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, 2018

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.)
 
 
94 Pitts Bay Road, Pembroke, Bermuda
(Address of principal executive offices)
HM08
(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth 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
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of May 4, 2018, the number of the Registrant's Common Stock ($.01 par value) outstanding was 83,118,237.





INDEX
 
 
Page
PART I - Financial Information
 
 
 

 
 
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 (audited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,
2018
 
December 31,
2017
 
 
(Unaudited)
 
(Audited)
ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2018: $4,034,021; 2017: $4,027,993)
 
$
3,984,733

 
$
4,044,370

Fixed maturities, held-to-maturity, at amortized cost (fair value 2018: $1,069,980; 2017: $1,125,626)
 
1,071,361

 
1,097,801

Other investments, at fair value
 
6,426

 
6,600

Total investments
 
5,062,520

 
5,148,771

Cash and cash equivalents
 
73,276

 
67,919

Restricted cash and cash equivalents
 
87,761

 
123,584

Accrued investment income
 
36,010

 
34,993

Reinsurance balances receivable, net (includes $175,291 and $50,415 from related parties in 2018 and 2017, respectively)
 
548,218

 
345,043

Reinsurance recoverable on unpaid losses (includes $2,089 and $2,204 from related parties in 2018 and 2017, respectively)
 
114,499

 
117,611

Loan to related party
 
167,975

 
167,975

Deferred commission and other acquisition expenses (includes $402,907 and $359,964 from related parties in 2018 and 2017, respectively)
 
475,496

 
439,597

Goodwill and intangible assets, net
 
75,121

 
75,583

Other assets
 
116,433

 
123,113

Total assets
 
$
6,757,309

 
$
6,644,189

LIABILITIES
 
 
 
 
Reserve for loss and loss adjustment expenses (includes $2,398,760 and $2,298,822 from related parties in 2018 and 2017, respectively)
 
$
3,616,610

 
$
3,547,248

Unearned premiums (includes $1,250,034 and $1,179,285 from related parties in 2018 and 2017, respectively)
 
1,629,870

 
1,477,038

Accrued expenses and other liabilities
 
97,851

 
132,795

Senior notes - principal amount
 
262,500

 
262,500

Less: unamortized debt issuance costs
 
7,966

 
8,018

Senior notes, net
 
254,534

 
254,482

Total liabilities
 
5,598,865

 
5,411,563

Commitments and Contingencies
 


 


EQUITY
 
 
 
 
Preference shares
 
465,000

 
465,000

Common shares ($0.01 par value; 87,902,787 and 87,730,054 shares issued in 2018 and 2017, respectively; 83,118,237 and 82,974,895 shares outstanding in 2018 and 2017, respectively)
 
879

 
877

Additional paid-in capital
 
749,054

 
748,113

Accumulated other comprehensive (loss) income
 
(62,915
)
 
13,354

Retained earnings
 
36,727

 
35,472

Treasury shares, at cost (4,784,550 and 4,755,159 shares in 2018 and 2017, respectively)
 
(30,835
)
 
(30,642
)
Total Maiden shareholders’ equity
 
1,157,910

 
1,232,174

Noncontrolling interests in subsidiaries
 
534

 
452

Total equity
 
1,158,444

 
1,232,626

Total liabilities and equity
 
$
6,757,309

 
$
6,644,189

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,
 
 
2018
 
2017
Revenues
 
 
 
 
Gross premiums written
 
$
852,640

 
$
923,427

Net premiums written
 
$
849,333

 
$
900,548

Change in unearned premiums
 
(163,901
)
 
(191,064
)
Net premiums earned
 
685,432

 
709,484

Other insurance revenue
 
3,726

 
3,781

Net investment income
 
42,870

 
42,157

Net realized gains on investment
 
357

 
885

Total revenues
 
732,385

 
756,307

Expenses
 
 
 
 
Net loss and loss adjustment expenses
 
473,324

 
480,569

Commission and other acquisition expenses
 
208,614

 
222,029

General and administrative expenses
 
19,950

 
17,414

Interest and amortization expenses
 
4,829

 
6,856

Amortization of intangible assets
 
462

 
533

Foreign exchange losses
 
2,407

 
1,921

Total expenses
 
709,586

 
729,322

Income before income taxes
 
22,799

 
26,985

Less: income tax expense
 
456

 
484

Net income
 
22,343

 
26,501

Add: net (income) loss attributable to noncontrolling interests
 
(71
)
 
22

Net income attributable to Maiden
 
22,272

 
26,523

Dividends on preference shares
 
(8,545
)
 
(6,033
)
Net income attributable to Maiden common shareholders
 
$
13,727

 
$
20,490

Basic earnings per share attributable to Maiden common shareholders
 
$
0.17

 
$
0.24

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.16

 
$
0.23

Dividends declared per common share
 
$
0.15

 
$
0.15

Weighted average number of common shares - basic
 
83,040,413

 
86,350,850

Adjusted weighted average number of common shares and assumed conversions - diluted
 
83,318,542

 
87,436,604


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,
 
 
2018
 
2017
Net income
 
$
22,343

 
$
26,501

Other comprehensive income
 
 
 
 
Net unrealized holdings (losses) gains on available-for-sale fixed maturities arising during the period
 
(66,843
)
 
6,119

Adjustment for reclassification of net realized (gains) losses recognized in net income
 
(1,490
)
 
637

Foreign currency translation adjustment
 
(7,940
)
 
(6,198
)
Other comprehensive (loss) income, before tax
 
(76,273
)
 
558

Income tax benefit related to components of other comprehensive income
 
15

 
41

Other comprehensive (loss) income, after tax
 
(76,258
)
 
599

Comprehensive (loss) income
 
(53,915
)
 
27,100

Net (income) loss attributable to noncontrolling interests
 
(71
)
 
22

Other comprehensive income attributable to noncontrolling interests
 
(11
)
 
(5
)
Comprehensive (income) loss attributable to noncontrolling interests
 
(82
)
 
17

Comprehensive (loss) income attributable to Maiden
 
$
(53,997
)
 
$
27,117


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,

2018

2017
Preference shares - Series A, C and D
 
 
 
 
Beginning balance
 
$
465,000

 
$
315,000

Ending balance
 
465,000

 
315,000

Common shares
 
 
 
 
Beginning balance
 
877

 
873

Exercise of options and issuance of shares
 
2

 
3

Ending balance
 
879

 
876

Additional paid-in capital
 
 
 
 
Beginning balance
 
748,113

 
749,256

Exercise of options and issuance of common shares
 
(2
)
 
515

Share-based compensation expense
 
943

 
923

Ending balance
 
749,054

 
750,694

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
13,354

 
14,997

Change in net unrealized (losses) gains on investment
 
(68,318
)
 
6,797

Foreign currency translation adjustment
 
(7,951
)
 
(6,203
)
Ending balance
 
(62,915
)
 
15,591

Retained earnings
 
 
 
 
Beginning balance
 
35,472

 
285,662

Net income attributable to Maiden
 
22,272

 
26,523

Dividends on preference shares
 
(8,545
)
 
(6,033
)
Dividends on common shares
 
(12,472
)
 
(12,988
)
Ending balance
 
36,727

 
293,164

Treasury shares
 
 
 
 
Beginning balance
 
(30,642
)
 
(4,991
)
Shares repurchased
 
(193
)
 
(575
)
Ending balance
 
(30,835
)
 
(5,566
)
Noncontrolling interests in subsidiaries
 
 
 
 
Beginning balance
 
452

 
355

Net income (loss) attributable to noncontrolling interests
 
71

 
(22
)
Foreign currency translation adjustment
 
11

 
5

Ending balance
 
534

 
338

Total equity
 
$
1,158,444

 
$
1,370,097

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,
 
2018
 
2017
Cash flows from operating activities
 
 
 
 
Net income
 
$
22,343

 
$
26,501

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
Depreciation, amortization and share-based compensation
 
3,527

 
1,640

Net realized gains on investment
 
(357
)
 
(885
)
Foreign exchange losses
 
2,407

 
1,921

Changes in assets  (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(201,674
)
 
(204,287
)
Reinsurance recoverable on unpaid losses
 
3,187

 
(8,792
)
Accrued investment income
 
(880
)
 
386

Deferred commission and other acquisition expenses
 
(35,908
)
 
(47,280
)
Other assets
 
5,809

 
(6,461
)
Changes in liabilities  increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
55,463

 
89,175

Unearned premiums
 
152,214

 
193,550

Accrued expenses and other liabilities
 
(38,272
)
 
9

Net cash (used in) provided by operating activities
 
(32,141
)
 
45,477

Cash flows from investing activities:
 
 
 
 
Purchases of investments:
 
 
 
 
Purchases of fixed-maturities – available-for-sale
 
(263,873
)
 
(118,935
)
Purchases of other investments
 

 
(120
)
Sale of investments:
 
 
 
 
Proceeds from sales of fixed-maturities – available-for-sale
 
148,782

 
30,784

Proceeds from maturities, paydowns and calls of fixed maturities – available-for-sale
 
113,235

 
105,181

Proceeds from maturities and calls of fixed maturities – held to maturity
 
25,188

 

Proceeds from sale and redemption of other investments
 
275

 
266

Other, net
 
(1,579
)
 
(367
)
Net cash provided by investing activities
 
22,028

 
16,809

Cash flows from financing activities:
 
 
 
 
Issuance of common shares
 

 
518

Repurchase of common shares
 
(193
)
 
(575
)
Dividends paid – Maiden common shareholders
 
(12,452
)
 
(12,948
)
Dividends paid – preference shares
 
(8,545
)
 
(6,033
)
Net cash used in financing activities
 
(21,190
)
 
(19,038
)
Effect of exchange rate changes on foreign currency cash and cash equivalents and restricted cash and cash equivalents
 
837

 
451

Net (decrease) increase in cash and cash equivalents and restricted cash and cash equivalents
 
(30,466
)
 
43,699

Cash and cash equivalents and restricted cash and cash equivalents, beginning of period
 
191,503

 
149,535

Cash and cash equivalents and restricted cash and cash equivalents, end of period
 
$
161,037

 
$
193,234

 
 
 
 
 
Reconciliation of cash and cash equivalents, and restricted cash and cash equivalents reported within Condensed Consolidated Balance Sheets that sum to the total shown above:
 
 
 
 
Cash and cash equivalents, end of period
 
$
73,276

 
$
83,537

Restricted cash and cash equivalents, end of period
 
87,761

 
109,697

Total cash and cash equivalents, and restricted cash and cash equivalents shown in the Condensed Consolidated Statements of Cash Flows, end of period
 
$
161,037

 
$
193,234

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"). They have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information 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 intercompany 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, 2017. Certain prior year comparatives have been reclassified for 2017 to conform to the 2018 presentation. The effect of these reclassifications had no impact on previously reported shareholders' equity or net income.
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, 2017 except for the following:
Recently Adopted Accounting Standards Updates
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09 guidance that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our other insurance revenue activities. This guidance is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company has adopted the guidance in ASU 2014-09 on January 1, 2018. Our analysis of revenues for the three months ended March 31, 2018 indicates that substantially all of our revenues are from sources not within the scope of the standard. The Company generates an insignificant amount of fee income which is reported under other insurance revenue in the Consolidated Statements of Income and is within the scope of ASU 2014-09. The Company’s current accounting policy for this revenue is to recognize fee income as earned when the related services are performed which is consistent with the guidance in this ASU. Other insurance revenue is currently less than 1% of total revenues so the expanded disclosure requirements mandated by this ASU are not required or deemed relevant due to materiality. As substantially all of our revenue sources are not within the scope of the standard, the adoption of the standard did not have a material effect on our reported consolidated financial condition, results of operations or cash flows.
Scope of Modification Accounting
In May 2017, the FASB issued ASU 2017-09 to amend the guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met:
1.The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;
2.The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and
3.The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this update should be applied prospectively to an award modified on or after the adoption date.
The Company currently has a number of share based payment awards as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2017. The adoption of this guidance on January 1, 2018 did not have an impact on the Company's Condensed Consolidated Financial Statements as no modifications were made in any of its current shared based payment awards.


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)
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 adoption of this guidance on January 1, 2018 resulted in the recognition of $890 of net unrealized gains on our investments in limited partnerships within net income during the three months ended March 31, 2018. Our investments in limited partnerships do not have a readily determinable fair value and therefore, the new guidance was adopted prospectively. Please refer to "Note 4. Investments (d) - Realized Gains on Investment" for additional information.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15 guidance to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance amends Accounting Standards Codification ("ASC") 230 Statement of Cash Flows, a principles based requiring judgment to determine the appropriate classification of cash flow as operating, investing or financing activities which created diversity in how certain cash receipts and cash payments were classified. The new guidance clarifies that if a receipt or payment has aspects of more than one class of cash flows and cannot be separated, the classification will depend on the predominant source or use. While the new guidance attempts to clarify how the predominance principle should be applied, judgment will still be required. The guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The adoption of this guidance did not have an impact on the Company's results of operations, financial position or liquidity.
Presentation of Restricted Cash in the Statement of Cash Flows
In November 2016, the FASB issued ASU 2016-18 guidance that require entities to show the changes in the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018. The adoption of this guidance did not have a material effect on the Company's consolidated financial condition, results of operations and disclosures, other than the presentation of restricted cash and cash equivalents in the statement of cash flows. The financial impact in the consolidated statements of cash flows has eliminated the presentation of changes in restricted cash and cash equivalents from cash flows from investing activities. Therefore, changes that result from transfers between cash, cash equivalents, and restricted cash and cash equivalents are no longer presented as cash flow activities in the statement of cash flows. Additionally, a reconciliation between the statement of financial position and the statement of cash flows has been disclosed to show the movement in cash and cash equivalents and restricted cash and cash equivalents from the prior period.

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 Information
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 our wholly owned subsidiary, Maiden Reinsurance Ltd. ("Maiden Bermuda") from AmTrust Financial Services, Inc. ("AmTrust"), primarily the AmTrust Quota Share and the European Hospital Liability Quota Share. In addition to our reportable segments, the results of operations of the former National General Holdings Corporation Quota Share ("NGHC Quota Share") segment and the remnants of the U.S. excess and surplus ("E&S") business have been included in the "Other" category. Please refer to "Note 8. Related Party Transactions" for additional information.
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 unearned reinsurance premiums ceded, funds withheld receivable and reinsurance recoverable on paid losses (presented as part of other assets in the Condensed Consolidated Balance Sheet). 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:
For the Three Months Ended March 31, 2018
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
278,712

 
$
573,928

 
$

 
$
852,640

Net premiums written
 
$
274,953

 
$
574,380

 
$

 
$
849,333

Net premiums earned
 
$
194,134

 
$
491,298

 
$

 
$
685,432

Other insurance revenue
 
3,726

 

 

 
3,726

Net loss and loss adjustment expense ("loss and LAE")
 
(135,612
)
 
(337,307
)
 
(405
)
 
(473,324
)
Commission and other acquisition expenses
 
(51,298
)
 
(157,316
)
 

 
(208,614
)
General and administrative expenses
 
(10,119
)
 
(920
)
 

 
(11,039
)
Underwriting income (loss)
 
$
831

 
$
(4,245
)
 
$
(405
)
 
(3,819
)
Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
43,227

Interest and amortization expenses
 
 
 
 
 
 
 
(4,829
)
Amortization of intangible assets
 
 
 
 
 
 
 
(462
)
Foreign exchange losses
 
 
 
 
 
 
 
(2,407
)
Other general and administrative expenses
 
 
 
 
 
 
 
(8,911
)
Income tax expense
 
 
 
 
 
 
 
(456
)
Net income
 
 
 
 
 
 
 
$
22,343

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
68.6
%
 
68.7
%
 
 
 
68.6
%
Commission and other acquisition expense ratio(2)
 
25.9
%
 
32.0
%
 
 
 
30.3
%
General and administrative expense ratio(3)
 
5.1
%
 
0.2
%
 
 
 
2.9
%
Expense ratio(4)
 
31.0
%
 
32.2
%
 
 
 
33.2
%
Combined ratio(5)
 
99.6
%
 
100.9
%
 
 
 
101.8
%

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 Information (continued)
For the Three Months Ended March 31, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
332,045

 
$
591,382

 
$

 
$
923,427

Net premiums written
 
$
327,496

 
$
573,052

 
$

 
$
900,548

Net premiums earned
 
$
201,842

 
$
507,642

 
$

 
$
709,484

Other insurance revenue
 
3,781

 

 

 
3,781

Net loss and LAE
 
(138,649
)
 
(341,631
)
 
(289
)
 
(480,569
)
Commission and other acquisition expenses
 
(57,945
)
 
(164,084
)
 

 
(222,029
)
General and administrative expenses
 
(8,730
)
 
(805
)
 

 
(9,535
)
Underwriting income (loss)
 
$
299

 
$
1,122

 
$
(289
)
 
1,132

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
43,042

Interest and amortization expenses
 
 
 
 
 
 
 
(6,856
)
Amortization of intangible assets
 
 
 
 
 
 
 
(533
)
Foreign exchange losses
 
 
 
 
 
 
 
(1,921
)
Other general and administrative expenses
 
 
 
 
 
 
 
(7,879
)
Income tax expense
 
 
 
 
 
 
 
(484
)
Net income
 
 
 
 
 
 
 
$
26,501

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
67.5
%
 
67.3
%
 
 
 
67.4
%
Commission and other acquisition expense ratio(2)
 
28.2
%
 
32.3
%
 
 
 
31.1
%
General and administrative expense ratio(3)
 
4.2
%
 
0.2
%
 
 
 
2.4
%
Expense ratio(4)
 
32.4
%
 
32.5
%
 
 
 
33.5
%
Combined ratio(5)
 
99.9
%
 
99.8
%
 
 
 
100.9
%
(1)
Calculated by dividing net loss and LAE by the sum of net premiums earned and other insurance revenue.
(2)
Calculated by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue.
(3)
Calculated by dividing general and administrative expenses by the sum of net premiums earned and other insurance revenue.
(4)
Calculated by adding together the commission and other acquisition expense ratio and general and administrative expense ratio.
(5)Calculated by adding together net loss and LAE ratio and the expense ratio.    
For the Three Months Ended March 31, 2018
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
For the Three Months Ended March 31, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
The following tables summarize the financial position of our reportable segments including the reconciliation to our consolidated assets at March 31, 2018 and December 31, 2017:
March 31, 2018
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Total
Total assets - reportable segments
 
$
1,793,860

 
$
4,397,742

 
$
6,191,602

Corporate assets
 

 

 
565,707

Total Assets
 
$
1,793,860

 
$
4,397,742

 
$
6,757,309

 
 
 
 
 
 
 
December 31, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Total
Total assets - reportable segments
 
$
1,772,909

 
$
4,258,607

 
$
6,031,516

Corporate assets
 

 

 
612,673

Total Assets
 
$
1,772,909

 
$
4,258,607

 
$
6,644,189


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 Information (continued)
The following table sets forth financial information relating to net premiums written by major line of business and reportable segment for the three months ended March 31, 2018 and 2017:
For the Three Months Ended March 31,
 
2018
 
2017
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums written
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
60,981

 
7.2
%
 
$
73,377

 
8.2
%
Casualty
 
122,940

 
14.5
%
 
177,558

 
19.7
%
Accident and Health
 
42,802

 
5.0
%
 
48,649

 
5.4
%
International
 
48,230

 
5.7
%
 
27,912

 
3.1
%
Total Diversified Reinsurance
 
274,953

 
32.4
%
 
327,496

 
36.4
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
367,754

 
43.3
%
 
392,566

 
43.6
%
Specialty Program
 
89,131

 
10.5
%
 
91,869

 
10.2
%
Specialty Risk and Extended Warranty
 
117,495

 
13.8
%
 
88,617

 
9.8
%
Total AmTrust Reinsurance
 
574,380

 
67.6
%
 
573,052

 
63.6
%
Total Net Premiums Written
 
$
849,333

 
100.0
%
 
$
900,548

 
100.0
%
For the Three Months Ended March 31,
 
2018
 
2017
The following table sets forth financial information relating to net premiums earned by major line of business and reportable segment for the three months ended March 31, 2018 and 2017:
For the Three Months Ended March 31,
 
2018
 
2017
 
 
Total
 
% of Total
 
Total
 
% of Total
Net premiums earned
 
 
 
 
 
 
 
 
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
38,382

 
5.6
%
 
$
39,894

 
5.6
%
Casualty
 
108,646

 
15.8
%
 
123,150

 
17.4
%
Accident and Health
 
21,632

 
3.2
%
 
20,689

 
2.9
%
International
 
25,474

 
3.7
%
 
18,109

 
2.6
%
Total Diversified Reinsurance
 
194,134

 
28.3
%
 
201,842

 
28.5
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
315,709

 
46.1
%
 
316,909

 
44.7
%
Specialty Program
 
88,494

 
12.9
%
 
99,748

 
14.0
%
Specialty Risk and Extended Warranty
 
87,095

 
12.7
%
 
90,985

 
12.8
%
Total AmTrust Reinsurance
 
491,298

 
71.7
%
 
507,642

 
71.5
%
Total Net Premiums Earned
 
$
685,432

 
100.0
%
 
$
709,484

 
100.0
%
For the Three Months Ended March 31,
 
2018
 
2017


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
The original or amortized cost, estimated fair value and gross unrealized gains and losses of fixed maturities at March 31, 2018 and December 31, 2017 are as follows:
March 31, 2018
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
9,323

 
$
63

 
$
(28
)
 
$
9,358

U.S. agency bonds – mortgage-backed
 
2,038,229

 
2,552

 
(52,270
)
 
1,988,511

U.S. agency bonds – other
 
34,943

 

 
(170
)
 
34,773

Non-U.S. government and supranational bonds
 
37,525

 
415

 
(1,595
)
 
36,345

Asset-backed securities
 
353,049

 
1,931

 
(1,207
)
 
353,773

Corporate bonds
 
1,558,452

 
26,760

 
(25,814
)
 
1,559,398

Municipal bonds
 
2,500

 
75

 

 
2,575

Total AFS fixed maturities
 
4,034,021

 
31,796

 
(81,084
)
 
3,984,733

Held-to-maturity ("HTM") fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
1,011,129

 
9,080

 
(10,078
)
 
1,010,131

Municipal bonds
 
60,232

 

 
(383
)
 
59,849

Total HTM fixed maturities
 
1,071,361

 
9,080

 
(10,461
)
 
1,069,980

Total fixed maturity investments
 
$
5,105,382

 
$
40,876

 
$
(91,545
)
 
$
5,054,713

December 31, 2017
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
60,711

 
$
103

 
$
(13
)
 
$
60,801

U.S. agency bonds – mortgage-backed
 
2,026,305

 
8,074

 
(19,765
)
 
2,014,614

U.S. agency bonds – other
 
29,941

 
4

 
(163
)
 
29,782

Non-U.S. government and supranational bonds
 
33,381

 
231

 
(1,736
)
 
31,876

Asset-backed securities
 
317,544

 
4,065

 
(199
)
 
321,410

Corporate bonds
 
1,557,611

 
43,271

 
(17,571
)
 
1,583,311

Municipal bonds
 
2,500

 
76

 

 
2,576

Total AFS fixed maturities
 
4,027,993

 
55,824

 
(39,447
)
 
4,044,370

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
1,037,464

 
28,694

 
(913
)
 
1,065,245

Municipal bonds
 
60,337

 
128

 
(84
)
 
60,381

Total HTM fixed maturities
 
1,097,801

 
28,822

 
(997
)
 
1,125,626

Total fixed maturity investments
 
$
5,125,794

 
$
84,646

 
$
(40,444
)
 
$
5,169,996

During the three months ended March 31, 2018, we did not designate any additional fixed maturities as HTM. During 2017, we designated additional fixed maturities with a fair value of $391,934 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $4,313 as 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 yield method in a manner consistent with the amortization of any premium or discount.

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)
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 prepay obligations with or without call or prepayment penalties.
 
 
AFS fixed maturities
 
HTM fixed maturities
March 31, 2018
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
28,583

 
$
27,252

 
$
18,285

 
$
18,274

Due after one year through five years
 
579,806

 
582,722

 
361,164

 
364,559

Due after five years through ten years
 
1,008,243

 
1,006,621

 
691,912

 
687,147

Due after ten years
 
26,111

 
25,854

 

 

 
 
1,642,743

 
1,642,449

 
1,071,361

 
1,069,980

U.S. agency bonds – mortgage-backed
 
2,038,229

 
1,988,511

 

 

Asset-backed securities
 
353,049

 
353,773

 

 

Total fixed maturities
 
$
4,034,021

 
$
3,984,733

 
$
1,071,361

 
$
1,069,980

The following tables summarize fixed maturities 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, 2018
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
4,233

 
$
(9
)
 
$
582

 
$
(19
)
 
$
4,815

 
$
(28
)
U.S. agency bonds – mortgage-backed
 
1,358,831

 
(30,870
)
 
499,399

 
(21,400
)
 
1,858,230

 
(52,270
)
U.S. agency bonds – other
 
34,773

 
(170
)
 

 

 
34,773

 
(170
)
Non–U.S. government and supranational bonds
 
3,136

 
(64
)
 
24,084

 
(1,531
)
 
27,220

 
(1,595
)
Asset-backed securities
 
131,222

 
(1,142
)
 
5,005

 
(65
)
 
136,227

 
(1,207
)
Corporate bonds
 
1,236,397

 
(23,138
)
 
276,453

 
(12,754
)
 
1,512,850

 
(35,892
)
Municipal bonds
 
59,850

 
(383
)
 

 

 
59,850

 
(383
)
Total temporarily impaired fixed maturities
 
$
2,828,442

 
$
(55,776
)
 
$
805,523

 
$
(35,769
)
 
$
3,633,965

 
$
(91,545
)
At March 31, 2018, there were approximately 466 securities in an unrealized loss position with a fair value of $3,633,965 and unrealized losses of $91,545. Of these securities, there were 93 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $805,523 and unrealized losses of $35,769.
 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2017
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$

 
$

 
$
587

 
$
(13
)
 
$
587

 
$
(13
)
U.S. agency bonds – mortgage-backed
 
842,000

 
(6,920
)
 
539,704

 
(12,845
)
 
1,381,704

 
(19,765
)
U.S. agency bonds – other
 
19,816

 
(163
)
 

 

 
19,816

 
(163
)
Non-U.S. government and supranational bonds
 
12,825

 
(971
)
 
15,253

 
(765
)
 
28,078

 
(1,736
)
Asset-backed securities
 
68,703

 
(150
)
 
3,017

 
(49
)
 
71,720

 
(199
)
Corporate bonds
 
247,341

 
(3,905
)
 
348,594

 
(14,579
)
 
595,935

 
(18,484
)
Municipal bonds
 
39,492

 
(84
)
 

 

 
39,492

 
(84
)
Total temporarily impaired fixed maturities
 
$
1,230,177

 
$
(12,193
)
 
$
907,155

 
$
(28,251
)
 
$
2,137,332

 
$
(40,444
)

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)
At December 31, 2017, there were approximately 244 securities in an unrealized loss position with a fair value of $2,137,332 and unrealized losses of $40,444. Of these securities, there were 100 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $907,155 and unrealized losses of $28,251.
Other-than-temporarily impaired ("OTTI")
The Company performs quarterly reviews of its fixed maturities 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, 2018, we have determined that the unrealized losses on fixed maturities were primarily due to interest rates rising as well as the impact of foreign exchange rate changes on certain foreign currency denominated AFS fixed maturities 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 OTTI at March 31, 2018. The Company has therefore recognized no OTTI through earnings for the three months ended March 31, 2018 and 2017.
The following summarizes the credit ratings of our fixed maturities:
Ratings(1) at March 31, 2018
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
9,323

 
$
9,358

 
0.2
%
U.S. agency bonds
 
2,073,172

 
2,023,284

 
40.0
%
AAA
 
267,149

 
268,360

 
5.3
%
AA+, AA, AA-
 
218,377

 
217,958

 
4.3
%
A+, A, A-
 
1,396,364

 
1,390,488

 
27.5
%
BBB+, BBB, BBB-
 
1,077,307

 
1,080,043

 
21.4
%
BB+ or lower
 
63,690

 
65,222

 
1.3
%
Total fixed maturities
 
$
5,105,382

 
$
5,054,713

 
100.0
%
Ratings(1) at December 31, 2017
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
60,711

 
$
60,801

 
1.2
%
U.S. agency bonds
 
2,056,246

 
2,044,396

 
39.6
%
AAA
 
245,562

 
249,073

 
4.8
%
AA+, AA, AA-
 
204,792

 
207,898

 
4.0
%
A+, A, A-
 
1,381,031

 
1,404,451

 
27.2
%
BBB+, BBB, BBB-
 
1,125,471

 
1,149,511

 
22.2
%
BB+ or lower
 
51,981

 
53,866

 
1.0
%
Total fixed maturities
 
$
5,125,794

 
$
5,169,996

 
100.0
%
(1)
Based on Standard & Poor’s ("S&P"), or equivalent, ratings
b)
Other Investments
The table below shows our portfolio of other investments:
 
 
March 31, 2018
 
December 31, 2017
 
 
Fair value
 
% of Total
fair value
 
Fair value
 
% of Total
fair value
Investment in limited partnerships
 
$
4,926

 
76.7
%
 
$
5,100

 
77.3
%
Other
 
1,500

 
23.3
%
 
1,500

 
22.7
%
Total other investments
 
$
6,426

 
100.0
%
 
$
6,600

 
100.0
%
The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $304 at March 31, 2018 (December 31, 2017 - $306).

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)
c)
Net Investment Income
Net investment income was derived from the following sources:
For the Three Months Ended March 31,
 
2018
 
2017
Fixed maturities
 
$
42,129

 
$
42,870

Cash and cash equivalents
 
308

 
167

Loan to related party
 
1,428

 
712

Other
 
119

 
231

 
 
43,984

 
43,980

Investment expenses
 
(1,114
)
 
(1,823
)
Net investment income
 
$
42,870

 
$
42,157

d)
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 Condensed Consolidated Statements of Income:
For the Three Months Ended March 31, 2018
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
652

 
$
(1,777
)
 
$
(1,125
)
Other investments
 
1,482

 

 
1,482

Net realized gains on investment
 
$
2,134

 
$
(1,777
)
 
$
357

 
 
 
 
 
 
 
For the Three Months Ended March 31, 2017
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
722

 
$

 
$
722

Other investments
 
163

 

 
163

Net realized gains on investment
 
$
885

 
$

 
$
885

Proceeds from sales of AFS fixed maturities were $148,782 for the three months ended March 31, 2018 (2017 - $30,784). Net unrealized (losses) gains were as follows:
 
 
March 31, 2018
 
December 31, 2017
Fixed maturities
 
$
(46,365
)
 
$
20,586

Other investments
 

 
1,381

Total net unrealized (losses) gains
 
(46,365
)
 
21,967

Deferred income tax
 
(64
)
 
(78
)
Net unrealized (losses) gains, net of deferred income tax
 
$
(46,429
)
 
$
21,889

Change, net of deferred income tax
 
$
(68,318
)
 
$
42,605

The portion of unrealized gains recognized in net income for the three months ended March 31, 2018 and 2017 that are related to other investments still held at the end of the reporting period were as follows:
 
 
March 31, 2018

 
March 31, 2017

Net realized and unrealized gains recognized in net income on other investments during the period
 
$
1,482

 
$
163

Less: net realized gains recognized on other investments during the period
 
(592
)
 
(163
)
Net unrealized gains recognized on other investments still held at end of period
 
$
890

 
$



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)
e)
Restricted Cash and Cash Equivalents and Investments
We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. We also utilize trust accounts to collateralize business with our reinsurance counterparties. 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 maturities. The fair value of our restricted assets was as follows:
 
 
March 31, 2018
 
December 31, 2017
Restricted cash – third party agreements
 
$
51,116

 
$
50,411

Restricted cash – related party agreements
 
36,458

 
73,017

Restricted cash – U.S. state regulatory authorities
 
187

 
156

Total restricted cash
 
87,761

 
123,584

Restricted investments – in trust for third party agreements at fair value (amortized cost: 2018 – $1,231,954; 2017 – $1,316,305)
 
1,209,230

 
1,320,800

Restricted investments AFS– in trust for related party agreements at fair value (amortized cost: 2018 – $2,419,659; 2017 – $2,281,672)
 
2,397,262

 
2,294,367

Restricted investments HTM– in trust for related party agreements at fair value (amortized cost: 2018 – $1,071,361; 2017 – $1,097,801)
 
1,069,980

 
1,125,626

Restricted investments – in trust for U.S. state regulatory authorities (amortized cost: 2018 – $4,080; 2017 – $4,076)
 
4,118

 
4,147

Total restricted investments
 
4,680,590

 
4,744,940

Total restricted cash and investments
 
$
4,768,351

 
$
4,868,524

5. Fair Value of Financial Instruments
(a) Fair Values of Financial Instruments
Fair Value Measurements — 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 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. 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: 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: an investment in preference shares of a start-up insurance producer.
The availability of observable inputs can vary 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 provider, the Pricing Service. When quoted market prices are unavailable, the Company utilizes the Pricing Service to determine an estimate of fair value. The fair value estimates are included in the Level 2 hierarchy. The Company will challenge any prices for its investments which are considered not to be representation of fair value. If quoted market prices and an estimate from the Pricing Service are unavailable, the Company produces an estimate of fair value based on dealer

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)
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, 2018 and December 31, 2017.
U.S. government and U.S. agency — 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. 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. 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 securities are 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 included in the Level 2 fair value hierarchy.
Other investments — Includes unquoted investments comprised of investments in limited partnerships and two investments in start-up insurance entities. 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. The fair value of these investments are measured using the NAV practical expedient and therefore have not been categorized within the fair value hierarchy. If there is a reporting lag between the current period end and reporting date of the latest available fund valuation, we estimate fair values by starting with the most recently available valuation and adjusting for return estimates as well as any subscriptions and distributions that took place during the current period. The fair value of the investments in start-up insurance entities was determined using recent private market transactions and as such, the fair value is included in the Level 3 fair value hierarchy.
Cash and cash equivalents (including restricted amounts), accrued investment income, reinsurance balances receivable, and certain other assets and liabilities — The carrying values reported in the Condensed Consolidated Balance Sheets for these financial instruments approximate their fair value due to their short term nature and are classified as Level 2.
Loan to related party — The carrying value reported in the Condensed Consolidated Balance Sheets for this financial instrument approximates its fair value and it is included in the Level 2 hierarchy.
Senior notes The amount reported in the Condensed Consolidated Balance Sheets for these financial instruments represents the carrying value of the notes. The fair values are based on indicative market pricing obtained from a third-party service provider and as such, are included in the Level 2 hierarchy.
(b) Fair Value Hierarchy
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.

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)
At March 31, 2018 and December 31, 2017, we classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
March 31, 2018
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Fair Value Based on NAV Practical Expedient
 
Total Fair Value
AFS fixed maturities
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
9,358

 
$

 
$

 
$

 
$
9,358

U.S. agency bonds – mortgage-backed
 

 
1,988,511

 

 

 
1,988,511

U.S. agency bonds – other
 

 
34,773

 

 

 
34,773

Non-U.S. government and supranational bonds
 

 
36,345

 

 

 
36,345

Asset-backed securities
 

 
353,773

 

 

 
353,773

Corporate bonds
 

 
1,559,398

 

 

 
1,559,398

Municipal bonds
 

 
2,575

 

 

 
2,575

Other investments
 

 

 
1,500

 
4,926

 
6,426

Total
 
$
9,358

 
$
3,975,375

 
$
1,500

 
$
4,926

 
$
3,991,159

As a percentage of total assets
 
0.1
%
 
58.8