 2015:
For the Three Months Ended March 31,
 
2016

2015
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
61,869

 
7.8
%
 
$
68,514

 
8.6
%
Casualty
 
155,280

 
19.6
%
 
171,531

 
21.5
%
Accident and Health
 
39,572

 
5.0
%
 
30,107

 
3.8
%
International
 
29,415

 
3.7
%
 
24,046

 
3.0
%
Total Diversified Reinsurance
 
286,136

 
36.1
%
 
294,198

 
36.9
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
362,499

 
45.7
%
 
323,201

 
40.5
%
Specialty Program
 
76,791

 
9.7
%
 
74,580

 
9.4
%
Specialty Risk and Extended Warranty
 
67,405

 
8.5
%
 
105,003

 
13.2
%
Total AmTrust Reinsurance
 
506,695

 
63.9
%
 
502,784

 
63.1
%
Other
 

 
%
 
1

 
%
 
 
$
792,831

 
100.0
%
 
$
796,983

 
100.0
%
For the Three Months Ended March 31,
 
2016
 
2015
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
32,710

 
5.3
%
 
$
40,623

 
7.0
%
Casualty
 
100,166

 
16.3
%
 
118,938

 
20.6
%
Accident and Health
 
17,804

 
2.9
%
 
12,201

 
2.1
%
International
 
21,576

 
3.5
%
 
20,922

 
3.6
%
Total Diversified Reinsurance
 
172,256

 
28.0
%
 
192,684

 
33.3
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
264,491

 
42.9
%
 
224,991

 
39.0
%
Specialty Program
 
84,199

 
13.7
%
 
57,010

 
9.9
%
Specialty Risk and Extended Warranty
 
95,063

 
15.4
%
 
102,632

 
17.8
%
Total AmTrust Reinsurance
 
443,753

 
72.0
%
 
384,633

 
66.7
%
Other
 

 
%
 
2

 
%
 
 
$
616,009

 
100.0
%
 
$
577,319

 
100.0
%
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    

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

(a) Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of investment in fixed maturities and other investments as of March 31, 2016 and December 31, 2015 are as follows:
March 31, 2016
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,715

 
$
365

 
$
(27
)
 
$
6,053

U.S. agency bonds – mortgage-backed
 
1,461,303

 
33,451

 
(2,600
)
 
1,492,154

U.S. agency bonds – other
 
34,032

 
525

 

 
34,557

Non-U.S. government and supranational bonds
 
36,185

 
265

 
(2,962
)
 
33,488

Asset-backed securities
 
173,894

 
4,742

 
(1,149
)
 
177,487

Corporate bonds
 
1,884,135

 
65,767

 
(54,374
)
 
1,895,528

Municipal bonds
 
62,183

 
4,181

 

 
66,364

Total AFS fixed maturities
 
3,657,447

 
109,296

 
(61,112
)
 
3,705,631

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
607,170

 
19,310

 
(6,153
)
 
620,327

Total HTM fixed maturities
 
607,170

 
19,310

 
(6,153
)
 
620,327

Other investments
 
10,619

 
2,446

 

 
13,065

Total investments
 
$
4,275,236

 
$
131,052

 
$
(67,265
)
 
$
4,339,023

December 31, 2015
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,714

 
$
312

 
$
(16
)
 
$
6,010

U.S. agency bonds – mortgage-backed
 
1,471,782

 
15,399

 
(10,190
)
 
1,476,991

U.S. agency bonds – other
 
23,734

 
577

 

 
24,311

Non-U.S. government and supranational bonds
 
35,128

 

 
(4,584
)
 
30,544

Asset-backed securities
 
165,719

 
1,174

 
(1,089
)
 
165,804

Corporate bonds
 
1,798,610

 
38,070

 
(97,012
)
 
1,739,668

Municipal bonds
 
62,177

 
2,583

 

 
64,760

Total AFS fixed maturities
 
3,562,864

 
58,115

 
(112,891
)
 
3,508,088

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
607,843

 
3,458

 
(12,326
)
 
598,975

Total HTM fixed maturities
 
607,843

 
3,458

 
(12,326
)
 
598,975

Other investments
 
10,816

 
1,091

 
(95
)
 
11,812

Total investments
 
$
4,181,523

 
$
62,664

 
$
(125,312
)
 
$
4,118,875


During the third quarter of 2015, we designated fixed maturities with a total fair value of $608,722 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $244 at the designation date continues to be reported in the carrying value of the HTM securities and is amortized through Other Comprehensive Income over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount.

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.

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)
 
 
AFS fixed maturities
 
HTM fixed maturities
March 31, 2016
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
190,369

 
$
189,390

 
$

 
$

Due after one year through five years
 
467,505

 
473,535

 
102,001

 
102,567

Due after five years through ten years
 
1,326,518

 
1,332,587

 
505,169

 
517,760

Due after ten years
 
37,858

 
40,478

 

 

 
 
2,022,250

 
2,035,990

 
607,170

 
620,327

U.S. agency bonds – mortgage-backed
 
1,461,303

 
1,492,154

 

 

Asset-backed securities
 
173,894

 
177,487

 

 

Total fixed maturities
 
$
3,657,447

 
$
3,705,631

 
$
607,170

 
$
620,327


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, 2016
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
1,106

 
$
(27
)
 
$

 
$

 
$
1,106

 
$
(27
)
U.S. agency bonds – mortgage-backed
 
2,141

 
(6
)
 
145,087

 
(2,594
)
 
147,228

 
(2,600
)
Non–U.S. government and supranational bonds
 
947

 
(53
)
 
28,464

 
(2,909
)
 
29,411

 
(2,962
)
Asset-backed securities
 
40,630

 
(1,149
)
 

 

 
40,630

 
(1,149
)
Corporate bonds
 
232,453

 
(15,687
)
 
438,728

 
(44,840
)
 
671,181

 
(60,527
)
Total temporarily impaired fixed maturities
 
277,277

 
(16,922
)
 
612,279

 
(50,343
)
 
889,556

 
(67,265
)

As of March 31, 2016, there were approximately 168 securities in an unrealized loss position with a fair value of $889,556 and unrealized losses of $67,265. Of these securities, there are 98 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $612,279 and unrealized losses of $50,343.
 
 
Less than 12 Months
 
12 Months or more
 
Total
December 31, 2015
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S treasury bonds
 
$
1,119

 
$
(16
)
 
$

 
$

 
$
1,119

 
$
(16
)
U.S. agency bonds – mortgage-backed
 
443,331

 
(4,113
)
 
170,053

 
(6,077
)
 
613,384

 
(10,190
)
Non–U.S. government and supranational bonds
 
6,958

 
(365
)
 
22,586

 
(4,219
)
 
29,544

 
(4,584
)
Asset-backed securities
 
89,838

 
(1,089
)
 

 

 
89,838

 
(1,089
)
Corporate bonds
 
752,911

 
(41,352
)
 
399,779

 
(67,986
)
 
1,152,690

 
(109,338
)
Total temporarily impaired fixed maturities
 
$
1,294,157

 
$
(46,935
)
 
$
592,418

 
$
(78,282
)
 
$
1,886,575

 
$
(125,217
)
Other investments
 
4,905

 
(95
)
 

 

 
4,905

 
(95
)
Total temporarily impaired fixed maturities and other investments
 
$
1,299,062

 
$
(47,030
)
 
$
592,418

 
$
(78,282
)
 
$
1,891,480

 
$
(125,312
)



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)

As of December 31, 2015, there were approximately 270 securities in an unrealized loss position with a fair value of $1,891,480 and unrealized losses of $125,312. Of these securities, there are 93 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $592,418 and unrealized losses of $78,282.


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, 2016, 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, 2016. For the three months ended March 31, 2016 and 2015, the Company recognized no OTTI.

The following summarizes the credit ratings of our fixed maturities:
Ratings* as of March 31, 2016
 
Amortized cost
 
Fair value
 
% of Total
fair value
Fixed maturities
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,715

 
$
6,053

 
0.1
%
U.S. agency bonds  
 
1,495,335

 
1,526,711

 
35.3
%
AAA
 
167,508

 
174,635

 
4.0
%
AA+, AA, AA-
 
234,347

 
243,111

 
5.6
%
A+, A, A-
 
1,236,029

 
1,266,768

 
29.3
%
BBB+, BBB, BBB-
 
963,115

 
967,726

 
22.4
%
BB+ or lower
 
162,568

 
140,954

 
3.3
%
Total
 
$
4,264,617

 
$
4,325,958

 
100.0
%

Ratings* as of December 31, 2015
 
Amortized cost
 
Fair value
 
% of Total
fair value
Fixed maturities
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,714

 
$
6,010

 
0.1
%
U.S. agency bonds
 
1,495,516

 
1,501,302

 
36.6
%
AAA
 
170,190

 
170,391

 
4.1
%
AA+, AA, AA-
 
222,506

 
223,084

 
5.4
%
A+, A, A-
 
1,075,550

 
1,066,794

 
26.0
%
BBB+, BBB, BBB-
 
1,077,064

 
1,039,228

 
25.3
%
BB+ or lower
 
124,167

 
100,254

 
2.5
%
Total
 
$
4,170,707

 
$
4,107,063

 
100.0
%
*Based on Standard & Poor’s ("S&P"), or equivalent, ratings











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)

(b) Other Investments

The table below shows our portfolio of other investments:
 
 
March 31, 2016
 
December 31, 2015
 
 
Fair value
 
% of Total fair value
 
Fair value
 
% of Total fair value
Investment in quoted equity
 
$
6,300

 
48.2
%
 
$
4,905

 
41.5
%
Investments in limited partnerships
 
5,765

 
44.1
%
 
5,907

 
50.0
%
Other
 
1,000

 
7.7
%
 
1,000

 
8.5
%
Total other investments
 
$
13,065

 
100.0
%
 
$
11,812

 
100.0
%

The Company has an unfunded commitment on its investments in limited partnerships of approximately $593 at March 31, 2016.

(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, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
3,093

 
$
(879
)
 
$
2,214

Other investments
 
63

 

 
63

Net realized gains on investment
 
$
3,156

 
$
(879
)
 
$
2,277

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


Proceeds from sales of AFS fixed maturities were $67,837 for the three months ended March 31, 2016 (March 31, 2015 - $56,639). Net unrealized gains were as follows:    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
December 31, 2015
Fixed maturities
 
$
47,564

 
$
(55,024
)
Other investments
 
2,446

 
996

Total net unrealized gain (loss)
 
50,010

 
(54,028
)
Deferred income tax expense
 
(122
)
 
(84
)
Net unrealized gains, net of deferred income tax
 
$
49,888

 
$
(54,112
)
Change in net unrealized gains, net of deferred income tax
 
$
104,000

 
 

(d) Restricted Cash and Cash Equivalents and Investments

We are required to maintain assets to serve as collateral for our reinsurance liabilities under various reinsurance agreements. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows:


16

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)

 
 
March 31, 2016

December 31, 2015
Restricted cash and cash equivalents – third party agreements
 
$
48,672

 
$
102,837

Restricted cash and cash equivalents – related party agreements
 
96,758

 
139,944

Restricted cash and cash equivalents – U.S. state regulatory authorities
 
71

 
78

Total restricted cash and cash equivalents
 
145,501

 
242,859

Restricted investments AFS – in trust for third party agreements at fair value (Amortized cost: 2016 – $1,113,166; 2015 – $1,081,202)
 
1,130,246

 
1,067,602

Restricted investments AFS – in trust for related party agreements at fair value (Amortized cost: 2016 – $1,911,358; 2015 – $1,781,178)
 
1,937,527

 
1,754,705

Restricted investments HTM – in trust for related party agreements at fair value (Amortized cost: 2016 – $607,170; 2015 – $607,843)
 
620,327

 
598,975

Restricted investments AFS – in trust for U.S. state regulatory authorities (Amortized cost: 2016 – $4,077; 2015 – $4,071)
 
4,345

 
4,303

Total restricted investments
 
3,692,445

 
3,425,585

Total restricted cash and cash equivalents and investments
 
$
3,837,946

 
$
3,668,444


5. Fair Value of Financial Instruments

(a) Fair Values of Financial Instruments

FASB 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 and U.S. Treasury bonds;

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; commercial mortgage-backed securities ("CMBS"); collateralized loan obligations ("CLO"); corporate and municipal bonds; 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 at 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


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)

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, 2016.

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.

Asset-backed securities — These securities comprise CMBS and CLO originated by a variety of financial institutions that on acquisition are rated BBB-/Baa3 or higher. 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 and CLO are observable market inputs, the fair value of the CMBS and CLO 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 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.
 
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.

Other investments — Includes both quoted and unquoted investments. The fair value of our quoted equity investment is obtained from the Pricing Service 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 balances 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.


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)

(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, 2016
 
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
 
$
6,053

 
$

 
$

 
$
6,053

U.S. agency bonds – mortgage-backed
 

 
1,492,154

 

 
1,492,154

U.S. agency bonds – other
 

 
34,557

 

 
34,557

Non-U.S. government and supranational bonds
 

 
33,488

 

 
33,488

Asset-backed securities
 

 
177,487

 

 
177,487

Corporate bonds
 

 
1,895,528

 

 
1,895,528

Municipal bonds 
 

 
66,364

 

 
66,364

Other investments
 
6,300

 

 
6,765

 
13,065

Total
 
$
12,353

 
$
3,699,578

 
$
6,765

 
$
3,718,696

As a percentage of total assets
 
0.2
%
 
60.5
%
 
0.1
%
 
60.8
%

December 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
 
$
6,010

 
$

 
$

 
$
6,010

U.S. agency bonds – mortgage-backed
 

 
1,476,991

 

 
1,476,991

U.S. agency bonds – other
 

 
24,311

 

 
24,311

Non-U.S. government and supranational bonds
 

 
30,544

 

 
30,544

Asset-backed securities
 

 
165,804

 

 
165,804

Corporate bonds
 

 
1,739,668

 

 
1,739,668

Municipal bonds
 

 
64,760

 

 
64,760

Other investments
 
4,905

 

 
6,907

 
11,812

Total
 
$
10,915

 
$
3,502,078

 
$
6,907

 
$
3,519,900

As a percentage of total assets
 
0.2
%
 
61.4
%
 
0.1
%
 
61.7
%

The Company utilized a Pricing Service to estimate fair value measurements for approximately 99.9% of its fixed maturities at March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015, 0.1% of the fixed maturities are valued using the market approach. At those dates, a total of two securities, or approximately $4,711 and $4,943, respectively, of Level 2 fixed maturities, were priced using a quotation from a broker and/or custodian as opposed to the

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)

Pricing Service due to lack of information available. At March 31, 2016 and December 31, 2015, we have not adjusted any pricing provided to us based on the review performed by our investment managers. 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. 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, 2016

March 31, 2015
Balance at beginning of period
 
$
6,907

 
$
6,581

Total realized gains – included in net realized gains on investment