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xbrli:shares iso4217:USD xbrli:shares mhld:Segment xbrli:pure iso4217:USD mhld:security iso4217:EUR
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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 November 2, 2018, the number of the Registrant's Common Stock ($.01 par value) outstanding was 82,942,737.





INDEX
 
 
Page
PART I - Financial Information
 
 
 

 
 
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2018 and 2017 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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)
 
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2018: $2,867,251; 2017: $2,699,297)
 
$
2,781,553

 
$
2,707,516

Fixed maturities, held-to-maturity, at amortized cost (fair value 2018: $1,019,741; 2017: $1,125,626)
 
1,032,885

 
1,097,801

Other investments, at fair value
 
22,586

 
6,600

Total investments
 
3,837,024

 
3,811,917

Cash and cash equivalents
 
94,578

 
54,470

Restricted cash and cash equivalents
 
169,996

 
94,905

Accrued investment income
 
29,658

 
28,798

Reinsurance balances receivable, net (includes $125,046 and $94,597 from related parties in 2018 and 2017, respectively)
 
161,436

 
72,494

Loan to related party
 
167,975

 
167,975

Deferred commission and other acquisition expenses (includes $396,799 and $379,395 from related parties in 2018 and 2017, respectively)
 
419,265

 
380,204

Other assets
 
41,083

 
131,608

Assets held for sale
 
1,615,486

 
1,901,818

Total assets
 
$
6,536,501

 
$
6,644,189

LIABILITIES
 
 
 
 
Reserve for loss and loss adjustment expenses (includes $2,749,601 and $2,337,096 from related parties in 2018 and 2017, respectively)
 
$
2,851,685

 
$
2,386,722

Unearned premiums (includes $1,223,736 and $1,170,397 from related parties in 2018 and 2017, respectively)
 
1,298,933

 
1,230,882

Accrued expenses and other liabilities
 
18,460

 
90,069

Senior notes - principal amount
 
262,500

 
262,500

Less: unamortized debt issuance costs
 
7,860

 
8,018

Senior notes, net
 
254,640

 
254,482

Liabilities held for sale
 
1,339,618

 
1,449,408

Total liabilities
 
5,763,336

 
5,411,563

Commitments and Contingencies
 


 


EQUITY
 
 
 
 
Preference shares
 
465,000

 
465,000

Common shares ($0.01 par value; 87,932,287 and 87,730,054 shares issued in 2018 and 2017, respectively; 82,942,737 and 82,974,895 shares outstanding in 2018 and 2017, respectively)
 
879

 
877

Additional paid-in capital
 
749,214

 
748,113

Accumulated other comprehensive (loss) income
 
(116,369
)
 
13,354

(Accumulated deficit) retained earnings
 
(294,656
)
 
35,472

Treasury shares, at cost (4,989,550 and 4,755,159 shares in 2018 and 2017, respectively)
 
(31,514
)
 
(30,642
)
Total Maiden shareholders’ equity
 
772,554

 
1,232,174

Noncontrolling interests in subsidiaries
 
611

 
452

Total equity
 
773,165

 
1,232,626

Total liabilities and equity
 
$
6,536,501

 
$
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 September 30,

For the Nine Months Ended September 30,
 
 
2018

2017

2018

2017
Revenues
 
 
 
 
 
 
 
 
Gross premiums written
 
$
484,494

 
$
443,001

 
$
1,629,347

 
$
1,650,762

Net premiums written
 
$
482,806

 
$
432,677

 
$
1,626,485

 
$
1,603,414

Change in unearned premiums
 
37,271

 
24,601

 
(85,207
)
 
(90,977
)
Net premiums earned
 
520,077

 
457,278

 
1,541,278

 
1,512,437

Other insurance revenue
 
1,870

 
2,488

 
7,629

 
7,816

Net investment income
 
34,419

 
30,950

 
101,548

 
91,597

Net realized (losses) gains on investment
 
(225
)
 
5,859

 
(282
)
 
8,316

Total other-than-temporary impairment losses
 
(479
)
 

 
(479
)
 

Total revenues
 
555,662

 
496,575

 
1,649,694

 
1,620,166

Expenses
 
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
 
600,296

 
370,847

 
1,323,503

 
1,090,608

Commission and other acquisition expenses
 
167,618

 
145,352

 
497,026

 
487,771

General and administrative expenses
 
18,936

 
15,439

 
48,343

 
38,161

Interest and amortization expenses
 
4,829

 
4,829

 
14,487

 
18,430

Accelerated amortization of senior note issuance cost
 

 

 

 
2,809

Foreign exchange losses (gains)
 
552

 
3,550

 
(1,862
)
 
12,193

Total expenses
 
792,231

 
540,017

 
1,881,497

 
1,649,972

Loss from continuing operations before income taxes
 
(236,569
)
 
(43,442
)
 
(231,803
)
 
(29,806
)
Less: income tax (benefit) expense
 
(7,437
)
 
1,704

 
(930
)
 
(1,978
)
Net loss from continuing operations
 
(229,132
)
 
(45,146
)
 
(230,873
)
 
(27,828
)
Loss from discontinued operations, net of income tax
 
(71,100
)
 
(9,908
)
 
(44,336
)
 
(17,060
)
Net loss
 
(300,232
)
 
(55,054
)
 
(275,209
)
 
(44,888
)
Add: net (income) loss from continuing operations attributable to noncontrolling interests
 
(62
)
 
3

 
(180
)
 
34

Net loss attributable to Maiden
 
(300,294
)
 
(55,051
)
 
(275,389
)
 
(44,854
)
Dividends on preference shares
 
(8,545
)
 
(8,545
)
 
(25,636
)
 
(20,611
)
Net loss attributable to Maiden common shareholders
 
$
(308,839
)
 
$
(63,596
)
 
$
(301,025
)
 
$
(65,465
)
Basic and diluted loss from continuing operations per share attributable to Maiden common shareholders
 
$
(2.86
)
 
$
(0.62
)
 
$
(3.09
)
 
$
(0.56
)
Basic and diluted loss from discontinued operations per share attributable to Maiden common shareholders
 
$
(0.86
)
 
$
(0.12
)
 
$
(0.53
)
 
$
(0.20
)
Basic and diluted loss per share attributable to Maiden common shareholders
 
$
(3.72
)
 
$
(0.74
)
 
$
(3.62
)
 
$
(0.76
)
Dividends declared per common share
 
$
0.05

 
$
0.15

 
$
0.35

 
$
0.45

Weighted average number of common shares - basic and diluted
 
83,089,172

 
85,859,201

 
83,085,441

 
86,256,481


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 September 30,
 
For the Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net loss
 
$
(300,232
)
 
$
(55,054
)
 
$
(275,209
)
 
$
(44,888
)
Other comprehensive (loss) income
 
 
 
 
 
 
 
 
Net unrealized holdings (losses) gains on available-for-sale fixed maturities arising during the period
 
(24,658
)
 
25,019

 
(141,926
)
 
68,798

Adjustment for reclassification of net realized losses (gains) recognized in net income
 
785

 
(3,650
)
 
40

 
1,123

Foreign currency translation adjustment
 
4,458

 
(10,828
)
 
12,123

 
(38,803
)
Other comprehensive (loss) income, before tax
 
(19,415
)
 
10,541

 
(129,763
)
 
31,118

Income tax benefit (expense) related to components of other comprehensive income
 
2

 
(25
)
 
19

 
5

Other comprehensive (loss) income, after tax
 
(19,413
)
 
10,516

 
(129,744
)
 
31,123

Comprehensive loss
 
(319,645
)
 
(44,538
)
 
(404,953
)
 
(13,765
)
Net (income) loss attributable to noncontrolling interests
 
(62
)
 
3

 
(180
)
 
34

Other comprehensive loss (income) attributable to noncontrolling interests
 
3

 
(12
)
 
21

 
(41
)
Comprehensive (income) loss attributable to noncontrolling interests
 
(59
)
 
(9
)
 
(159
)
 
(7
)
Comprehensive loss attributable to Maiden
 
$
(319,704
)
 
$
(44,547
)
 
$
(405,112
)
 
$
(13,772
)

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

5


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(in thousands of U.S. dollars)
For the Nine Months Ended September 30,

2018

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

 
$
315,000

Issuance of Preference Shares – Series D
 

 
150,000

Ending balance
 
465,000

 
465,000

Common shares
 
 
 
 
Beginning balance
 
877

 
873

Exercise of options and issuance of shares
 
2

 
4

Ending balance
 
879

 
877

Additional paid-in capital
 
 
 
 
Beginning balance
 
748,113

 
749,256

Exercise of options and issuance of common shares
 
13

 
1,072

Share-based compensation expense
 
1,088

 
2,194

Issuance costs of Preference Shares - Series D
 

 
(5,058
)
Ending balance
 
749,214

 
747,464

Accumulated other comprehensive (loss) income
 
 
 
 
Beginning balance
 
13,354

 
14,997

Change in net unrealized (losses) gains on investment
 
(141,867
)
 
69,926

Foreign currency translation adjustment
 
12,144

 
(38,844
)
Ending balance
 
(116,369
)
 
46,079

(Accumulated deficit) retained earnings
 
 
 
 
Beginning balance
 
35,472

 
285,662

Net loss attributable to Maiden
 
(275,389
)
 
(44,854
)
Dividends on preference shares
 
(25,636
)
 
(20,611
)
Dividends on common shares
 
(29,103
)
 
(38,687
)
Ending balance
 
(294,656
)
 
181,510

Treasury shares
 
 
 
 
Beginning balance
 
(30,642
)
 
(4,991
)
Shares repurchased
 
(872
)
 
(14,912
)
Ending balance
 
(31,514
)
 
(19,903
)
Noncontrolling interests in subsidiaries
 
 
 
 
Beginning balance
 
452

 
355

Net income (loss) attributable to noncontrolling interests
 
180

 
(34
)
Foreign currency translation adjustment
 
(21
)
 
41

Ending balance
 
611

 
362

Total equity
 
$
773,165

 
$
1,421,389


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

6


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(275,209
)
 
$
(44,888
)
Less: net loss from discontinued operations
 
44,336

 
17,060

Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization and share-based compensation
 
4,774

 
8,464

Net realized losses (gains) on investment
 
282

 
(8,316
)
Total other-than-temporary impairment losses
 
479

 

Foreign exchange (gains) losses
 
(1,862
)
 
12,193

Changes in assets  (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(92,904
)
 
(22,098
)
Accrued investment income
 
(1,000
)
 
1,124

Deferred commission and other acquisition expenses
 
(40,097
)
 
(38,773
)
Other assets
 
91,422

 
(22,804
)
Changes in liabilities  increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
481,227

 
325,221

Unearned premiums
 
72,200

 
94,489

Accrued expenses and other liabilities
 
(66,401
)
 
6,877

Net cash provided by continuing operations
 
217,247

 
328,549

Net cash (used in) provided by discontinued operations
 
(54,624
)
 
46,265

Net cash provided by operating activities
 
162,623

 
374,814

Cash flows from investing activities:
 
 
 
 
Purchases of fixed-maturities – available-for-sale
 
(517,839
)
 
(538,429
)
Purchases of other investments
 
(17,532
)
 
(986
)
Proceeds from sales of fixed-maturities – available-for-sale
 
185,089

 
116,306

Proceeds from maturities, paydowns and calls of fixed maturities – available-for-sale
 
196,275

 
224,940

Proceeds from maturities and calls of fixed maturities – held to maturity
 
62,018

 
20,744

Proceeds from sale and redemption of other investments
 
2,160

 
11,119

Other, net
 
(2,985
)
 
(1,997
)
Net cash used in investing activities for continuing operations
 
(92,814
)
 
(168,303
)
Net cash provided by (used in) investing activities for discontinued operations
 
119,965

 
(16,710
)
Net cash provided by (used in) investing activities
 
27,151

 
(185,013
)
Cash flows from financing activities:
 
 
 
 
Repurchase of common shares, net of issuance
 
(857
)
 
(13,836
)
Dividends paid – Maiden common shareholders
 
(37,400
)
 
(38,935
)
Dividends paid – preference shares
 
(25,636
)
 
(20,611
)
Preference shares, net of issuance costs
 

 
144,942

Redemption of 2012 senior notes
 

 
(100,000
)
Net cash used in financing activities
 
(63,893
)
 
(28,440
)
Effect of exchange rate changes on foreign currency cash and cash equivalents
 
(1,131
)
 
3,379

Net increase in cash and cash equivalents and restricted cash and cash equivalents
 
124,750

 
164,740

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
 
316,253

 
314,275

Less: cash and cash equivalents and restricted cash and cash equivalents of discontinued operations, end of period
 
(51,679
)
 
(88,606
)
Cash and cash equivalents and restricted cash and cash equivalents of continuing operations, end of period
 
$
264,574

 
$
225,669

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
 
$
94,578

 
$
154,152

Restricted cash and cash equivalents, end of period
 
169,996

 
71,517

Total cash and cash equivalents and restricted cash and cash equivalents, end of period
 
$
264,574

 
$
225,669

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 including as discussed below. The effect of these reclassifications had no impact on previously reported shareholders' equity or net income (loss).

Discontinued Operations
As part of the strategic review initiated by the Company's Board of Directors earlier in 2018, during the third quarter of 2018, the Company made the strategic decision to divest its U.S. reinsurance treaty operations. Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate to the Company's continuing operations except for net loss, net loss attributable to Maiden and net loss attributable to Maiden common shareholders. Please see “Note 8. Discontinued Operations" for additional information related to discontinued operations. All prior years presented in the Condensed Consolidated Financial Statements have been reclassified to conform to this new presentation.
Background
On August 29, 2018, the Company announced that it had entered into a Renewal Rights Agreement ("Renewal Rights"), dated as of August 29, 2018, with Transatlantic Reinsurance Company ("TransRe"), pursuant to which the Company agreed to sell, and TransRe agreed to purchase, Maiden Reinsurance North America, Inc.'s ("Maiden US") rights to: (i) renew Maiden US’s treaty reinsurance agreements upon their expiration or cancellation, (ii) solicit renewals of and replacement coverages for the treaty reinsurance agreements and (iii) replicate and use the products and contract forms used in Maiden US’s business. The sale was consummated on August 29, 2018. The payment received for the sale of the Renewal Rights was $7,500 subject to potential additional amounts payable in the future in accordance with the agreement.
On August 31, 2018, the Company announced that its subsidiary, Maiden Holdings North America, Ltd. ("Maiden NA"), entered into a sale agreement ("Master Transaction Agreement") dated as of August 31, 2018, with Enstar Group Limited ("Enstar"), pursuant to which Maiden NA agreed to sell, and Enstar agreed to purchase Maiden NA’s subsidiary Maiden US. Pursuant to and subject to the terms of the Master Transaction Agreement:
(i)Maiden NA will sell, and Enstar will purchase, all of the share capital of Maiden US (the “Maiden US Sale”) for a price of $321,500, which is subject to certain closing adjustments;
(ii)Cavello Bay Reinsurance Limited ("Cavello"), Enstar’s Bermuda reinsurance affiliate, and Maiden Reinsurance Ltd. ("Maiden Bermuda"), the Company’s Bermuda reinsurance subsidiary, will enter into a novation agreement pursuant to which certain assets and liabilities associated with the Company’s U.S. treaty reinsurance business held by Maiden Bermuda will be novated for a ceding commission payable by Maiden Bermuda of $12,250;
(iii)Cavello and Maiden Bermuda will enter into a retrocession agreement pursuant to which certain assets and liabilities associated with the Motors Insurance business held by Maiden Bermuda will be retroceded to Cavello in exchange for a $1,750 ceding commission; and
(iv)Maiden Bermuda will provide Enstar with adverse loss reserve development cover up to a maximum of $25,000 when losses are more than $100,000 in excess of the net loss and loss adjustment expenses recorded as of June 30, 2018, for no additional consideration.
The transactions contemplated by the Master Transaction Agreement are expected to close in the fourth quarter of 2018 subject to regulatory approvals and customary closing conditions. The Company’s current analysis indicates that the conditions to redeem the 2013 Senior Notes as stipulated by the securities may exist. Should final analysis support such a conclusion, the Company expects to redeem all of the $152,500 2013 Senior Notes at that time pursuant to the terms of the underlying securities.
The assets and liabilities related to the sale of Maiden US were classified as held for sale in the Condensed Consolidated Balance Sheets as at September 30, 2018 and reclassified as held for sale as at December 31, 2017. The operations of the Company's U.S. reinsurance treaty business have been reported as discontinued operations in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017 since the Company has determined that the divestiture


8

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 (continued)
represents a strategic shift that will have a major effect on its ongoing operations and financial results and all of the held for sale criteria have been met. Please refer to "Note 8. Discontinued Operations" for additional information regarding the effect of the reclassifications on the Company's Condensed Consolidated Financial Statements.
Segments
As a result of the strategic decision to divest all of the Company's U.S. treaty reinsurance operations noted above, the Company has revised the composition of its reportable segments. As described in more detail below under “Note 3. Segment Information”, the reportable segments include: (i) Diversified Reinsurance which consists of a portfolio of property and casualty reinsurance business focusing on regional and specialty property and casualty insurance companies located primarily in Europe; and (ii) AmTrust Reinsurance which includes all business ceded to the Company from subsidiaries of AmTrust Financial Services Inc. ("AmTrust"). In addition to these reportable segments, the results of operations of the former National General Holdings Corporation Quota Share ("NGHC Quota Share") segment is included in the "Other" category. All prior periods presented have been reclassified to conform to this new presentation.
For the three and nine months ended September 30, 2018, the Company's AmTrust Reinsurance segment accounted for 93.5% and 93.2%, respectively (2017 - 94.8% and 95.5%, respectively), of the Company's total consolidated gross premiums written.
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 and nine months ended September 30, 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 Condensed 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 condensed 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. 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 share based payment awards.
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. 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"). 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 $465 of net unrealized losses and $358 of net unrealized gains on our investments in limited partnerships within net income during the three and nine months ended September 30, 2018, respectively. 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

9

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)
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 any 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.
Recently Issued Accounting Standards Not Yet Adopted
Improvements to Non-employee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07 guidance that simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the guidance, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees as the board viewed the awards to both employees and non-employees to be economically similar and that two different accounting models are not justified. Under the new guidance, i) non-employee share-based payment awards should be measured at the grant date fair value rather than the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured, ii) the measurement date for equity classified non-employee share-based payment awards is at the grant date and not the earlier of the date at which a commitment for performance by the counterparty is reached and the date at which the counterparty's performance is complete, and iii) entities should consider the probability of satisfying the performance conditions when awards contain such conditions. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but not earlier than an entity's adoption date of Topic 606. The Company is currently evaluating the impact of this guidance on the Company's results of operations and financial position; however, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Codification Improvements
In July 2018, the FASB issued ASU 2018-09 which includes clarifications to existing codifications or corrections of unintended application of guidance that is not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments in this update include items raised for board consideration through the codification's feedback system that met the scope of this project, making due process necessary. The amendments affect a wide variety of topics in the codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. None of the topics deemed applicable have a material impact in the Company's interim consolidated financial statements. However, the Company is currently evaluating the impact of applicable sections on its results of operations and financial position once those sections are adopted beginning after December 15, 2018.
Codification Improvements to Topic 842, Leases
In July 2018, the FASB issued ASU 2018-11 for targeted improvements related to Update 2016-02 which provides entities with an additional transition method to apply the new standard. Under the new optional transition method, an entity initially applies ASC 842 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Updates related to Topic 842 become effective for the Company during the first quarter of 2019 and will be applied using a modified retrospective approach. The Company intends to elect the new transition method permitted by ASU No. 2018-11.
The Company's future minimum lease payments, which represent minimum annual rental commitments excluding taxes, insurance and other operating costs for non-cancellable operating leases, and which will be subject to this new guidance, will be recorded on the Company's consolidated balance sheets as a lease liability with a corresponding right-of-use asset. However, under this guidance, the Company shall continue to recognize the related leasing expense within net income. Therefore, adoption of this standard will impact the Company’s consolidated balance sheets but is not expected to have a material impact on the Company’s results of operations or cash flows.

10

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)
Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13 for changes to the disclosure framework related to Topic 820 which amends the disclosure requirements for fair value measurement. The following disclosure requirements were removed from Topic 820: (i) amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) policy for timing of transfers between levels, and (iii) valuation processes for Level 3 fair value measurements. The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added to Topic 820: (i) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. These amendments only impact disclosures made in "Note 5. Fair Value Measurements" therefore, the adoption of this standard will not impact the Company’s consolidated balance sheets, results of operations or cash flows.
 
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 Europe. Our AmTrust Reinsurance segment includes all business ceded to our wholly owned subsidiary, Maiden Bermuda, from 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 NGHC Quota Share segment have been included in the "Other" category. Please refer to "Note 10. Related Party Transactions" for additional information.
As a result of the strategic decision to divest all of the Company's U.S. treaty reinsurance operations as discussed in "Note 1. Basis of Presentation" and "Note 8. Discontinued Operations", the Company has revised the composition of its reportable segments. Previously, the underwriting results associated with the discontinued operations of the Company's U.S. treaty reinsurance business were included within the Diversified Reinsurance segment and the operating results associated with the remnants of the U.S. excess and surplus business were included within the Other category. These are now excluded and all prior periods presented have been reclassified to conform to this new presentation.
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, deferred commission and other acquisition expenses, loans, restricted cash and cash equivalents and investments and reinsurance recoverable on paid and unpaid losses, unearned reinsurance premiums ceded and funds withheld receivable (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 loss from continuing operations:















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)
For the Three Months Ended September 30, 2018
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
31,699

 
$
452,795

 
$

 
$
484,494

Net premiums written
 
$
31,291

 
$
451,515

 
$

 
$
482,806

Net premiums earned
 
$
28,784

 
$
491,293

 
$

 
$
520,077

Other insurance revenue
 
1,870

 

 

 
1,870

Net loss and loss adjustment expenses ("loss and LAE")
 
(19,764
)
 
(579,163
)
 
(1,369
)
 
(600,296
)
Commission and other acquisition expenses
 
(8,961
)
 
(158,657
)
 

 
(167,618
)
General and administrative expenses
 
(4,256
)
 
(952
)
 

 
(5,208
)
Underwriting loss
 
$
(2,327
)
 
$
(247,479
)
 
$
(1,369
)
 
(251,175
)
Reconciliation to net loss from continuing operations
 
 
 
 
 
 
 
 
Net investment income and realized losses on investment
 
 
 
 
 
 
 
34,194

Total other-than-temporary impairment losses
 
 
 
 
 
 
 
(479
)
Interest and amortization expenses
 
 
 
 
 
 
 
(4,829
)
Foreign exchange losses
 
 
 
 
 
 
 
(552
)
Other general and administrative expenses
 
 
 
 
 
 
 
(13,728
)
Income tax benefit
 
 
 
 
 
 
 
7,437

Net loss from continuing operations
 
 
 
 
 
 
 
$
(229,132
)
 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
64.5
%
 
117.9
%
 
 
 
115.0
%
Commission and other acquisition expense ratio(2)
 
29.2
%
 
32.3
%
 
 
 
32.1
%
General and administrative expense ratio(3)
 
13.9
%
 
0.2
%
 
 
 
3.6
%
Expense ratio(4)
 
43.1
%
 
32.5
%
 
 
 
35.7
%
Combined ratio(5)
 
107.6
%
 
150.4
%
 
 
 
150.7
%

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 Information (continued)
For the Three Months Ended September 30, 2017
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
22,982

 
$
420,019

 
$

 
$
443,001

Net premiums written
 
$
22,484

 
$
410,193

 
$

 
$
432,677

Net premiums earned
 
$
20,925

 
$
436,353

 
$

 
$
457,278

Other insurance revenue
 
2,488

 

 

 
2,488

Net loss and LAE
 
(13,979
)
 
(355,030
)
 
(1,838
)
 
(370,847
)
Commission and other acquisition expenses
 
(6,702
)
 
(138,650
)
 

 
(145,352
)
General and administrative expenses
 
(4,158
)
 
(771
)
 

 
(4,929
)
Underwriting loss
 
$
(1,426
)
 
$
(58,098
)
 
$
(1,838
)
 
(61,362
)
Reconciliation to net loss from continuing operations
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
36,809

Interest and amortization expenses
 
 
 
 
 
 
 
(4,829
)
Foreign exchange losses
 
 
 
 
 
 
 
(3,550
)
Other general and administrative expenses
 
 
 
 
 
 
 
(10,510
)
Income tax expense
 
 
 
 
 
 
 
(1,704
)
Net loss from continuing operations
 
 
 
 
 
 
 
$
(45,146
)
 
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
59.7
%
 
81.4
%
 
 
 
80.6
%
Commission and other acquisition expense ratio(2)
 
28.6
%
 
31.7
%
 
 
 
31.6
%
General and administrative expense ratio(3)
 
17.8
%
 
0.2
%
 
 
 
3.4
%
Expense ratio(4)
 
46.4
%
 
31.9
%
 
 
 
35.0
%
Combined ratio(5)
 
106.1
%
 
113.3
%
 
 
 
115.6
%


13

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

3. Segment Information (continued)
For the Nine Months Ended September 30, 2018
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
111,139

 
$
1,518,208

 
$

 
$
1,629,347

Net premiums written
 
$
109,279

 
$
1,517,206

 
$

 
$
1,626,485

Net premiums earned
 
$