Maiden Re(MHLD) - 2019 Q2 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements The financial statements for H1 2019 reflect a company in significant transition, with total assets decreasing and a net loss of $52.0 million Condensed Consolidated Balance Sheets Balance Sheet Summary (as of June 30, 2019 vs. Dec 31, 2018) | Metric | June 30, 2019 ($ thousands) | Dec 31, 2018 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Investments | 3,000,029 | 4,090,965 | (26.7)% | | Total Assets | 4,598,556 | 5,287,460 | (13.0)% | | Total Liabilities | 4,007,984 | 4,732,544 | (15.3)% | | Total Equity | 590,572 | 554,916 | 6.4% | - The significant decrease in total assets and liabilities is primarily due to the strategic restructuring, including the termination of the AmTrust Quota Share agreement, which led to a large reduction in unearned premiums and related assets[10][101] - Total equity increased despite a net loss, driven by a significant positive swing in Accumulated Other Comprehensive Income from $(65.6) million to $21.2 million, reflecting unrealized gains on the investment portfolio[10] Condensed Consolidated Statements of Income Income Statement Highlights (Six Months Ended June 30) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Premiums Earned | 317,088 | 1,021,201 | (68.9)% | | Total Revenues | 394,721 | 1,094,032 | (63.9)% | | Net (Loss) Income from Continuing Operations | (29,999) | 6,813 | N/A | | (Loss) Income from Discontinued Operations | (22,050) | 18,210 | N/A | | Net (Loss) Income | (52,049) | 25,023 | N/A | | Basic & Diluted (Loss) Earnings Per Share | $(0.63) | $0.09 | N/A | - The dramatic drop in Net Premiums Earned is a direct result of the termination of the AmTrust Quota Share and the sale of the U.S. treaty reinsurance operations[12][26][101] - The company swung to a significant net loss, driven by both a loss from continuing operations and a substantial loss from discontinued operations related to the sale of its U.S. business[12][92] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Activity | 2019 ($ thousands) | 2018 ($ thousands) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (503,657) | 56,104 | | Net Cash Provided by Investing Activities | 630,908 | 22,200 | | Net Cash Used in Financing Activities | (13) | (42,208) | - Operating cash flow turned sharply negative, primarily due to a $459.2 million decrease in unearned premiums related to the termination of the AmTrust Quota Share[17][101] - Investing activities provided significant cash inflow of $630.9 million, driven by proceeds from sales of fixed-maturity securities exceeding purchases, likely to fund operational needs and strategic transactions[17] Notes to Condensed Consolidated Financial Statements Notes detail significant corporate actions including U.S. operations sale, AmTrust Quota Share termination, and de-risking transactions - As part of a strategic review, the company sold its U.S. treaty reinsurance operations (Maiden US) to Enstar and terminated its significant quota share agreements with AmTrust[24][26] - The company and its subsidiary Maiden Bermuda failed to meet their Enhanced Capital Requirement (ECR) as of Dec 31, 2018, prompting a series of remediation measures[23] - Subsequent to quarter-end, on July 31, 2019, the company entered into a Loss Portfolio Transfer and Adverse Development Cover (LPT/ADC) agreement with Enstar to assume liabilities from the AmTrust Quota Share in excess of a $2.18 billion retention[133] - Also on July 31, 2019, the company entered into a Commutation and Release Agreement with AmTrust to assume all reserves for specific California and New York workers' compensation business in exchange for a payment of $312.8 million[140][141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation, including U.S. operations sale and AmTrust contract termination Results of Operations For Q2 2019, the company reported a net loss of $15.4 million, driven by discontinued operations and higher underwriting loss Consolidated Performance (Three Months Ended June 30) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net (Loss) Attributable to Common Shareholders | $(15,413) thousand | $(5,913) thousand | | Underwriting Loss | $(39,131) thousand | $(32,035) thousand | | Net Loss and LAE Ratio | 90.2% | 73.1% | | Expense Ratio | 46.4% | 35.0% | | Combined Ratio | 136.6% | 108.1% | - The higher net loss in Q2 2019 was primarily driven by a $18.7 million loss from discontinued operations and an increased underwriting loss, which was impacted by adverse prior year loss development of $26.0 million[177][178] Underwriting Results by Reportable Segment Diversified Reinsurance improved profitability, while AmTrust Reinsurance, now in run-off, reported a substantial underwriting loss Diversified Reinsurance Segment - Q2 Performance | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Underwriting Income (Loss) | $490 thousand | $(174) thousand | | Net Premiums Written | $8,718 thousand | $29,717 thousand | | Combined Ratio | 97.9% | 100.6% | AmTrust Reinsurance Segment - Q2 Performance | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Underwriting Loss | $(39,645) thousand | $(31,861) thousand | | Net Premiums Written | $(9,127) thousand | $491,311 thousand | | Combined Ratio | 135.5% | 106.7% | Liquidity and Capital Resources Liquidity was strained with negative operating cash flow, but post-quarter transactions improved capital ratios - The company experienced negative operating cash flow of $503.7 million in H1 2019, compared to positive $56.1 million in H1 2018, due to the termination of the AmTrust Quota Share[236][237] - As a result of remediation measures, including the LPT/ADC Agreement with Enstar and the Commutation with AmTrust, the Company and Maiden Bermuda met and exceeded their respective ECR ratios as of July 31, 2019[230] - The company has voluntarily undertaken with the Bermuda Monetary Authority (BMA) not to make any capital distributions, including common or preference share dividends, without the BMA's express consent[231] - The duration of the investment portfolio (3.1 years) was shorter than the duration of loss reserves (3.9 years) as of June 30, 2019, a gap expected to narrow following the LPT and commutation agreements[249] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate, credit, and foreign exchange, with significant exposure to interest rate fluctuations Interest Rate Sensitivity Analysis (as of June 30, 2019) | Hypothetical Change in Interest Rates | Estimated Change in Fair Value ($ thousands) | Hypothetical % (Decrease) Increase in Shareholders' Equity | | :--- | :--- | :--- | | 100 basis point increase | (117,992) | (20.0)% | | 100 basis point decrease | 110,066 | 18.6% | - The company's fixed maturity investment portfolio is high quality, with 99.1% of securities rated investment grade as of June 30, 2019[253][275] - Significant counterparty credit risk exists with AmTrust related to funds withheld receivables totaling over $633 million and a $168 million loan[274][279] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal controls - The CEO and CFO concluded that as of the end of the reporting period, the company's disclosure controls and procedures were effective[284] - No changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting occurred during the quarter[285] PART II - Other Information Item 1. Legal Proceedings The company is involved in routine legal proceedings, including a putative class action complaint alleging misrepresentations - A putative class action complaint was filed against Maiden Holdings and certain officers on February 11, 2019, alleging violations of the Exchange Act by making misrepresentations about the company's business, risk management, and underwriting policies[125] Item 1A. Risk Factors No material changes from the risk factors disclosed in the 2018 Form 10-K were reported - No material changes from the risk factors disclosed in the 2018 Form 10-K were reported[288] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program with $74.2 million remaining authorization, but no shares were repurchased in Q2 2019 - No shares were repurchased under the company's publicly announced share repurchase plan in the three months ended June 30, 2019 The remaining authorization is $74.2 million[290][291]