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 June 30, 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 August 3, 2016, the number of the Registrant's Common Stock ($.01 par value) outstanding was 74,017,725.






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)
 
June 30, 2016 (Unaudited)
 
December 31, 2015
(Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2016: $3,374,192; 2015: $3,562,864)
$
3,452,605


$
3,508,088

Fixed maturities, held-to-maturity, at amortized cost (fair value 2016: $794,671; 2015: $598,975)
761,713

 
607,843

Other investments, at fair value (cost 2016: $10,743; 2015: $10,816)
11,827


11,812

Total investments
4,226,145


4,127,743

Cash and cash equivalents
127,459


89,641

Restricted cash and cash equivalents
378,328


242,859

Accrued investment income
32,572


32,288

Reinsurance balances receivable, net (includes $225,116 and $147,365 from related parties in 2016 and 2015, respectively)
554,069


377,318

Reinsurance recoverable on unpaid losses (includes $1,404 and $2,177 from related parties in 2016 and 2015, respectively)
90,805


71,248

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses, net (includes $388,242 and $341,025 from related parties in 2016 and 2015, respectively)
455,522


397,548

Goodwill and intangible assets, net
80,728


81,920

Other assets
157,396


115,038

Total assets
$
6,270,999

 
$
5,703,578

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,553,226 and $1,443,639 from related parties in 2016 and 2015, respectively)
$
2,636,631


$
2,510,101

Unearned premiums (includes $1,216,454 and $1,077,460 from related parties in 2016 and 2015, respectively)
1,583,477


1,354,572

Accrued expenses and other liabilities
168,756


139,873

Senior notes
 
 
 
Principal amount
362,500


360,000

Less unamortized issuance costs
11,252

 
10,067

Senior notes, net
351,248

 
349,933

Total liabilities
4,740,112

 
4,354,479

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
480,000


480,000

Common shares ($0.01 par value: 75,066,428 and 74,735,785 shares issued in 2016 and 2015, respectively; 74,016,525 and 73,721,140 shares outstanding in 2016 and 2015, respectively)
751


747

Additional paid-in capital
581,452


579,178

Accumulated other comprehensive income (loss)
118,926


(23,767
)
Retained earnings
353,576


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
1,529,714

 
1,347,821

Noncontrolling interest in subsidiaries
1,173


1,278

Total equity
1,530,887

 
1,349,099

Total liabilities and equity
$
6,270,999

 
$
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 June 30,
 
For the Six Months Ended June 30,
 
 
2016

2015

2016

2015
Revenues:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
688,322


$
674,168


$
1,552,436


$
1,508,434

Net premiums written
 
$
650,427


$
629,618


$
1,443,258


$
1,426,601

Change in unearned premiums
 
(12,863
)

(20,198
)

(189,685
)

(239,862
)
Net premiums earned
 
637,564

 
609,420

 
1,253,573

 
1,186,739

Other insurance revenue
 
1,525


2,252


6,351


7,231

Net investment income
 
35,323


35,157


71,625


63,417

Net realized gains on investment
 
334


242


2,611


1,111

Total revenues
 
674,746

 
647,071

 
1,334,160


1,258,498

Expenses:
 
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
 
426,989


414,927


830,610


792,333

Commission and other acquisition expenses
 
185,727


175,697


380,795


354,039

General and administrative expenses
 
17,290


16,301


32,786


32,498

Interest and amortization expenses
 
7,193


7,266


14,458


14,530

Accelerated amortization of senior note issuance cost
 
2,345




2,345



Amortization of intangible assets
 
615


710


1,230


1,420

Foreign exchange and other (gains) losses
 
(5,520
)

5,191


(5,787
)

(2,635
)
Total expenses
 
634,639

 
620,092

 
1,256,437

 
1,192,185

Income before income taxes
 
40,107

 
26,979

 
77,723

 
66,313

Income tax expense
 
220

 
468

 
1,007

 
1,268

Net income
 
39,887

 
26,511

 
76,716

 
65,045

Loss attributable to noncontrolling interest
 
46


92


110


47

Net income attributable to Maiden shareholders
 
39,933

 
26,603

 
76,826

 
65,092

Dividends on preference shares
 
(9,023
)
 
(6,084
)

(18,700
)

(12,168
)
Net income attributable to Maiden common shareholders
 
$
30,910

 
$
20,519

 
$
58,126

 
$
52,924

Basic earnings per share attributable to Maiden common shareholders
 
$
0.42


$
0.28

 
$
0.79

 
$
0.72

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.39


$
0.27

 
$
0.75

 
$
0.69

Dividends declared per common share
 
$
0.14

 
$
0.13

 
$
0.28

 
$
0.26


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 June 30,
 
For the Six Months Ended June 30,
 
 
2016

2015
 
2016
 
2015
Net income
 
$
39,887

 
$
26,511

 
$
76,716

 
$
65,045

Net unrealized holding gains (losses) on available-for-sale fixed maturities arising during the period
 
44,356

 
(56,670
)
 
147,744

 
(63,611
)
Adjustment for reclassification of net realized (gains) losses recognized in net income
 
(448
)

(66
)

200


83

Foreign currency translation adjustment
 
5,537

 
(9,878
)
 
(5,197
)
 
9,057

Other comprehensive income (loss), before tax
 
49,445

 
(66,614
)
 
142,747

 
(54,471
)
Income tax (expense) benefit related to components of other comprehensive income
 
(3
)
 
57

 
(39
)
 
64

Other comprehensive income (loss), after tax
 
49,442

 
(66,557
)
 
142,708

 
(54,407
)
Comprehensive income (loss)
 
89,329

 
(40,046
)
 
219,424

 
10,638

Net loss attributable to noncontrolling interest
 
46

 
92

 
110

 
47

Other comprehensive loss (income) attributable to noncontrolling interest
 
14

 
(8
)
 
(15
)
 
47

Comprehensive loss attributable to noncontrolling interest
 
60

 
84

 
95

 
94

Comprehensive income (loss) attributable to Maiden shareholders
 
$
89,389

 
$
(39,962
)
 
$
219,519

 
$
10,732


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.



5


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

For the Six Months Ended June 30,

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
 
4

 
7

Ending balance
 
751

 
746

Additional paid-in capital
 
 
 
 
Beginning balance
 
579,178

 
578,445

Exercise of options and issuance of common shares
 
438

 
2,619

Share-based compensation expense
 
1,836

 
1,548

Ending balance
 
581,452

 
582,612

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
 
147,905

 
(63,464
)
Foreign currency translation adjustments
 
(5,212
)
 
9,104

Ending balance
 
118,926

 
40,933

Retained earnings
 
 
 
 
Beginning balance
 
316,184

 
255,084

Net income attributable to Maiden shareholders
 
76,826

 
65,092

Dividends on preference shares
 
(18,700
)
 
(12,168
)
Dividends on common shares
 
(20,734
)
 
(19,124
)
Ending balance
 
353,576

 
288,884

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

Acquisition of subsidiary
 
14

 
1,710

Dividend paid to noncontrolling interest
 
(24
)
 
(25
)
Loss attributable to noncontrolling interest
 
(110
)
 
(47
)
Foreign currency translation adjustments
 
15

 
(47
)
Ending balance
 
1,173

 
2,063

Total equity
 
$
1,530,887

 
$
1,225,717


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.


6


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
76,716

 
$
65,045

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
11,838

 
2,548

Net realized gains on investment
 
(2,611
)
 
(1,111
)
Foreign exchange and other gains
 
(5,787
)
 
(2,635
)
Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(173,947
)
 
(93,244
)
Reinsurance recoverable on unpaid losses
 
(19,931
)
 
(15,410
)
Accrued investment income
 
(233
)
 
(2,086
)
Deferred commission and other acquisition expenses
 
(53,800
)
 
(71,668
)
Other assets
 
(41,288
)
 
(45,573
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
129,615

 
209,199

Unearned premiums
 
217,596

 
281,771

Accrued expenses and other liabilities
 
26,869

 
51,599

Net cash provided by operating activities
 
165,037

 
378,435

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(363,083
)
 
(884,863
)
Purchases of other investments
 
(92
)
 
(144
)
Sale of investments:
 
 
 
 
Proceeds from sales of fixed maturities – available-for-sale
 
86,663

 
86,498

Proceeds from maturities and calls of fixed maturities
 
322,342

 
370,441

Proceeds from redemption of other investments
 
527

 
74

(Increase) decrease in restricted cash and cash equivalents, net
 
(135,417
)
 
29,775

Other, net
 
(333
)
 
(594
)
Net cash used in investing activities
 
(89,393
)
 
(398,813
)
Cash flows from financing activities:
 
 
 
 
Senior notes issuance, net of issuance costs
 
106,535

 

Redemption of 2011 senior notes
 
(107,500
)
 

Common share issuance
 
442

 
2,626

Repurchase of common shares for treasury
 
(470
)
 
(654
)
Dividends paid to common shareholders
 
(20,693
)
 
(19,043
)
Dividends paid to preference shareholders
 
(18,700
)
 
(12,168
)
Net cash used in financing activities
 
(40,386
)
 
(29,239
)
Effect of exchange rate changes on foreign currency cash
 
2,560

 
(1,126
)
Net increase (decrease) in cash and cash equivalents
 
37,818

 
(50,743
)
Cash and cash equivalents, beginning of period
 
89,641

 
108,119

Cash and cash equivalents, end of period
 
$
127,459

 
$
57,376


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. ("Maiden Holdings") 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 Accumulated Other Comprehensive Income ("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.

Accounting for Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13 guidance that changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard's provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods therein. 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 primarily located 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 June 30, 2016

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Gross premiums written
 
$
164,834

 
$
523,488

 
$

 
$
688,322

Net premiums written

$
161,294


$
489,133


$


$
650,427

Net premiums earned

$
190,755


$
446,809


$


$
637,564

Other insurance revenue

1,525






1,525

Net loss and loss adjustment expenses ("LAE")

(144,246
)

(282,619
)

(124
)

(426,989
)
Commission and other acquisition expenses

(45,496
)

(140,230
)

(1
)

(185,727
)
General and administrative expenses

(9,079
)

(963
)



(10,042
)
Underwriting income (loss)

$
(6,541
)

$
22,997


$
(125
)

$
16,331

Reconciliation to net income












Net investment income and realized gains on investment










35,657

Interest and amortization expenses
 
 
 
 
 
 
 
(7,193
)
Accelerated amortization of senior note issuance cost
 
 
 
 
 
 
 
(2,345
)
Amortization of intangible assets










(615
)
Foreign exchange and other gains










5,520

Other general and administrative expenses










(7,248
)
Income tax expense










(220
)
Net income










$
39,887














Net loss and LAE ratio (1)

75.0
%

63.3
%

 

66.8
%
Commission and other acquisition expense ratio (2)

23.7
%

31.4
%

 

29.1
%
General and administrative expense ratio (3)

4.7
%

0.2
%

 

2.7
%
Combined ratio (4)

103.4
%

94.9
%

 

98.6
%
























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 June 30, 2015
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
151,646

 
$
522,522

 
$

 
$
674,168

Net premiums written
 
$
144,785

 
$
484,833

 
$

 
$
629,618

Net premiums earned
 
$
184,803

 
$
424,617

 
$

 
$
609,420

Other insurance revenue
 
2,252

 

 

 
2,252

Net loss and LAE
 
(142,992
)
 
(270,142
)
 
(1,793
)
 
(414,927
)
Commission and other acquisition expenses
 
(42,412
)
 
(133,147
)
 
(138
)
 
(175,697
)
General and administrative expenses
 
(8,438
)
 
(797
)
 

 
(9,235
)
Underwriting income (loss)
 
$
(6,787
)
 
$
20,531

 
$
(1,931
)
 
$
11,813

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
35,399

Interest and amortization expenses
 
 
 
 
 
 
 
(7,266
)
Amortization of intangible assets
 
 
 
 
 
 
 
(710
)
Foreign exchange and other losses
 
 
 
 
 
 
 
(5,191
)
Other general and administrative expenses
 
 
 
 
 
 
 
(7,066
)
Income tax expense
 
 
 
 
 
 
 
(468
)
Net income
 
 
 
 
 
 
 
$
26,511

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
76.4
%
 
63.6
%
 
 
 
67.8
%
Commission and other acquisition expense ratio (2)
 
22.7
%
 
31.4
%
 
 
 
28.7
%
General and administrative expense ratio (3)
 
4.5
%
 
0.2
%
 
 
 
2.7
%
Combined ratio (4)
 
103.6
%
 
95.2
%
 
 
 
99.2
%

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 Six Months Ended June 30, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
480,638

 
$
1,071,798

 
$

 
$
1,552,436

Net premiums written
 
$
447,430

 
$
995,828

 
$

 
$
1,443,258

Net premiums earned
 
$
363,011

 
$
890,562

 
$

 
$
1,253,573

Other insurance revenue
 
6,351

 

 

 
6,351

Net loss and LAE
 
(263,322
)
 
(564,393
)
 
(2,895
)
 
(830,610
)
Commission and other acquisition expenses
 
(100,027
)
 
(280,768
)
 

 
(380,795
)
General and administrative expenses
 
(17,679
)
 
(1,549
)
 

 
(19,228
)
Underwriting income (loss)
 
$
(11,666
)
 
$
43,852

 
$
(2,895
)
 
$
29,291

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
74,236

Interest and amortization expenses
 
 
 
 
 
 
 
(14,458
)
Accelerated amortization of senior note issuance cost
 
 
 
 
 
 
 
(2,345
)
Amortization of intangible assets
 
 
 
 
 
 
 
(1,230
)
Foreign exchange and other gains
 
 
 
 
 
 
 
5,787

Other general and administrative expenses
 
 
 
 
 
 
 
(13,558
)
Income tax expense
 
 
 
 
 
 
 
(1,007
)
Net income
 
 
 
 
 
 
 
$
76,716

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
71.3
%
 
63.4
%
 
 
 
65.9
%
Commission and other acquisition expense ratio (2)
 
27.1
%
 
31.5
%
 
 
 
30.2
%
General and administrative expense ratio (3)
 
4.8
%
 
0.2
%
 
 
 
2.6
%
Combined ratio (4)
 
103.2
%
 
95.1
%
 
 
 
98.7
%
























12

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 Six Months Ended June 30, 2015
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
456,987

 
$
1,051,448

 
$
(1
)
 
$
1,508,434

Net premiums written
 
$
438,983

 
$
987,617

 
$
1

 
$
1,426,601

Net premiums earned
 
$
377,487

 
$
809,250

 
$
2

 
$
1,186,739

Other insurance revenue
 
7,231

 

 

 
$
7,231

Net loss and LAE
 
(275,378
)
 
(513,236
)
 
(3,719
)
 
$
(792,333
)
Commission and other acquisition expenses
 
(100,618
)
 
(253,283
)
 
(138
)
 
$
(354,039
)
General and administrative expenses
 
(17,758
)
 
(1,544
)
 

 
$
(19,302
)
Underwriting income (loss)
 
$
(9,036
)
 
$
41,187

 
$
(3,855
)
 
$
28,296

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
64,528

Interest and amortization expenses
 
 
 
 
 
 
 
(14,530
)
Amortization of intangible assets
 
 
 
 
 
 
 
(1,420
)
Foreign exchange and other gains
 
 
 
 
 
 
 
2,635

Other general and administrative expenses
 
 
 
 
 
 
 
(13,196
)
Income tax expense
 
 
 
 
 
 
 
(1,268
)
Net income
 
 
 
 
 
 
 
$
65,045

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
71.6
%
 
63.4
%
 
 
 
66.3
%
Commission and other acquisition expense ratio (2)
 
26.2
%
 
31.3
%
 
 
 
29.7
%
General and administrative expense ratio (3)
 
4.5
%
 
0.2
%
 
 
 
2.7
%
Combined ratio (4)
 
102.3
%
 
94.9
%
 
 
 
98.7
%
(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 June 30, 2016 and December 31, 2015:
June 30, 2016
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,828,411

 
$
3,712,856

 
$
5,541,267

Corporate assets
 

 

 
729,732

Total Assets
 
$
1,828,411

 
$
3,712,856

 
$
6,270,999

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




13

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 and six months ended June 30, 2016 and 2015:
For the Three Months Ended June 30,
 
2016

2015
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
31,516

 
4.8
%
 
$
30,394

 
4.8
%
Casualty
 
94,692

 
14.6
%
 
86,808

 
13.8
%
Accident and Health
 
13,723

 
2.1
%
 
10,458

 
1.7
%
International
 
21,363

 
3.3
%
 
17,125

 
2.7
%
Total Diversified Reinsurance
 
161,294

 
24.8
%
 
144,785

 
23.0
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
306,425

 
47.1
%
 
303,000

 
48.1
%
Specialty Program
 
92,507

 
14.2
%
 
100,876

 
16.0
%
Specialty Risk and Extended Warranty
 
90,201

 
13.9
%
 
80,957

 
12.9
%
Total AmTrust Reinsurance
 
489,133

 
75.2
%
 
484,833

 
77.0
%
 
 
$
650,427

 
100.0
%
 
$
629,618

 
100.0
%
For the Three Months Ended June 30,
 
2016
 
2015
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
40,392

 
6.3
%
 
$
32,662

 
5.4
%
Casualty
 
107,677

 
16.9
%
 
115,965

 
19.0
%
Accident and Health
 
19,548

 
3.1
%
 
15,067

 
2.5
%
International
 
23,138

 
3.6
%
 
21,109

 
3.5
%
Total Diversified Reinsurance
 
190,755

 
29.9
%
 
184,803

 
30.4
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
279,612

 
43.9
%
 
252,444

 
41.4
%
Specialty Program
 
77,488

 
12.2
%
 
73,378

 
12.0
%
Specialty Risk and Extended Warranty
 
89,709

 
14.0
%
 
98,795

 
16.2
%
Total AmTrust Reinsurance
 
446,809

 
70.1
%
 
424,617

 
69.6
%
 
 
$
637,564

 
100.0
%
 
$
609,420

 
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)



3. Segment Reporting (continued)
For the Six Months Ended June 30,
 
2016
 
2015
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
93,385

 
6.5
%
 
$
98,908

 
6.9
%
Casualty
 
249,972

 
17.3
%
 
258,339

 
18.1
%
Accident and Health
 
53,295

 
3.7
%
 
40,565

 
2.9
%
International
 
50,778

 
3.5
%
 
41,171

 
2.9
%
Total Diversified Reinsurance
 
447,430

 
31.0
%
 
438,983

 
30.8
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
668,924

 
46.4
%
 
626,201

 
43.9
%
Specialty Program
 
169,298

 
11.7
%
 
175,456

 
12.3
%
Specialty Risk and Extended Warranty
 
157,606

 
10.9
%
 
185,960

 
13.0
%
Total AmTrust Reinsurance
 
995,828

 
69.0
%
 
987,617

 
69.2
%
Other
 

 
%
 
1

 
%
 
 
$
1,443,258

 
100.0
%
 
$
1,426,601

 
100.0
%

For the Six Months Ended June 30,
 
2016
 
2015
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
73,102

 
5.8
%
 
$
73,285

 
6.2
%
Casualty
 
207,843

 
16.6
%
 
234,903

 
19.8
%
Accident and Health
 
37,352

 
3.0
%
 
27,268

 
2.3
%
International
 
44,714

 
3.6
%
 
42,031

 
3.5
%
Total Diversified Reinsurance
 
363,011

 
29.0
%
 
377,487

 
31.8
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
544,103

 
43.4
%
 
477,435

 
40.2
%
Specialty Program
 
161,687

 
12.9
%
 
130,388

 
11.0
%
Specialty Risk and Extended Warranty
 
184,772

 
14.7
%
 
201,427

 
17.0
%
Total AmTrust Reinsurance
 
890,562

 
71.0
%
 
809,250

 
68.2
%
Other
 

 
%
 
2

 
%
 
 
$
1,253,573

 
100.0
%
 
$
1,186,739

 
100.0
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    

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

(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 June 30, 2016 and December 31, 2015 are as follows:
June 30, 2016
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,180

 
$
372

 
$

 
$
5,552

U.S. agency bonds – mortgage-backed
 
1,411,283

 
41,697

 
(1,185
)
 
1,451,795

U.S. agency bonds – other
 
4,251

 
423

 

 
4,674

Non-U.S. government and supranational bonds
 
36,151

 
286

 
(3,619
)
 
32,818

Asset-backed securities
 
189,218

 
6,593

 
(932
)
 
194,879

Corporate bonds
 
1,665,920

 
70,807

 
(42,408
)
 
1,694,319

Municipal bonds
 
62,189

 
6,379

 

 
68,568

Total AFS fixed maturities
 
3,374,192

 
126,557

 
(48,144
)
 
3,452,605

Held-to-maturity ("HTM") fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
761,713

 
33,991

 
(1,033
)
 
794,671

Total HTM fixed maturities
 
761,713

 
33,991

 
(1,033
)
 
794,671

Other investments
 
10,743

 
1,084

 

 
11,827

Total investments
 
$
4,146,648

 
$
161,632

 
$
(49,177
)
 
$
4,259,103

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 second quarter of 2016, we designated additional fixed maturities with a total fair value of $155,538 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $15,770 at the designation date was 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.

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)
 
 
AFS fixed maturities
 
HTM fixed maturities
June 30, 2016
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
130,284

 
$
127,026

 
$

 
$

Due after one year through five years
 
377,161

 
378,005

 
225,081

 
228,114

Due after five years through ten years
 
1,251,826

 
1,285,794

 
531,545

 
561,450

Due after ten years
 
14,420

 
15,106

 
5,087

 
5,107

 
 
1,773,691

 
1,805,931

 
761,713

 
794,671

U.S. agency bonds – mortgage-backed
 
1,411,283

 
1,451,795

 

 

Asset-backed securities
 
189,218

 
194,879

 

 

Total fixed maturities
 
$
3,374,192

 
$
3,452,605

 
$
761,713

 
$
794,671


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
June 30, 2016
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency bonds – mortgage-backed
 
$
1,613

 
$
(8
)
 
$
57,431

 
$
(1,177
)
 
$
59,044

 
$
(1,185
)
Non–U.S. government and supranational bonds
 
1,078

 
(44
)
 
27,774

 
(3,575
)
 
28,852

 
(3,619
)
Asset-backed securities
 
47,629

 
(932
)
 

 

 
47,629

 
(932
)
Corporate bonds
 
103,933

 
(4,232
)
 
378,880

 
(39,209
)
 
482,813

 
(43,441
)
Total temporarily impaired fixed maturities
 
$
154,253

 
$
(5,216
)
 
$
464,085