Maiden Re(MHLD) - 2021 Q4 - Annual Report

PART I Special Note About Forward-Looking Statements This section cautions that the 10-K report contains forward-looking statements based on current plans and expectations, with actual results potentially differing due to risks detailed in 'Risk Factors', and the company undertakes no obligation to update them unless legally required - Forward-looking statements are identified by words like 'anticipate', 'believe', 'expect', 'predict', 'estimate', 'intend', 'plan', 'project', 'seek', 'potential', 'possible', 'could', 'might', 'may', 'should', 'will', 'would', 'will be', 'will continue', 'will likely result' and similar expressions[11] - Actual results may differ materially from projections due to risks and uncertainties, and readers should not place undue reliance on forward-looking statements[11][12] Risk Factor Summary This section summarizes principal risks, including volatile operating results, strategy implementation challenges, potential for loss reserve shortfalls, reinsurer non-payment, investment volatility, and regulatory compliance costs, which could materially impact financial performance - The company has experienced volatile operating results and cannot assure future profitability or return to active underwriting[15] - Management's inability to successfully implement its business strategy could adversely affect financial condition and operations[15] - Actual losses may exceed reserves for loss and loss adjustment expenses (LAE)[15] - Reinsurers may fail to pay losses in a timely manner or at all[15] - Significant invested assets are subject to interest rate changes and market volatility, potentially affecting financial condition and results[16] - The company does not anticipate paying cash dividends on common shares for the foreseeable future, and preference share dividends may not resume[16] - The industry is highly regulated, and compliance is expensive; failure to comply could have a material adverse effect[16] Business Maiden Holdings, a Bermuda-based holding company, focuses on asset and capital management, providing legacy services to small insurers and short-term income protection in Northern Europe, while actively underwriting retroactive risks via GLS General Overview Recent Developments Business Strategy Our Principal Operating Subsidiaries Our Reportable Segments Diversified Reinsurance Segment AmTrust Reinsurance Segment Risk Management Reserve for Loss and LAE Our Financial Strength Rating Our Employees Regulatory Matters U.S. Insurance Regulation Sweden Insurance Regulation United Kingdom Insurance Regulation Certain Bermuda Law Considerations The Terrorism Risk Insurance Program Reauthorization Act of 2015 Taxation of the Company and its Subsidiaries Bermuda Sweden United Kingdom United States of America Where You Can Find More Information - Maiden Holdings is a Bermuda-based holding company that creates shareholder value by actively managing and allocating assets and capital, primarily in insurance and related financial services[17] - The company provides legacy services to small insurance companies, particularly those in run-off or with non-core reserve blocks, through Genesis Legacy Solutions (GLS)[17][27] - Short-term income protection business is written on a primary basis by wholly-owned subsidiaries Maiden Life Försäkrings AB (Maiden LF) and Maiden General Försäkrings AB (Maiden GF) in Scandinavian and Northern European markets[18][26] - The company ceased active reinsurance underwriting on new prospective risks but is actively underwriting risks on a retroactive basis through GLS[19] - Maiden Reinsurance, the principal operating subsidiary, re-domesticated from Bermuda to Vermont, U.S., on March 16, 2020, to better align capital and resources with U.S.-originating liabilities[24] Risk Factors This section details significant risks across business operations, liquidity, capital, regulatory compliance, governance, employee issues, international operations, key partner relationships, and taxation, which could materially impact the company's financial performance Introduction Business Risks Liquidity, Capital Resources and Investments Risks Regulation Risks Corporate Governance and Risks Related to an Investment in our Securities Employee Issues International Operations Risks Relationship with AmTrust Risks Insurance and Reinsurance Markets Risks Taxation Risks Clients, Brokers and Financial Institutions Risks - The company has experienced volatile operating results and cannot guarantee future operating profitability or a return to active underwriting of new prospective reinsurance risks[93] - The inability to successfully implement the new business strategy, including the growth of Genesis Legacy Solutions (GLS), could adversely affect capital and financial results[96] - Actual losses may exceed the established reserves for loss and loss adjustment expenses (LAE), potentially by material amounts, despite reinsurance protection[100][105] - The company relies on dividends and payments from subsidiaries for liquidity, which are subject to regulatory approvals and restrictions, potentially limiting its ability to meet obligations[127] - A significant portion of invested assets is subject to interest rate changes and market volatility, which could adversely affect financial condition and results if investment objectives are not met[130] - The company does not anticipate paying cash dividends on common shares for the foreseeable future, and there is no assurance that dividends on Preference Shares will resume[146][147] - Significant changes in the reinsurance relationship with AmTrust have reduced current and future revenues and create uncertainty for future liquidity sources[208][209] - The property and casualty insurance and reinsurance industry is cyclical, and negative developments in the U.S. workers' compensation sector could adversely affect financial performance[216][219] - The company may become subject to U.S. federal income tax or increased U.K. taxes, which would have an adverse effect on its financial condition and operating results[228][242] Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[255] Properties The company leases office space in Bermuda (corporate headquarters), the U.K., and Germany, which it deems sufficient for foreseeable operations, with acquisition and maintenance costs not being material - The company leases office space in Pembroke, Bermuda (corporate headquarters), the U.K., and Germany[256] - The leased office space is considered sufficient for conducting operations for the foreseeable future[256] - The cost of acquiring and maintaining office space has not been material to the company as a whole[256] Legal Proceedings The company is involved in routine legal proceedings, including arbitrations, not expected to materially affect its financial position, with specific ongoing cases including a whistleblower claim and a putative class action - The company is subject to routine legal proceedings, including arbitrations, in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition or results of operations[258][259] - A whistleblower claim by former COO Bentzion S. Turin, alleging retaliatory termination, was denied in full by an Administrative Law Judge in September 2021, but Mr. Turin filed a petition for review[260] - A putative class action complaint was filed in February 2019, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 due to allegedly inadequate loss reserves and misrepresentations, with a motion to dismiss partially denied in August 2021[261] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[262] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on NASDAQ, with no dividends since Q3 2018, and a remaining $74.2 million common share repurchase authorization currently precluded by unpaid preference share dividends, while 2021 saw significant preference share repurchases - Common shares trade on the NASDAQ Capital Market under the symbol 'MHLD'[265] - No dividends have been declared on common shares since the third quarter of 2018[266] - The company has a remaining authorization of $74.2 million for common share repurchases but is currently precluded from repurchasing common shares due to its failure to pay dividends on Preference Shares[267][476] Preference Share Repurchases (2021 vs. 2020) | For the Year Ended December 31, | 2021 | 2020 | | :------------------------------ | :--- | :--- | | Number of shares purchased | 9,404,012 | 2,827,595 | | Average price of shares purchased | $14.48 | $10.50 | | Total price paid | $136,155 | $29,690 | | Gain on purchase | $90,998 | $38,195 | - As of December 31, 2021, the company had a remaining authorization of $13.8 million for Preference Share repurchases[269] Management's Discussion and Analysis of Financial Condition and Results of Operation This section analyzes the company's 2021 and 2020 financial condition, operations, and liquidity, focusing on strategic shifts, AmTrust reinsurance run-off, COVID-19 impacts, key metrics, accounting policies, segment performance, and capital resources Overview Recent Developments Business Strategy COVID-19 Pandemic 2021 and 2020 Financial Highlights Summary Consolidated Statement of Income Data (2021 vs. 2020) | For the Year Ended December 31, | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | | :------------------------------ | :-------------------- | :-------------------- | :---------------------- | | Net income | 26,645 | 41,762 | (15,117) | | Gain from repurchase of preference shares | 90,998 | 38,195 | 52,803 | | Net income attributable to Maiden common shareholders | 117,643 | 79,957 | 37,686 | | Basic and diluted earnings per common share | 1.35 | 0.93 | 0.42 | | Gross premiums written | 10,938 | 31,389 | (20,451) | | Net premiums earned | 52,993 | 106,081 | (53,088) | | Underwriting income | 11,572 | 17,274 | (5,702) | | Net investment income | 32,013 | 54,761 | (22,748) | | Combined ratio | 126.1 % | 111.4 % | 14.7 | Consolidated Financial Condition (2021 vs. 2020) | At December 31, | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | | :------------------------------ | :-------------------- | :-------------------- | :---------------------- | | Total investments and cash and cash equivalents | 888,699 | 1,456,133 | (567,434) | | Total assets | 2,322,610 | 2,948,455 | (625,845) | | Reserve for loss and LAE | 1,489,373 | 1,893,299 | (403,926) | | Senior notes - principal amount | 262,500 | 262,500 | — | | Common shareholders' equity | 225,047 | 133,506 | 91,541 | | Shareholders' equity | 384,257 | 527,816 | (143,559) | | Total capital resources | 646,757 | 790,316 | (143,559) | | Ratio of debt to total capital resources | 40.6 % | 33.2 % | 7.4 | | Book value per common share | $2.60 | $1.57 | $1.03 | Key Financial Measures Revenues Expenses Non-GAAP Financial Measures Critical Accounting Policies and Estimates Reserve for Loss and LAE Premiums and Commissions and Other Acquisition Expenses Retroactive Reinsurance Fair Value of Financial Instruments Other-Than-Temporary Impairment ("OTTI") of Investments Results of Operations Net Income Net Premiums Written Net Premiums Earned Other Insurance Revenue Net Investment Income Net Realized and Unrealized Gains on Investment Net Impairment Losses Recognized in Earnings Interest in Income of Equity Method Investments Net Loss and Loss Adjustment Expenses Commission and Other Acquisition Expenses General and Administrative Expenses Interest and Amortization Expenses Foreign Exchange and Other (Gains) Losses Income Tax Expense (Benefit) Underwriting Results by Reportable Segment Diversified Reinsurance Segment AmTrust Reinsurance Segment Liquidity and Capital Resources Liquidity Operating, investing and financing cash flows Restrictions, Collateral and Specific Requirements Cash and Investments Cash & Cash Equivalents Fixed Maturity Investments Other Investments and Equity Method Investments Investment Results Other Balance Sheet Changes Capital Resources Common Shares Preference Shares Senior Notes Off-Balance Sheet Arrangements Non-GAAP Financial Measures Non-GAAP operating earnings and Non-GAAP diluted operating earnings per share attributable to common shareholders Non-GAAP Operating ROACE Non-GAAP Underwriting Results and Combined Ratio Non-GAAP Net Loss and LAE Adjusted Shareholders' Equity, Adjusted Total Capital Resources, Adjusted Book Value per Common Share and Ratio of Debt to Total Adjusted Capital Resources Currency and Foreign Exchange Effects of Inflation Recent Accounting Pronouncements - Maiden Holdings is a Bermuda-based holding company focused on active asset and capital management, including ownership and management of businesses and assets primarily in the insurance and related financial services industries[273] - The company provides legacy services to small insurance entities, particularly those in run-off or with non-core reserve blocks, through Genesis Legacy Solutions (GLS), which commenced its first transaction in October 2021[273][287][289] - Maiden Reinsurance re-domesticated from Bermuda to Vermont, U.S., in March 2020, strengthening the company's capital position and solvency ratios and aligning resources with U.S.-originating liabilities[278] - The company's strategic focus is on asset management, legacy underwriting, and capital management to maximize risk-adjusted shareholder returns and increase book value[283] - The COVID-19 pandemic has caused significant disruption, but the company assesses its exposure to COVID-19 insurance and reinsurance claims as limited and immaterial, though investment portfolio impacts and liquidity reductions remain potential risks[293][294][295] Financial Statements and Supplementary Data This section incorporates the company's audited consolidated financial statements, including balance sheets, income statements, and cash flows for 2021 and 2020, along with the Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1 — Organization Note 2 — Significant Accounting Policies Note 3 — Segment Information Note 4 — Investments Note 5 — Fair Value Measurements Note 6 — Shareholders' Equity Note 7 — Long-Term Debt Note 8 — Reinsurance Note 9 — Reserve for Loss and Loss Adjustment Expenses Note 10 — Related Party Transactions Note 11 — Commitments, Contingencies and Guarantees Note 12 — Earnings Per Common Share Note 13 — Income Taxes Note 14 — Share Compensation and Pension Plans Note 15 — Statutory Requirements and Dividend Restrictions Note 16 - Subsequent Events - The consolidated financial statements for the years ended December 31, 2021 and 2020 are included, presenting the financial position, results of operations, and cash flows in conformity with U.S. GAAP[513][563] - The Report of Independent Registered Public Accounting Firm (Ernst & Young LLP) expressed an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[527][564] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in and disagreements with accountants on accounting and financial disclosure[514] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified audit opinion from Ernst & Young LLP - The company's disclosure controls and procedures were effective as of December 31, 2021[516] - Management concluded that the internal control over financial reporting was effective as of December 31, 2021, based on criteria established in the COSO 2013 framework[520] - Ernst & Young LLP issued an unqualified audit opinion on the company's internal control over financial reporting as of December 31, 2021[521][526] - No material changes were made in internal controls over financial reporting during the fourth quarter ended December 31, 2021[522] Other Information The company reported no other information required by this item - No other information is reported[534] PART III Directors, Executive Officers and Corporate Governance This section incorporates by reference information regarding the company's directors, executive officers, corporate governance, and Section 16(a) compliance from its definitive proxy statement - Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the definitive proxy statement for the annual general meeting on May 4, 2022[536] - The company has adopted a Code of Business Conduct and Ethics for all employees, available on its website[537] Executive Compensation This section incorporates by reference information on executive compensation, director compensation, compensation committee interlocks, and the compensation committee report from the company's definitive proxy statement - Information on executive compensation, director compensation, compensation committee interlocks, and the compensation committee report is incorporated by reference from the definitive proxy statement[538] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information regarding security ownership of certain beneficial owners and management, as well as equity compensation plan information, from the company's definitive proxy statement - Information on security ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference from the definitive proxy statement[539] Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information on certain relationships and related transactions, as well as director independence, from the company's definitive proxy statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the definitive proxy statement[540] Principal Accounting Fees and Services This section incorporates by reference information regarding principal accounting fees and services from the company's definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement[541] PART IV Exhibits, Financial Statement Schedules This section lists financial statements and schedules filed as part of the Annual Report on Form 10-K, along with an index of exhibits, confirming other required schedules are omitted as inapplicable - Financial statements listed in the accompanying index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K[543] - The exhibit index lists exhibits filed herewith or incorporated by reference[544] - All other schedules for which provision is made in applicable SEC regulation are omitted as not required or inapplicable[544] Form 10-K Summary The company reported no Form 10-K summary - No Form 10-K Summary is provided[545]