Maiden Re(US:MHLD)2021-11-09 21:06PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance Condensed Consolidated Balance Sheets Total assets and shareholders' equity declined significantly, driven by reduced investments and cash Condensed Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 (Audited) | Change | | :----------------------------------- | :----------------------- | :--------------------- | :------- | | Total Assets | $2,455,018 | $2,948,455 | $(493,437) | | Total Liabilities | $2,071,844 | $2,420,639 | $(348,795) | | Total Shareholders' Equity | $383,174 | $527,816 | $(144,642) | | Investments (Total) | $953,268 | $1,320,307 | $(367,039) | | Reserve for loss and LAE | $1,567,526 | $1,893,299 | $(325,773) | - The decrease in total assets was primarily due to a reduction in investments and cash, reflecting the company's run-off strategy and negative operating cash flows11263 Condensed Consolidated Statements of Income Net income decreased despite a significant gain from preference share repurchases, as total revenues fell by nearly 50% Condensed Consolidated Statements of Income Highlights (in thousands of U.S. dollars, except per share data) | Metric | 9M Ended Sep 30, 2021 | 9M Ended Sep 30, 2020 | Change | Change (%) | | :------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | Net (Loss) Income | $14,258 | $32,235 | $(17,977) | (55.8)% | | Gain from repurchase of preference shares | $87,168 | — | $87,168 | NM | | Net Income Available to Common Shareholders | $101,426 | $32,235 | $69,191 | 214.6% | | Total Revenues | $73,661 | $144,438 | $(70,777) | (49.0)% | | Net Premiums Earned | $40,106 | $76,828 | $(36,722) | (47.8)% | | Net Investment Income | $24,596 | $44,959 | $(20,363) | (45.3)% | | Basic and Diluted EPS | $1.17 | $0.38 | $0.79 | 207.9% | - The significant increase in Net Income Available to Common Shareholders and EPS for 9M 2021 was primarily driven by the $87.2 million gain from the repurchase of preference shares13210 Condensed Consolidated Statements of Comprehensive Income The company reported a comprehensive loss due to substantial unrealized holding losses on investments Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands of U.S. dollars) | Metric | 9M Ended Sep 30, 2021 | 9M Ended Sep 30, 2020 | Change | | :---------------------------------------------------------------- | :-------------------- | :-------------------- | :------- | | Net (Loss) Income | $14,258 | $32,235 | $(17,977) | | Other comprehensive (loss) income, after tax | $(28,716) | $(3,879) | $(24,837) | | Comprehensive (Loss) Income | $(14,458) | $28,356 | $(42,814) | - Net unrealized holdings losses on fixed maturity investments and equity method investments were significant contributors to the comprehensive loss in 9M 202115 Condensed Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity decreased primarily due to significant repurchases of preference shares Condensed Consolidated Statements of Changes in Shareholders' Equity Highlights (in thousands of U.S. dollars) | Metric | 9M Ended Sep 30, 2021 | 9M Ended Sep 30, 2020 | Change | | :------------------------------------------------ | :-------------------- | :-------------------- | :------- | | Preference shares (Ending balance) | $167,418 | $465,000 | $(297,582) | | Repurchase of Preference Shares (Total) | $(226,892) | — | $(226,892) | | Accumulated other comprehensive (loss) income (Ending balance) | $(4,859) | $13,957 | $(18,816) | | Accumulated deficit (Ending balance) | $(514,512) | $(663,559) | $149,047 | | Total Shareholders' Equity (Ending balance) | $383,174 | $538,086 | $(154,912) | - The substantial decrease in preference shares is a direct result of the company's 2021 Preference Share Repurchase Program1789 Condensed Consolidated Statements of Cash Flows Significant cash outflows from operating and financing activities led to a net decrease in cash Condensed Consolidated Statements of Cash Flows Highlights (in thousands of U.S. dollars) | Metric | 9M Ended Sep 30, 2021 | 9M Ended Sep 30, 2020 | Change | | :------------------------------------------ | :-------------------- | :-------------------- | :------- | | Net cash used in operating activities | $(299,750) | $(447,664) | $147,914 | | Net cash provided by investing activities | $344,206 | $528,677 | $(184,471) | | Net cash used in financing activities | $(128,988) | $(1) | $(128,987) | | Net (decrease) increase in cash, restricted cash and cash equivalents | $(84,865) | $82,617 | $(167,482) | | Cash, restricted cash and cash equivalents, end of period | $50,961 | $189,895 | $(138,934) | - Cash flows used in financing activities were primarily driven by the repurchase of preference shares ($132.2 million) in 9M 202119278 - Operating cash outflows are a result of claims payments from terminated reinsurance contracts as the company runs off its liabilities268275 Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, segment data, and key developments including share repurchases and run-off activities - Maiden Reinsurance re-domesticated from Bermuda to Vermont in March 2020 to better align capital and resources with U.S.-originated liabilities, strengthening capital position and solvency ratios28 - The company's exposure to COVID-19 insurance and reinsurance claims is assessed as limited and immaterial due to its run-off strategy, though market conditions could impact the investment portfolio3132 Preference Share Repurchases (9M Ended Sep 30, 2021) | Series | Number of Shares Purchased | Average Price per Share | | :------- | :------------------------- | :---------------------- | | Series A | 3,519,093 | $14.74 | | Series C | 2,917,244 | $14.44 | | Series D | 2,639,336 | $14.45 | | Total | 9,075,673 | $14.56 | - Net favorable prior year loss development of $23,713 thousand was recognized for the nine months ended September 30, 2021, primarily within the AmTrust Reinsurance segment106108 - The LPT/ADC Agreement with Cavello Bay Reinsurance Limited provides $155,000 thousand in adverse development cover over AmTrust Quota Share loss reserves, with amortization of deferred gain expected to begin in 2024102 - The company has unfunded commitments of $101,431 thousand on other investments and $26,949 thousand on equity method investments, and has provided $33,191 thousand in guarantees for real estate joint ventures, with a remote likelihood of loss144147 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The company's strategy focuses on asset management and legacy solutions while running off its reinsurance liabilities - Maiden Holdings' strategy focuses on active asset and capital management, including ownership and management of businesses/assets in insurance and financial services, and providing legacy services to small insurance companies, particularly those in run-off164176 - The company is not actively underwriting new reinsurance business; its historic reinsurance programs, including those with AmTrust, are in run-off166176 Summary Consolidated Statement of Income Data (9M Ended Sep 30, 2021 vs 2020) | Metric | 9M Ended Sep 30, 2021 | 9M Ended Sep 30, 2020 | Change | Change (%) | | :------------------------------------------ | :-------------------- | :-------------------- | :------- | :--------- | | Net income attributable to common shareholders | $101,426 | $32,235 | $69,191 | 214.6% | | Basic and diluted EPS | $1.17 | $0.38 | $0.79 | 207.9% | | Gross premiums written | $7,865 | $20,233 | $(12,368) | (61.1)% | | Net premiums earned | $40,106 | $76,828 | $(36,722) | (47.8)% | | Underwriting income (loss) | $6,377 | $(308) | $6,685 | NM | | Net investment income | $24,596 | $44,959 | $(20,363) | (45.3)% | | Combined ratio | 137.0% | 124.6% | 12.4 pts | 9.9% | Consolidated Financial Condition (Sep 30, 2021 vs Dec 31, 2020) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :------------------------------------ | :----------- | :----------- | :------- | :--------- | | Total investments and cash equivalents | $1,004,229 | $1,456,133 | $(451,904) | (31.0)% | | Total assets | $2,455,018 | $2,948,455 | $(493,437) | (16.7)% | | Reserve for loss and LAE | $1,567,526 | $1,893,299 | $(325,773) | (17.2)% | | Common shareholders' equity | $215,756 | $133,506 | $82,250 | 61.6% | | Total shareholders' equity | $383,174 | $527,816 | $(144,642) | (27.4)% | | Book value per common share | $2.50 | $1.57 | $0.93 | 59.2% | - Net premiums written for the nine months ended September 30, 2021, decreased by 57.0% to $7.5 million, primarily due to the run-off of German Auto Programs and the termination of AmTrust reinsurance contracts213 - Net investment income decreased by 45.3% for the nine months ended September 30, 2021, due to a 25.8% decline in average fixed income assets and lower annualized average book yields (1.9% vs 2.4%)218219 - Net cash used in operating activities for the nine months ended September 30, 2021, was $299.8 million, primarily due to claims payments from terminated AmTrust contracts275 - The company utilized $132.2 million for the repurchase of 9,075,673 preference shares during the nine months ended September 30, 2021, under the 2021 Preference Share Repurchase Program278324 - The ratio of debt to total capital resources increased to 40.7% at September 30, 2021, from 33.2% at December 31, 2020329 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Disclosure controls and procedures were effective as of September 30, 2021358 - No material changes in internal controls over financial reporting occurred during the most recent fiscal quarter359 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is defending itself against a whistle-blower claim and a class action complaint regarding loss reserves - An administrative law judge denied a whistle-blower complaint, but the former COO filed a petition for review with the Administrative Review Board151 - A motion to dismiss a class action complaint alleging inadequate loss reserves and misrepresentations was partially denied, and limited discovery is proceeding152 Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the 2020 Annual Report - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020363 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company continued its preference share repurchase program in Q3 2021 while making no common share repurchases - Remaining authorization for common share repurchases was $74,245 thousand at September 30, 2021, with no repurchases made in Q3 2021364 Preference Share Repurchases (3M and 9M Ended Sep 30, 2021) | Metric | 3M Ended Sep 30, 2021 | 9M Ended Sep 30, 2021 | | :-------------------------------- | :-------------------- | :-------------------- | | Total shares purchased | 558,636 | 9,075,673 | | Total price paid (in millions) | $7.5 | $132.2 | | Gain on purchase (in millions) | $6.0 | $87.2 | - Remaining authorization for preference share repurchases was $17,847 thousand at September 30, 2021, with additional repurchases of $544 thousand made subsequent to quarter-end368369370 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities371 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable372 Item 5. Other Information Directors and executives may sell common shares under pre-arranged Rule 10b5-1 trading plans - Directors and executives may sell common shares under Rule 10b5-1 plans for diversification or liquidity, without reducing ownership below applicable guidelines373 Item 6. Exhibits This section lists the exhibits filed with the report, including CEO/CFO certifications and XBRL data - Includes Section 302 and 906 Certifications of CEO and CFO374 - Includes Inline XBRL formatted Condensed Consolidated Financial Statements374 Signatures The report is duly signed by the company's Co-Chief Executive Officers - Report signed by Lawrence F. Metz (President and Co-Chief Executive Officer) and Patrick J. Haveron (Co-Chief Executive Officer and Chief Financial Officer)378