UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 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
(I.R.S. Employer Identification No.)
94 Pitts Bay Road
Pembroke HM 08, Bermuda
(Address of Principal Executive Offices and Zip Code)
(441) 298-4900
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares, par value $0.01 per share
Series A Preference Shares, par value $0.01 per share
Series C Preference Shares, par value $0.01 per share
Series D Preference Shares, par value $0.01 per share
Trading symbol(s)
MHLD
MH.PA
MH.PC
MH.PD
Name of Each Exchange on Which Registered
NASDAQ Capital Market
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
Non-Accelerated Filer
☐
☐
Accelerated Filer
Smaller Reporting Company
Emerging growth company
☒
☒
☐
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Aggregate market value of voting and non-voting common shares held by non-affiliates of the registrant as of June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was
approximately $232.6 million based on the closing sale price of the registrant’s common shares on the NASDAQ Capital Market on that date. As of March 4, 2022, 86,474,162 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A with respect to the annual general meeting of the shareholders of the registrant
scheduled to be held on May 4, 2022 are incorporated by reference into Part III of this Annual Report on Form 10-K.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
MAIDEN HOLDINGS, LTD.
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management's Discussion and Analysis of Financial Condition and Results of Operation
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART III
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 7.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Exhibits, Financial Statement Schedules
Form 10-K Summary
Item 15.
Item 16.
Signatures
Exhibits
Consolidated Financial Statements
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E-1
F-1
PART I
Special Note About Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and
expected operating results and the assumptions upon which those statements are based are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include general statements both with
respect to us and the insurance industry and generally are identified with the words "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. In light of the risks and uncertainties inherent in all forward-looking
statements, the inclusion of such statements in this Annual Report on Form 10-K should not be considered as a representation by us or any other person that our objectives or plans or other matters
described in any forward-looking statement will be achieved. These statements are based on current plans, estimates, assumptions and expectations. Actual results may differ materially from those
projected in such forward-looking statements and therefore, you should not place undue reliance on them. Important factors that could cause actual results to differ materially from those in such
forward-looking statements are set forth in Item 1A "Risk Factors" in this Annual Report on Form 10-K.
We caution that the list of important risk factors is not intended to be and is not exhaustive. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be required by law, and all subsequent written and oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. If one or more risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary
materially from what we projected. Any forward-looking statements in this Annual Report on Form 10-K reflect our current view with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to our operations, results of operations, growth, strategy and liquidity. Readers are cautioned not to place undue reliance on the forward-looking statements
which speak only as of the dates of the documents in which such statements were made.
References in this Annual Report on Form 10-K to the terms "we","us","our","the Company" or other similar terms mean the consolidated operations of Maiden Holdings, Ltd. and our
consolidated subsidiaries, unless the context requires otherwise. References in this Annual Report on Form 10-K to the term "Maiden Holdings" means Maiden Holdings, Ltd. only. References in this
Annual Report on Form 10-K to $ are to the lawful currency of the United States, unless otherwise indicated. Any discrepancies between the amounts included in Parts I and II discussions in this
Annual Report on Form 10-K and the consolidated financial statements in Item 8 of this Annual Report on Form 10-K are due to rounding.
Risk Factor Summary
We are subject to various risks that could have a material adverse impact on our financial position, results of operations or cash flows. The following is a summary of the principal factors that
make investing in our securities risky and may cause our actual results to differ materially from forward-looking statements included in this Annual Report on Form 10-K. The following is only a
summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows and should be read in conjunction with the more complete
discussion of the risk factors we face, which are set forth in the section entitled “Risk Factors” in Part I, Item 1A. in this report:
• we have incurred volatile operating results in recent years and there can be no assurance that we will maintain operating profitability or return to active underwriting on new
prospective reinsurance risks;
• management may not successfully implement its business strategy which could result in a decline of capital or adversely affect our financial condition or results of operations and
may create enhanced risks;
•
•
•
our actual losses may be greater than our reserve for loss and loss adjustment expenses ("loss and LAE");
our reinsurers may not pay losses in a timely fashion, or at all, which could have a material adverse effect on our results of operations or financial condition;
the failure of any of the loss limitation methods we have employed or could employ in the future could have a material adverse effect on our results of operations or financial
condition;
• we depend on the policies, procedures and expertise of ceding companies for the business we have written in the past; these companies may have failed to accurately assess and
price the risks they have underwritten, which may lead us to inaccurately assess and price the risks we assumed;
•
•
the failure of our underwriting process and risk management could have an adverse effect on our results of operations or financial condition;
failure of our information technology systems or breaches to our technology systems as a result of cyber-attacks could disrupt our business and adversely impact our profitability;
• we may not have sufficient unrestricted liquidity to meet our obligations and favorable terms to obtain additional capital may not be available;
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•
•
•
a significant amount of our invested assets are subject to changes in interest rates and market volatility. If we are unable to realize our investment objectives, our financial condition
and results of operations may be adversely affected;
the determination of the fair values of our investments and whether a decline in the fair value of an investment is other-than-temporary are based on management’s judgment and
may prove to be incorrect;
our investments in alternative investments and our investments in joint ventures and/or entities accounted for using the equity method may be illiquid and volatile in terms of value
and returns, which could negatively affect our investment income and liquidity;
• we do not anticipate paying any cash dividends on our common shares for the foreseeable future and there can be no assurance that dividends on the Preference Shares will resume;
• we may not be able to comply with restrictive covenants contained in the documents governing our Senior Notes or any future credit facility which could trigger prepayment
obligations;
•
•
•
compliance by our insurance subsidiaries with the legal and regulatory requirements to which they are subject is expensive. Any failure to comply could have a material adverse
effect on our business;
our industry is highly regulated, the regulatory requirements are expensive and we are subject to significant legal restrictions and these restrictions may have a material adverse
effect on us;
our holding company structure and certain regulatory and other constraints affect our ability to pay dividends and make other payments;
• we have risks related to our Preference Shares and Senior Notes;
•
•
•
a few significant shareholders may influence or control the direction of our business. If the ownership of our common shares continues to be highly concentrated, it may limit your
ability and the ability of other shareholders to influence significant corporate decisions;
the market price for our ordinary shares has been and may continue to be highly volatile, and if there is a further sustained decline in our share price there could be limited liquidity
for our ordinary shares;
provisions in our bye-laws could change voting rights of our shares, impede an attempt to replace or remove our directors, and/or make it difficult for a third party to acquire us
which could diminish the value of our common shares;
• we may not be able to attract and retain key employees or successfully implement our newly formulated business strategy;
•
•
•
•
our employee attrition recently has been high and may affect our ability to adequately manage our business;
significant changes in our reinsurance relationship with AmTrust Financial Services, Inc. ("AmTrust") have reduced our current and future revenues and create significant
uncertainty for sources of future liquidity;
our initial arrangements with AmTrust were negotiated while we were its affiliate and as such the arrangements could be challenged as not reflecting terms that we would agree to in
arm’s-length negotiations with an independent third party; and
our non-executive Chairman of the Board of Directors (the "Board") currently holds the positions of Chief Executive Officer and Chairman of AmTrust. These dual positions may
present, and make us vulnerable to, difficult conflicts of interest and related legal challenges.
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Item 1. Business.
General Overview
Maiden Holdings is a Bermuda-based holding company. We create shareholder value by actively managing and allocating our assets and capital, including through ownership and management of
businesses and assets primarily in the insurance and related financial services industries where we can leverage our deep knowledge of those markets. We also provide a full range of legacy services
to small insurance companies, particularly those in run-off or with blocks of reserves that are no longer core, working with clients to develop and implement finality solutions including acquiring
entire companies that enable our clients to meet their capital and risk management objectives. We expect our legacy solutions business to contribute to our active asset and capital management
strategies.
Short-term income protection business is written on a primary basis by our wholly owned subsidiaries Maiden Life Försäkrings AB ("Maiden LF") and Maiden General Försäkrings AB ("Maiden
GF") in the Scandinavian and Northern European markets. Insurance support services are provided to Maiden LF and Maiden GF by our wholly owned subsidiary services company, Maiden Global
Holdings Ltd. (“Maiden Global”), which is also a licensed intermediary in the United Kingdom. Maiden Global had previously operated internationally by providing branded auto and credit life
insurance products through insurer partners, particularly those in the European Union ("EU") and other global markets. These products also produced reinsurance programs which were underwritten
by our indirect wholly owned subsidiary Maiden Reinsurance Ltd. ("Maiden Reinsurance").
We are not actively underwriting reinsurance business on prospective risks but are now actively underwriting risks on a retroactive basis through our indirect wholly owned subsidiary Genesis
Legacy Solutions, LLC ("GLS"). We also have various historic reinsurance programs underwritten by Maiden Reinsurance which are in run-off, including the liabilities associated with AmTrust
reinsurance agreements which were terminated in early 2019 as discussed in "Note 10 — Related Party Transactions" of the Notes to Consolidated Financial Statements included in Part II Item 8.
"Financial Statements and Supplementary Data". In addition, we have a retroactive reinsurance agreement and a commutation agreement that further reduces our exposure to and limits the potential
volatility related to AmTrust liabilities in run-off, which are discussed in "Note 8 — Reinsurance" of the Notes to Consolidated Financial Statements included in Part II Item 8. "Financial Statements
and Supplementary Data".
Recent Developments
Since the third quarter of 2018, we have engaged in a series of transactions that dramatically reduced the regulatory capital required to operate our business, materially strengthened our solvency
ratios, re-domiciled Maiden Reinsurance from Bermuda to the State of Vermont in the U.S. and ceased active reinsurance underwriting on new prospective risks. During that time, we significantly
increased our estimate of ultimate loss and loss expense reserves while purchasing reinsurance protection against further loss reserve volatility, and as a result, have improved the ultimate economic
value of the Company.
Details of strategic measures and other capital transactions are also discussed in the "Recent Developments" section of Item 7 "Management’s Discussion and Analysis of Financial Condition and
Results of Operations" as well as the related discussion in our Notes to the Consolidated Financial Statements in "Note 10 — Related Party Transactions" and "Note 6 — Shareholders' Equity"
included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10–K.
Our future results, and our ability to generate an improved risk-adjusted return on capital, may be impacted by risks and trends set forth in Item 1A, "Risk Factors", and elsewhere in this Annual
Report on Form 10-K.
Business Strategy
We continued to pursue our revised operating strategy during 2021 by leveraging the significant assets and capital we retain. In addition to restoring operating profitability, our strategic focus
centers on allocating capital and resources which we believe will create the greatest risk-adjusted shareholder returns, whether via asset and capital management or active reinsurance underwriting of
new risks, or a combination of both. Further details are discussed in the "Business Strategy" section of Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Overview" of this Annual Report on Form 10–K.
Our Principal Operating Subsidiaries
Maiden Reinsurance, an indirect wholly owned subsidiary of Maiden Holdings, is an affiliated reinsurance company licensed in the State of Vermont in the U.S. and our principal operating
subsidiary which commenced operations in June 2007. Effective March 16, 2020, we re-domesticated Maiden Reinsurance from Bermuda to Vermont in the U.S., having determined that re-
domesticating Maiden Reinsurance to Vermont enables us to better align our capital and resources with our liabilities, which originate mostly in the U.S., resulting in a more efficient structure.
Maiden Reinsurance is now subject to the statutes and regulations of Vermont in the ordinary course of business. The re-domestication did not apply to Maiden Holdings which remains a Bermuda-
based holding company.
Maiden Holdings North America, Ltd. ("Maiden NA") is our wholly owned U.S. holding company and is domiciled in the State of Delaware.
Maiden Global, a wholly owned subsidiary of Maiden Holdings, operates as an insurance services company. Maiden Global is organized under the laws of England and Wales. Maiden LF and
Maiden GF, both wholly owned subsidiaries of Maiden Holdings, are insurance companies organized under the laws of Sweden and write income protection insurance on a primary basis in the
Scandinavian and Northern European market.
3
GLS was formed in November 2020 and is a wholly owned subsidiary of Maiden Reinsurance domiciled in the State of Delaware. GLS specializes in providing a full range of legacy services to
small insurance entities, particularly those in run-off or with blocks of reserves that are no longer core, working with clients to develop and implement finality solutions including acquiring entire
companies that enable our clients to meet their capital and risk management objectives.
Our Reportable Segments
Our business currently consists of two reportable segments: Diversified Reinsurance and AmTrust Reinsurance. Our Diversified Reinsurance segment consists of a portfolio of predominantly
property and casualty insurance and reinsurance business focusing on regional and specialty property and casualty insurance companies located primarily in Europe. This segment now also includes
transactions entered into by GLS. Our AmTrust Reinsurance segment includes all business ceded to Maiden Reinsurance by AmTrust, primarily the quota share reinsurance agreement (“AmTrust
Quota Share”) between Maiden Reinsurance and AmTrust’s wholly owned subsidiary, AmTrust International Insurance, Ltd. (“AII”) and the European hospital liability quota share reinsurance
contract ("European Hospital Liability Quota Share") with AmTrust’s wholly owned subsidiaries AmTrust Europe Limited ("AEL") and AmTrust International Underwriters DAC ("AIU DAC"),
which are both in run-off effective January 1, 2019.
Financial data relating to our two reportable segments is included in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in "Notes to
Consolidated Financial Statements - Note 3. Segment Information" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
The table below compares net premiums earned, by reportable segment, reconciled to the total consolidated net premiums earned for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Diversified Reinsurance
AmTrust Reinsurance
Total
2021
2020
Net Premiums
Earned
% of Total
Net Premiums
Earned
% of Total
$
$
27,681
25,312
52,993
52.2 % $
47.8 %
100.0 % $
47,847
58,234
106,081
45.1 %
54.9 %
100.0 %
Financial data relating to the geographical areas in which we operate and relating to our principal products by line of business may be found in "Notes to Consolidated Financial Statements - Note
3. Segment Information" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Diversified Reinsurance Segment
In this segment, Maiden Reinsurance wrote treaties on both a quota share basis and excess of loss basis outside the U.S. whereas Maiden LF and Maiden GF write business within Europe on a
primary basis. Maiden Reinsurance has a limited number of in-force reinsurance contracts remaining that are renewals of existing contracts as well as reinsurance transactions entered into by GLS.
Net premiums written by our Diversified Reinsurance segment operating subsidiaries, after intercompany reinsurance, for the years ended December 31, 2021 and 2020 included:
For the Year Ended December 31,
($ in thousands)
Maiden Reinsurance
Maiden LF
Maiden GF
Total
2021
2020
Net Premiums
Written
% of Total
Net Premiums
Written
% of Total
$
$
(1,031)
9,553
7,576
16,098
(6.4)% $
59.3 %
47.1 %
100.0 % $
21,073
9,421
6,764
37,258
56.6 %
25.3 %
18.1 %
100.0 %
Please refer to Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for a discussion on the performance of our Diversified Reinsurance segment for
the years ended December 31, 2021 and 2020.
Maiden Global’s business development teams partnered with automobile manufacturers, dealer associations and local primary insurers to design and implement point of sale insurance programs
which generated revenue for the auto manufacturer and insurance premiums for the primary insurer ("IIS business"). However, all of these programs are now in run-off and no new programs are
being sought. There is no new written premium and the only remaining earned premium is from the Australian program which will continue into 2022. IIS premiums by line of business for the years
ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Personal Auto - Quota Share Reinsurance
Credit Life - Insurance
Total
2021
2020
Net
Premiums
Written
(4,592)
20,716
16,124
% of Total
(28.5)% $
128.5 %
100.0 % $
Net
Premiums
Written
20,596
16,630
37,226
% of Total
55.3 %
44.7 %
100.0 %
$
$
4
For the years ended December 31, 2021, the Company's net written premiums for Personal Auto on a quota share reinsurance basis were negative and significantly decreased compared to 2020
primarily due to the return of unearned premiums written in a German Auto quota share reinsurance contract in our IIS business which went into run-off on January 1, 2021. German Auto reinsurance
had negative written premiums of $4.8 million for the year ended December 31, 2021 compared to net premiums written of $20.7 million for the same period in 2020.
AmTrust Reinsurance Segment
General
AmTrust is a multinational specialty property and casualty insurance holding company with operations in the U.S., Europe and Bermuda. Effective January 1, 2019 (a) the AmTrust Quota Share,
and (b) the European Hospital Liability Quota Share were terminated on a run-off basis. These transactions are broadly referred to herein as the "Final AmTrust QS Terminations". Apart from certain
unearned premiums in the AmTrust Quota Share and the European Hospital Liability Quota Share that were earned subsequent to December 31, 2019, there was no new premium written within this
segment during 2021 and 2020.
Information relating to our founding shareholders that are affiliated with AmTrust ("Founding Shareholders") may be found in "Notes to Consolidated Financial Statements - Note 10. Related
Party Transactions" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Through our reinsurance agreements with AmTrust, we reinsured
specific lines of business within the following AmTrust business segments:
• Small commercial business insurance, which includes U.S. workers’ compensation, commercial package and other low-hazard property and casualty insurance products;
• Specialty risk and extended warranty coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans offered in
connection with the sale of consumer and commercial goods, in the U.S., U.K. and certain other global markets and European hospital liability; and
• Specialty program which includes package products, general liability, commercial auto liability, excess and surplus lines programs and other specialty commercial property and casualty
insurance to a narrowly defined, homogeneous group of small and middle market companies.
AmTrust Quota Share
Under the AmTrust Quota Share with AII, effective July 1, 2007 and through 2018, we reinsured 40% of AmTrust’s premium written, net of reinsurance with unaffiliated reinsurers, relating to all
lines of business that existed on the effective date. We also had the option to reinsure additional programs, in addition to the original lines of business entered into by AmTrust since the effective date
of the AmTrust Quota Share. As AmTrust expanded into new lines of business, pursuant to the terms of the AmTrust Quota Share, we had selectively added some of those lines and opted not to
participate in others. Consequently our share of AmTrust's overall gross premiums written declined below 40% over time.
As a result of the Final AmTrust QS Terminations described above, our active reinsurance contracts with AmTrust were terminated effective January 1, 2019. Also, effective July 31, 2019,
Maiden Reinsurance and AII entered into a Commutation and Release Agreement (which is broadly referred to herein as the "AmTrust WC Commutation") effective July 31, 2019, which provided
for AII to assume all reserves ceded by AII to Maiden Reinsurance with respect to its proportional 40% share of the ultimate net loss under the AmTrust Quota Share related to: (a) all losses incurred
in Accident Year 2017 and Accident Year 2018 under California workers' compensation policies and as defined in the AmTrust Quota Share ("Commuted California Business"); and (b) all losses
incurred in Accident Year 2018 under New York workers' compensation policies ("Commuted New York Business" and together with the Commuted California Business, "Commuted Business") in
exchange for the release and full discharge of Maiden Reinsurance of all of its obligations to AII with respect to the Commuted Business. The Commuted Business did not include any business
classified by AII as Specialty Program or Specialty Risk business.
European Hospital Liability Quota Share
On April 1, 2011, Maiden Reinsurance entered into the European Hospital Liability Quota Share with AEL and AIU DAC to cover those entities' medical liability business within Europe,
primarily in Italy and France. These contracts were terminated on a run-off basis effective January 1, 2019 as part of the Final AmTrust QS Terminations.
For more information, please refer to "Notes to Consolidated Financial Statements - Note 10. Related Party Transactions" included under Item 8 "Financial Statements and Supplementary Data"
of this Annual Report on Form 10-K.
Risk Management
Our Enterprise Risk Management ("ERM") framework reflects the ‘three lines of defense’ approach to risk management, which involves (1) individual functions having responsibility for
identifying and managing risks; (2) the ERM Committee providing oversight and guidance to individual functions; and (3) internal audit performing independent reviews. Our Board has overall
responsibility for oversight of the ERM program and has delegated this oversight to its Audit Committee.
Our ERM Committee monitors and oversees the risk environment and provides direction to mitigate, to an acceptable level, the most significant and material risks that may adversely affect our
ability to achieve our goals. The ERM Committee continually reviews factors that may impact our organizational risk and develops and implements strategies and action plans to mitigate key risks.
Our ERM program is designed to achieve the following:
• Establish a process to assess strategies and business decisions on a risk/reward basis;
5
• Establish a risk governance structure with clearly defined roles and responsibilities;
•
Identify and assess all material risks from internal and external sources;
• Manage risks within our risk appetite; and
• Effective review and reporting of major loss events.
The first line of defense assists with the identification of risks, creation of appropriate responses to risks, and maintains them within the risk appetite and tolerances that the ERM Committee
believes are necessary to achieve our business strategies and objectives. The mitigation of risks is achieved through the application and operation of controls, transferring of risk or tolerating risks
within risk appetite.
Our internal audit department assesses the adequacy and effectiveness of our risk management framework and mitigating controls and coordinates risk-based audits to evaluate and address risk
within targeted areas of our business. The core functions of this department are to (1) assess the adequacy and effectiveness of our internal control systems; (2) coordinate risk-based audits and
compliance reviews; and (3) carry out other initiatives to evaluate and address risk within targeted areas of our business. Internal audit integrates testing of the risk management framework into its
annual test plans.
Our Audit Committee, comprised solely of independent directors, meets at least quarterly to assess whether management is addressing risk issues in a timely and appropriate manner. The Audit
Committee receives a quarterly update on capital and risk management. Our risk appetite and tolerances have been formally approved by the Audit Committee.
As a property and casualty holding company, our insurance subsidiaries are in the business of assuming risk. We are not currently underwriting reinsurance business on prospective risks as we
historically have, but are now actively underwriting risks on a retroactive basis. Our primary risks are categorized as follows:
• Strategic risk – the risk that strategic decisions have an unexpected or adverse impact on future earnings or capital adequacy. This includes the ability to deploy capital in order to maximize
risk adjusted returns in the most efficient way, without adversely impacting the adequacy of our capital position;
• Insurance risk - the risk that insured losses are higher than our expectations. This includes losses arising from inadequate loss reserves, losses from larger than expected non-catastrophe
current accident year losses, and catastrophe losses that exceed our expectation or our reinsurance limits. Maiden Reinsurance is not engaged in active reinsurance underwriting on prospective
risks and as a result our insurance risk from premiums is immaterial;
• Investment risk - the risk of loss in our investment portfolio potentially caused by fluctuations in interest rates, credit spreads, foreign exchange rates and inflation on both assets and
liabilities;
• Liquidity risk - the risk that the group does not have sufficient unrestricted or liquid funds to pay losses or meet contractual obligations as they become due; and
• Operational risk - the risk of loss from inadequate or failed internal processes, people, systems and/or external events, which also includes legal risks.
Reserve for Loss and LAE
General
We are required by applicable insurance laws and regulations in the U.S. and Sweden and by U.S. Generally Accepted Accounting Principles ("U.S. GAAP") to establish loss reserves to cover
our estimated liability for the payment of all loss and LAE incurred with respect to premiums earned on the policies and treaties that we write. These reserves are balance sheet liabilities presenting
estimates of loss and LAE which we are ultimately required to pay for insured or reinsured claims that have occurred as of or before the balance sheet date. The loss and LAE reserves on our balance
sheet represent management’s best estimate of the outstanding liabilities associated with our premium earned. In developing this estimate, management considers the results of internal and external
actuarial analyses, trends in those analyses as well as industry trends. Our opining independent actuary certifies that the reserves established by management make a reasonable provision for our
unpaid loss and LAE obligations.
These amounts include case reserves and provisions for Incurred But Not Reported ("IBNR") reserves. Case reserves are established for losses that have been reported to us, and not yet paid.
IBNR reserves represent the estimated cost of losses that have occurred but have not been reported to us and include a provision for additional development on case reserves. We establish case
reserves based on information from the ceding company, reinsurance intermediaries, and when appropriate, consultations with independent legal counsel. The IBNR reserves are established by
management based on reported loss and LAE and actuarially determined estimates of ultimate loss and LAE.
A variety of standard actuarial methods are calculated to estimate ultimate loss and LAE. The majority of our business is reserved individually by cedant and line of business, with the remainder
reserved in homogeneous groupings. Ultimate loss selections are accumulated across the reserve segments, and appropriate actuarial judgment is applied to determine the final selection of estimated
ultimate losses. Ultimate losses are converted to IBNR reserves by subtracting inception to date paid losses and case reserves from those amounts. The combined total of case and IBNR results in
indicated reserves which are the basis for the carried reserves for financial statements. Ultimate losses are also used to estimate premium and commission accruals for accounts with adjustable
features.
Loss reserves do not represent an exact calculation of liability; rather, loss reserves are estimates of what we expect the ultimate resolution and administration of claims will cost. These estimates
are based on actuarial and statistical projections and on our assessment of currently available data, as well as estimates of trends in claims severity and frequency, judicial theories
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of liability and other factors. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. Establishing an appropriate level of loss reserves is an inherently
uncertain process. In addition, the relatively long reporting periods between when a loss occurs and when it may be reported to our claims department for our casualty lines of business also increase
the uncertainties of our reserve estimates in such lines. To assist us in establishing appropriate reserves for loss and LAE, we analyze a significant amount of internal data and external insurance
industry information with respect to the pricing environment and loss settlement patterns. In combination with our individual account pricing analyses and our internal loss settlement patterns, this
industry information is used to guide our loss and LAE estimates. These estimates are reviewed quarterly, at a high level of detail, and any adjustments are reflected in earnings in the periods in which
they are determined.
For additional information concerning our reserves, see Item 7,"Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —
Reserve for Loss and LAE" and "Notes to Consolidated Financial Statements - Note 9 — Reserve for Loss and Loss Adjustment Expenses" included under Item 8 "Financial Statement and
Supplementary Data", for further information regarding the specific actuarial models we utilize and the uncertainties in establishing the reserve for loss and LAE.
Our Financial Strength Rating
A.M. Best has developed a rating system to provide an opinion of an insurer’s or reinsurer’s financial strength and ability to meet ongoing obligations to its policyholders. Each rating reflects that
rating agency’s independent opinion of the capitalization, management and sponsorship of the entity to which it relates, and is neither an evaluation directed to investors in our common shares nor a
recommendation to buy, sell or hold our common shares. A.M. Best maintains a letter scale rating system ranging from "A++" (Superior) to "F" (In Liquidation). We currently do not have a financial
strength rating from any of the major rating agencies that cover our industry.
As presently constituted, we believe that our current business operations neither require a financial strength rating nor inhibit us from pursuing or achieving our strategic objectives. However, as
we continue to evaluate our ongoing business strategy, the lack of a financial strength rating from one of the major rating agencies may limit or negatively impact our ability to market and sell our
products in the future. It may also require us to use collateral more frequently to secure client relationships, which could impact our unrestricted liquidity. Both of these factors would be key
considerations as to whether and when we would resume active underwriting of new prospective risks.
Our Employees
On March 4, 2022, we had approximately 52 full-time and part-time employees who are located in Bermuda, the U.S., the U.K., Germany, Ireland and Sweden. We believe that our employee
relations are good. None of our employees are subject to collective bargaining agreements.
Regulatory Matters
General
The insurance and reinsurance industry are subject to regulatory and legislative oversight and regulation in various markets in which we operate.
U.S. Insurance Regulation
Until its re-domestication to Vermont, Maiden Reinsurance was regulated as a registered Class 3B general business insurer under the Insurance Act 1978 of Bermuda, as amended, and related
regulations. As of March 16, 2020, Maiden Reinsurance is an affiliated reinsurer organized under the laws of Vermont. Regulatory, supervisory and administrative authority over insurance companies
in the United States is primarily delegated to the states with the exception of federal authority over boycott, coercion and intimidation, federal antitrust laws and where federal law is enacted
specifically to regulate the business of insurance. Among other things, state insurance departments regulate insurer solvency standards, insurer and agent licensing, authorized investments, loss and
loss expense reserves and provisions for unearned premiums, and deposits of securities for the benefit of policyholders. Maiden Reinsurance is required to file detailed financial statements and other
reports with the Vermont Department of Financial Regulation ("Vermont DFR"). These financial statements are subject to the supervision, regulation and periodic examination by the Vermont DFR.
State Insurance Department Examinations
Maiden Reinsurance is subject to the financial supervision and regulation of the Vermont DFR. As part of their regulatory oversight process, state insurance departments conduct periodic detailed
examinations of the financial reporting of insurance companies domiciled in their states, generally not less frequently than once every five years. Examinations may be carried out in cooperation with
the insurance departments of other states under guidelines promulgated by the National Association of Insurance Commissioners ("NAIC").
Statutory Accounting Principles
Statutory accounting principles ("SAP") are a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily
concerned with measuring an insurer's surplus to policyholders. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with
appropriate insurance law and regulatory provisions applicable in each insurer's domiciliary state.
U.S. GAAP is concerned with a company's solvency, but is also concerned with other financial measurements, principally income and cash flows. Accordingly, U.S. GAAP gives more
consideration to appropriate matching of revenue and expenses and accounting for management's stewardship of assets than does SAP. As a direct result, different assets and liabilities and different
amounts of assets and liabilities will be reflected in financial statements prepared in accordance with U.S. GAAP
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compared to SAP. Statutory accounting practices established by the NAIC and adopted in part by Vermont will determine, among other things, the amount of statutory surplus and statutory net
income of Maiden Reinsurance, and thus determine, in part, the amount of funds that could be available to pay as dividends.
Holding Company Regulation
Maiden Reinsurance is subject to the U.S. statutory holding company laws of Vermont. The insurance holding company laws and regulations apply directly to individual insurers, indirectly to non-
insurance entities, and provide regulators the ability to look at any entity within an insurance holding company system. State regulations generally provide that each insurance company in an
insurance holding company system must register with the insurance department of its state of domicile. These laws vary from state to state, but each state has enacted legislation which requires
licensed insurers that are subsidiaries of insurance holding companies to register and file with state regulatory authorities certain reports including information concerning their capital structure,
ownership, financial condition and general business operations. All transactions involving the insurers in a holding company system and their affiliates must be fair and reasonable and often require
prior notice and non-disapproval by the state insurance department of their domicile. Further, state insurance holding company laws typically place limitations on the amounts of dividends or other
distributions payable by insurers. Any capital distribution of any kind out of Maiden Reinsurance would be done consistent with Vermont regulations or as required, with the prior approval of the
Vermont DFR.
State insurance holding company laws also require prior notice and state insurance department approval of changes in control of an insurer or its holding company. "Control" is generally defined
as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the company, whether through the ownership of voting securities, by contract
(except a commercial contract for goods or non-management services) or otherwise. Maiden Reinsurance is domiciled in Vermont where any beneficial owner of 10% or more of the outstanding
voting securities of an insurance company or its holding company is presumed to have acquired control, unless this presumption is rebutted. Therefore, an investor who intends to acquire beneficial
ownership of 10% or more of our outstanding voting securities may need to comply with these laws and would be required to file notices and reports with the Vermont DFR and receive approval from
the Vermont DFR or rebut the presumption of control before such acquisition.
Additionally, the NAIC Model Holding Company Act and NAIC Model Holding Company Regulation address “enterprise” risk - the risk that an activity, circumstance, event, or series of events
involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding
company system as a whole. The Vermont DFR adopted the requirement for a holding company to annually submit an Enterprise Risk Report with the state commissioner.
In 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment (“ORSA”) Model Act (the “ORSA Model Act”), which requires domestic insurers to maintain a risk
management framework and establishes a legal requirement for domestic insures to conduct an ORSA in accordance with NAIC’s ORSA Guidance Manual. The ORSA Model Act provides that
domestic insurers, or their insurance group, must regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual process. The ORSA Model Act also provides that,
no more than once a year, an insurer's domiciliary regulator may request that an insurer submit an ORSA summary report, or any combination of reports that together contain the information
described in the ORSA Guidance Manual, with respect to the insurer and/or the insurance group of which it is a member. Vermont has adopted its version of the ORSA Model Act and the Company
believes that a Vermont statutory exemption (8 V.S.A. Section 3586) presently exempts the Company from the requirements of Vermont’s version of the ORSA Model Act.
Risk-Based Capital
U.S. insurers are also subject to risk-based capital ("RBC") guidelines that provide a method to measure the total adjusted capital (statutory capital and surplus plus other adjustments) of insurance
companies taking into account the risk characteristics of a company's investments and products. The RBC formulas establish capital requirements for four categories of risk: asset risk, insurance risk,
interest rate risk and business risk. For each category, the capital requirement is determined by applying factors to asset, premium and reserve items, with higher factors applied to items with greater
underlying risk and lower factors for less risky items. Insurers that have less statutory capital than the RBC calculation required are considered to have inadequate capital and are subject to varying
degrees of regulatory action depending upon the level of capital inadequacy. Maiden Reinsurance filed its first RBC reports in March 2021 for the 2020 calendar year, and the reported RBC levels
exceed Vermont's RBC requirements. Maiden Reinsurance continues to invest excess capital based on our current expected business strategy as our RBC requirements permit.
Reinsurance
The ability of an insurer to take credit for the reinsurance purchased from reinsurance companies is a significant component of reinsurance regulation. Typically, an insurer will only enter into a
reinsurance agreement if it can obtain credit to its reserves on its statutory financial statements for the reinsurance ceded to the reinsurer. With respect to U.S. domiciled reinsurers that reinsure U.S.
insurers, credit is usually granted when the reinsurer is licensed, certified or accredited in a state where the primary insurer is domiciled or, in some instances, in a state in which the primary insurer is
licensed. States also generally permit primary insurers to take credit for reinsurance if the reinsurer is (i) domiciled in a state with a credit for reinsurance law that is substantially similar to the
standards in the primary insurer's state of domicile, and (ii) meets certain financial requirements. Credit for reinsurance purchased from a reinsurer that does not meet the foregoing conditions is
generally allowed to the extent that such reinsurer secures its obligations with qualified collateral. We are able to take credit for all reinsurance purchased and all cedants are able to take credit for
reinsurance they purchase from us.
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NAIC Ratios
The NAIC Insurance Regulatory Information System ("IRIS") was developed to help state regulators identify companies that may require special attention. IRIS is comprised of statistical and
analytical phases consisting of key financial ratios whereby financial examiners review annual statutory basis statements and financial ratios. Each ratio has an established "usual range" of results and
assists state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies. A ratio result falling outside the usual range of IRIS ratios is not
considered a failing result; rather unusual values are viewed as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to
have several ratios with results outside the usual ranges. An insurance company may fall out of the usual range for one or more ratios because of specific transactions that are in themselves
immaterial. Generally, an insurance company will become subject to regulatory scrutiny and may be subject to regulatory action if it falls outside the usual ranges of four or more of the ratios.
Because Maiden Reinsurance recently completed its re-domestication to Vermont in 2020, it is possible that it may produce unusual ratios outside the usual ranges for more than four tests, principally
due to the lack of prior year statutory data which is required for many of the ratios to be computed.
State Legislative and Regulatory Changes
From time to time, various regulatory and legislative changes are proposed in the insurance industry. Among the proposals that have in the past been or are at present being considered are
proposals in various state legislatures (some of which proposals have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC.
While we are not actively underwriting reinsurance on new prospective risks, our insurance subsidiaries are required to comply with a wide variety of laws and regulations applicable to insurance
or reinsurance companies, both in the jurisdictions in which they are organized and where they may sell insurance and reinsurance products. The insurance and regulatory environment, in particular
for offshore insurance and reinsurance companies, has become subject to increased scrutiny in many jurisdictions, including the U.S., various states within the U.S. and the EU. In the past, there have
been Congressional and other initiatives in the U.S. regarding increased supervision and regulation of the insurance industry. It is not possible to predict the future impact of changes in laws and
regulations on our operations. The cost of complying with any new legal requirements affecting our subsidiaries could have a material adverse effect on our business.
In addition, our subsidiaries may not always be able to obtain or maintain necessary licenses, permits, authorizations or accreditations. They also may not be able to fully comply with, or to obtain
appropriate exemptions from, the laws and regulations applicable to them. Any failure to comply with applicable law or to obtain appropriate exemptions could result in restrictions on either the
ability of the company in question, as well as potentially its affiliates, to do business in one or more of the jurisdictions in which they operate or on brokers on which we rely to produce business for
us. In addition, any such failure to comply with applicable laws or to obtain appropriate exemptions could result in the imposition of fines or other sanctions. Any of these sanctions could have a
material adverse effect on our business. To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.
International Standards
U.S. federal and state regulators have committed in principle to adopting international standards with respect to basic regulatory issues such as accounting, risk management and corporate
governance. International regulatory considerations are increasingly being deliberated by the NAIC and could increase regulatory burdens for Maiden Reinsurance and have the potential to negatively
impact all U.S. insurers, regardless of size. Various trade associations and industry participants are aggressively working to impact the NAIC adoption of these standards. However, the final outcome
of these deliberations is unknown at this time.
Federal
Although the regulation of the business of insurance and reinsurance is predominantly performed by the states, federal initiatives, such as the Dodd-Frank Wall Street Reform and Consumer
Protection Act ("Dodd-Frank"), often have an impact on the insurance industry. From time to time, various federal regulatory and legislative changes have been proposed in the insurance and
reinsurance industry. While we cannot predict the exact nature, timing or scope of possible governmental initiatives, there may be increased regulatory intervention in our industry in the future. For
example, Dodd-Frank impacts the reinsurance industry in several areas, including tort reform, corporate governance and the taxation of reinsurance companies. Dodd-Frank also prohibits a state from
denying credit for reinsurance if the state of domicile of the insurer purchasing the reinsurance recognizes credit for reinsurance.
On January 13, 2017, the U.S. Department of the Treasury ("U.S. Treasury Department") and the office of the U.S. Trade Representative, ("USTR"), announced the successful completion of
negotiations for a "covered agreement" in the meaning of the Dodd-Frank Act for the U.S. and an Agreement under Article 218 of the Treaty on the Functioning of the European Union for the EU
("Covered Agreement"). The agreement covers three areas of prudential oversight: (1) reinsurance; (2) group supervision; and (3) the exchange of information between insurance supervisors.
On September 22, 2017, the U.S. Treasury Department, USTR, and the EU formally signed the Covered Agreement. The agreement requires states to eliminate reinsurance collateral within 5
years or risk preemption. In exchange, the EU will not impose local presence requirements on U.S. firms operating in the EU, and effectively must defer to U.S. group capital regulation for U.S.
entities of EU-based firms. The U.S. Treasury Department and USTR also released a U.S. policy statement clarifying their interpretation of the Covered Agreement in several key areas including
capital, group supervision and reinsurance. On June 25, 2019, the NAIC Executive Committee and Plenary adopted revisions to the Credit for Reinsurance Model Law and Credit for Reinsurance
Model Regulation, which implement the reinsurance collateral provisions of the Covered Agreements with the EU and the United Kingdom (UK). Bermuda is not covered under this agreement.
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Sweden Insurance Regulation
Maiden LF and Maiden GF are subject to regulation and supervision by Finansinpektionen, the Swedish financial supervisory authority (the “Swedish FSA”). As Sweden is a member of the EU,
the Swedish FSA supervision is recognized across all locations within the EU. Generally, the Swedish FSA has broad supervisory and administrative powers over such matters as licenses, standards
of solvency, investments, methods of accounting, form and content of financial statements, minimum capital and surplus requirements, passporting permissions, approval of directors and officers, and
annual and other report filings. In general, such regulation is for the protection of policyholders rather than shareholders. The Company believes that it is in compliance with all applicable laws and
regulations pertaining to its business that would have a material effect on its financial position in the event of non-compliance.
United Kingdom Insurance Regulation
Maiden LF U.K. Branch and Maiden GF U.K. Branch were established in the U.K. following Brexit. The branches have been accepted into the Temporary Permissions Regime which allows them
to write insurance in the U.K. under the supervision of the Prudential Regulation Authority (“PRA”) and Financial Conduct Authority (“FCA”). While in the Temporary Permissions Regime, both
branches have applied to the PRA for regulatory authorization. The Company believes that it is in compliance with all applicable laws and regulations pertaining to its business that would have a
material effect on its financial position in the event of non-compliance.
Certain Bermuda Law Considerations
Maiden Holdings has been designated as non-resident for exchange control purposes by the Bermuda Monetary Authority ("BMA") and is required to obtain the permission of the BMA for the
issue and transfer of all of its shares. The BMA has given its consent for: (a) the issue and transfer of Maiden Holdings' common shares, up to the amount of its authorized capital from time to time, to
and among persons that are non-residents of Bermuda for exchange control purposes; and (b) the issue and transfer of up to 20% of Maiden Holdings' common shares in issue from time to time to and
among persons resident in Bermuda for exchange control purposes.
Transfers and issues of Maiden Holdings' common shares to any resident in Bermuda for exchange control purposes may require specific prior approval under the Exchange Control Act 1972.
Because we are designated as non-resident for Bermuda exchange control purposes, we are allowed to engage in transactions, and to pay dividends to Bermuda non-residents who are holders of our
common shares, in currencies other than the Bermuda Dollar.
The Economic Substance Act 2018, as amended (“ESA”) came into force in Bermuda on January 1, 2019 and impacts every Bermuda registered entity engaged in a “relevant activity” to maintain
a substantial economic presence in Bermuda and to satisfy economic substance requirements. Under the ESA, holding entity activities (as defined in the ESA and the Economic Substance
Regulations 2018, as amended) are deemed a relevant activity. To the extent that the ESA applies to Maiden Holdings, we are required to demonstrate compliance with economic substance
requirements that we have “adequate” economic substance in Bermuda, and we must file an annual economic substance declaration with the Bermuda Registrar of Companies. Any entity that must
satisfy economic substance requirements but fails to do so could face penalties, restriction or regulation of its business activities and may be struck off as a registered entity in Bermuda for failure to
satisfy economic substance requirements.
The Terrorism Risk Insurance Program Reauthorization Act of 2015
Terrorism Risk Insurance Act of 2002 ("TRIA"), which was previously amended and extended in 2005, 2007, 2015 and again in 2019 by the Terrorism Risk Insurance Program Reauthorization
Act of 2019 ("TRIPRA"), was enacted to ensure the availability of insurance coverage for terrorist acts in the U.S. This law renewed the prior federal terrorism risk insurance program. It was
extended through December 31, 2027 with certain modifications in the provisions of the expiring program.
TRIA does not apply to reinsurers directly but does apply directly to insurers and to excess and surplus lines insurers. The TRIPRA has had some impact on our reinsurance clients, but not all due
to the lines of business covered by TRIA. Also, in general, our reinsurance contracts contain inuring language regarding any potential recoveries from TRIA. Additional material addressing TRIA and
TRIPRA, including U.S. Treasury Department issued interpretive letters, are contained on the U.S. Treasury Department’s website.
Taxation of the Company and its Subsidiaries
The following summary of certain taxation matters is based upon current law. Legislative, judicial or administrative changes may be forthcoming that could affect this summary. Certain
subsidiaries are subject to taxation related to operations in Australia, Germany, Sweden, the U.K. and the U.S. The discussion below covers only the principal locations in which the Company or its
subsidiaries are subject to taxation.
Bermuda
Maiden Holdings has received from the Minister of Finance an assurance under The Exempted Undertakings Tax Protection Act, 1966 to the effect that in the event that there is any legislation
enacted in Bermuda imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition
of any such tax shall not be applicable to Maiden Holdings or to any of its operations or the shares, debentures or other obligations of Maiden Holdings until March 31, 2035. These assurances are
subject to the proviso that they are not construed to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda (Maiden Holdings is not currently so designated) or
to prevent the application of any tax payable in accordance with the provisions of The Land Tax Act, 1967 of Bermuda or otherwise payable in relation to the property leased to us.
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Sweden
Maiden LF and Maiden GF are subject to Swedish taxation on net profits irrespective of whether the profits are generated through business in general or capital. To the extent that net profits are
generated, profits are taxed at a rate of 20.6%. Foreign entities are subject to tax in Sweden only to the extent they have a permanent establishment in Sweden or if the income is related to certain
types of assets, typically real estate, or partnership income. Dividends paid to foreign shareholders may be subject to withholding tax with a maximum of 30% although in many cases tax is reduced
because of a tax treaty or under domestic legislation. A foreign entity is deemed to have a permanent establishment in Sweden under the rules very similar to those applied by The Organisation for
Economic Co-operation and Development ("OECD"). Other than Maiden LF and Maiden GF, we believe that the Company has operated and will continue to operate its business in a manner that will
not cause it to be treated as having a permanent establishment in Sweden. There is no withholding tax on interest paid by a Swedish borrower to a foreign lender.
United Kingdom
Maiden Global, Maiden LF U.K. Branch and Maiden GF U.K. Branch are tax residents in the U.K. and are currently subject to corporation tax in the U.K. on their trading and other taxable
profits. The main rate of U.K. corporation tax is currently 19%. Non-U.K. resident corporations are within the scope of corporation tax in the U.K. if they carry on a trade in the U.K. through a
permanent establishment. Reinsurance business developed previously by Maiden Global was underwritten by Maiden Reinsurance. Other than in respect of Maiden Global, Maiden LF U.K. Branch
and Maiden GF U.K. Branch, we believe that the Company has operated and will continue to operate its business in a manner that will not cause it to be treated as carrying on a trade within the U.K.
Any U.K. source income of non-U.K. resident corporations may be subject to U.K. withholding tax, subject to the availability of treaty relief or any other applicable exemptions. Dividends paid by
Maiden Global are not subject to U.K. withholding tax. Interest paid by Maiden Global may be subject to U.K. withholding tax at a rate of up to 20%, subject to the availability of treaty relief or any
other applicable exemptions.
United States of America
Under the Tax Cuts and Jobs Act (the "2017 Act"), which was signed into law on December 22, 2017, the corporate U.S. tax rate is 21%, the alternative minimum tax was eliminated and the
deductibility of interest expense was limited, among other things. In the context of the taxation of U.S. property/casualty insurance companies such as the Company, the 2017 Act also modified the
loss reserve discounting rules and the proration rules that apply to reduce reserve deductions to reflect the lower corporate income tax rate. In addition, the 2017 Act included certain provisions
intended to eliminate certain perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the U.S. but have certain U.S. connections and U.S. persons
investing in such companies. For example, the 2017 Act includes a base erosion anti-avoidance tax (the "BEAT") that could make affiliate reinsurance between U.S. and non-U.S. members of our
group economically unfeasible. As discussed in more detail below, the 2017 Act also revised the rules applicable to passive foreign investment companies ("PFICs") and controlled foreign
corporations ("CFCs"). We are currently unable to predict the ultimate impact of the 2017 Act on our business, shareholders and results of operations. Further, it is possible that other legislation
could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on us. Additionally, tax laws and interpretations regarding whether a company is
engaged in a U.S. trade or business or whether a company is a CFC or a PFIC or has related person insurance income ("RPII") are subject to change, possibly on a retroactive basis. New regulations
or pronouncements interpreting or clarifying such rules may be forthcoming. The Company cannot be certain if, when or in what form such regulations or pronouncements may be provided and
whether such guidance will have a retroactive effect.
Maiden NA and its subsidiaries (collectively, the "Maiden NA Companies") transact business in and are subject to taxation in the U.S., and Maiden Reinsurance is subject to taxation in the U.S.
since the effective date of its re-domestication. Other than the Maiden NA Companies, we believe that we have operated and will continue to operate our business in a manner that will not cause us to
be treated as engaged in a trade or business within the U.S. On this basis, other than the Maiden NA Companies, we do not expect to be required to pay U.S. corporate income taxes (other than
withholding and excise taxes as described below). The maximum federal corporate income tax rate has been reduced by the 2017 Act to 21% for a foreign corporation’s income that is effectively
connected with a trade or business in the U.S. In addition, U.S. branches of foreign corporations may be subject to the branch profits tax, which imposes a tax on U.S. branch after-tax earnings that
are deemed repatriated out of the U.S., for a potential maximum effective federal tax rate of 44.7% on the net income connected with a U.S. trade or business.
Foreign corporations not engaged in a trade or business in the U.S. are subject to U.S. income tax, effected through withholding by the payer, on certain fixed or determinable annual or periodic
gains, profits and income derived from sources within the U.S. as enumerated in Section 881(a) of the Internal Revenue Code, such as dividends and interest on certain investments. The U.S. also
imposes an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks of a U.S. person located wholly or partly within the U.S. or risks of a foreign
person engaged in the conduct of a U.S. trade or business located in the U.S. The rate of tax applicable to reinsurance is 1% of gross premiums.
Where You Can Find More Information
We maintain our principal website at www.maiden.bm. The information on our websites is not incorporated by reference in this Annual Report on Form 10-K. We make available, free of charge
through our principal website, our financial information, including the information contained in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable
after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission ("SEC"). We also make available, free of charge through our principal website, our
Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, and Code of Business Conduct and Ethics. Such information is also
available in print for any shareholder who sends a request to Maiden Holdings, Ltd., Ideation House, 94 Pitts Bay Road, Pembroke HM 08, Bermuda, Attention:
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Secretary. Reports and other information we file with the SEC may also be viewed at the SEC’s website at www.sec.gov or viewed or obtained at the SEC Public Reference Room at 100 F Street,
N.E., Washington, DC 20549.
Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. Any shareholder or other interested party who desires to contact any
member of the Board (or our Board as a group) may do so in writing to the following address: Maiden Holdings, Ltd., Ideation House, 94 Pitts Bay Road, Pembroke HM 08, Bermuda, Attention:
Secretary. Communications are distributed to the Board, or to any individual directors as appropriate, depending on the facts and circumstances outlined in the communication.
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Item 1A. Risk Factors.
Introduction
Investing in our securities carries risk. Managing risk effectively is critical to our success, and our organization is built around intelligent risk assumptions and prudent risk management. We have
identified what we believe reflect key significant risks to the organization, and in turn to our shareholders, which are outlined below. Any of the risks described below could result in a significant or
material adverse effect on our results of operations or financial condition. In addition to these enumerated risks, we face numerous other strategic, operational and emerging risks that could in the
aggregate lead to shortfalls to our long-term goals or add to short-term volatility in our earnings. The following review of important risk factors should not be construed as exhaustive and should be
read in conjunction with other cautionary statements that are included herein or elsewhere. The words or phrases believe, anticipate, estimate, project, plan, expect, intend, hope, forecast, evaluate,
will likely result or will continue or words or phrases of similar import generally involve forward-looking statements. All of the risks that may affect our financial or operating performance may not
be material at this time but may become material in the future. As used in these Risk Factors, the terms "we", "our" or "us" may, depending upon the context, refer to the Company, to one or more of
the Company’s consolidated subsidiaries or to all of them taken as a whole.
Business
While our shareholders' equity has improved since 2019, we have incurred volatile operating results in recent years. There can be no assurance that we will maintain operating profitability or
return to active underwriting of new prospective reinsurance risks.
We produced net income of $26.6 million in 2021, compared to net income of $41.8 million during 2020. This improved from a net loss of $131.9 million during 2019 which was the result of loss
reserve strengthening and adverse prior year loss development of loss reserves. We have taken significant actions since the second half of 2018 to strengthen our loss reserve and capital position, and
restructure our business by disposing of unprofitable operations and terminating reinsurance agreements in both of our reporting segments while significantly reducing headcount and overhead
expenses. We have also purchased additional reinsurance protection to eliminate potential volatility of loss reserves from this legacy business. There can be no assurance that this reinsurance or that
the timing and accounting recognition of recoveries under that reinsurance agreement will be sufficient to protect us against further declines in shareholders’ equity.
While we believe these actions along with our revised strategy will help maintain operating profitability, there can be no assurance that these actions will achieve their intended effects or that such
reinsurance will be sufficient to protect us against further adverse loss reserve development. Further, as our insurance liabilities continue to run-off, our investment income will continue to decrease
which may adversely affect our profitability. While we continue to reduce our operating expenses, make additional investments which we believe will produce enhanced investment returns, and now
write new legacy retroactive risks, there can be no assurance that these measures will overcome the expected decline in investment income. Finally, we have not yet determined if and when we may
resume active underwriting of new prospective risks which would result in increased revenue.
While we continue to believe we will operate as a going concern, there can be no assurance that this will continue to be the case if we do not maintain operating profitability or if future significant
declines in our shareholders’ equity occur.
The inability of management to successfully implement its business strategy could result in a further decline of capital, materially adversely affecting our financial condition and results of
operations, and may create enhanced risks.
Management continues to evaluate various operating strategies that are likely to be significantly different than our prior strategic business focus. In November 2020, we formed GLS which
specializes in providing a full range of legacy services to small insurance entities, particularly those in run-off or with blocks of reserves that are no longer core, working with clients to develop and
implement finality solutions including acquiring entire companies. We believe the formation of GLS is highly complementary to our overall longer-term strategy. However, it may take some time for
GLS to gain sufficient scale to achieve its objectives, and its results may not reach the objectives we expect to establish for it over time. Since 2020, this also included expanded investment activities.
This has included changes to our approaches to asset and capital management and we may or may not resume active reinsurance underwriting of new prospective risks in the future. Further, as part of
its re-domestication to the State of Vermont in the U.S., Maiden Reinsurance expects to closely consult with the Vermont DFR before it considers resuming active reinsurance underwriting of new
prospective risks and on any matters related to capital management and business strategy. There can be no assurance that the implementation of the new business plan will succeed or will be
satisfactory to the Vermont DFR which could have a material adverse effect on our business, operations and financial condition.
Any new business initiatives involving the development of new products or expanding existing products in new or historically targeted markets may involve substantial capital and operating
expenditures, which may negatively impact our results of operations and shareholders' equity. In addition, the demand for new products or in new markets may not meet our expectations. To the
extent we can market new products or expand in new markets, our risk exposures may change and the data and models we use to manage such exposures may not be as sophisticated as those we use
in existing markets or with existing products. This, in turn, could lead to losses in excess of expectations. Additionally, the re-domestication of Maiden Reinsurance to the U.S. may limit our ability to
reinsure risk outside of the U.S. and may have an adverse effect on our capital and ability to write new business.
As part of our ongoing efforts to continually improve our performance, we regularly evaluate our business plans and strategies, which may result in material changes to those plans. We are subject
to increasing risks related to our ability to successfully implement our evolving plans and strategies. Changing plans and strategies requires significant management of time and effort and may divert
management’s attention from our core operations and competencies, and our efforts to improve our capital position and solvency. Moreover, modifications we undertake to our operations may not
immediately result in improved financial performance.
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Therefore, risks associated with implementing or changing our business strategies and initiatives, including risks related to developing or enhancing the operations, controls and other
infrastructure required for these strategies and initiatives, may not have a positive impact on our publicly reported results until many years after implementation, possibly leading to an adverse effect
on our long-term results of operations and financial condition.
Our actual losses may be greater than our reserve for loss and LAE, which could materially negatively impact our financial condition and results of operations.
Our success depends upon our ability to assess accurately the risks associated with the businesses that we will reinsure, that we have acquired or will acquire in the future. Significant periods of
time often elapse between the occurrence of an insured loss, the reporting of the loss to an insurer and the reporting of the loss by the insurer to its reinsurer and the ultimate disposition of that loss.
The reserves we establish represent estimates of amounts needed to pay reported losses and unreported losses and the related LAE. Loss reserves are only an estimate of what an insurer or reinsurer
anticipates the ultimate costs of claims to be and do not represent an exact calculation of liability. Estimating loss reserves is a difficult and complex process involving many variables, inherent
uncertainty, statistical modeling, and subjective judgments. As part of our reserving process, we review historical data as well as perform actuarial and statistical projections using proprietary models
and consider the impact of various factors such as: trends in claim frequency and severity; changes in operations; emerging economic and social trends; inflation; and changes in the regulatory and
litigation environments.
This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. In addition, reserving models
that are capable of estimating reserves using a variety of methodologies are utilized during the reserving process. There is no precise method, however, for evaluating the impact of any specific factor
on the adequacy of reserves, and actual results are likely to differ from original estimates. Reserve models can introduce further process and parameter risk when data and methodologies are
interpreted or utilized in a manner which is inconsistent with the actual underlying characteristics of the reinsured exposure. These risks could arise due to incorrect use of the models, or the use of a
model or methodology that is inappropriate. In addition, unforeseen losses, the type or magnitude of which we cannot predict, may emerge in the future. Given the inherent uncertainty in the
reserving process and models used for reserve estimation, we may not accurately react to the reporting and payment of loss in the projection of our reserve for loss and LAE.
We will establish or adjust reserves for our insurance subsidiaries in part based upon loss data received from the ceding companies with which we do business. There is a time delay that elapses
between the receipt and recording of claims results by the ceding insurance companies and the receipt and recording of those results by us. Accordingly, establishment and adjustment of reserves for
our insurance subsidiaries is dependent upon timely and accurate estimate reporting from cedants and agents.
We use our own proprietary models to provide us with an objective risk assessment relating to risks in our reinsurance portfolio. These models help us to inform management and other
stakeholders of capital requirements and to improve the risk/return profile or minimize the amount of capital required to cover the risks in each reinsurance contract in our overall portfolio of
reinsurance contracts. However, given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address the emergence
of a variety of matters which might be deemed to impact certain of our coverages. Accordingly, these models may understate the exposures we are assuming and our financial results may be
adversely impacted, perhaps significantly.
In addition, during 2020, the COVID-19 pandemic disrupted established claims adjudication and settlement processes. These disruptions could impact the consistency of data received from our
cedants and agents. While we do not believe these disruptions have materially impacted our ability to appropriately evaluate the exposures, it could potentially impact the judgments we make in
setting reserves.
While we have established our reserves to a level we believe to be sufficient to cover losses assumed by us when we recognize prior period development, there can be no assurance that losses will
not deviate from our reserves, possibly by material amounts. We have experienced significant adverse development of our loss reserves in prior years. Further, the additional reinsurance protection we
have purchased to protect against further adverse development in loss reserves may be insufficient compared to the actual losses that emerge and we may need to recognize adverse development
which would reduce our results of operations and shareholders' equity, possibly materially. To the extent our actual reported losses exceed expected losses, the carried estimate of the ultimate losses
will be increased, which would represent unfavorable reserve development, and in turn could have a material adverse effect on our financial condition.
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected issues related to claims and coverage may emerge. These issues may adversely affect our
business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after
we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our reinsurance contracts may not be known for many years after a
contract is issued. Our exposure to these uncertainties could be exacerbated by an increase in insurance and reinsurance contract disputes, arbitration and litigation.
Our business is subject to risks related to litigation. Losses from legal and regulatory actions may have a material adverse effect on our reputation, operating results, cash flows, financial
condition and prospects.
We may from time to time be subject to litigation or other legal or regulatory actions in the ordinary course of business relating to our current and past business operations, including, but not
limited to, disputes over coverage or claims adjudication, including claims alleging that we have acted in bad faith in the administration of claims by our policyholders, disputes with our agents,
producers and termination of contracts and related claims and disputes with former employees. We also cannot determine with any certainty what new theories of recovery may evolve or what their
impact may be on our business.
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We also may be subject to litigation from security holders due to the diminution in value of our securities as a result of our operating results and financial condition. Defending against these
actions may require us to utilize significant resources in our defense as well as result in a significant amount of time by our senior management.
An adverse resolution of one or more lawsuits or arbitration could have a material adverse effect on our results of operations in a particular fiscal quarter or year.
Our reinsurers may not pay losses in a timely fashion, or at all, which could have a material adverse effect on our results of operations or financial condition.
At December 31, 2021, we had $559.9 million due to us from one reinsurer, Cavello Bay Reinsurance Limited ("Cavello"), consisting of losses due from Cavello under the retrocession agreement
of $69.0 million and reinsurance recoverable on unpaid losses under the retroactive reinsurance agreement of $490.9 million. Cavello provided collateral in the form of a letter of credit in the amount
of $445.0 million to AmTrust under the loss portfolio and adverse development cover agreement ("LPT/ADC Agreement') with Enstar Group Limited ("Enstar") on July 31, 2019, pursuant to which
Cavello assumed the loss reserves as of December 31, 2018 associated with the AmTrust Quota Share, subject to additional collateral funding requirements. As of December 31, 2021, the amount of
collateral required was $401.6 million.
We may or may not use retrocessional and reinsurance coverage to limit our exposure to risks. Any retrocessional or reinsurance coverage that we obtain may be limited, and credit and other
risks associated with our retrocessional and reinsurance arrangements may result in losses which could adversely affect our financial condition and results of operations.
We have provided reinsurance to our clients and in turn we may or may not retrocede reinsurance we have assumed to other insurers and reinsurers. If we do not use or cannot obtain retrocessional
coverage or reinsurance, our exposure to losses will be greater than if we did obtain such coverage. If we do obtain retrocessional or reinsurance coverage, some of the insurers or reinsurers to whom
we may retrocede coverage or reinsure with may be domiciled in Bermuda or other non-U.S. locations. We would be subject to credit and other risks that depend upon the financial strength of these
reinsurers. Further, we will be subject to credit risk with respect to any retrocessional or reinsurance arrangements because the ceding of risk to reinsurers and retrocessionaires would not relieve us of
our liability to the clients or companies we insure or reinsure. Our failure to establish adequate reinsurance or retrocessional arrangements or the failure of any retrocessional arrangements to protect
us from overly concentrated risk exposure could adversely affect our business, financial condition and results of operation. We may attempt to mitigate such risks by retaining collateral or trust
accounts for premium and claims receivables, but nevertheless we cannot be assured that reinsurance will be fully collectable in the case of all potential claims outcomes.
The failure of any of the loss limitation methods we have employed or could employ in the future could have a material adverse effect on our results of operations or financial condition.
We seek to limit loss exposure through loss limitation provisions in policies we write, such as limitations on the amount of losses that can be claimed under a policy, limitations or exclusions from
coverage and provisions relating to choice of forum, which are intended to assure that our policies are legally interpreted as intended. There can be no assurance that these contractual provisions will
be enforceable in the manner expected or that disputes relating to coverage will be resolved in our favor. If the loss limitation provisions in the policies are not enforceable or disputes arise concerning
the application of such provisions, the losses we incur could be materially higher than expected and our financial condition and results of operations could be adversely affected.
We depend on the policies, procedures and expertise of ceding companies for the business we have written in the past; these companies may have failed to accurately assess and price the risks
they have underwritten, which may lead us to inaccurately assess and price the risks we assumed.
While we are not presently engaged in active reinsurance underwriting of new prospective risks, we are engaged in active reinsurance underwriting of retroactive risks. Our participation in these
property and casualty reinsurance markets means the success of our prior underwriting efforts depends, in part, upon the policies, procedures and expertise of the ceding companies making the
original underwriting decisions. As common among reinsurers, we do not separately evaluate each of the individual risks assumed under reinsurance treaties. We face the risk that these ceding
companies may have failed to accurately assess the risks that they assumed initially, which, in turn, may lead us to inaccurately assess the risks we assumed.
If we have failed to establish and receive appropriate pricing or failed to contractually limit our exposure to such risks, we could face significant losses on these contracts, which could have a
material adverse impact on our financial results.
The failure of our underwriting process and risk management could have an adverse effect on our results of operations or financial condition.
As noted, while we are not presently engaged in active reinsurance underwriting of new prospective reinsurance risks, we are engaged in active reinsurance underwriting of retroactive risks. We
also assume risk on a primary basis through Maiden LF & Maiden GF. As we write these risks, we similarly seek to manage our loss exposure by maintaining a disciplined underwriting process
throughout our (re)insurance operations. Underwriting is a matter of judgment, involving important assumptions about matters that are inherently unpredictable and beyond our control, and for which
historical experience and probability analysis may not provide sufficient guidance. The failure of any of the underwriting risk management strategies that we employ could have a material adverse
effect on our financial condition, results of operations or cash flows.
We rely on internal controls and underwriting guidelines to limit our risk exposure within prescribed parameters. However, our controls and monitoring efforts may have been ineffective,
permitting one or more underwriters to exceed underwriting authority and causing us to (re)insure risks outside the agreed upon guidelines. To the extent that our underwriters exceeded their
authorities, agreed to inappropriate contract terms and conditions or were influenced by broker incentives, or if there was
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inaccurate underwriting data captured and reported leading to licensing and sanction breaches, our financial condition or results of operations could be materially adversely affected.
We may be required to accelerate the amortization of deferred acquisition costs or establish premium deficiency reserves.
Deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts. The balances of such costs are capitalized as an asset and
amortized into income over the expected lives of the underlying insurance contracts. On an ongoing basis, we test these assets recorded on our balance sheet to determine whether the amounts are
recoverable under current assumptions. To date, we have concluded that no such premium deficiency exists. If facts and circumstances change, these tests and reviews could lead to the establishment
of a premium deficiency reserve which would require a write down in the carried value of our deferred acquisition costs. Such results could have an adverse effect on the results of our operations and
our financial condition.
Failure of our information technology systems could disrupt our business and adversely impact our profitability.
We believe our information technology and application systems are critical to our business and reputation. We have licensed certain systems and data from third parties. We cannot be certain that
we will have access to these, or comparable service providers, or that our technology or applications will continue to operate as intended. A major defect or failure in our internal controls or
information technology and application systems could result in management distraction, harm to our reputation, a loss or delay of revenues or increased expense.
Technology breaches or failures, including, but not limited to, those resulting from cyber-attacks on us or our business partners and service providers, could disrupt or otherwise negatively
impact our business.
Information technology and application systems can streamline many business processes and ultimately reduce the cost of operations, however, technology initiatives present certain risks. Our
business is dependent upon our employees and outsources ability to perform, in an efficient and uninterrupted fashion, necessary business functions. Like all companies, our information technology
systems are vulnerable to data breaches, interruptions or failures due to events that may be beyond our control, including, but not limited to, natural disasters, theft, terrorist attacks, computer viruses,
hackers and general technology failures. Our information technology systems include the Internet and third-party hosted services. We use information systems to process financial information and
results of operations for internal reporting purposes and for regulatory financial reporting, legal and tax requirements. We also use information systems for electronic communications with customers
and our various locations.
A shutdown or inability to access one or more of our facilities, a power outage, a security breach, or a failure of one or more of our information technology, telecommunications or other systems
could significantly impair our ability to perform such functions on a timely basis. These incidents could be caused by malicious or disruptive software, computer hackers, rogue employees, cyber-
attacks, failures of telecommunications systems or other catastrophic events. If sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration of our
ability to write and process business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Furthermore, a significant portion of the communications
between our employees and our business, banking and investment partners depends on information technology and electronic information exchange. In addition, we may suffer financial and
reputational damage because of lost or misappropriated confidential information belonging to us, and may become subject to legal action and increased regulatory oversight. We could also be
required to spend significant financial and other resources to remedy any damage caused to repair or replace information systems.
We believe that we have established and implemented appropriate security measures, controls and procedures to safeguard our information technology systems and to prevent unauthorized access
to such systems and any data processed and/or stored in such systems, and we periodically employ third parties to evaluate and test the adequacy of such systems, controls and procedures. In addition,
we have established a business continuity plan which is designed to ensure that we are able to maintain all aspects of our key business processes functioning in the midst of certain disruptive events,
including any disruptions to or breaches of our information technology systems. We continue to make investments in technologies, cyber-insurance and training. Our business continuity plans are
tested and evaluated for adequacy. Despite these safeguards, disruptions to and breaches of our information technology systems are possible and may negatively impact our business.
Like most major corporations, the Company’s information systems are a target of attacks. Although we have experienced no known material or threatened cases involving unauthorized access to
our information technology systems and data or unauthorized appropriation of such data to date, we have no assurance that such technology breaches will not occur in the future.
Ongoing economic uncertainty could materially and adversely affect our business, our liquidity and financial condition.
Global economies and financial markets have, from time to time, experienced significant disruption or deterioration and likely will experience periods of disruption or deterioration in the future.
In addition, U.S. federal and state governments continue to experience significant structural fiscal deficits, creating uncertainty as to levels of taxation, inflation, regulation and other economic
fundamentals that may impact future growth prospects. The continuing presence of the COVID-19 virus globally continues to inject significant economic uncertainty which may have a material effect
on the global economy and financial markets. Continuation of these conditions may potentially affect (among other aspects of our business) the demand for and claims made under our products, the
ability of clients, counterparties and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources and our investment
performance.
Our agency mortgage-backed securities ("Agency MBS") constitute 16.5% of our fixed maturity investments at December 31, 2021. As with other fixed income investments, the fair value of
these securities fluctuates depending on market and other general economic conditions and the interest rate environment. Changes in interest rates can expose us to changes in the prepayment rate on
these investments. In periods of declining interest rates, mortgage prepayments generally increase and
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mortgage-backed securities ("MBS") are prepaid more quickly, requiring us to reinvest the proceeds at lower market rates. Conversely, in periods of rising rates, mortgage prepayments generally fall,
preventing us from taking full advantage of the higher level of rates. However, economic conditions may curtail prepayment activity on the underlying mortgages if refinancing is difficult, thus
limiting prepayments on the MBS portfolio. In the event that these conditions persist and result in a prolonged period of economic uncertainty, our results of operations, our financial condition and/or
liquidity, and our prospects could be materially and adversely affected.
We may face substantial exposure to losses from terrorism, acts of war and political instability.
We may have exposure to losses resulting from acts of terrorism, acts of war and political instability as a reinsurer of U.S. domiciled insurers. U.S. insurers are required by state and federal law to
offer coverage for terrorism in certain commercial lines. These risks are inherently unpredictable, although recent events may lead to increased frequency and severity. It is difficult to predict the
occurrence of these perils with statistical certainty or to estimate the amount of loss an occurrence will generate. We closely monitor the amount and types of coverage we provide for terrorism risk
under insurance policies and reinsurance treaties. We often seek to exclude or limit terrorism when we cannot reasonably evaluate the risk of loss or charge an appropriate premium for such risk. Even
in cases where we have deliberately sought to exclude coverage, we may not be able to eliminate our exposure to terrorist acts, and thus it is possible that these acts could have a material adverse
effect on us.
Liquidity, Capital Resources and Investments
We may not have sufficient unrestricted liquidity to meet our obligations.
Maiden Holdings is a holding company. As a result, we do not have, and will not have, any significant operations or assets other than our ownership of the shares of our subsidiaries. Dividends
and other permitted payments from our operating subsidiaries are expected to be our sole source of funds to meet ongoing cash requirements at Maiden Holdings, including debt service payments and
other expenses. As of December 31, 2021 and as of the date hereof, our insurance subsidiaries' ability to make distributions require the prior approvals of their respective domestic regulators. Maiden
Holdings may need to borrow funds from its subsidiaries if funds from dividends are not available to meet ongoing cash requirements. The impact of applicable regulatory capital requirements such
as risk based capital ratios under U.S. law could impact the ability of Maiden Reinsurance to pay future cash dividends.
Maiden Reinsurance uses trust accounts, loan to related party, funds withheld and letters of credit to meet collateral requirements. Consequently, cash and cash equivalents and investments are
pledged in favor of ceding companies in order to comply with relevant insurance regulations or contractual requirements. At December 31, 2021, restricted cash and cash equivalents and fixed
maturity investments used as collateral were $582.1 million and represents 87.8% of the fair value of our total fixed maturity investments and cash and cash equivalents (including restricted cash and
cash equivalents) at that date. At December 31, 2021, Maiden Reinsurance had $40.5 million in unrestricted cash and cash equivalents and fixed maturity investments. On a consolidated basis, the
Company had $81.1 million in unrestricted cash and cash equivalents and fixed maturity investments at December 31, 2021.
Based on our current estimate of 2022 financial projections, we believe we will have sufficient liquidity to meet and fulfill our obligations including payments due under our 2013 Senior Notes
issued by Maiden NA in the principal amount of $152.5 million, all of which is currently outstanding and is subject to a guarantee by Maiden Holdings, and the 2016 Senior Notes in the principal
amount of $110.0 million, all of which is currently outstanding (the 2016 Senior Notes collectively with the 2013 Senior Notes, the "Senior Notes"). However, should our operating results deteriorate,
should additional collateral be required under our contractual arrangements with reinsured prior to the receipt of recoveries under reinsurance agreements we have entered into or should excess
collateral under those arrangements not be returned to the Company quickly enough, we cannot assure that we will maintain sufficient unrestricted liquidity to meet those obligations.
A significant amount of our invested assets are subject to changes in interest rates and market volatility. If we are unable to realize our investment objectives, our financial condition and results
of operations may be adversely affected.
Investment income is an important component of our consolidated net income. At December 31, 2021, total investments of $0.8 billion represented 92.6% of our total cash and investments. Total
investments included other investments of $141.7 million, or 17.2% of our total investment portfolio, comprised of a combination of private credit funds, private equity funds, other privately held
investments and investments in direct lending activities. As a result of market conditions prevailing at a particular time, the allocation of our portfolio to various asset types may vary. The fair market
value of these assets and the investment income from these assets will fluctuate depending on general economic and market conditions. We classify our fixed maturity investments as available-for-
sale ("AFS") and therefore changes in the market value are reflected in our shareholders’ equity through accumulated other comprehensive income ("AOCI").
Our Board has established our investment policies, including the purchase of affiliated securities, approved by the Vermont DFR, and our executive management is implementing our investment
strategy with the assistance of our investment managers. Although these guidelines stress diversification and capital preservation, our investment results will be subject to a variety of risks, including
risks related to changes in the business, financial condition or results of operations of the entities in which we invest, as well as changes in general economic conditions and overall market conditions,
interest rate fluctuations and market volatility. Given our reliance on external investment managers, we are also exposed to operational risks, which may include, but are not limited to, a failure of
these managers to follow our investment policy guidelines, a failure to maintain proper internal controls, technological and staffing deficiencies and inadequate disaster recovery plans.
A substantial portion of our investment portfolio consists of interest rate-sensitive instruments, such as bonds, which may be adversely affected by changes in interest rates. Interest rates are
highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions and other factors beyond our control. Changes in interest
rates could have an adverse effect on the value of our fixed maturity investment portfolio and future investment income. For example, changes in interest rates can expose us to prepayment risks on
U.S. Government Agency
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MBS included in our investment portfolio (all Agency MBS are currently "AA+" rated by S&P). Increases in interest rates will decrease the fair market value of our investments in fixed-income
securities. If increases in interest rates occur during periods when we sell investments to satisfy liquidity needs, we may experience investment losses. In addition, a declining interest rate
environment can result in reductions in our investment yield as new funds and proceeds from sales and maturities of fixed income securities are reinvested at lower rates which reduces our overall
profitability.
Interest rates are highly sensitive to many factors, including governmental monetary policies, inflation, domestic and international economic and political conditions and other factors beyond our
control. To limit our exposure to unexpected interest rate increases which would reduce the value of our fixed income securities and reduce our shareholders' equity, we attempt to maintain the
duration of our fixed maturity investment portfolio combined with our cash and cash equivalents, both restricted and unrestricted, within a reasonable range of the duration of our loss reserves. As a
result of the LPT/ADC Agreement, our liability duration will be materially shortened and if we do not correspondingly shorten the duration of the investments in our fixed maturity investment
portfolio, our risk of exposure to unexpected changes in interest rates could adversely affect our operations and financial condition.
At December 31, 2021 and 2020, these respective durations in years were as follows:
At December 31,
Fixed maturities and cash and cash equivalents
Reserve for loss and LAE - gross of LPT/ADC Agreement reserves
Reserve for loss and LAE - net of LPT/ADC Agreement reserves
2021
2020
1.5
4.4
1.4
2.1
3.9
0.9
The differential in duration between these assets and liabilities may fluctuate over time and in the case of fixed maturities, is affected by factors such as market conditions, asset allocations and
prepayment speeds in the case of Agency MBS.
We believe we have historically mitigated our exposure to liquidity risk through prudent duration management and strong operating cash flow. Our business has undergone significant changes
since 2019, which have transformed our operations and materially reduced the risk on our balance sheet. As a result, our gross and net premiums written will continue to be materially lower going
forward and investment income will continue to be a significantly larger portion of our revenues. We believe this will significantly reduce our operating cash flow.
However, we generally expect negative operating cash flows to be met or exceeded by positive investing cash flows. Overall, we expect our cash flows, together with our existing capital base and
unrestricted cash and investments to be sufficient to meet cash requirements and to operate our business. The LPT/ADC Agreement has shortened the duration of our liabilities which in turn may
require us to adjust the duration of our fixed maturities which could lower our investment income. We also have very limited property catastrophe exposures which could cause an immediate need for
cash. However, if we do not structure our investment portfolio so that it is appropriately matched with our reinsurance liabilities or our operating cash flow declines, we may be forced to liquidate
investments prior to maturity at a significant loss to cover such liabilities. For this or any of the other reasons discussed above, investment losses could significantly decrease our asset base, which
would adversely affect our ability to conduct business. Any significant decline in our investment income would adversely affect our business, financial condition and results of operations.
The determination of the fair values of our investments and whether a decline in the fair value of an investment is other-than-temporary are based on management’s judgment and may prove to
be incorrect.
We hold a significant amount of assets without readily available, active, quoted market prices or for which fair value cannot be measured from actively quoted prices. These assets are generally
deemed to require a higher degree of judgment used in measuring fair value. The assumptions used by management to measure fair values could turn out to be inaccurate and the actual amounts that
may be realized in an orderly transaction with a willing market participant could be either lower or higher than our estimates of fair value. We review our investment portfolio for factors that may
indicate that a decline in the fair value of an investment is other-than-temporary. This evaluation is based on subjective factors, assumptions and estimates and may prove to be materially incorrect,
which may result in us recognizing additional losses in the future as new information emerges or recognizing losses in the current period that may never materialize in the future in an orderly
transaction with a willing market participant.
Our investments in alternative investments and our investments in joint ventures and/or entities accounted for using the equity method may be illiquid and volatile in terms of value and returns,
which could negatively affect our investment income and liquidity.
In addition to fixed maturity securities, we have invested, and may from time to time continue to invest, in alternative investments such as hedge funds, fixed income funds, equity funds, privately
held investments, private equity and private credit funds and co-investments, real estate funds and co-investments and other alternative investments. During 2021, we increased the amount allocated
to such investments, and at December 31, 2021, 25.4% of our total cash and investments were categorized as equities, other investments and equity method Investments on our consolidated balance
sheets compared to 7.3% as of December 31, 2020. We expect to continue to increase this allocation over future periods and have committed $95.7 million to future investments as of December 31,
2021. These and other similar investments may be illiquid due to restrictions on sales, transfers and redemption terms, may have different, more significant risk characteristics than our investments in
fixed maturity securities and may also have more volatile values and returns, all of which could negatively affect our investment income and overall portfolio liquidity.
We have also invested, and from time to time may continue to make investments in joint ventures and in other entities that we do not control. In these investments, many of which are accounted
for using the equity method, we may lack management
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and operational control over the entities in which we are invested, which may limit our ability to take actions that could protect or increase the value of our investment. In addition, these investments
may be illiquid due to contractual provisions, and our lack of operational control may prevent us from obtaining liquidity through distributions from these investments in a timely manner or on
favorable terms.
Alternative or "other" investments may not meet regulatory admissibility requirements or may result in increased regulatory capital charges to our insurance subsidiaries that hold these
investments, which could limit those subsidiaries’ ability to make capital distributions to us and, consequently, negatively impact our liquidity. For more information on our alternative investments,
please see Item 7. "Management's Discussion & Analysis: Liquidity and Capital Resources - Cash & Investments".
We may require additional capital in the future, which may not be available on favorable terms or at all.
Our future capital requirements will depend on many factors. We also may not be able to grow significantly without additional capital. Our future business needs are uncertain and we may need to
raise additional funds to further capitalize Maiden Reinsurance or our IIS business. We anticipate that any such additional funds would be raised through equity, debt, hybrid financings or entering
into reinsurance agreements. While we currently have no commitment from any lender with respect to a credit facility or a loan facility, we may enter into an unsecured revolving credit facility or a
term loan facility with one or more syndicates of lenders. Any equity, debt or hybrid financing, if available at all, may be on terms that are not favorable to us. Recent turbulence in the financial
markets due to the spread of COVID-19 may limit our ability to access the credit or equity markets. If we are able to raise capital through equity financings, the interest of shareholders in our
Company would be diluted, and the securities we issue may have rights, preferences and privileges that are senior to those of our common shares.
We no longer have an S&P rating or A.M. Best rating. The absence of credit ratings on our outstanding securities could impact our ability to obtain additional debt or hybrid capital at reasonable
terms or at all. Credit ratings are an opinion by third parties of our financial strength and ability to meet ongoing obligations to our future policyholders. The lack of a credit rating may make it
difficult for investors to evaluate an investment in our securities and for us to raise additional capital in the future on acceptable terms or at all. Similarly, our access to funds may be impaired if
regulatory authorities take negative actions against us. Finally, our operating results as well as the non-payment of dividends on our Preference Shares in the last several years may make investors
reluctant to commit capital to us at reasonable valuations and/or pricing. Our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain
additional financing on favorable terms, or at all. Establishing a credit rating on our securities, if needed in the future, may be difficult to obtain.
The availability of additional financing will also depend on a variety of other factors such as market conditions, the general availability of capital, the volume of trading activities and the overall
availability of capital to the financial services industry. As such, we may be forced to delay raising capital, issue shorter maturity securities than we prefer, or bear an unattractive cost of capital which
could decrease our profitability and significantly reduce our financial flexibility. If we cannot obtain adequate capital, our business prospects, results of operations and financial condition could be
adversely affected.
We do not anticipate paying any cash dividends on our common shares for the foreseeable future and there can be no assurance that dividends on the Preference Shares will resume.
We currently intend to retain our future earnings, if any, to strengthen our regulatory capital and solvency ratios, improve our liquidity and working capital and for other general corporate
purposes. The insurance laws and regulations of our insurance subsidiaries generally contain restrictions on the ability to pay dividends or distributions to Maiden Holdings, which may restrict our
ability to pay dividends on common or preference shares. Any capital distribution of any kind out of Maiden Reinsurance would be done consistent with Vermont regulation which requires the prior
approval of the Vermont DFR. Any future determination to pay dividends on our common shares will be at the discretion of our Board, subject to applicable laws, and will depend on our financial
condition, results of operations, capital requirements, general business conditions, and other factors that our Board considers relevant.
Maiden Holdings has issued a total of $465.0 million in Preference Shares that remains outstanding at December 31, 2021. Excluding the Preference Shares held by Maiden Reinsurance, $159.2
million are held by non-affiliates as at December 31, 2021. Holders of our Preference Shares may receive dividends on a non-cumulative basis and are required to be paid before common
shareholders are eligible for dividend payments. Our Board has not declared dividends on the Preference Shares since the third quarter of 2018 and there can be no assurance that the authorization and
declaration of dividends on the Preference Shares will resume.
As part of the capital management pillar of our strategy during 2021, Maiden Reinsurance accepted for purchase via private negotiation with certain security holders, (i) 3,519,093 shares of the
Company's 8.25% Non-Cumulative Preference Shares Series A at an average price of $14.74 per share, (ii) 3,026,764 shares of the Company's 7.125% Non-Cumulative Preference Shares Series C at
an average price of $14.36 per share, and (iii) 2,858,155 shares of the Company's 6.7% Non-Cumulative Preference Shares Series D at an average price of $14.27 per share. The Company has
continued to repurchase Preference Shares subsequent to December 31, 2021 pursuant to a Rule 10b5-1 plan. Please see "Note 16 - Subsequent Events" included under Item 8. "Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K for details. However, there can be no assurance that our insurance liabilities will run-off at levels that will permit future capital
management activities, which we expect to continually review as part of our strategy.
Our failure to comply with restrictive covenants contained in the documents governing our Senior Notes or any future credit facility could trigger prepayment obligations, which could adversely
affect our business, financial condition and results of operations.
The indentures governing our Senior Notes contain covenants that impose restrictions on us and certain of our subsidiaries with respect to, among other things, the incurrence of liens and the
disposition of capital stock of these subsidiaries. In addition, any future credit facility may require us and/or certain of our subsidiaries to comply with certain covenants, which may include
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the maintenance of a minimum consolidated net tangible worth and restrictions on the payment of dividends. Our failure to comply with these covenants could result in an event of default under the
indentures or any future credit facility, which, if not cured or waived, could result in us being required to repay the notes or any amounts outstanding under such credit facility prior to maturity. We
believe we are in compliance with all of the covenants in the Indentures governing the Senior Notes. However, our business, financial condition and results of operations could be adversely affected if
we were found to be in default of these covenants.
For more details on our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations" included under Item 7 and "Notes to Consolidated Financial
Statements - "Note 7 — Long-Term Debt" included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
We may be adversely impacted by claims inflation.
Our operations, like those of other property and casualty insurers and reinsurers, are susceptible to the effects of claims inflation because premiums are established before the ultimate amounts of
loss and LAE are known. Although we consider the potential effects of claims inflation when setting premium rates, our premiums may not fully offset the effects of inflation and essentially result in
our underpricing the risks we insure and reinsure. Our reserve for loss and LAE includes assumptions about future payments for settlement of claims and claims handling expenses, such as the value
of replacing property and associated labor costs for the property business we write, the value of medical treatments and litigation costs. To the extent claims inflation causes these costs to increase
above reserves established for these claims, we will be required to increase our loss reserves with a corresponding reduction in our net income in the period in which the deficiency is identified, which
may have a material adverse effect on our financial condition or results of operations.
A decrease in the fair value of our subsidiaries may result in future impairments.
The determination of impairments taken on our investments and loans varies by type of asset and is based upon our periodic evaluation and assessment of known and inherent risks associated with
the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects
impairments in operations as such evaluations are revised. There can be no assurance that our management has accurately assessed the level of impairments taken in our financial statements.
Furthermore, additional impairments may need to be taken in the future, which could materially impact our financial position or results of operations. Historical trends may not be indicative of future
impairments.
Regulation
Compliance by our insurance subsidiaries with the legal and regulatory requirements to which they are subject is expensive. Any failure to comply could have a material adverse effect on our
business.
Our insurance subsidiaries are required to comply with a wide variety of laws and regulations applicable to insurance or reinsurance companies, both in the jurisdictions in which they are
organized and where they sell their insurance and reinsurance products. The insurance and regulatory environment has become subject to increased scrutiny in many jurisdictions, including the U.S.,
various states within the U.S. and the EU. In the past, there have been Congressional and other initiatives in the U.S. regarding increased supervision and regulation of the insurance industry. It is not
possible to predict the future impact of changes in laws and regulations on our operations. The cost of complying with any new legal requirements affecting our subsidiaries could have a material
adverse effect on our business.
In addition, our subsidiaries may not always be able to obtain or maintain necessary licenses, permits, authorizations or accreditations. They also may not be able to fully comply with, or to obtain
appropriate exemptions from, the laws and regulations applicable to them. Any failure to comply with applicable law or to obtain appropriate exemptions could result in restrictions on either the
ability of the company in question, as well as potentially its affiliates, to do business in one or more of the jurisdictions in which they operate or on brokers on which we rely to produce business for
us. In addition, any such failure to comply with applicable laws or to obtain appropriate exemptions could result in the imposition of fines or other sanctions. Any of these sanctions could have a
material adverse effect on our business.
Our industry is highly regulated and we are subject to significant legal restrictions and these restrictions may have a material adverse effect on our business, financial condition, results of
operations, liquidity, cash flows and prospects.
The financial services industry is the focus of increased regulatory scrutiny as various state and federal governmental agencies and self-regulatory organizations conduct inquiries and
investigations into the products and practices of the companies within this industry. Governmental authorities in the U.S. and worldwide have become increasingly interested in potential risks posed
by the insurance industry as a whole, and to commercial and financial systems in general. Among the proposals that are being considered is the possible introduction of global regulatory standards for
the amount of capital that insurance groups must maintain across the group, such as the development of the risk-based global insurance capital standard for internationally active insurance groups
being developed by the International Association of Insurance Supervisors as well as the U.S. group capital calculation being developed by the NAIC. In 2021, the NAIC adopted the final version of
group capital calculation template and instructions and proposed revisions to the Insurance Holding Company System Act and Regulation to implement the filing of the group capital calculation with
the lead state insurance commissioner. This establishes a filing requirement for insurance groups for the purposes of evaluating solvency at the group level. State legislatures and insurance
departments have begun to implement the holding company system revisions Please see Item 1. "Business - Regulatory Matters" for further discussion. While we cannot predict the exact nature,
timing or scope of possible governmental initiatives, there may be increased regulatory intervention in the insurance and financial services industry in the future.
Europe
Under EU Freedom of Services, a firm authorized in a European Economic Area ("EEA") state can offer certain products or services in other EEA states if it has the relevant passport. Maiden LF
and Maiden GF are established in an EEA state (Sweden)
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and have passports for a number of EEA states. Maiden LF is licensed by the Swedish financial regulator (Finansinspektionen) to write insurance and reinsurance of short-term life insurance (Class
1a) and supplementary insurance to Class 1a (Class 1b). Maiden GF is licensed by Finansinspektionen to write insurance and reinsurance of other miscellaneous financial losses (Class 16). We cannot
predict the impact laws and regulations adopted in the EU or other non-U.S. jurisdictions may have on the financial markets generally or on our businesses, results of operations or cash flows. It is
possible that changes in such laws and regulations may alter our business practices. They may also limit our ability to engage in capital or liability management, require us to raise additional capital,
and impose burdensome requirements and additional costs. It is possible that the laws and regulations adopted in foreign jurisdictions will differ from one another, and that they could be inconsistent
with the laws and regulations of other jurisdictions including the U.S.
United States
Our U.S. subsidiaries are subject to a complex and extensive array of laws and regulations that are administered and enforced by state insurance regulators, state securities administrators, state
banking authorities, the SEC, FINRA, the DOL, the IRS and the Office of the Comptroller of the Currency. See Item 1. “Business - Regulatory Matters” for a summary of certain U.S. state and
federal laws and regulations applicable to our business. Failure to comply with these laws and regulations could subject us to administrative penalties imposed by a particular governmental or self-
regulatory authority, unanticipated costs associated with remedying such failure or other claims, harm to our reputation, or interruption of our operations, any of which could have a material and
adverse effect on our financial position, results of operations and cash flows.
In addition, these statutes and regulations may, in effect, restrict the ability of our subsidiaries to write new business or, as indicated below, distribute funds to Maiden Holdings. In recent years,
some U.S. state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Moreover, the NAIC and
state insurance regulators regularly re-examine existing laws and regulations and interpretations of existing laws and develop new laws. The new interpretations or laws may be more restrictive or
may result in higher costs to us than current statutory requirements.
Changes in accounting principles and financial reporting requirements could result in material changes to our reported results of operations and financial condition.
U.S. GAAP and related financial reporting requirements are complex, continually evolving and may be subject to varied interpretation by the relevant authoritative bodies. Such varied
interpretations could result from differing views related to specific facts and circumstances. Changes in U.S. GAAP and financial reporting requirements, or in the interpretation of U.S. GAAP or
those requirements, could result in material changes to our reported results and financial condition.
Legislation enacted in Bermuda in response to the EU’s review of harmful tax competition could adversely affect our operations.
During 2017, the EU Economic and Financial Affairs Council released a list of non-cooperative jurisdictions for tax purposes. The stated aim of this list, and accompanying report, was to promote
good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion. Bermuda was not on the list of non-cooperative jurisdictions but did feature in the report (along with
approximately 40 other jurisdictions) as having committed to address concerns relating to economic substance by December 31, 2018. In accordance with that commitment, Bermuda enacted the
Economic Substance Act 2018 (as amended) of Bermuda (the “ESA”) that came into force on January 1, 2019. As noted above under “Regulatory Matters – Certain Bermuda Law Regulations”, the
ESA requires an in-scope registered entity (other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda) that carries on as a business any one or more of the
“relevant activities” referred to in the ESA, to comply with economic substance requirements.
Under the ESA, holding entity activities (as defined in the ESA and the Economic Substance Regulations 2018, as amended) satisfy the requirement of undertaking a “relevant activity”. To the
extent that the ESA applies to Maiden Holdings, we will be required to demonstrate compliance with the ESA that we have “adequate” economic substance in Bermuda.
The ESA may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in
Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain adequate physical presence in Bermuda or perform core income-generating activities in Bermuda.
However, the meaning of “adequate” in this context remains unclear. Further, given that the legislation is new and remains subject to further clarification and interpretation, it is not currently
possible to ascertain the steps required to ensure our continued compliance with the ESA and makes it difficult to predict its future impact. Any entity that must satisfy economic substance
requirements but fails to do so could face financial penalties or could be ordered by a court to take action to remedy such failure. It may also be faced with a restriction of its business activities,
automatic reporting by the Bermuda authorities to competent authorities in the EU on an entity's non-compliance or may be struck off as a registered entity in Bermuda. If any one of the foregoing
were to occur it may adversely impact the business operations of Maiden Holdings.
Corporate Governance and Risks Related to an Investment in our Securities
Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends and make other payments.
Maiden Holdings is a holding company. As a result, we do not have, and will not have, any significant operations or assets other than our ownership of the shares of our subsidiaries. We expect
that dividends and other permitted distributions from Maiden Global (and its subsidiaries), Maiden LF, Maiden GF and Maiden NA (and its subsidiaries) will be our sole source of funds to pay any
dividends to common and preference shareholders and meet ongoing cash requirements, including debt service payments, if any, and other expenses. The inability of our subsidiaries to pay dividends
in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our business, financial
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condition and results of operations. Any capital distribution of any kind out of Maiden Reinsurance requires the prior approval of the Vermont DFR.
The timing and amount of any cash dividends on our common and preference shares are at the discretion of the Board and will depend upon the results of operations and cash flows, our financial
position and capital requirements, and any other factors that our Board deems relevant. Our Board has not declared dividends on our Preference Shares since the third quarter of 2018 and there can be
no assurance that the authorization and declaration of dividends on our Preference Shares will resume.
Our common shares may be at risk for delisting from the NASDAQ Capital Market in the future. Delisting could adversely affect the liquidity of our common shares and the market price of our
common shares could decrease.
On October 25, 2019, Maiden Holdings transferred the listing of its common shares from the NASDAQ Global Select Market to the NASDAQ Capital Market. NASDAQ Capital Market is a
continuous trading market that operates in substantially the same manner as the NASDAQ Global Select Market and listed companies must meet certain financial requirements and comply with the
NASDAQ corporate governance requirements. The Company’s common shares continue to trade under the symbol “MHLD”. There can be no assurance that the bid price of the common shares of
Maiden Holdings will remain above the applicable listing standards in the future.
If our common shares were to be delisted, the liquidity of our common shares would be adversely affected and the market price of our common shares could decrease further. Our failure to be
listed on NASDAQ or another established securities market could have a material adverse effect on the value of your investment in our Company.
The Preference Shares are equity and are subordinate to our existing and future indebtedness and other liabilities.
The Preference Shares are equity interests and do not constitute indebtedness. As such, the Preference Shares will rank junior to all of our indebtedness and other non-equity claims of our creditors
with respect to assets available to satisfy the claims during liquidation. At December 31, 2021, our total consolidated principal amount of debt was $262.5 million and our total consolidated liabilities
were $1.9 billion. We may incur additional debt and liabilities in the future. Our existing and future indebtedness may restrict payments of dividends on the Preference Shares. Additionally, unlike
indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of Preference Shares, dividends are payable only if declared by our Board (or a duly
authorized committee of the Board). Our Board has not declared dividends on the Preference Shares since the third quarter of 2018 and there can be no assurance that the authorization and declaration
of dividends on the Preference Shares will resume.
We have risks related to the Company’s Senior Notes.
Maiden NA issued the 2013 Senior Notes and Maiden Holdings issued the 2016 Senior Notes, both of which are currently outstanding. We may be dependent on dividends from Maiden
Reinsurance to provide cash flows to pay interest on both the 2013 Senior Notes and the 2016 Senior Notes. If we are unable to maintain a level of cash flows from operating and investment
activities, our ability to pay our obligations on our Senior Notes could be adversely affected.
We may also incur additional indebtedness in the future. The level of debt outstanding could adversely affect our financial flexibility. Our indebtedness could have adverse consequences,
including:
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limiting our ability to pay dividends to our common and preference shareholders;
limiting our subsidiaries’ ability to pay dividends;
increasing our vulnerability to changing economic, regulatory and industry conditions;
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry;
limiting our ability to borrow additional funds;
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby, reducing funds available for working capital, capital expenditures,
acquisitions and other purposes; and
impacting regulators assessment of our capital position, adequacy and flexibility and therefore, the financial strength ratings of rating agencies and regulators' assessment of our solvency.
A few significant shareholders may influence or control the direction of our business. If the ownership of our common shares continues to be highly concentrated, it may limit your ability and
the ability of other shareholders to influence significant corporate decisions.
The interests of our significant shareholders may not be fully aligned with our interests, and this may lead to a strategy that is not in our best interest. Although they do not have any voting
agreements or arrangements, our Founding Shareholders or other significant shareholders could exercise significant influence over matters requiring shareholder approval, and their concentrated
holdings may delay or deter possible changes in control of Maiden Holdings, which may reduce the market price of our common shares.
Dividends on the Series A, Series C and Series D Preference Shares are non-cumulative.
Dividends on the Series A, Series C and Series D Preference Shares are non-cumulative and payable only out of lawfully available funds of the Company under Bermuda law. Consequently, if our
Board (or a duly authorized committee of the Board) does not authorize and declare a dividend for any dividend period with respect to the Series A, Series C and Series D Preference Shares, holders
of the Series A, Series C and Series D Preference Shares would not be entitled to receive any such dividend, and such unpaid dividend will not accumulate and will never be payable. We will have no
obligation to pay dividends for a dividend period on or after the dividend payment date for such period if the Board (or a duly authorized committee of the
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Board) has not declared such dividend before the related dividend payment date. If dividends on the Series A, Series C and Series D Preference Shares are authorized and declared with respect to any
subsequent dividend period, we will be free to pay dividends on any other series of preference shares and/or our common shares. Under Bermuda law, we will not be permitted to pay dividends on the
Preference Shares (even if such dividends have been previously declared) if there are reasonable grounds for believing that we are, or would after the payment be, unable to pay our liabilities as they
become due; or the realizable value of our assets would thereby be less than our liabilities.
Voting Rights for Shareholders of Series A, Series C and Series D Preference Shares have previously been invoked.
Whenever dividends on any Series A, Series C and Series D Preference Shares have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive
dividend periods (a “nonpayment event”), the holders of the Series A, Series C and Series D Preference Shares will be entitled to vote for the election of a total of two additional members of the
Board of Maiden Holdings, provided that the election of any such directors shall not cause us to violate the corporate governance requirement of any exchange, on which our securities may be listed
or quoted, that listed or quoted companies must have a majority of independent directors.
Our Board has not authorized or declared a dividend since the dividend period starting on December 1, 2018 with respect to the Series A, Series C and Series D Preference Shares. At March 15,
2020, because Preference Share dividends were not declared and paid for six quarterly dividend periods, holders of record with at least 20% of voting power of any of the Preference Shares Series A,
C and D were collectively entitled to vote for the election of a total of two additional members of the Company's Board. On December 15, 2020, holders of the Company's Preference Share Series A,
C and D collectively elected two additional members to the Company's Board, though these directors were not renominated for re-election at the 2021 Annual General Meeting of Shareholders by
qualifying preference shareholders.
We may consider varying the terms of our preference securities subject to a vote of preference shareholders as required.
As of December 31, 2021, Maiden Reinsurance owned 67.7%, 64.1% and 65.6% of the outstanding shares of the Series A, Series C and Series D Preference Shares, respectively. The Company
has continued to repurchase Preference Shares subsequent to December 31, 2021 pursuant to a Rule 10b5-1 plan. As of March 14, 2022, Maiden Reinsurance owns 67.7%, 66.7% and 67.0% of the
outstanding shares of the Series A, Series C and Series D Preference Shares, respectively. Pursuant to the terms of each series of those Preference Shares, these securities may be modified as defined
therein, subject to the vote of at least two-thirds of the preference shareholders. We may consider modifying the terms of these securities on terms that may or may not be favorable to holders of those
securities. We presently do not have any such plans but may consider such modifications as circumstances develop.
Our revenues and results of operations may fluctuate as a result of factors beyond our control, which may cause the price of our shares to be volatile.
The revenues and results of operations of reinsurance companies historically have been subject to significant fluctuations and uncertainties. In addition, we are not currently engaged in reinsurance
underwriting of new prospective risks and may not do so for the foreseeable future. This has resulted in a significant reduction in our revenues. Our profitability can also be affected significantly by:
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fluctuations in interest rates, inflationary pressures and other changes in the investment environment that impact returns on invested assets;
changes in the frequency or severity of claims;
• volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes, terrorist attacks or pandemics, such as the spread of the COVID-19 virus;
• price competition;
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inadequate loss and LAE reserves;
cyclical nature of the property and casualty insurance market; and
• negative developments in the specialty property and casualty reinsurance sectors in which we operate.
These factors may cause the price of the Company's shares to be volatile.
The market price for our common ordinary shares has been and may continue to be highly volatile, and if there is a further sustained decline in our share price there could be limited liquidity
for our common ordinary shares.
The market price for our ordinary common shares has fluctuated significantly. Future sales of our common shares by our shareholders or us, or the perception that such sales may occur, could
adversely affect the market price of our common shares. As of March 4, 2022, 86,474,162 common shares were outstanding. In addition, we have reserved 8,729,737 common shares for issuance
under our 2019 Omnibus Incentive Plan. As of March 4, 2022, there were 192,500 stock options outstanding and 476,844 restricted shares outstanding. Sales of substantial amounts of our shares, or
the perception that such sales could occur, could adversely affect the prevailing price of the shares and may make it more difficult for us to sell our equity securities in the future, or for shareholders to
sell their shares, at a time and price that they deem appropriate.
Provisions in our bye-laws may reduce or increase the voting rights of our shares.
In general, and except as provided under our bye-laws and as provided below, the common shareholders have one vote for each common share held by them and are entitled to vote, on a non-
cumulative basis, at all meetings of shareholders. However, if, and so long as, the shares of a shareholder are treated as "controlled shares" (as determined pursuant to Sections 957 and 958 of the
Internal Revenue Code of 1986, as amended (the "IRS Code")) of any U.S. Person (as that term is defined in the Risk
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Factors under the section captioned "Taxation" within this Item that owns shares directly or indirectly through non-U.S. entities) and such controlled shares constitute 9.5% or more of the votes
conferred by our issued shares, the voting rights with respect to the controlled shares owned by such U.S. Person will be limited, in the aggregate, to a voting power of less than 9.5%, under a formula
specified in our bye-laws. The formula is applied repeatedly until the voting power of all 9.5% U.S. Shareholders has been reduced to less than 9.5%. In addition, our Board may limit a shareholder’s
voting rights when it deems it appropriate to do so to (i) avoid the existence of any 9.5% U.S. Shareholder; and (ii) avoid certain material adverse tax, legal or regulatory consequences to us, to any of
our subsidiaries or any direct or indirect shareholder or its affiliates. "Controlled shares" include, among other things, all shares that a U.S. Person is deemed to own directly, indirectly or
constructively (within the meaning of section 958 of the IRS Code). The amount of any reduction of votes that occurs by operation of the above limitations will generally be reallocated
proportionately among our other shareholders whose shares were not "controlled shares" of the 9.5% U.S. Shareholder so long as such reallocation does not cause any person to become a 9.5% U.S.
Shareholder.
Under these provisions, certain shareholders may have their voting rights limited, while other shareholders may have voting rights in excess of one vote per share. Moreover, these provisions
could have the effect of reducing the votes of certain shareholders who would not otherwise be subject to the 9.5% limitation by virtue of their direct share ownership.
We are authorized under our bye-laws to request information from any shareholder for the purpose of determining whether a shareholder’s voting rights are to be reallocated under the bye-laws. If
any holder fails to respond to this request or submits incomplete or inaccurate information, we may, in our sole discretion, eliminate or adjust the shareholder’s voting rights.
Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares.
Our bye-laws contain provisions that may entrench directors and make it more difficult for shareholders to replace directors even if the shareholders consider it beneficial to do so. In addition,
these provisions could delay or prevent a change of control that a shareholder might consider favorable. For example, these provisions may prevent a shareholder from receiving the benefit from any
premium over the market price of our common shares offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these
provisions may adversely affect the prevailing market price of our common shares if they are viewed as discouraging changes in management and takeover attempts in the future.
Examples of provisions in our bye-laws that could have such an effect include the following:
• our Board may reduce the total voting power of any shareholder to avoid adverse tax, legal or regulatory consequences to us or any direct or indirect holder of our shares or its affiliates; and
• our Board may, in their discretion, decline to record the transfer of any common shares on our share register, if they are not satisfied that all required regulatory approvals for such transfer
have been obtained or if they determine such transfer may result in a non-de minimis adverse tax, legal or regulatory consequence to us or any direct or indirect holder of shares or its
affiliates.
It may be difficult for a third party to acquire us.
Provisions of our organizational documents may discourage, delay or prevent a merger, amalgamation, tender offer or other change of control that holders of our shares may consider favorable.
These provisions impose various procedural and other requirements that could make it more difficult for shareholders to effect various corporate actions. These provisions could:
• have the effect of delaying, deferring or preventing a change in control of us;
• discourage bids for our securities at a premium over the market price;
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adversely affect the price of, and the voting and other rights of the holders of our securities; or
impede the ability of the holders of our securities to change our management.
U.S. persons who own our shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation.
The Companies Act in Bermuda, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. As a result of these differences,
U.S. persons who own our shares may have more difficulty protecting their interests than U.S. persons who own shares of a U.S. corporation. Set forth below is a summary of certain significant
provisions of the Companies Act, including modifications adopted pursuant to our bye-laws, applicable to us which differ in certain respects from provisions of Delaware corporate law. Because the
following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders.
Interested Directors. Bermuda law provides that if a director has a personal interest in a transaction to which the company is also a party and if the director discloses the nature of this personal
interest at the first opportunity, either at a meeting of directors or in writing to the directors, then the company will not be able to declare the transaction void solely due to the existence of that
personal interest and the director will not be liable to the company for any profit realized from the transaction. In addition, Bermuda law and our bye-laws provide that, after a director has made the
declaration of interest referred to above, he is allowed to be counted for purposes of determining whether a quorum is present and to vote on a transaction in which he has an interest, unless
disqualified from doing so by the chairman of the relevant board meeting.
Under Delaware law, such transaction would not be voidable if:
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the material facts as to such interested director’s relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the
affirmative vote of a majority of the disinterested directors;
such material facts are disclosed or are known to the shareholders entitled;
to vote on such transaction and the transaction is specifically approved in good faith by vote of the majority of shares entitled to vote thereon; or
the transaction is fair as to the corporation as of the time it is authorized, approved or ratified.
Under Delaware law, such interested director could be held liable for a transaction in which such director derived an improper personal benefit.
Mergers and Similar Arrangements. The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation
agreement to be approved by the company’s board of directors and by its shareholders. Under our bye-laws, we may, with the approval of a majority of votes cast at a general meeting of our
shareholders at which a quorum is present, amalgamate or merge with another Bermuda company or with a body incorporated outside Bermuda. In the case of an amalgamation or merger, a
shareholder that did not vote in favor of the amalgamation or merger may apply to a Bermuda court for a proper valuation of such shareholder’s shares if such shareholder is not satisfied that fair
value has been paid for such shares. Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of
directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain
circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in
lieu of the consideration such shareholder would otherwise receive in the transaction.
Shareholders’ Suit. The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders under legislation or judicial precedent in many U.S. jurisdictions. Class actions
and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which
would permit a shareholder to commence an action in the name of the company to remedy a wrong done to the company where the act complained of is alleged to be beyond the corporate power of
the company, is illegal or would result in the violation of our memorandum of association or bye-laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a
fraud against the minority shareholders or where an act requires the approval of a greater percentage of our shareholders than actually approved it. The winning party in such an action generally
would be able to recover a portion of attorneys’ fees incurred in connection with such action. Our bye-laws provide that shareholders waive all claims or rights of action that they might have,
individually or in the right of the company, against any director or officer for any act or failure to act in the performance of such director’s or officer’s duties, except with respect to any fraud or
dishonesty of such director or officer. Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate
waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.
Indemnification of Directors. We may indemnify our directors or officers in their capacity as directors or officers of any loss arising or liability attaching to them by virtue of any rule of law in
respect of any negligence, default, breach of duty or breach of trust of which a director or officer may be guilty in relation to the company other than in respect of his or her own fraud or dishonesty.
Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful. In
addition, we have entered into indemnification agreements with our directors and officers.
We are a Bermuda company, and it may be difficult to enforce judgments against us or our directors and executive officers.
We are incorporated under the laws of Bermuda and our holding company is based in Bermuda. In addition, all of our directors and officers reside outside Bermuda and a substantial portion of our
assets will be and the assets of these persons are, and will continue to be, located in jurisdictions outside Bermuda. As such, it may be difficult or impossible to effect service of process within the
U.S. upon us or those persons or to recover against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws. Further,
no claim may be brought in Bermuda against us or our directors and officers in the first instance for violation of U.S. federal securities laws because these laws have no extraterritorial jurisdiction
under Bermuda law and do not have force of law in Bermuda. A Bermuda court may, however, impose civil liability, including the possibility of monetary damages, on us or our directors and officers
if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law.
We have been previously advised by Conyers Dill & Pearman Limited, our Bermuda counsel, that there is doubt as to whether the courts of Bermuda would enforce judgments of U.S. courts
obtained in actions against us or our directors and officers, as well as the experts named in this Annual Report, predicated upon the civil liability provisions of the U.S. federal securities laws or
original actions brought in Bermuda against us or these persons predicated solely upon U.S. federal securities laws. Further, we have been advised by Conyers Dill & Pearman Limited that there is no
treaty in effect between the U.S. and Bermuda providing for the enforcement of judgments of U.S. courts, and there are grounds upon which Bermuda courts may not enforce judgments of U.S.
courts. Some remedies available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, may not be allowed in Bermuda courts as contrary to
that jurisdiction’s public policy. Because judgments of U.S. courts are not automatically enforceable in Bermuda, it may be difficult for you to recover against us based upon such judgments.
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Employee Issues
We are dependent on our key executives. We may not be able to attract and retain key employees or successfully implement our newly formulated business strategy.
Our success depends largely on our senior management, which includes, among others, Lawrence F. Metz, our President and Co-Chief Executive Officer, and Patrick J. Haveron, our Co-Chief
Executive Officer and Chief Financial Officer (Messrs. Metz and Haveron are referred to as the "Co-CEOs"). We have entered into employment agreements with these executive officers.
In addition to the officers listed above, we require key staff with actuarial, legal, reinsurance, accounting and administrative skills. We have a significantly smaller staff and given our current
business circumstances, thus it may be difficult for us to retain staff and recruit competent new executives and staff. Our inability to attract and retain additional personnel or the loss of the services of
any of our senior executives or key employees could delay or prevent us from fully implementing our business strategy and could significantly and negatively affect our business.
Finally, the COVID-19 pandemic presents a unique risk in this regard, in that if any of our key personnel were unable to continue to work productively, or at all, due to illness, government
restrictions, remote working conditions, or other disruptions related to the COVID-19 pandemic, our ability to conduct our operations may be adversely affected.
Our employee attrition recently has been high and may affect our ability to adequately manage our business.
We sold our U.S operations in 2018 as well as terminated and sold certain lines of business. As we are not currently engaged in active reinsurance underwriting of new prospective risks and our
portfolio of loss reserves continues to reduce, we have continued to reduce headcount commensurately. This elevated attrition may affect our ability to manage our business as we train new
employees and integrate them into our company. In addition, if we decide to resume active reinsurance underwriting of new prospective risks, our present employee base may be insufficient in the
requisite skills or quantity to commence such activities and there can be no assurance that we can recruit or attract the requisite personnel to implement such strategy on a timely basis if such a
decision is made.
Our business in Bermuda could be adversely affected by Bermuda employment restrictions.
Currently, Maiden Holdings employs eight non-Bermudians in our Bermuda office including our Co-CEOs. Under Bermuda law, non-Bermudians (other than spouses of Bermudians and holders
of permanent residents’ certificates) may not engage in any gainful occupation in Bermuda without a valid government work permit. A work permit may be granted or renewed upon showing that,
after proper public advertisement, no Bermudian, spouse of a Bermudian, or holder of a permanent resident’s or working resident’s certificate who meets the minimum standards reasonably required
by the employer has applied for the job. Work permits are issued with expiry dates that range from one, two, three, four and five years. We may not be able to use the services of one or more of our
non-Bermudian employees if we are not able to obtain work permits for them, which could have a material adverse effect on our business, financial condition and results of operations.
International Operations
Our offices that operate in jurisdictions outside Bermuda and the U.S. are subject to certain limitations and risks that are unique to foreign operations.
Our international operations are regulated in various jurisdictions with respect to licensing requirements, currency, reserves, employees and other matters. International operations may be harmed
by political developments in foreign countries, which may be hard to predict in advance. Regulations governing technical reserves and remittance balances in some countries may hinder remittance of
profits and repatriation of assets.
The U.K.'s vote in favor of leaving the EU could adversely affect us.
The UK left the EU on January 31, 2020. There was a transition period during which the UK remained part of the Single market and Customs Union to allow for negotiations on the future
relations. Following intense negotiations, an agreement on future EU-UK relations was concluded at the end of December 2020 but it does not cover financial services.
Both Maiden LF and Maiden GF have been accepted into the UK’s temporary permissions regime which allows EEA firms who were formerly using a passport to operate for a limited period
while they seek authorization from the Prudential Regulatory Authority (PRA). This means they can continue to underwrite in the UK despite Brexit. Both Maiden LF and Maiden GF have applied
for regulatory permission for UK branches, which are pending.
The risks associated with the potential consequences that may follow Brexit, including volatility in financial markets, exchange rates and interest rates, remain uncertain. These uncertainties could
increase the volatility of, or adversely affect, our investment results in particular periods or over time. Brexit could adversely affect European or worldwide political, regulatory, economic or market
conditions and could contribute to instability in global political institutions and regulatory agencies which, in turn, could adversely affect our business, results of our operations and our financial
condition.
Foreign currency fluctuations may reduce our net income and our capital levels adversely affecting our financial condition.
We conduct business in a variety of non-U.S. currencies, the principal exposures being the euro and the British pound. Assets and liabilities denominated in foreign currencies are exposed to
changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations relative to the U.S. dollar may materially impact our results of operations and financial
position. Our principal exposure to foreign currency risk is our obligation to settle claims in foreign currencies. In addition, we maintain and expect to continue to maintain a portion of our investment
portfolio in investments denominated in currencies other than the U.S. dollar. While the Company may be able to match its foreign currency denominated assets against its net reinsurance liabilities
both by currency and duration to protect the Company against foreign exchange and interest rate risks, a natural offset does not exist for all currencies.
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We may employ various strategies (including hedging) to manage our exposure to foreign currency exchange risk. To the extent that these exposures are not fully hedged or the hedges are
ineffective, our results or equity may be reduced by fluctuations in foreign currency exchange rates that could materially adversely affect our financial condition and results of operations. At
December 31, 2021, no such hedges or hedging strategies were in force or had been entered into.
Relationship with AmTrust
Significant changes in our reinsurance relationship with AmTrust have reduced our current and future revenues and create significant uncertainty for sources of future liquidity.
During 2019, we, through our subsidiary Maiden Reinsurance, executed the partial termination amendment ("Partial Termination Amendment") effective January 1, 2019 which amended the
AmTrust Quota Share, the Final AmTrust QS Termination, the WC Commutation and several post-termination endorsements. These transactions served to eliminate all new premium revenues from
AmTrust, return certain unearned premiums to AmTrust, commuted and returned certain workers’ compensation loss reserves to AmTrust, capped the loss corridor on certain program business
reinsured from AmTrust and increased the levels of collateral provided to AmTrust as security against the obligations Maiden has assumed under the reinsurance contracts with AmTrust.
While these transactions have contributed significantly to the reduction in required regulatory capital needed to operate our business and the subsequent strengthening of our capital and solvency
ratios, these transactions have resulted in a significant reduction in revenues which is likely to continue for the foreseeable future as we are not presently engaged in active reinsurance underwriting
on prospective risks. As a result, our financial condition could be adversely affected by these actions. As a result of this loss of revenue, we will need to rely on unrestricted cash from operations and
returns on our investments to fund our operations, maintain liquidity and meet our financial obligations and capital allocation priorities. While we believe we have sufficient sources to meet these
obligations, deterioration in our results of operations or other adverse financial events could impact our ability to continue meeting these obligations.
Our initial arrangements with AmTrust were negotiated while we were its affiliate. The arrangements could be challenged as not reflecting terms that we would agree to in arm’s-length
negotiations with an independent third party; moreover, our business relationship with AmTrust and its subsidiaries may present, and may make us vulnerable to, possible adverse tax
consequences, difficult conflicts of interest, and legal claims that we have not acted in the best interest of our shareholders.
We entered into a quota share agreement with AII, which reinsures AmTrust’s insurance company subsidiaries, and a Master Agreement with AmTrust, pursuant to which Maiden Reinsurance
entered into the AmTrust Quota Share. Because (i) Leah Karfunkel (wife of the late Michael Karfunkel), George Karfunkel and Barry Zyskind (the Company's non-executive chairman) collectively
own or control approximately 53.2% of the outstanding common shares of Evergreen Parent GP, LLC, the ultimate parent of AmTrust, (ii) our Founding Shareholders sponsored our formation, and
(iii) based on each individual's most recent public filing as of December 31, 2021, Leah Karfunkel owns or controls approximately 7.8% of the outstanding shares of the Company and Barry Zyskind
owns or controls approximately 7.3% of the outstanding shares of the Company, we may be deemed to be an affiliate of AmTrust. George Karfunkel now owns or controls less than 5.0% of the
outstanding shares of the Company based on his most recent public filings. Due to our close business relationship with AmTrust, we may be presented with situations involving conflicts of interest
with respect to the agreements and other arrangements we will enter into with AmTrust and its subsidiaries, exposing us to possible claims that we have not acted in the best interest of our
shareholders. The arrangements between us and AmTrust were modified after they were originally entered into and there could be future modifications.
Our non-executive Chairman of the Board currently holds the positions of Chief Executive Officer and Chairman of AmTrust. These dual positions may present, and make us vulnerable to,
difficult conflicts of interest and related legal challenges.
Barry Zyskind, our non-executive Chairman of the Board, is the Chief Executive Officer and Chairman of the Board of AmTrust and, as such, he does not serve our Company on a full-time basis.
Mr. Zyskind is expected to continue in both of his positions for the foreseeable future. Conflicts of interest could arise with respect to business opportunities that could be advantageous to AmTrust or
its subsidiaries, on the one hand, and us or our subsidiary, on the other hand. In addition, potential conflicts of interest may arise should the interests of the Company and AmTrust diverge. However,
the Audit Committee of our Board, which consists entirely of independent directors, does exclusively review and approve all related party transactions.
The amount of collateral we provide to AmTrust could limit our unrestricted liquidity and impact our ability to fulfill our obligations in certain circumstances.
As a result of our use of trust accounts, funds withheld, letters of credit and a loan, a substantial portion of our assets will not be available to us for other uses, which could reduce our financial
flexibility and could impact our ability to fulfill our obligations in certain circumstances. If further collateral is required to be provided to any other AmTrust subsidiaries under applicable law or
regulatory requirements, Maiden Reinsurance will provide collateral to the extent required.
At December 31, 2021, we provided $1.3 billion of collateral to AmTrust, AII and AEL in the form of trusts, letters of credit, funds withheld and a loan. This collateral includes $575.0 million
transferred to AmTrust from existing trust accounts used for collateral on the AmTrust Quota Share to a funds withheld arrangement in January 2019, which currently has an annual interest rate of
1.8%, subject to annual adjustment. The annual interest rate was 2.65% for the duration of 2020.
Maiden Reinsurance is not a party to the reinsurance agreements between AII and AmTrust’s U.S. insurance subsidiaries or the related reinsurance trust agreements and has no rights thereunder.
If one or more of these AmTrust subsidiaries withdraws Maiden Reinsurance’s assets from their trust account or misapplies withheld funds that are due to Maiden Reinsurance and that subsidiary is
or becomes insolvent, we believe it may be more difficult for Maiden Reinsurance to recover any such amounts to which we are entitled than it would be if Maiden Reinsurance had entered into
reinsurance and trust agreements with these
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AmTrust subsidiaries directly. AII has agreed to immediately return to Maiden Reinsurance any collateral provided by Maiden Reinsurance that one of those subsidiaries improperly utilizes or
retains, and AmTrust has agreed to guarantee AII’s repayment obligation and AII’s payment obligations under its loan agreement with Maiden Reinsurance. We are subject to the risk that AII and/or
AmTrust may be unable or unwilling to discharge these obligations.
Insurance and Reinsurance Markets
The property and casualty insurance and reinsurance industry is cyclical in nature, which may affect our overall financial performance.
Historically, the financial performance of the property and casualty insurance and reinsurance industry has tended to fluctuate in cyclical periods of price competition and excess capacity (known
as a soft market) followed by periods of high premium rates and shortages of underwriting capacity (known as a hard market). Although the financial performance of an individual insurance or
reinsurance company is dependent on its own specific business characteristics, the profitability of most property and casualty insurance and reinsurance companies tends to follow this cyclical market
pattern.
In recent years, the market has been in a competitive environment in which underwriting capacity has expanded, risk selection became less disciplined and price competition increased sharply.
During that period, market participants' capital levels have continued to improve due to positive earnings and improved values of risk assets over that time. In addition, an influx of new market
participants with different operating models than traditional reinsurers such as us have entered the market place. While many of these new market participants specialize in property catastrophe
oriented business and do not directly compete with us, they are influencing competitive conditions in the broader reinsurance market. This additional underwriting capacity resulted in increased
competition from other insurance and reinsurance companies expanding the types or amounts of business they write, or from companies seeking to maintain or increase market share at the expense of
underwriting discipline.
Because this cyclicality is due in large part to the actions of our competitors and general economic factors beyond our control, we cannot predict with certainty the timing or duration of changes in
the market cycle. These cyclical patterns, the actions of our competitors, and general economic factors could cause our revenues and net income to fluctuate, which may cause the price of our
common shares to be volatile. The ultimate outcome of these events and their market impact is not known at this time.
Negative developments in the U.S. workers’ compensation insurance industry could adversely affect our financial condition and results of operations.
Approximately 35.0% of our AmTrust Reinsurance segment's reserve for loss and LAE at December 31, 2021 was related to the reinsurance of U.S. workers' compensation risks which is our
largest exposure to a particular line of business. Our AmTrust Reinsurance segment includes all business ceded by AmTrust to Maiden Reinsurance, primarily the AmTrust Quota Share and the
European Hospital Liability Quota Share. Both contracts in this segment have been terminated effective January 1, 2019. Negative developments in the economic, competitive or regulatory
conditions affecting the U.S. workers’ compensation insurance industry could have an adverse effect on our financial condition and results of operations. For example, if legislators in our larger
markets were to enact legislation to increase the scope or amount of benefits for employees under U.S. workers’ compensation insurance policies without related loss control measures, or if regulators
made other changes to the regulatory system governing U.S. workers’ compensation insurance, this could negatively affect the U.S. workers’ compensation insurance industry in the affected markets.
Reinsurance is a highly competitive industry.
The reinsurance industry is highly competitive. While we are not currently engaged in active reinsurance underwriting of new prospective risks, we are writing risks on a retroactive basis and
compete with major U.S. and non-U.S. reinsurers, including other Bermuda-based reinsurers, on an international and regional basis. Many of these entities have significantly larger amounts of capital,
higher ratings from rating agencies and more resources than us. We currently do not have a financial strength or credit rating from S&P or A.M. Best and the lack of such ratings will likely limit the
opportunities we have to write new reinsurance business if we resume active underwriting of new prospective risks. Historically, periods of increased capacity levels in our industry have led to
increased competition which puts pressure on reinsurance pricing.
In recent years, significant increases in the use of risk-linked securities and derivative and other non-traditional risk transfer mechanisms and vehicles are being developed and offered by other
parties, including entities other than insurance and reinsurance companies. The availability of both these non-traditional products and sources of capital could reduce the demand for traditional
insurance and reinsurance, and if we were to resume active reinsurance underwriting of new prospective risks, it may result in fewer contracts written, lower premium rates, increased expenses for
customer acquisition and retention and less favorable policy terms and conditions, which could have a material adverse impact on our growth and profitability.
Consolidation in the insurance and reinsurance industry and increased competition on premium rates could lead to lower margins for us and less demand for our products and services if and
when we resume active reinsurance underwriting of new prospective risks.
The insurance and reinsurance industry continues to undergo a process of consolidation as industry participants seek to enhance their product and geographic reach, client base, operating
efficiency and general market power through merger and acquisition activities. It is possible that the larger combined entities resulting from these mergers and acquisition activities may seek to use
the benefits of consolidation, including improved efficiencies and economies of scale, to, among other things, implement price reductions for their products and services to increase their market
shares. Consolidation among primary insurance companies may also lead to reduced use of reinsurance as the resulting larger companies may be able to retain more risk and may also have bargaining
power in negotiations with reinsurers.
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We are not presently engaged in active reinsurance underwriting of new prospective risks. If and when we do decide to resume active reinsurance underwriting of new prospective risks, these
competitive pressures could compel us to write business at unprofitable operating margins.
As the insurance and reinsurance industry consolidates, competition may become more intense and the importance of acquiring and properly servicing each customer will become greater. If and
when we do decide to resume active reinsurance underwriting on prospective risks, we could incur greater expenses relating to customer acquisition and retention, which could reduce our operating
margins. When the property-casualty insurance industry has exhibited a greater degree of competition, premium rates have come under downward pressure as a result.
Taxation
We may become subject to taxes in Bermuda after 2035, which may have a material adverse effect on our financial condition and operating results and on an investment in our shares.
The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966, as amended, of Bermuda, has given Maiden Holdings an assurance that if any legislation is enacted
in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition
of any such tax will not be applicable to Maiden Holdings, or any of its respective operations or its respective shares, debentures or other obligations (except insofar as such tax applies to persons
ordinarily resident in Bermuda or to any taxes payable by them in respect of real property or leasehold interests in Bermuda held by it) until March 31, 2035. Given the limited duration of the
Minister of Finance’s expected assurance, we cannot be certain that we will not be subject to any Bermuda tax after March 31, 2035. Since Maiden Holdings is incorporated in Bermuda, we will be
subject to changes in law or regulation in Bermuda that may have an adverse impact on our operations, including imposition of tax liability.
OECD two-pillar solution to address the tax challenges arising from the digital economy may apply to our activities.
On May 31, 2019, the OECD published a “Programme of Work” designed to address the tax challenges created by an increasing digitalized economy which was divided into two pillars. Pillar One
addresses the broader challenge of a digitalized economy and focuses on the allocation of group profits among taxing jurisdictions based on a market based concept rather than historical “permanent
establishment” concepts, but includes explicit exclusions for Regulated Financial Services, so is not expected to have a material impact on insurance and reinsurance groups. Pillar Two addresses the
remaining BEPS risk of profit shifting to entities in low tax jurisdictions by introducing a global minimum tax and a proposed tax on base eroding payments, which would operate through a denial of
a deduction or imposition of source-based taxation (including withholding tax) on certain payments.
In 2021, significant steps were taken to develop a plan for implementing the two-pillar solution. In October 2021, the OECD/G20 Inclusive Framework released a statement agreeing a two-pillar
solution to address the tax challenges arising from the digital economy. In December 2021, the OECD issued Pillar Two model rules for domestic implementation of the global minimum tax and
shortly thereafter the European Commission proposed a Directive to implement the Pillar Two rules into EU law, which, if unanimously agreed by EU member states, will require EU member states
to transpose the rules into their national laws by December 31, 2022 with certain measures initially coming into effect from January 1, 2023. The proposals, in particular in relation to Pillar Two, are
broad in scope and we are unable to determine at this time whether they would have a material adverse impact on our operations and results.
We may be subject to U.S. federal income tax, which would have an adverse effect on our financial condition and results of operations and on an investment in our shares.
If Maiden Holdings or one of its non-U.S. subsidiaries were considered to be engaged in a trade or business in the U.S., it could be subject to U.S. federal income and additional branch profits
taxes on the portion of its earnings that are effectively connected to such U.S. business. Maiden Holdings is a Bermuda-based holding company. We intend to manage our business so that Maiden
Holdings and its non-U.S. subsidiaries should operate in such a manner that none of these companies should be treated as engaged in a U.S. trade or business and, thus, should not be subject to U.S.
federal taxation (other than the U.S. federal excise tax on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. federal withholding tax on certain U.S.
source investment income). Maiden Reinsurance is currently subject to U.S. taxation as a domestic corporation from the effective date of its re-domestication to the State of Vermont on March 16,
2020.
However, because there is considerable uncertainty as to which activities constitute being engaged in a trade or business within the U.S., we cannot be certain that the IRS will not contend
successfully that we are engaged in a trade or business in the U.S.
Net operating losses ("NOL") (and certain other tax attributes or tax benefits of the Maiden NA tax group) may be subject to limitation under Section 382 of the Tax Code.
Maiden NA has significant tax NOL carryforwards as of December 31, 2021. As a result of the Maiden NA NOL and other tax attributes, the Company presently has a net deferred tax asset with
a full valuation allowance against it which may be recognized in future periods. It is possible that certain ownership changes of Maiden NA, if they were to occur, could result in an “ownership
change” of Maiden NA for purposes of Section 382 of the Tax Code. If such an ownership change (as defined) were to occur, the value and amount of the Maiden NA NOL would be substantially
impaired, increasing the U.S. federal income tax liability of Maiden NA and materially reducing the value of Maiden NA. Should the NOL be limited in any way, it could also limit or eliminate the
Company's ability to recognize and realize that asset in the future.
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U.S. Persons who hold our shares may be subject to U.S. federal income taxation at ordinary income rates on their proportionate share of Maiden Reinsurance’s related person insurance
income ("RPII").
If U.S. persons are treated as owning 25% or more of Maiden Holdings’ shares (by vote or by value) (as is expected to be the case) and the RPII of a non-U.S. insurance subsidiary of Maiden
Holdings (determined on a gross basis) were to equal or exceed 20% of its gross insurance income in any taxable year and direct or indirect insureds (and persons related to those insureds) own
directly or indirectly through entities 20% or more of the voting power or value of our shares, then a U.S. Person who owns any shares of a non-U.S. insurance subsidiary of Maiden Holdings
(directly or indirectly through non-U.S. entities) on the last day of the taxable year would be required to include in its income for U.S. federal income tax purposes such person’s pro rata share of such
non-U.S. insurance subsidiary’s RPII for the entire taxable year, determined as if such RPII were distributed proportionately only to U.S. Persons at that date, regardless of whether such income is
distributed. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization generally will be treated as unrelated business taxable income. The amount of RPII earned by a
non-U.S. insurance subsidiary of Maiden Holdings (generally, premium and related investment income from the direct or indirect insurance or reinsurance of any direct or indirect U.S. holder of
shares or any person related to such holder) will depend on a number of factors, including the identity of persons directly or indirectly insured or reinsured by a non-U.S. insurance subsidiary.
We believe that either (i) the direct or indirect insureds of Maiden Holdings (and related persons) should not directly or indirectly own 20% or more of either the voting power or value of our
shares or (ii) the RPII (determined on a gross basis) of a non-U.S. insurance subsidiary of Maiden Holdings should not equal or exceed 20% of its gross insurance income for the taxable year.
However, we cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control.
U.S. Persons who dispose of our shares may be subject to U.S. federal income taxation at the rates applicable to dividends on a portion of their gains if any.
The RPII rules provide that if a U.S. Person disposes of shares in a non-U.S. insurance corporation in which U.S. Persons own 25% or more of the shares (even if the amount of gross RPII is less
than 20% of the corporation’s gross insurance income or the ownership of its shares by direct or indirect insureds and related persons is less than the 20% threshold), any gain from the disposition
will generally be treated as a dividend to the extent of the holder’s share of the corporation’s undistributed earnings and profits that were accumulated during the period that the holder owned the
shares (whether or not such earnings and profits are attributable to RPII). In addition, such a holder will be required to comply with certain reporting requirements, regardless of the amount of shares
owned by the holder. These RPII rules should not apply to dispositions of our shares because Maiden Holdings will not be directly engaged in the insurance business. The RPII provisions, however,
have never been interpreted by the courts or the U.S. Treasury Department in final regulations, and regulations interpreting the RPII provisions of the Code exist only in proposed form. It is not
certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation
or application of the RPII rules by the IRS, the courts, or otherwise, might have retroactive effect. The U.S. Treasury Department has authority to impose, among other things, additional reporting
requirements with respect to RPII. Accordingly, the meaning of the RPII provisions and the application thereof to Maiden Holdings and its non-U.S. insurance subsidiary's is uncertain.
U.S. Persons who hold our shares will be subject to adverse U.S. federal income tax consequences if Maiden Holdings is considered to be a passive foreign investment company.
If Maiden Holdings is considered a passive foreign investment company ("PFIC") for U.S. federal income tax purposes, a U.S. Person who owns directly or, in some cases, indirectly (e.g. through
a non-U.S. partnership) any of our shares will be subject to adverse U.S. federal income tax consequences, including subjecting the investor to a greater tax liability than might otherwise apply and
subjecting the investor to a tax on amounts in advance of when such tax would otherwise be imposed, in which case your investment could be materially adversely affected. In addition, if Maiden
Holdings were considered a PFIC, upon the death of any U.S. individual owning our shares, such individual’s heirs or estate would not be entitled to a "step-up" in the basis of the shares which might
otherwise be available under U.S. federal income tax laws. We believe that we are not, and we currently do not expect to become, a PFIC for U.S. federal income tax purposes; however, there can be
no assurance that we will not be deemed a PFIC by the IRS. As discussed below, the IRS issued final and proposed PFIC regulations. New regulations or pronouncements interpreting or clarifying
these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on a shareholder that is subject to U.S. federal income taxation.
U.S. Persons who hold 10% or more of Maiden Holdings’ shares directly or through foreign entities may be subject to taxation under the U.S. CFC rules.
Each 10% U.S. shareholder of a foreign corporation that is a CFC at any time during a taxable year that owns shares in the foreign corporation directly or indirectly through foreign entities on the
last day of the foreign corporation's taxable year during which it is a CFC must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income,"
even if the subpart F income is not distributed. In addition, upon a sale of shares of a CFC, certain 10% U.S. shareholders may be subject to U.S. federal income tax on a portion of their gain at
ordinary income rates.
The Company believes that because of the dispersion of the share ownership in Maiden Holdings, no U.S. Person who owns Maiden Holdings’ shares directly or indirectly through foreign entities
should be treated as a 10% U.S. shareholder of Maiden Holdings or of any of its foreign subsidiaries. However, Maiden Holdings’ shares may not be as widely dispersed as we believe due to, for
example, the application of certain ownership attribution rules, and no assurance may be given that a U.S. Person who owns our shares will not be characterized as a 10% U.S. shareholder, in which
case such U.S. Person may be subject to taxation under U.S. CFC rules.
30
The 2017 U.S. tax reform legislation, as well as possible future tax legislation and regulations, could materially adversely affect an investment in our shares.
The 2017 Act amends a range of U.S. federal tax rules applicable to individuals, businesses and international taxation, with certain provisions intended to eliminate certain perceived tax
advantages of companies (including insurance companies) that have legal domiciles outside the U.S. but have certain U.S. connections and U.S. persons investing in such companies. For example, the
2017 Act includes a BEAT that could make affiliate reinsurance between U.S. and non-U.S. members of our group economically unfeasible. In addition, the 21% corporate income tax rate could lead
to higher after-tax income for most U.S. insurance companies in the long term that could result in increased competition for our products and services.
The 2017 Act may also increase the likelihood that we or our non-U.S. subsidiaries will be deemed to be CFCs for U.S. federal tax purposes. Specifically, the 2017 Act expands the definition of
"10% U.S. shareholder" for CFC purposes to include U.S. persons who own 10% or more of the value of a foreign corporation’s shares, rather than only looking to voting power held. As a result, the
"voting cut-back" provisions included in our Amended and Restated Bye-laws that limit the voting power of any shareholder to 9.5% of the total voting power of our capital stock will be ineffective
in avoiding "10% U.S. shareholder" status for U.S. persons who own 10% or more of the value of our shares. The 2017 Act also expands certain attribution rules for stock ownership in a way that
would cause foreign subsidiaries in a foreign parented group that includes at least one U.S. subsidiary to be treated as CFCs. In the event a corporation is characterized as a CFC, any "10% U.S.
shareholder" of the CFC is required to include its pro rata share of certain insurance and related investment income in income for a taxable year, even if such income is not distributed. In addition,
U.S. tax exempt entities subject to the unrelated business taxable income ("UBTI") rules that own 10% or more of the value of our non-U.S. subsidiaries that are characterized as CFCs may recognize
UBTI with respect to such investment.
In addition to changes in the CFC rules, the 2017 Act contains modifications to certain provisions relating to PFIC status that could, for example, discourage U.S. persons from investing in our
company. The 2017 Act makes it more difficult for a non-U.S. insurance company to avoid PFIC status under an exception for certain non-U.S. insurance companies engaged in the active conduct of
an insurance business. The 2017 Act limits this exception to a non-U.S. insurance company that would be taxable as an insurance company if it were a U.S. corporation and that maintains insurance
liabilities of more than 25% of such company’s assets for a taxable year (or maintains reserves that at least equal 10% of its assets, is predominantly engaged in an insurance business and satisfies a
facts and circumstances test that requires a showing that the failure to exceed the 25% threshold is due to runoff-related or rating-related circumstances) (the "Reserve Test"). In addition, the IRS
recently issued final and proposed regulations (the "2020 Regulations") intended to clarify the application of the PFIC provisions to an insurance company and provide guidance on a range of issues
relating to PFICs including the application of the look-through rule, the treatment of income and assets of certain U.S. insurance subsidiaries for purposes of the look-through rule and the extension of
the look-through rule to 25% or more owned partnerships.
The 2020 Regulations define insurance liabilities for purposes of the Reserve Test, tighten the Reserve Test and the statutory cap on insurance liabilities, and provide guidance on the runoff-related
and rating-related circumstances for purposes of qualifying as a qualifying insurance corporation under the alternative test (including tightening the scope of non-U.S insurers that can qualify for the
rating-related circumstances test). The 2020 Regulations also propose that a non-U.S. insurer will qualify for the insurance company exception only if a factual requirements test or an active conduct
percentage test is satisfied. The factual requirements test will be met if the non-U.S. insurer's officers and employees perform its substantial managerial and operational activities (taking into account
activities of officers and employees of certain related entities in certain cases). The active conduct percentage test will be satisfied if (1) the total costs incurred by the non-U.S. insurer with respect to
its officers and employees (including officers and employees of certain related entities) for services related to core functions (other than investment activities) equal at least 50% of the total costs
incurred for all such services and (2) the non-U.S. insurer's officers and employees oversee any part of the non-U.S. insurer's core functions, including investment management, that are outsourced to
an unrelated party. Services provided by officers and employees of certain related entities are only taken into account in the numerator of the active conduct percentage if the non-U.S. insurer
exercised regular oversight and supervision over such services and compensation arrangements meet certain requirements. The 2020 Regulations also propose that a non-U.S. insurer with no or a
nominal number of employees that relies exclusively or almost exclusively upon independent contractors (other than certain related entities) to perform its core functions. While we believe that our
non-U.S. insurance subsidiaries have met, and will continue to meet, the Reserve Test and that we should not be characterized as a PFIC for the foreseeable future, we cannot assure you that this will
continue to be the case in future years.
We are unable to predict all of the ultimate impacts of the 2017 Act and other proposed tax reform regulations and legislation on our business and results of operations. It is possible the IRS will
construe the intent of the 2017 Act as having been reduce or eliminate certain perceived tax advantages of companies (including insurance companies) that have legal domicile outside the U.S., and
its interpretation, enforcement actions or regulatory changes could increase the impact of the 2017 Act beyond prevailing current assessments or our own estimates. Further, it is possible that other
legislation could be introduced and enacted in the future that would have an adverse impact on us. These events and trends towards more punitive taxation of cross border transactions could in the
future materially adversely impact the insurance and reinsurance industry and our own results of operations by increasing taxation of certain activities and transactions in our industry. Accordingly,
we cannot reliably estimate what the potential impact of any such changes could be to us or our non-U.S. subsidiaries or investors or the market generally, however, it is possible these changes could
materially adversely impact our results of operations.
We may be subject to U.K. taxes, which would have an adverse effect on our financial condition and results of operations and on an investment in our shares.
A company which is resident in the U.K. for U.K. corporation tax purposes is subject to U.K. corporation tax in respect of its worldwide income and gains. While Maiden Global is a U.K.
company, neither Maiden Holdings nor Maiden Reinsurance are incorporated in the U.K. Nevertheless, Maiden Holdings or Maiden Reinsurance would be treated as being resident in the U.K. for
U.K. corporation tax purposes if its central management and control were exercised in the U.K. The concept of central
31
management and control is indicative of the highest level of control of a company’s affairs, which is wholly a question of fact. The directors and officers of both Maiden Holdings and Maiden
Reinsurance intend to manage their affairs so that both companies are resident in Bermuda, and not resident in the U.K., for U.K. tax purposes. However, HM Revenue & Customs could challenge
our tax residence status.
A company which is not resident in the U.K. for U.K. corporation tax purposes can nevertheless be subject to U.K. corporation tax at the rate of 19% if it carries on a trade in the U.K. through a
permanent establishment in the U.K., but the charge to U.K. corporation tax is limited to profits (both income profits and chargeable gains) attributable directly or indirectly to such permanent
establishment.
The directors and officers of Maiden Reinsurance intend to operate the business of Maiden Reinsurance in such a manner that it does not carry on a trade in the U.K. through a permanent
establishment in the U.K. Nevertheless, HM Revenue & Customs might contend successfully that Maiden Reinsurance is trading in the U.K. through a permanent establishment in the U.K. because
there is considerable uncertainty as to the activities which constitute carrying on a trade in the U.K. through a permanent establishment in the U.K.
The U.K. has no income tax treaty with Bermuda. Companies that are neither resident in the U.K. nor entitled to the protection afforded by a double tax treaty between the U.K. and the
jurisdiction in which they are resident are liable to income tax in the U.K., at the basic rate of 20%, on the profits of a trade carried on in the U.K., where that trade is not carried on through a
permanent establishment in the U.K. The directors and officers of Maiden Reinsurance intend to operate the business in such a manner that Maiden Reinsurance will not fall within the charge to
income tax in the U.K. (other than by way of deduction or withholding).
In addition, diverted profits tax ("DPT") applies to foreign companies with sales in the U.K. (such as Maiden Reinsurance) that design their affairs to avoid creating a taxable presence (in the form
of a permanent establishment) in the U.K., or to U.K. companies that enter into transactions with connected companies which lack economic substance to exploit differentials in tax rates. DPT is
charged at 25% of the profits representing the contribution of the U.K. activities to the group’s results.
If either Maiden Holdings or Maiden Reinsurance were treated as being resident in the U.K. for U.K. corporation tax purposes, or if Maiden Reinsurance were treated as carrying on a trade in the
U.K., whether through a permanent establishment or otherwise, or if DPT applied, the results of our operations would be materially adversely affected.
Any arrangements (including with regard to the provision of services or financing) between Maiden Global and any non-U.K. resident members of the group are subject to the U.K. transfer
pricing regime. Consequently, if any such arrangement were found not to be on arm’s length terms and, as a result, a U.K. tax advantage was being obtained, an adjustment would be required to
compute U.K. tax profits as if such arrangement were on arm’s length terms. Any transfer pricing adjustment could adversely impact the tax charge suffered by Maiden Global. The U.K. has
implemented the BEPS recommendation for "country-by-country" reporting. As a result, our approach to transfer pricing may become subject to greater scrutiny from the U.K. tax authorities.
Clients, Brokers and Financial Institutions
Our retroactive underwriting utilizes reinsurance brokers and other producers, including third party administrators and financial institutions, and the failure to develop or maintain these
relationships could materially adversely affect our ability to market our products and services should we begin to pursue active reinsurance underwriting.
While we do not presently engage in active reinsurance underwriting of prospective risks, we actively underwrite retroactive risks and source certain of those opportunities from brokers and other
producers, thus our failure to further develop or maintain relationships with brokers and other producers, including third party administrators and financial institutions, from whom we expect to
receive our business could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on brokers subjects us to their credit risk.
In accordance with industry practice, we anticipate that we will frequently pay amounts owed on claims under our reinsurance contracts to brokers, and these brokers in turn are required to pay
and will pay these amounts over to the clients that have purchased reinsurance from us. If a broker fails to make such a payment, it is highly likely that we will be liable to the client for the deficiency
under local laws or contractual obligations, notwithstanding the broker’s obligation to make such payment. Likewise, when the client pays premiums for these policies to brokers for payment over to
us, these premiums are considered to have been paid and, in most cases, the client will no longer be liable to us for those amounts, whether or not we actually receive the premiums from the brokers.
Consequently, we will assume a degree of credit risk associated with brokers with whom we work with respect to some of our reinsurance business.
We could incur substantial losses and reduced liquidity if one of the financial institutions we use in our operations fails.
We have exposure to counterparties in many different industries and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial
banks, and other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty. In addition, with respect to secured transactions, our credit risk may be
exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the obligation.
We maintain cash balances, including restricted cash held in trust accounts, significantly in excess of the Federal Deposit Insurance Corporation insurance limits at various depository institutions.
We also maintain cash balances in foreign banks and institutions. If one or more of these financial institutions were to fail, our ability to access cash balances may be temporarily or permanently
limited, which could have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1B. Unresolved Staff Comments.
32
None.
Item 2. Properties.
We currently lease office space in Pembroke, Bermuda (our corporate headquarters), the U.K. and Germany for the operation of our business. We renew and enter into new leases in the ordinary
course of business as needed. We believe that the office space from these leased properties is sufficient for us to conduct our operations for the foreseeable future. To date, the cost of acquiring and
maintaining our office space has not been material to us as a whole.
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Item 3. Legal Proceedings.
We may become involved in various claims and legal proceedings that arise in the normal course of our business, which are not likely to have a material adverse effect on our financial position,
results of operations or liquidity.
Except as noted below, we are not a party to any material legal proceedings. From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of
business. These legal proceedings generally relate to claims asserted by or against us in the ordinary course of insurance or reinsurance operations. Based on our opinion, the eventual outcome of
these legal proceedings is not expected to have a material adverse effect on our financial condition or results of operations.
In April 2009, we learned that Bentzion S. Turin, the former Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Reinsurance, sent a letter to the U.S.
Department of Labor claiming that his employment with the Company was terminated in retaliation for corporate whistleblowing in violation of the whistleblower protection provisions of the
Sarbanes-Oxley Act of 2002. Mr. Turin alleged that he was terminated for raising concerns regarding corporate governance with respect to the negotiation of the terms of the Trust Preferred
Securities Offering. He seeks reinstatement as Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Reinsurance, back pay and legal fees incurred. On December
31, 2009, the U.S. Secretary of Labor found no reasonable cause for Mr. Turin’s claim and dismissed the complaint in its entirety. Mr. Turin objected to the Secretary's findings and requested a
hearing before an administrative law judge in the U.S. Department of Labor. The Company moved to dismiss Mr. Turin's complaint, and its motion was granted by the Administrative Law Judge on
June 30, 2011. On July 13, 2011, Mr. Turin filed a petition for review of the Administrative Law Judge's decision with the Administrative Review Board in the U.S. Department of Labor. On March
29, 2013, the Administrative Review Board reversed the dismissal of the complaint on procedural grounds, and remanded the case to the administrative law judge. The administrative hearing began in
September 2014 and concluded in November 2018. On September 2, 2021, Administrative Law Judge Theresa C. Timlin of the U.S. Department of Labor issued a decision and order which denied
Mr. Turin’s complaint in full. On September 16, 2021, Mr. Turin filed a petition for review of the Administrative Law Judge's decision with the Administrative Review Board in the U.S. Department
of Labor. We believe that we had good and sufficient reasons for terminating Mr. Turin's employment and that the claim is without merit. We will continue to vigorously defend ourself against this
claim.
A putative class action complaint was filed against Maiden Holdings, Arturo M. Raschbaum, Karen L. Schmitt, and John M. Marshaleck in the United States District Court for the District of New
Jersey on February 11, 2019. On February 19, 2020, the Court appointed lead plaintiffs, and on May 1, 2020, lead plaintiffs filed an amended class action complaint (the “Amended Complaint”). The
Amended Complaint asserts violations of Section 10(b) of the Exchange Act and Rule 10b-5 (and Section 20(a) for control person liability) arising in large part from allegations that Maiden failed to
take adequate loss reserves in connection with reinsurance provided to AmTrust. Plaintiffs further claim that certain of Maiden Holdings’ representations concerning its business, underwriting and
financial statements were rendered false by the allegedly inadequate loss reserves, that these misrepresentations inflated the price of Maiden Holdings' common stock, and that when the truth about
the misrepresentations was revealed, the Company’s stock price fell, causing Plaintiffs to incur losses. On September 11, 2020, a motion to dismiss was filed on behalf of all Defendants. On August 6,
2021, the Court issued an order denying, in part, Defendants’ motion to dismiss, ordering Plaintiffs to file a shorter amended complaint no later than August 20, 2021, and permitting discovery to
proceed on a limited basis. We believe the claims are without merit and we intend to vigorously defend ourselves. It is possible that additional lawsuits will be filed against the Company, its
subsidiaries and its respective officers due to the diminution in value of our securities as a result of our operating results and financial condition. It is currently uncertain as to the effect of such
litigation on our business, operating results and financial condition.
Item 4. Mine Safety Disclosures.
Not applicable.
34
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Our common shares began publicly trading on NASDAQ Stock Market LLC ("NASDAQ") under the symbol "MHLD" on May 6, 2008 and currently trades on the NASDAQ Capital Market. At
March 11, 2022, the last reported sale price of our common share was $2.24 per share and there were 21 holders of record of our common shares. This figure does not represent the actual number of
beneficial owners of our common shares because shares are frequently held in "street name" by securities dealers and others for the benefit of beneficial owners who may vote the shares.
No dividends have been declared by our Board on our common shares since the third quarter of 2018. The future declaration and payment of dividends to holders of common shares will be at the
discretion of our Board subject to specified legal, regulatory, financial and other restrictions. Please see "Notes to Consolidated Financial Statements - Note 15 — Statutory Requirements and
Dividend Restrictions" under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for discussion regarding dividend restrictions on subsidiary's ability to
transfer funds to Maiden Holdings.
On February 21, 2017, our Board approved the repurchase of up to $100.0 million of our common shares from time to time at market prices. During the years ended December 31, 2021 and 2020,
the Company did not repurchase any common shares under its share repurchase authorization. At December 31, 2021, we have a remaining authorization of $74.2 million for share repurchases. No
repurchases of common shares were made subsequent to December 31, 2021 and through the period ended March 14, 2022 under its share repurchase authorization.
During the year ended December 31, 2021, we repurchased a total of 834,851 (2020 - 834) common shares at an average price of $2.97 per share (2020 - $1.13) from employees, which represent
tax withholding in respect of tax obligations on the vesting of both non-performance-based and discretionary performance-based restricted shares. Subsequent to the year ended December 31, 2021
and through the period ended March 14, 2022, the Company repurchased 3,662 additional common shares at an average price of $2.96 per share which represent tax withholding in respect of tax
obligations on the vesting of performance based shares.
On March 3, 2021, our Board approved the repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment guidelines, of up to $100.0 million of our Preference
Shares from time to time at market prices in open market purchases or as may be privately negotiated. On May 6, 2021, our Board approved the additional repurchase, including the repurchase by
Maiden Reinsurance in accordance with its investment guidelines (as may be amended), of up to $50.0 million of our Preference Shares from time to time at market prices in open market purchases
or as may be privately negotiated. The authorizations that were approved on March 3, 2021 and May 6, 2021 as described above are collectively referred to as the "2021 Preference Share Repurchase
Program". We had a remaining authorization of $13.8 million for Preference Share repurchases at December 31, 2021.
The following table shows the summary of our Preference Shares repurchases made during the years ended December 31, 2021 and 2020, respectively:
Series A
Series C
Series D
Total
Total price paid
Gain on purchase
Number of shares purchased
Average price of shares
purchased
Number of shares purchased
Average price of shares
purchased
2021
2020
3,519,093 $
3,026,764
2,858,155
9,404,012
14.74
14.36
14.27
14.48
545,218 $
1,203,466
1,078,911
2,827,595
10.50
10.50
10.50
10.50
$
$
136,155
90,998
$
$
29,690
38,195
For further information, please see "Notes to Consolidated Financial Statements - Note 6. Shareholders' Equity" included under Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K. Please see "Note 16 - Subsequent Events" included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for details of
Preference Share repurchases made subsequent to the year ended December 31, 2021 and through the period ended March 14, 2022.
Please also see "Notes to Consolidated Financial Statements - Note 14. Share Compensation and Pension Plans" included under Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K for a discussion about the Company's equity compensation plans.
35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included
elsewhere in this Annual Report on Form 10-K and Item 1, "Business - General Overview". Except as explicitly described as discontinued operations, and unless otherwise noted, all discussions and
amounts presented herein relate to the Company's continuing operations except for net income (loss) and net income (loss) available to Maiden common shareholders. Amounts in tables may not
reconcile due to rounding differences. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and
strategy for our business, includes forward-looking statements that involve risk and uncertainties. Please see the "Special Note About Forward-Looking Statements" in this Annual Report on Form 10-
K for more information on factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statements contained in this discussion and
analysis. You should review the "Risk Factors" set forth in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained herein.
Overview
Maiden Holdings is a Bermuda-based holding company. We create shareholder value by actively managing and allocating our assets and capital, including through ownership and management of
businesses and assets mostly in the insurance and related financial services industries where we can leverage our deep knowledge of those markets. We also provide a full range of legacy services to
small insurance companies, particularly those in run-off or with blocks of reserves that are no longer core, working with clients to develop and implement finality solutions including acquiring entire
companies that enable our clients to meet their capital and risk management objectives. We expect our legacy solutions business to contribute to our active asset and capital management strategies.
Short-term income protection business is written on a primary basis by our wholly owned subsidiaries Maiden LF and Maiden GF in the Scandinavian and Northern European markets. Insurance
support services are provided to Maiden LF and Maiden GF through our wholly owned subsidiary, Maiden Global which is also a licensed intermediary in the United Kingdom. Maiden Global had
previously operated internationally by providing branded auto and credit life insurance products through insurer partners, particularly those in Europe and other global markets. These products also
produced reinsurance programs which were underwritten by our wholly owned subsidiary Maiden Reinsurance.
We are not actively underwriting reinsurance business on new prospective risks but are now actively underwriting risks on a retroactive basis through GLS. We also have various historic
reinsurance programs underwritten by Maiden Reinsurance which are in run-off, including the liabilities associated with AmTrust which we terminated in early 2019 as discussed in "Note
10 — Related Party Transactions" of the Notes to Consolidated Financial Statements included in Part II Item 8. "Financial Statements and Supplementary Data". In addition, we have a LPT/ADC
Agreement with Cavello and a commutation agreement that further reduces our exposure to and limits the potential volatility related to these AmTrust liabilities in run-off, as discussed in "Note
8 — Reinsurance" of the Notes to Consolidated Financial Statements included in Part II Item 8. "Financial Statements and Supplementary Data".
Our business currently consists of 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. This segment also includes transactions entered
into by GLS which was formed in November 2020. Our AmTrust Reinsurance segment includes all business ceded to Maiden Reinsurance by AmTrust, primarily the AmTrust Quota Share and the
European Hospital Liability Quota Share. Please refer to Item 1. "Business - Our Reportable Segments" section for further discussion on our reportable segments.
Recent Developments
Since the third quarter of 2018, we have engaged in a series of transactions that dramatically reduced the regulatory capital required to operate our business, materially strengthened our solvency
ratios, and ceased active reinsurance underwriting. During that time, we significantly increased our estimate of ultimate loss and loss expense reserves while purchasing reinsurance protection against
further loss reserve volatility and as a result, have improved the ultimate economic value of the Company. This resulted in a series of transactions that transformed our operations and materially
reduced the risk on our balance sheet. These transactions can be found in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020 that was filed with the SEC on March 15,
2021.
Effective March 16, 2020, we re-domesticated our principal operating subsidiary, Maiden Reinsurance, from Bermuda to the State of Vermont in the U.S., having determined that re-domesticating
Maiden Reinsurance to Vermont enables us to better align our capital and resources with our liabilities, which originate mostly in the United States, resulting in a more efficient structure. Maiden
Reinsurance is now subject to the statutes and regulations of Vermont in the ordinary course of business. The re-domestication has continued to strengthen the Company’s capital position and
solvency ratios.
While the Vermont DFR is currently the group supervisor for the Company, the re-domestication did not apply to the parent holding company which remains a Bermuda-based holding company.
Securities issued by Maiden Holdings were not affected by the re-domestication of Maiden Reinsurance to Vermont. Concurrent with the re-domestication, Maiden Holdings contributed as capital the
remaining 65% of its ownership in Maiden Reinsurance to our wholly owned subsidiary Maiden NA. Maiden NA now owns 100% of Maiden Reinsurance in the aggregate.
36
Maiden NA maintains a portfolio of cash and fixed maturity investments, along with other strategic investments, of $16.0 million at December 31, 2021. We believe Maiden NA’s investments,
including its ownership of Maiden Reinsurance and its active asset management strategy, will create opportunities to utilize net operating loss ("NOL") carryforwards which were $230.2 million as at
December 31, 2021. These NOL carryforwards, in combination with additional net deferred tax assets ("DTA") primarily related to our insurance liabilities result in a net U.S. DTA (before valuation
allowance) of $90.1 million or $1.04 per common share as of December 31, 2021.
These net DTA are not presently recognized on the Company's consolidated balance sheet as a full valuation allowance is carried against them. At this time, while positive evidence supporting a
reduction of the valuation allowance is accumulating, the Company believes it is necessary to maintain its full valuation allowance against the net U.S. DTA due to an insufficient accumulation of
positive evidence at this time regarding the utilization of these losses. As our profitability continues to improve, we will continuously evaluate the amount of the valuation allowance held against the
net U.S. DTA.
For further details please see "Note 13 — Income Taxes" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10–K. Taken together, we believe
these measures should generate additional income for Maiden NA in a tax-efficient manner, while sharing in the improvement in profitability anticipated in Maiden Reinsurance as a result of the
measures enacted as described above.
Business Strategy
We continued to deploy our revised operating strategy during 2021, which leverages the significant assets and capital we retain. In addition to restoring operating profitability, our strategic focus
centers on creating the greatest risk-adjusted shareholder returns in order to increase book value for our common shareholders, both near and long-term. This strategy has three principal areas of
focus:
•Asset management - investing in assets and asset classes in a prudent but expansive manner in order to maximize investment returns and is principally enabled by limiting the amount of
insurance risk we assume in relation to the assets we hold and maintaining required regulatory capital at very strong levels to manage our aggregate risk profile;
•Legacy underwriting - judiciously building a portfolio of legacy run-off acquisitions and retroactive reinsurance transactions which we believe will produce attractive underwriting returns;
and
•Capital management - effectively managing the capital we hold on our balance sheet and when appropriate, repurchasing securities or returning capital to enhance common shareholder
returns.
The returns expected to be produced by each pillar of our strategy are evaluated in relation to our cost of debt capital, which carries a weighted average effective interest rate of 7.6%. To the extent
our experience or belief indicates we cannot exceed the cost of debt capital, we expect to refrain from activities in those areas. As an example, our present assessment of the reinsurance marketplace
along with our current operating profile continues to be that the risk-adjusted returns that may be produced via active reinsurance underwriting of new prospective risks are likely to be lower over the
long-term than our cost of capital.
The measures implemented in recent years have allowed us to more flexibly allocate capital to those activities most likely to produce the greatest returns for shareholders, and we are actively
engaged in evaluating and deploying funds in all pillars of the strategies as discussed herein. We also believe that these areas of strategic focus will enhance our profitability through increased returns,
which we believe also increase the likelihood of fully utilizing the significant NOL carryforwards described above which would create additional common shareholder value.
As part of our expanded asset management activities, we have evaluated and continue to consider investing in various initiatives in the insurance industry across a variety of segments which we
believe will produce appropriate risk-adjusted returns while maintaining the option to consider underwriting activities in the future. We believe these expanded activities will produce a broad range of
positive impacts on our financial condition, including current income, longer-term gains and in certain instances, fee income.
In recent years, we have invested approximately $225.5 million into alternative investments which include other investments and equity method investments in a wide variety of asset classes and
we believe these activities will exceed that benchmark cost of capital with adjustments as necessary if those returns do not emerge.
In November 2020, we formed GLS which specializes in providing a full range of legacy services to small insurance entities, particularly those in run-off or with blocks of reserves that are no
longer core, working with clients to develop and implement finality solutions including acquiring entire companies that enable our clients to meet their capital and risk management objectives. We
acquire legacy liabilities and (re)insurance reserves from companies and provide retroactive reinsurance coverage for portfolios of (re)insurance business, primarily via loss portfolio transfer contracts
(“LPT”). Additionally, we provide reinsurance contracts to other (re)insurers to mitigate some of their risk of future adverse development (an adverse development cover, or “ADC”) on insurance
risks relating to prior accident years.
We believe the formation of GLS is highly complementary to our overall longer-term strategy and will produce risk-adjusted returns in excess of our debt cost of capital. In addition, while we
anticipate profitable growth from the GLS portfolio as it develops, we expect our required capital to continue to decline as insurance risk incurred by GLS will be more than offset by the run-off of
insurance liabilities from our prior reinsurance strategies. GLS, along with other recent insurance industry investments, enables us to leverage our knowledge base while not re-entering active
underwriting of new prospective risks and maintaining an efficient operating profile. We believe GLS not only enhances our profitability through both fee income and effective claims management
services, but it will also increase our asset base through the addition of blocks of reserves or companies that can be successfully wound down.
37
Effective October 1, 2021, GLS completed its first transaction, a loss portfolio transfer transaction which includes an adverse development cover. As of December 31, 2021, GLS had losses and
LAE reserves that it assumed through retroactive reinsurance contracts of $14.8 million. GLS continues to write additional retroactive reinsurance transactions consistent with its business plan. In
addition to producing returns that exceed the target cost of capital, we expect the business produced through GLS should further enhance our ability to pursue the asset and capital management pillars
of our business strategy.
Our capital management strategy is significantly informed by the required capital needed to operate our business in a prudent manner and our ongoing analysis of our loss development trends.
Recent trends continue to increase our confidence in our recorded ultimate losses for our insurance liabilities in run-off, however a prudent assessment dictates that the run-off portfolio still requires
additional maturity to fully emerge. While there is no guarantee that these recent loss development trends will persist, as our confidence has increased it has enabled us to pursue continued capital
management initiatives, primarily the repurchase of our Preference Shares, which we believe provide the greatest risk-adjusted returns to our common shareholders. Our current assessment is that
losses have continued to stabilize sufficiently to continue the capital management initiatives we initiated in 2020, although we have approached these strategies in a deliberate fashion.
On March 3, 2021, the Company's Board of Directors approved the repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment guidelines, of up to $100.0
million of the Company's Preference Shares from time to time at market prices in open market purchases or as may be privately negotiated. On May 6, 2021, the Company's Board of Directors
approved the additional repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment guidelines, of up to $50.0 million of the Company's preference shares from
time to time at market prices in open market purchases or as may be privately negotiated. The authorizations that were approved on March 3, 2021 and May 6, 2021 as described above are
collectively referred to as the "2021 Preference Share Repurchase Program". The Company has a remaining authorization of $13.8 million for Preference Share repurchases at December 31, 2021.
Please refer to "Notes to Consolidated Financial Statements - Note 6 — Shareholders' Equity" and "Note 16 - Subsequent Events" under Item 8 "Financial Statements and Supplementary Data" of
this Annual Report on Form 10-K for recent repurchases and further detail on our Preference Shares.
Our ability to execute our asset and capital management initiatives is dependent on maintaining adequate levels of unrestricted liquidity and cash flows. Further, there can be no assurance that our
insurance liabilities will run-off at levels that will permit further capital management activities, which we continually review as part of our strategy. Please refer to the "Liquidity and Capital
Resources" section for further information on our asset and capital management activities, in particular our various Preference Share repurchase measures.
COVID-19 Pandemic
The continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet
known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. Our results of operations, financial condition, and liquidity and capital resources have been
adversely impacted by the COVID-19 pandemic, and the future impact of the pandemic on our financial condition or results of operations is difficult to predict.
As described herein, we are not currently engaged in active reinsurance underwriting on prospective risks and continue to run off the remaining unearned exposures we have reinsured. Our
Swedish and UK insurance operations do write limited primary insurance coverage that could be exposed to COVID-19 claims. While we assess our exposure to COVID-19 insurance and
reinsurance claims on our existing insurance exposures and remaining reinsurance exposures as limited and immaterial, given the uncertainty surrounding the COVID-19 pandemic and its impact on
the insurance industry, our preliminary estimates of loss and LAE and estimates of reinsurance recoverable arising from the COVID-19 pandemic may materially change. Maiden Reinsurance has not
received any COVID-19 claims to date but companies within our IIS unit have received a limited number of claims related to those coverages which it deems as immaterial. Unanticipated issues
relating to claims and coverage may emerge, which could adversely affect our business by increasing the scope of coverage beyond our intent and/or increasing the frequency and severity of claims.
The Company's investment portfolio may be adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic and we and our reinsurance subsidiaries may need
additional capital to maintain compliance with regulatory capital requirements and/or be required to post additional collateral under existing reinsurance arrangements, which could reduce our
liquidity. In addition, the Company may experience continued volatility in our results of operations which could negatively impact our financial condition and create a reduction in the amount of
available distribution or dividend capacity from our regulated reinsurance subsidiaries, which would also reduce liquidity.
Please refer to the "Liquidity and Capital Resources" section for a further discussion of the impact of the COVID-19 pandemic on our liquidity and investment portfolio.
38
2021 and 2020 Financial Highlights
For the Year Ended December 31,
Summary Consolidated Statement of Income Data:
Net income
Gain from repurchase of preference shares
Net income attributable to Maiden common shareholders
Basic and diluted earnings per common share:
Net income attributable to Maiden common shareholders
Gain from repurchase of preference shares per common share
Gross premiums written
Net premiums earned
Underwriting income
Net investment income
Combined ratio
Non-GAAP measures:
Non-GAAP operating earnings
Non-GAAP diluted operating earnings per common share
Non-GAAP operating return on average common shareholders' equity
(1)
(4)
(2)
(1)
(3)
(1)
(5)
At December 31,
Consolidated Financial Condition
Total investments and cash and cash equivalents
Total assets
Reserve for loss and LAE
Senior notes - principal amount
Common shareholders' equity
Shareholders' equity
Total capital resources
Ratio of debt to total capital resources
Book Value calculations:
Book value per common share
Accumulated dividends per common share
(13)
(11)
(6)
(7)
Book value per common share plus accumulated dividends
Change in book value per common share plus accumulated dividends
Diluted book value per common share
Non-GAAP measures:
Adjusted book value per common share
(10)
Adjusted Maiden shareholders' equity
Adjusted total capital resources
Ratio of debt to adjusted total capital resources
(12)
(10)
(9)
(8)
$
$
$
$
$
$
$
2021
2020
Change
($ in thousands except per share data)
$
26,645
90,998
117,643
1.35
1.06
10,938
52,993
11,572
32,013
126.1 %
$
60,481
0.70
25.0 %
41,762
38,195
79,957
0.93
0.45
31,389
106,081
17,274
54,761
111.4 %
47,076
0.55
25.9 %
2021
2020
($ in thousands except per share data)
$
$
$
$
$
888,699
2,322,610
1,489,373
262,500
225,047
384,257
646,757
40.6 %
2.60
4.27
6.87
17.6 %
2.59
3.18
434,200
696,700
37.7 %
1,456,133
2,948,455
1,893,299
262,500
133,506
527,816
790,316
33.2 %
1.57
4.27
5.84
1.55
2.46
602,757
865,257
30.3 %
$
$
$
$
$
$
$
(15,117)
52,803
37,686
0.42
0.61
(20,451)
(53,088)
(5,702)
(22,748)
14.7
13,405
0.15
(0.9)
Change
(567,434)
(625,845)
(403,926)
—
91,541
(143,559)
(143,559)
7.4
1.03
—
1.03
1.04
0.72
(168,557)
(168,557)
7.4
(1) Non-GAAP operating earnings, non-GAAP operating earnings per common share and non-GAAP operating return on average common equity are non-GAAP financial measures. See "Key Financial Measures" for additional information.
(2) Please refer to "Notes to Consolidated Financial Statements - Note 12. Earnings per Common Share" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for the calculation of basic and
diluted earnings per common share.
39
(3) Underwriting income is a non-GAAP measure and is calculated as net premiums earned plus other insurance revenue less net loss and LAE, commission and other acquisition expenses and general and administrative expenses directly related to
underwriting activities. See "Key Financial Measures" for additional information.
(4) Combined ratio is calculated by adding together the net loss and LAE ratio and the expense ratio.
(5) Total investments and cash and cash equivalents includes both restricted and unrestricted.
(6) Total capital resources is the sum of the Company's principal amount of debt and Maiden shareholders' equity. See "Key Financial Measures" for additional information.
(7) Book value per common share is calculated using common shareholders’ equity (shareholders' equity excluding the aggregate liquidation value of our Preference Shares) divided by the number of common shares outstanding. See "Key
Financial Measures" for additional information.
(8) Diluted book value per common share is calculated by dividing common shareholders' equity, adjusted for assumed proceeds from the exercise of dilutive options, divided by the number of outstanding common shares plus dilutive options and
restricted shares (assuming exercise of all dilutive share based awards).
(9) Adjusted book value per common share is a non-GAAP measure that is calculated using common shareholders' equity, adjusted by adding the following items to shareholders' equity: 1) the unamortized deferred gain on retroactive reinsurance
arising from the LPT/ADC Agreement; and 2) an adjustment which reflects the equity method accounting related to the fair value of certain hedged liabilities within an equity method investment in a limited partnership investment held by the
Company wherein the ultimate realizable value of the asset supporting the hedged liabilities cannot currently be recognized at fair value, divided by the number of common shares outstanding. See "Key Financial Measures" for additional
information.
(10) Adjusted shareholders' equity and adjusted total capital resources are calculated by adding the following items to shareholders' equity: 1) the unamortized deferred gain on retroactive reinsurance arising from the LPT/ADC Agreement; and 2)
an adjustment which reflects the equity accounting related to the fair value of certain hedged liabilities within an equity method investment held by the Company wherein the ultimate realizable value of the asset supporting the hedged liabilities
cannot currently be recognized at fair value. The deferred gain arises from the LPT/ADC Agreement with Cavello relating to losses from the AmTrust Quota Share. Under U.S. GAAP, the deferred gain shall be amortized over the estimated
remaining settlement period. See "Key Financial Measures" for additional information.
(11) Ratio of debt to total capital resources is calculated using the total principal amount of debt divided by the sum of total capital resources.
(12) Ratio of debt to adjusted total capital resources is calculated using the total principal amount of debt divided by the sum of adjusted total capital resources.
(13) Accumulated dividends per common share includes the cumulative sum of dividends declared and paid in the past on the Company's issued common shares since inception.
Key Financial Measures
Revenues
We historically derived the majority of our revenues from premiums on reinsurance contracts, net of any reinsurance or retrocessional coverage purchased and to a minor extent from premiums
from insurance policies. Reinsurance premiums are a function of the amount and types of policies and contracts we write, as well as prevailing market prices. Our prices are determined before our
ultimate costs, which may extend far into the future, are known.
As a result of the significant strategic transactions implemented since 2018, our gross and net premiums written continue to be materially lower and therefore our net investment income will
increasingly become a significantly larger portion of our total revenues compared to prior periods.
The Company's revenues also include fee income earned from both our GLS business and IIS business as well as income generated from our investment portfolio. The Company's investment
portfolio is comprised of AFS fixed maturity investments and other investments including equities, private equity and credit funds, privately held investments, hedge funds, equity method
investments and other non-fixed income investments. In accordance with U.S. GAAP, our fixed maturity investments are carried at fair market value and any unrealized gains and losses are included
in AOCI as a separate component of shareholders' equity. If unrealized losses are considered to be other-than-temporarily impaired due to a credit-related event, such impairment losses are recognized
within earnings as a realized loss under total other-than-temporary impairment losses. Equity and other investments include limited partnerships, hedge funds and start-up insurance entities which are
carried at fair market value with any unrealized gains or losses included in earnings under net realized gains (losses) on investment. Our investments made by special purpose vehicles focused on
lending activities are carried at cost. Any indication of impairment is recognized immediately within net income.
Expenses
Our expenses currently consist largely of net loss and LAE, commission and other acquisition expenses, general and administrative expenses, interest and amortization expenses, foreign exchange
and other gains or losses, the latter of which includes on a non-recurring basis any gains or losses from the disposal of subsidiaries.
Net loss and LAE has three main components: (1) losses paid, which are actual cash payments to insureds, net of recoveries from reinsurers; (2) change in outstanding loss or case reserves, which
represent cedants' best estimate of the likely settlement amount for known claims, less the portion that can be recovered from reinsurers; and (3) change in IBNR reserves, which we establish to
respond to changes in the values of claims that have been reported to us but are not yet settled, as well as claims that have occurred but have not yet been reported to us. The portion recoverable from
reinsurers is deducted from the gross estimated loss.
Commission and other acquisition expenses include commissions, brokerage fees and insurance taxes. Commissions and brokerage fees are usually calculated as a percentage of premiums and
depend on the market and line of business and can, in certain instances, vary based on loss sensitive features of reinsurance contracts. Commission and other acquisition expenses are reported after:
(1) deducting commissions received on ceded reinsurance; (2) deducting the part of commission and other acquisition expenses relating to unearned premiums; and (3) including the amortization of
previously deferred commission and other acquisition expenses.
40
General and administrative expenses include personnel expenses (including share-based compensation expense), audit fees, rent expenses, legal and professional fees, information technology costs
and other general operating expenses. General and administrative expenses are allocated to the reportable segments on an actual basis except salaries and benefits where management’s judgment is
applied; however general corporate expenses are not allocated to the segments.
Non-GAAP Financial Measures
In addition to our key financial measures presented in accordance with GAAP in the Consolidated Balance Sheets and Consolidated Statements of Income and Comprehensive Income,
management uses certain non-GAAP financial measures to evaluate the Company's financial performance and the overall growth in value generated for the Company’s common shareholders.
Management believes that these measures, which may be defined and calculated differently by other companies, explain the Company’s results to investors in a manner that allows for a more
complete understanding of the underlying trends in the Company’s business. The non-GAAP financial measures should not be viewed as a substitute for those determined in accordance with U.S.
GAAP. The calculation of some of these key financial measures including the reconciliation of non-GAAP financial measures to the nearest GAAP measure and relevant discussions are found within
Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations". These non-GAAP financial measures are:
Non-GAAP operating earnings and non-GAAP diluted operating earnings per common share: Management believes that the use of non-GAAP operating earnings and non-GAAP diluted
operating earnings per common share enables investors and other users of the Company’s financial information to analyze its performance in a manner similar to how management analyzes
performance. Management also believes that these measures generally follow industry practice therefore allowing the users of financial information to compare the Company’s performance with its
industry peer group, and that the equity analysts and certain rating agencies which follow the Company, and the insurance industry as a whole, generally exclude these items from their analyses for
the same reasons. Non-GAAP operating earnings should not be viewed as a substitute for U.S. GAAP net income.
Non-GAAP operating earnings is an internal performance measure used by management as these measures focus on the underlying fundamentals of the Company's operations by excluding, on a
recurring basis: (1) net realized gains or losses on investment; (2) total other-than-temporary impairment losses; (3) foreign exchange and other gains or losses; (4) the portion of favorable or
unfavorable prior year reserve development for which we have ceded the risk under the LPT/ADC Agreement and related changes in amortization of the deferred gain liability; and (5) interest in
income of equity method investments. We have excluded net realized gains (losses) on investment, other-than-temporary impairment losses, interest in income of equity method investments and
foreign exchange and other gains or losses as we believe these are influenced by market opportunities and other factors. We do not believe that ceded risks under the LPT/ADC Agreement are
representative of our ongoing and future business which are different to retroactive reinsurance risks written by GLS that are representative of our ongoing and future business. We believe all of these
amounts are substantially independent of our business and any potential future underwriting process, therefore, including them would distort the analysis of underlying trends in our operations.
Underwriting income is a non-GAAP measure and is calculated as net premiums earned plus other insurance revenue less net loss and LAE, commission and other acquisition expenses and
general and administrative expenses directly related to underwriting activities. For purposes of these non-GAAP operating measures, the fee-generating business which is included in our Diversified
Reinsurance segment, is considered part of the underwriting operations of the Company. Management believes that this measure is important in evaluating the underwriting performance of the
Company and its segments. This measure is also a useful tool to measure the profitability of the Company separately from the investment results and is also a widely used performance indicator in the
insurance industry. A reconciliation of the Company's underwriting results can be found in the Company's Consolidated Financial Statements in the "Notes to Consolidated Financial Statements Note
3. Segment Information" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Combined ratio is commonly used in the insurance and reinsurance industry in conjunction with underwriting income as a measure of underwriting profitability. Management measures
underwriting results on an overall basis and for each segment on the basis of the combined ratio. The combined ratio is the sum of the net loss and LAE ratio and the expense ratio and the
computations of each component are described below. A combined ratio under 100% indicates underwriting profitability, as the net loss and LAE, commission and other acquisition expenses and
general and administrative expenses are less than the net premiums earned and other insurance revenue on that business. While the Company has continued to utilize this non-GAAP measure in this
Annual Report on Form 10-K for the year ended December 31, 2021, it is important to note that as the run-off of our reinsurance portfolios progresses, such ratios may increasingly be of less value to
readers as they evaluate the financial results of the Company, particularly compared to historical data. Please refer to "Notes to Consolidated Financial Statements - Note 3. Segment Reporting"
included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further details.
While an important metric of success, underwriting income and combined ratio do not reflect all components of profitability, as they do not recognize the impact of investment income earned on
premiums between the time premiums are received and the time loss payments are ultimately paid to clients. Because we do not manage our cash and investments by segment, investment income and
interest expense are not allocated to the reportable segments. Certain general and administrative expenses are generally allocated to segments based on actual costs incurred.
The "net loss and LAE ratio" is derived by dividing net loss and LAE by the sum of net premiums earned and other insurance revenue. The "commission and other acquisition expense ratio" is
derived by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue. The "general and administrative expense ratio" is derived by
dividing general and administrative expenses by the sum of net premiums earned and other insurance
41
revenue. The "expense ratio" is the sum of the commission and other acquisition expense ratio and the general and administrative expense ratio.
Non-GAAP Operating Return on Average Adjusted Common Equity ("Non-GAAP Operating ROACE"): Management uses non-GAAP operating return on average adjusted common shareholders'
equity as a measure of profitability that focuses on the return to common shareholders. It is calculated using non-GAAP operating earnings available to common shareholders (as defined above)
divided by average adjusted common shareholders' equity.
Book Value per Common Share and Diluted Book Value per Common Share: Book value per common share and diluted book value per common share are non-GAAP measures. Management uses
growth in both of these metrics as a prime measure of the value we are generating for our common shareholders, because management believes that growth in each metric ultimately results in growth
in the Company’s common share price. These metrics are impacted by the Company’s net income and external factors, such as interest rates, which can drive changes in unrealized gains or losses on
our fixed income investment portfolio, as well as common or preference share repurchases.
Ratio of Debt to Total Capital Resources: Management uses this non-GAAP measure to monitor the financial leverage of the Company. This measure is calculated using the total principal amount
of debt divided by the sum of total capital resources.
Non-GAAP underwriting income (loss), Non-GAAP earnings and LAE ratio, and Non-GAAP combined ratio: Management has further adjusted underwriting income, as defined above, as well as
the reported loss and LAE ratios and reported combined ratios by excluding the portion of favorable or unfavorable prior year reserve development for which we have ceded the risk under the
LPT/ADC Agreement. The losses are estimated to be fully recoverable from Cavello and management believes adjusting for this development shows the ultimate economic benefit of the LPT/ADC
Agreement on our underwriting results. We believe reflecting the economic benefit of this retroactive reinsurance agreement is helpful for understanding future trends in our operations.
Adjusted Total Shareholders' Equity, Adjusted Total Capital Resources, Ratio of Debt to Adjusted Total Capital Resources and Adjusted Book Value per Common Share: Management has adjusted
GAAP shareholders' equity by adding the following items to shareholders' equity: 1) unamortized deferred gain on ceded retroactive reinsurance under the LPT/ADC Agreement; and 2) an
adjustment which reflects the equity accounting related to the fair value of certain hedged liabilities within an equity method investment held by the Company wherein the ultimate realizable value of
the asset supporting the hedged liabilities cannot currently be recognized at fair value ("LP Investment Adjustment").
The unamortized deferred gain on retroactive reinsurance under the LPT/ADC Agreement includes the aggregate impact of: 1) cumulative increases to losses incurred prior to December 31, 2018
for which we have ceded the risk under the LPT/ADC Agreement with Cavello; and 2) changes in estimated ultimate losses for certain workers' compensation reserves previously commuted to
AmTrust which are subject to specific terms and conditions pursuant to the LPT/ADC Agreement. As a result, by virtue of this adjustment, management has also adjusted Total Capital Resources and
computed the Ratio of Debt to Adjusted Capital Resources and Adjusted Book Value per Common Share. The deferred gain liability on retroactive reinsurance under the LPT/ADC Agreement
represents loss reserves estimated to be fully recoverable from Cavello and management believes adjusting for this shows the ultimate economic benefit of the LPT/ADC Agreement. We believe
reflecting the economic benefit of this non-recurring retroactive reinsurance agreement is helpful to understand future trends in our operations, which will improve our shareholders' equity over the
settlement or contract periods, respectively.
Alternative investments is the total of the Company's other investments and equity method investments as reported on the Company's Consolidated Balance Sheets.
42
Critical Accounting Policies and Estimates
It is important to understand our accounting policies in order to understand our financial position and results of operations. The Company’s Consolidated Financial Statements have been prepared
in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following presents a discussion of those accounting
policies and estimates that management believes are the most critical to its operations and require the most difficult, subjective and complex judgment. If actual events differ significantly from the
underlying assumptions and estimates used by management, there could be material adjustments to prior estimates that could potentially adversely affect the Company’s results of operations,
financial condition and liquidity. These critical accounting policies and estimates should be read in conjunction with "Notes to Consolidated Financial Statements - Note 2. Significant Accounting
Policies" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report Form 10-K for a full understanding of the Company’s accounting policies.
Reserve for Loss and LAE
General: The amount of time that elapses before a claim is reported to the cedant and then subsequently reported to the reinsurer is commonly referred to in the industry as the reporting tail. Lines
of business for which claims are reported quickly are commonly referred to as short-tailed lines; and lines of business for which a longer period of time elapses before claims are reported to the
reinsurer are commonly referred to as long-tailed lines. In general, for reinsurance, the time lags are longer than for primary business due to the delay that occurs between the cedant becoming aware
of a loss and reporting the information to its reinsurer(s). The delay varies by reinsurance market (country of cedant), type of treaty, whether losses are paid by the cedant and the size of the loss. The
delay could vary from a few weeks to a year or sometimes longer.
Because a significant amount of time can elapse, particularly on longer-tail lines of business written on an excess of loss basis, between the assumption of risk, the occurrence of a loss event, the
reporting of the event to an insurance company (the primary company or the cedant), the subsequent reporting to the reinsurance company ("the reinsurer") and the ultimate payment of the claim on
the loss event by the reinsurer, the Company’s liability for unpaid loss and LAE ("loss reserves") is based largely upon estimates. The Company categorizes loss reserves into two types of reserves:
reported outstanding loss reserves ("case reserves") and IBNR reserves. Case reserves represent, for each individual claim, an estimate of unpaid losses, either by the Company’s cedants or the
Company’s claims handling professionals, and recorded by the Company. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as
future loss development on losses already reported, in excess of the case reserves. The Company updates its estimates for each of the aforementioned categories primarily on a quarterly basis using
information received from its cedants.
For excess of loss treaties, cedants generally are required to report losses that either (i) exceed 50% of their retention; or (ii) have a reasonable probability of exceeding the retention; or (iii) meet
defined reporting criteria. All excess of loss reinsurance claims that are reserved are reviewed on a periodic basis. In addition, reserves for loss and LAE are reviewed every quarter for each cedant.
For proportional treaties, cedants are required to give a periodic statement of account, generally monthly or quarterly. These periodic statements typically include information regarding premiums
written, premiums earned, unearned premiums, ceding commissions, brokerage amounts, applicable taxes, paid losses and reported outstanding losses. They can be submitted up to ninety days after
the close of the reporting period. Some proportional treaties have specific language requiring earlier notice of serious claims.
For all lines, the Company’s objective is to reasonably estimate ultimate loss and LAE. Total loss reserves are then calculated by subtracting losses paid. Similarly, IBNR reserves are calculated
by subtracting case reserves from total loss reserves. IBNR is the estimated liability for: (1) changes in the values of claims that have been reported to us but are not yet settled; (2) claims that have
occurred but have not yet been reported; and (3) claims that are closed but subsequently reopened. Each claim is settled individually based upon its merits, and particularly for longer-tailed lines of
business, it is not unusual for a claim to take several years after being initially reported to be settled and paid, especially if legal action is involved. These claims may also require changes in
anticipated future payments due to changes in medical conditions or changes in expected inflationary pressures. As a result, the reserve for loss and LAE includes significant estimates for IBNR
reserves.
The reserve for IBNR is generally estimated by management based on various factors, including actuarial analysis and actual loss experience to date. Our actuaries employ standard actuarial
methodologies to determine estimated ultimate loss reserves. In selecting management's best estimate of loss and LAE reserves, we consider the range of results produced by many actuarial methods
and the appropriateness of those estimates. These actuarial methodologies are described in "Notes to Consolidated Financial Statements - Note 9. Reserve for Loss and Loss Adjustment Expenses"
included under Item 8 "Financial Statement and Supplementary Data".
The composition of the reserve for loss and LAE at December 31, 2021 and 2020 was as follows:
December 31,
Reserve for reported loss and LAE
Reserve for losses incurred but not reported
Reserve for loss and LAE
2021
2020
($ in thousands)
$
$
851,950 $
637,423
1,489,373 $
998,691
894,608
1,893,299
43
The loss reserves in the table above exclude the impact of the LPT/ADC Agreement. While management believes that our case reserves and IBNR are sufficient to cover losses assumed by us,
there can be no assurance that losses will not deviate from our reserves, possibly by material amounts. The analysis of the appropriateness of the reserve for IBNR is reviewed quarterly, with
adjustments made as appropriate. To the extent that actual reported losses exceed expected losses, the carried estimate of the ultimate losses may be increased (i.e. unfavorable reserve development),
and to the extent actual reported losses are less than our expectations, the carried estimate of ultimate losses may be reduced (i.e. favorable reserve development). We record any changes in our loss
reserve estimates and the related reinsurance recoverable in the periods in which they are determined. Reinsurance recoverable on unpaid losses covered by the ADC portion of the LPT/ADC
Agreement are recorded as part of the deferred gain on retroactive reinsurance shown on the Consolidated Balance Sheets which represents the cumulative adverse loss development under the
AmTrust Quota Share covered by the LPT/ADC Agreement at December 31, 2021. Amortization of the deferred gain will not occur until paid losses have exceeded the minimum retention under the
LPT/ADC Agreement, which is estimated to be in 2024.
Loss reserves do not represent an exact calculation of liability. Rather, loss reserves are estimates of what we reasonably expect the ultimate resolution and administration of claims will cost.
These estimates are based on actuarial projections and on our assessment of currently available data, as well as estimates of future trends in claims severity and frequency, judicial theories of liability
and other factors. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. In addition, the relatively long periods between when a loss occurs and when it
may be reported to our claims department for our casualty reinsurance lines of business also increase the uncertainties of reserve estimates in such lines.
With the guidance of the methods described in "Notes to Consolidated Financial Statements - Note 9. Reserve for Loss and Loss Adjustment Expenses" included under Item 8 "Financial Statement
and Supplementary Data" of this Annual Report on Form 10-K, actuarial judgment is applied in the determination of ultimate losses. In general, the Company’s segments have varying levels of
seasoning with which the Company has direct experience and as a result, differing methods are utilized to estimate loss and LAE reserves within each segment.
In our Diversified Reinsurance segment, we hold books of business that have been in runoff for several years, as well as books of business that have been underwritten only during the last few
years. In general, we utilize the Expected Loss Ratio ("ELR") approach at the onset of reserving an account, the Bornhuetter-Ferguson ("BF") method for business with less but maturing loss
experience, and then, as the experience matures, the Loss Development ("LD") method is utilized. The runoff book of business primarily uses the LD method due to its maturity and the amount of
experience which has emerged over the years. For proportional business, the Company relies heavily on the actual contract experience, whereas for excess of loss business, there will be more usage of
industry and/or Company specific benchmark assumptions in the reserving process.
The Company underwrote the AmTrust Reinsurance segment from July 1, 2007 until the Final AmTrust QS Terminations effective January 1, 2019. A large portion of the exposure in the
underlying book of business has significant seasoning, and allows for a significant amount of credibility in using parameters derived from historical experience to calculate reserve estimates. Some
segments of the book are a result of recent acquisitions or newer markets for AmTrust. These segments require a greater level of assumptions and professional judgment in deriving reserve levels,
which inherently implies a wider range of reasonable estimates. In addition, changes to case reserving and claims settlement practices by AmTrust have required the use of methods which adjust
historical paid and incurred losses to reflect the current basis. As a result, we have tended to rely on a weighted approach which primarily employs the LD method for aspects of the segment with
ample historical data, while also considering the ELR or BF method for exposure resulting from recent acquisitions, or a relative business with a more limited level of experience. The LD method can
also be based on AmTrust specific historical information, historical information adjusted to current levels, or information derived from industry sources, with actuarial judgment being used as to the
credibility weighting employed. The Frequency-Severity ("FS") method is also considered for segments of the AmTrust book for which claim count information is available. Additional data detailing
items such as the class of business, state of occurrence, claim counts, and the frequency and severity of claims is available in many instances, further enhancing the loss reserve analysis.
Significant Assumptions Employed in the Estimation of Reserve for Loss and Loss Adjustment Expenses: The most significant assumptions used at December 31, 2021 to estimate the reserve for
loss and LAE within our reporting segments are as follows:
• the information developed from internal and independent external sources can be used to develop meaningful estimates of the likely future performance of business bound by the Company;
• the loss and exposure information provided by ceding companies, insureds and brokers in support of their reinsurance submissions have been used by the Company's pricing actuaries to
derive meaningful estimates of the likely future performance of business bound with respect to each contract and policy;
• historic loss development and trend experience may be used to predict future loss development and trends;
• no significant emergence of losses or types of losses that are not represented in the information supplied to the Company by its brokers, ceding companies and insureds will occur; and
• the Company is able to identify and properly adjust for changes to case reserving and claims settlement rates in the underlying data.
The five assumptions above significantly influence the Company’s determination of initial expected loss ratios and expected loss reporting and payment patterns that are the key inputs which
impact potential variability in the estimate of the reserve for loss and LAE and are applicable to each of the Company’s business segments. These factors are combined with the actuarial judgment
exercised by our reserving actuaries. While there can be no assurance that any of the above assumptions will
44
prove to be correct, we believe that this process represents a realistic and appropriate basis for estimating the reserve for loss and LAE. Loss emergence factors and expected loss ratios used in the
reserving process are based on a blend of our own direct experience, cedant experience and industry benchmarks, when appropriate. The benchmarks selected were those that we believe are most
similar to our underwriting business.
Factors Creating Uncertainty in the Estimation of the Reserve for Loss and Loss Adjustment Expenses: While management does not include an explicit or implicit provision for uncertainty in its
reserve for loss and LAE, certain of the Company’s business lines are by their nature subject to additional uncertainties, which are discussed in detail below. In addition, the Company’s reserves are
subject to additional factors which add to the uncertainty of estimating reserve for loss and LAE. Time lags in the reporting of losses can also introduce further ambiguity to the process of estimating
reserve for loss and LAE.
The inherent uncertainty of estimating the Company’s reserve for loss and LAE increases principally due to:
• the lag in time between the time claims are initially reported to the ceding company and the time they are ultimately reported through one or more reinsurance broker intermediaries to the
Company;
• the differing case reserving practices among ceding companies;
• changes to characteristics of a claim over time, such as future medical needs or assessment of liability;
• the diversity of loss development patterns among different types of reinsurance treaties or contracts;
• the Company’s need to rely on its ceding companies for loss information, which also exposes the Company to changes in the reserving philosophy of the ceding company and the adequacy
of its underlying case reserves; and
• changes in internal company operations such as alterations in claims handling procedures.
To verify the accuracy and completeness of the information provided to us by our ceding company counterparties, the Company’s actuaries, accountants and claims personnel perform claims
reviews, and at times also accounting and financial audits, of the Company’s ceding companies. Any material findings are communicated to the ceding companies and utilized in the establishment or
revision of the Company’s case reserves and related IBNR reserve. On occasion, these reviews reveal that the ceding company’s reported loss and LAE do not comport with the terms of the contract
held with the Company. In such events, the Company strives to resolve the outstanding differences in an amicable fashion. The large majority of such differences are resolved in this manner. In the
infrequent instance where an amicable solution is not feasible, the Company’s policy is to vigorously defend its position in litigation or arbitration. At December 31, 2021, the Company was not
involved in any material claims litigation or arbitration proceedings.
Due to the large volume of potential transactions that must be recorded in the insurance and reinsurance industry, backlogs in the recording of the Company’s business activities can also impair
the accuracy of its loss and LAE reserve estimates. At December 31, 2021, there were no significant backlogs related to the processing of policy or contract information in any of our reporting
segments.
The Company assumes in its loss and LAE reserving process that, on average, the time period between the recording of expected losses and the reporting of actual losses are predictable when
measured in the aggregate and over time. The time period over which all losses are expected to be reported to the Company varies significantly by line of business. This period can range from a few
quarters for some lines, such as property, to many years for some casualty lines of business. To the extent that actual reported losses are reported more quickly or more slowly than expected, the
Company may adjust its estimate of ultimate loss accordingly.
Potential Volatility in the Reserve for Loss and LAE: In addition to the factors creating uncertainty in the Company’s estimate of loss and LAE, the Company’s estimated reserve for loss and LAE
can change over time because of unexpected changes in the external environment. Potential changing external factors include:
• changes in the inflation rate for goods and services related to the covered damages;
• changes in the general economic environment that could cause unanticipated changes in claim frequency or severity;
• changes in the litigation environment regarding the representation of plaintiffs and potential plaintiffs;
• changes in the judicial and/or arbitration environment regarding the interpretation of policy and contract provisions relating to the determination of coverage and/or the amount of damages
awarded for certain types of claims;
• changes in the social environment regarding the general attitude of juries in the determination of liability and damages;
• changes in the legislative environment regarding the definition of damages;
• new types of injuries caused by new types of injurious activities or exposures; and
• assessment of changes in ceding company case reserving and reporting patterns.
The change in loss reserve estimates from the prior year is referred to as Prior Year Development ("PPD"). We experienced favorable PPD of $27.6 million for the year ended December 31, 2021
compared to favorable PPD of $16.5 million for the year ended December 31, 2020, primarily within the AmTrust Reinsurance segment. Please refer to “Notes to Consolidated Financial Statements -
Note 9. Reserve for Loss and Loss Adjustment Expenses” included under Item 8. "Financial Statements and Supplementary Data" of this Form 10-K for further details.
45
The Company creates a statistical distribution around the estimate of reserve for loss and LAE based on an assumption of the volatility inherent in the estimate. The Company, in the analysis of
reserves for loss and LAE, in addition to selecting a best point estimate, makes a selection of a range of reasonable reserves. This range is based on a combination of objective and subjective data,
including the underlying characteristics of the exposure, the volatility in historical emergence, the credibility of the information available to estimate the reserve for loss and LAE, and professional
actuarial judgement. The size of the range is related to the level of confidence associated with the point estimate, as well as the amount of uncertainty inherent in the characteristics of the exposure
being evaluated.
Based on this range of reasonable reserves, our required reserves after reinsurance recoverable could increase by approximately $152.1 million, or 10.7%, of our consolidated net loss and LAE
reserves, excluding the impact of the LPT/ADC Agreement. If the LPT/ADC Agreement were to be considered, our required reserves could increase by approximately $72.1 million, or 7.8% of our
consolidated net loss and LAE reserves.
For the range of reasonable reserves, we have assumed what we believe is an appropriate confidence level. However, the range is not intended to be a measurement of all possible future outcomes,
and there can be no assurance that our claim obligation will not vary outside of this range.
Premiums and Commissions and Other Acquisition Expenses
For pro-rata contracts and excess-of-loss contracts where no deposit or minimum premium is specified in the contract, premium written is recognized based on estimates of ultimate premiums
provided by the ceding companies. Initial estimates of premium written are recognized in the period in which the underlying risks are incepted. Subsequent adjustments, based on reports of actual
premium by the ceding companies, or revisions in estimates, are recorded in the period in which they are determined. Reinsurance premiums assumed are generally earned on a pro rata basis over the
terms of the underlying policies or reinsurance contracts.
Contracts and policies written on a "losses occurring" basis cover claims that may occur during the term of the contract or policy, which is typically twelve months. Accordingly, the premium is
earned evenly over the contract term. Contracts which are written on a "risks attaching" basis cover claims from all underlying insurance policies written during the terms of such contracts. Premiums
earned on such contracts extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a twenty-four-month period.
Reinsurance premiums on specialty risk and extended warranty are earned based on the estimated program coverage period. These estimates are based on the expected distribution of coverage
periods by contract at inception, because a single contract may contain multiple coverage period options and these estimates are revised based on the actual coverage period selected by the original
insured.
Unearned premiums represent the portion of premiums written which is applicable to the unexpired term of the contract or policy in force. These premiums can be subject to estimates based upon
information received from ceding companies and any subsequent differences arising on such estimates are recorded in the period in which they are determined.
The Company provides proportional and non-proportional reinsurance coverage to cedants (insurance companies). Cedants' actual premiums are unknown at the time they enter into reinsurance
agreement so treaties are based upon estimates of those premiums at the time the treaties are written and are typically adjusted as premiums are known. Reporting delays are inherent in the
reinsurance industry and vary in length by type of treaty. As delays can vary from a few weeks to a year or sometimes longer, the Company produces accounting estimates to report premiums and
commission and other acquisition expenses until it receives the cedants’ actual results. Under proportional treaties, the Company shares proportionally in both the premiums and losses of the cedant
and pays the cedant a commission to cover the cedants' acquisition expenses. Under this type of treaty, the Company’s ultimate premiums written and earned and acquisition expenses are not known
at the inception of the treaty and must be estimated until the cedant reports its actual results to the Company. Under non-proportional treaties, the Company is typically exposed to loss events in
excess of a predetermined dollar amount or loss ratio and receives a deposit or minimum premium, which is subject to adjustment depending on the premium volume written by the cedant.
Reported premiums written and earned and commission and other acquisition expenses on proportional treaties are generally based upon reports received from cedants and brokers, supplemented
by the Company’s own estimates of premiums written and commission and other acquisition expenses for which ceding company reports have not been received. Premium and acquisition expense
estimates are determined at the individual treaty level based upon contract provisions. The determination of estimates requires a review of the Company’s experience with cedants, a thorough
understanding of the individual characteristics of each line of business and the ability to project the impact of current economic indicators on the volume of business written and ceded by the
Company’s cedants. Estimates for premiums and commission and other acquisition expenses are updated continuously as new information is received from the cedants. Differences between such
estimates and actual amounts are recorded in the period in which estimates are changed or the actual amounts are determined.
Assessing whether or not a reinsurance contract meets the condition for risk transfer requires judgment. The determination of risk transfer is critical to reporting premiums written and is based, in
part, on the use of actuarial and pricing models and assumptions. If we determine that a reinsurance contract does not transfer sufficient risk, we account for the contract as a deposit liability rather
than a premium written.
Acquisition expenses represent the costs of writing business that vary with, and are primarily related to, the production of the business. Acquisition expenses that are related to successful contracts
are deferred and recognized as expense over the same period in which the related premiums are earned. Only certain expenses incurred in the successful acquisition of new and renewal insurance
contracts are capitalized. Those expenses include incremental direct costs of contract acquisition that result
46
directly from and are essential to the contract transaction and would not have been incurred had the contract transaction not occurred. All other acquisition-related expenses, such as costs incurred for
soliciting business, administration, and unsuccessful acquisition or renewal efforts are charged to expense as incurred. Administrative expenses, including rent, depreciation, occupancy, equipment,
and all other general overhead expenses are considered indirect and are expensed as incurred.
The Company considers anticipated investment income in determining the recoverability of these deferred costs and believes they are fully recoverable. A premium deficiency is recognized if the
sum of anticipated losses and LAE, unamortized acquisition expenses and anticipated investment income exceed unearned premium.
Retroactive Reinsurance
Retroactive reinsurance policies provide indemnification for losses and LAE with respect to past loss events. For our GLS run-off business in our Diversified Reinsurance segment, we use the
balance sheet accounting approach for assumed loss portfolio transfers, whereby at the inception of the contract there are no premiums or losses recorded in earnings.
At the inception of a run-off retroactive reinsurance contract, if the estimated undiscounted ultimate losses payable are in excess of the premiums received, a deferred charge asset is recorded for
the excess; whereas, if the premiums received are in excess of the estimated undiscounted ultimate losses payable, a deferred gain liability is recorded for the excess, such that we do not record any
gain or loss at the inception of these retroactive reinsurance contracts. The premium consideration that we charge the ceding companies under retroactive reinsurance contracts may be lower than the
undiscounted estimated ultimate losses payable due to the time value of money. After receiving the premium consideration in full from our cedents at the inception of the contract, we invest the
premium received over an extended period of time, thereby generating investment income. We expect to generate profits from these retroactive reinsurance contracts when taking into account the
premium received and expected investment income, less contractual obligations and expenses.
Deferred charge assets will be recorded in other assets (if and when applicable), and deferred gain liabilities are recorded in other liabilities, and amortized over the estimated claim payment
period of the related contract with the periodic amortization reflected in earnings as a component of losses and LAE. The amortization of deferred charge assets and deferred gain liabilities is adjusted
at each reporting period to reflect new estimates of the amount and timing of remaining loss and LAE payments. Changes in the estimated amount and timing of payments of unpaid losses may have
an effect on the unamortized deferred charge assets and deferred gain liabilities and the amount of periodic amortization.
Fair Value of Financial Instruments
Please refer to "Notes to Consolidated Financial Statements - Note 5. Fair Value of Financial Instruments" included under Item 8 "Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K for a discussion on the fair value methodology and valuation techniques used by the Company to determine the fair value of the financial instruments held at December 31, 2021
and 2020.
Other-Than-Temporary Impairment ("OTTI") of Investments
Please refer to "Notes to Consolidated Financial Statements - Note 2. Significant Accounting Policies" included under Item 8 "Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K for a discussion on the impairment evaluation performed by the Company on its investment portfolio. For the year ended December 31, 2021, the Company did not recognize
any OTTI impairment losses in its results of operation compared to $2.5 million of OTTI recognized for fixed maturity investments held at December 31, 2020. Please see "Notes to Consolidated
Financial Statements: Note 4. Investments" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further details.
47
Results of Operations
The following table sets forth our selected Consolidated Statement of Income data for each of the years indicated:
For the Year Ended December 31,
Gross premiums written
(1)
(2)
Net premiums written
Net premiums earned
Other insurance revenue
Net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Underwriting income
Other general and administrative expenses
Net investment income
Net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Foreign exchange and other gains (losses)
Interest and amortization expenses
Income tax (expense) benefit
Interest in income of equity method investments
Net income
(1)
Gain from repurchase of preference shares
Net income available to Maiden common shareholders
(3)
Ratios
Net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
(5)
(6)
(4)
Combined ratio
(7)
$
$
$
$
2021
2020
($ in thousands)
$
$
$
$
10,938
10,403
52,993
1,067
(7,307)
(24,840)
(10,341)
11,572
(25,679)
32,013
12,648
—
7,685
(19,327)
(15)
7,748
26,645
90,998
117,643
13.5 %
46.0 %
66.6 %
112.6 %
126.1 %
31,389
28,432
106,081
1,276
(41,799)
(38,796)
(9,488)
17,274
(29,630)
54,761
24,473
(2,468)
(8,526)
(19,324)
104
5,098
41,762
38,195
79,957
38.9 %
36.1 %
36.4 %
72.5 %
111.4 %
(1) Underwriting related general and administrative expenses is a non-GAAP measure. Please refer to "General and Administrative Expenses" below for additional information related to these corporate expenses and the reconciliation to
those presented in our Consolidated Statements of Income.
(2) Underwriting income is a non-GAAP measure and is calculated as net premiums earned plus other insurance revenue less net loss and LAE, commission and other acquisition expenses and general and administrative expenses directly
related to underwriting activities.
(3) Calculated by dividing net loss and LAE by the sum of net premiums earned and other insurance revenue.
(4) Calculated by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue.
(5) Calculated by dividing all general and administrative expenses by the sum of net premiums earned and other insurance revenue.
(6) Calculated by adding together commission and other acquisition expense ratio and general and administrative expense ratio.
(7) Calculated by adding together net loss and LAE ratio and the expense ratio.
48
Net Income
Net income available to Maiden common shareholders for the year ended December 31, 2021 was $117.6 million compared to net income available to Maiden common shareholders of $80.0
million in 2020. The net improvement in our results for the year ended December 31, 2021 compared to 2020 was primarily due to the gain from the repurchase of our Preference Shares of $91.0
million for the year ended December 31, 2021 compared to the gain of $38.2 million for Preference Share repurchases during 2020.
Excluding the gain on the repurchase of our Preference Shares, net income for the year ended December 31, 2021 was $26.6 million compared to net income of $41.8 million in 2020. The most
significant items affecting our financial performance during the year ended December 31, 2021 on a comparative basis to 2020 included:
• underwriting income of $11.6 million in the year ended December 31, 2021 compared to $17.3 million in the same period in 2020 largely due to:
• favorable prior year loss development of $27.6 million for the year ended December 31, 2021 compared to $16.5 million during the same period in 2020 primarily related to the
quota share reinsurance agreements with AmTrust, or the AmTrust Reinsurance segment, and partly offset by:
• an underwriting loss of $16.0 million for the year ended December 31, 2021 on a current accident year basis compared to an underwriting income of $0.8 million for the same
period in 2020 on a current accident year basis, due to higher expense ratios caused by a significant decrease in earned premium.
• no investment impairment losses for the year ended December 31, 2021 compared to $2.5 million in 2020;
• total income from investment activities were $52.4 million for the year ended December 31, 2021 compared to $84.3 million for the same period in 2020 which was comprised of:
• net investment income decreased to $32.0 million for the year ended December 31, 2021 compared to $54.8 million for the same period in 2020, primarily due to the decline in
average fixed income assets of 28.8%;
• realized and unrealized gains on investment decreased to $12.6 million for the year ended December 31, 2021 compared to $24.5 million for the same period in 2020;
• interest in income of equity method investments of $7.7 million for the year ended December 31, 2021 compared to an interest in income of equity method investments of $5.1
million for the same period in 2020.
• corporate general and administrative expenses decreased to $25.7 million for the year ended December 31, 2021 compared to $29.6 million for the same period in 2020; and
• foreign exchange and other gains increased to $7.7 million for the year ended December 31, 2021 compared to foreign exchange and other losses of $8.5 million for the same period in 2020.
Net Premiums Written
The table below compares net premiums written by our reportable segments, reconciled to the total consolidated net premiums written for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Diversified Reinsurance
AmTrust Reinsurance
Total
2021
2020
Change in
Total
% of Total
Total
% of Total
$
%
$
$
16,098
(5,695)
10,403
154.7 % $
(54.7)%
100.0 % $
37,258
(8,826)
28,432
131.1 % $
(31.1)%
100.0 % $
(21,160)
3,131
(18,029)
(56.8)%
(35.5)%
(63.4)%
Net premiums written for the year ended December 31, 2021 were $10,403 compared to net premiums written of $28,432 during 2020 due to the following:
• Net premiums written in the Diversified Reinsurance segment decreased by $21.2 million or 56.8% for the year ended December 31, 2021 compared to 2020 largely due to the return of
unearned premiums after the non-renewal of the German Auto Programs reinsurance contract in our IIS business on January 1, 2021.
• There were negligible premiums written in AmTrust Reinsurance segment due to the termination of both the AmTrust Quota Share and the European Hospital Liability Quota Share effective
January 1, 2019. Negative premiums written in the AmTrust Reinsurance segment for the years ended December 31, 2021 and 2020 were mainly due to premium adjustments on Small
Commercial Business policies subsequent to their termination.
Please refer to the analysis below of our Diversified Reinsurance and AmTrust Reinsurance segments for further details.
49
Net Premiums Earned
Net premiums earned decreased by $53.1 million or 50.0% for the year ended December 31, 2021 compared to the same period in 2020. The table below compares net premiums earned by our
reportable segments, reconciled to the total consolidated net premiums earned, for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Diversified Reinsurance
AmTrust Reinsurance
Total
2021
2020
Change in
Total
% of Total
Total
% of Total
$
%
$
$
27,681
25,312
52,993
52.2 % $
47.8 %
100.0 % $
47,847
58,234
106,081
45.1 % $
54.9 %
100.0 % $
(20,166)
(32,922)
(53,088)
(42.1)%
(56.5)%
(50.0)%
Net premiums earned in the AmTrust Reinsurance segment for the year ended December 31, 2021 decreased by $32.9 million or 56.5% compared to 2020 due to the termination of the AmTrust
Quota Share and the European Hospital Liability Quota Share effective January 1, 2019. Please refer to the analysis of our AmTrust Reinsurance segment for further discussion.
Net premiums earned in the Diversified Reinsurance segment for the year ended December 31, 2021 decreased by $20.2 million or 42.1% compared to 2020 driven by lower quota share cessions
for German Auto Programs which went into run-off on January 1, 2021 in the IIS business. Please refer to the analysis of our Diversified Reinsurance segment for further discussion.
Other Insurance Revenue
All of our Other Insurance Revenue is produced by our Diversified Reinsurance segment. Please refer to the analysis of our Diversified Reinsurance segment below for further discussion.
Net Investment Income
Net investment income decreased by $22.7 million or 41.5% for the year ended December 31, 2021 compared to 2020, primarily due to the decline in average aggregate fixed income assets of
28.8%. The decline in fixed income assets is driven by the cessation of active reinsurance underwriting on prospective risks which has materially reduced our revenues, resulting in significant
negative operating cash flows as we run-off our existing reinsurance liabilities.
Net investment income also decreased due to the decline in average book yields to 1.9% for the year ended December 31, 2021 compared to 2.3% in 2020, which was the result of both lower
interest rates and shorter duration of assets in our fixed income portfolios.
The following table details our average aggregate fixed income assets (at cost) and investment book yield for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Average aggregate fixed income assets, at cost
Annualized investment book yield
(1)
2021
2020
($ in thousands)
$
1,794,173
$
1.9 %
2,521,380
2.3 %
(1) Fixed income assets include available-for-sale ("AFS") securities, cash and restricted cash, funds held receivable, and loan to related party. These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated
financial statements.
Net Realized and Unrealized Gains on Investment
Net realized and unrealized gains on investment were $12.6 million for the year ended December 31, 2021, compared to net realized gains on investment of $24.5 million for 2020. Net realized
gains for the years ended December 31, 2021 and 2020 primarily reflect sales of corporate bonds for the settlement of claim payments to AmTrust.
Net realized and unrealized gains for the year ended December 31, 2021 included the recognition of $0.2 million into in unrealized gains related to an investment in an insurtech start-up company
that was acquired by a special purpose acquisition company.
Net Impairment Losses Recognized in Earnings
No OTTI losses were recognized on our fixed maturity portfolio for the year ended December 31, 2021 compared to $2.5 million of OTTI losses recorded on four fixed maturity securities for the
year ended December 31, 2020.
Interest in Income of Equity Method Investments
We recognized an interest in income of equity method investments of $7.7 million for the year ended December 31, 2021 compared to $5.1 million for the year ended December 31, 2020. Our
equity method investments include hedge fund investments of $32.9 million, real estate investments of $44.1 million and other investments of $6.8 million as of December 31, 2021.
50
This table shows our interest in income of equity method investments for the years ended December 31, 2021 and 2020:
($ in thousands)
Hedge fund investments
Other investments
Interest in income of equity method investments
Net Loss and Loss Adjustment Expenses
For the Year Ended December 31,
2021
2020
$
$
3,494 $
4,254
7,748 $
4,435
663
5,098
Net loss and LAE decreased by $34.5 million, or 82.5%, during the year ended December 31, 2021 compared to the same period in 2020 largely due to the cessation of active reinsurance
underwriting on prospective risks, including the termination of the AmTrust Quota Share and European Hospital Liability Quota Share effective January 1, 2019.
The loss ratio for 2021 was impacted by net favorable prior year reserve development of $27.6 million or 51.1 percentage points during 2021 compared to net favorable prior year reserve
development of $16.5 million or 15.4 percentage points during 2020. The prior year development was primarily within the AmTrust Reinsurance segment and is discussed in greater detail in the
individual segment discussion and analysis.
The net loss and LAE ratio decreased to 13.5% for the year ended December 31, 2021 compared to 38.9% for 2020 largely due to significant favorable prior year loss experience in the AmTrust
Reinsurance segment.
Commission and Other Acquisition Expenses
Commission and other acquisition expenses decreased by $14.0 million or 36.0% for the year ended December 31, 2021 compared to 2020 due to significantly lower earned premiums in both of
our reportable segments. The commission and other acquisition expense ratio increased to 46.0% for the year ended December 31, 2021 compared to 36.1% for 2020 largely due to a change in the
mix of premiums written in our Diversified Reinsurance segment.
General and Administrative Expenses
General and administrative expenses include both segment and corporate expenses segregated for analytical purposes as a component of underwriting income. Total general and administrative
expenses decreased by $3.1 million or 7.9% for the year ended December 31, 2021, compared to 2020.
Corporate general and administrative expenses for the year ended December 31, 2021 decreased by $4.0 million or 13.3% compared to 2020 due to lower payroll costs and cash incentive staff
compensation compared to the prior year.
General and administrative expenses for the years ended December 31, 2021 and 2020 are comprised of:
For the Year Ended December 31,
General and administrative expenses – segments
General and administrative expenses – corporate
Total general and administrative expenses
Interest and Amortization Expenses
2021
2020
($ in thousands)
10,341 $
25,679
36,020 $
9,488
29,630
39,118
$
$
The interest and amortization expenses related to the outstanding senior notes issued by Maiden Holdings in 2016 and Maiden NA in 2013 were $19.3 million for the years ended December 31,
2021 and 2020, respectively. Please refer to "Notes to Consolidated Financial Statements - Note 7 — Long-Term Debt" included under Item 8 "Financial Statements and Supplementary Data" of this
Form 10-K for further details on the Senior Notes. The weighted average effective interest rate for the Senior Notes was 7.6% for the years ended December 31, 2021 and 2020, respectively.
Foreign Exchange and Other (Gains) Losses
Net foreign exchange and other gains amounted to $7.7 million during the year ended December 31, 2021 compared to net foreign exchange and other losses of $8.5 million in 2020. Net foreign
exchange gains of $7.5 million were realized during the year ended December 31, 2021 due to the strengthening of the U.S. dollar on the re-measurement of net loss reserves and insurance related
liabilities denominated in British pound and euro. Net foreign exchange losses of $8.1 million were realized in 2020 due to the weakening of the U.S. dollar on the re-measurement of net loss reserves
and insurance related liabilities denominated in British pound and euro.
Income Tax Expense (Benefit)
The Company recorded income tax expense of $15.0 thousand for the year ended December 31, 2021 compared to an income tax benefit of $0.1 million recorded for 2020. The income tax benefit
for 2020 was largely generated on the operating losses of our international subsidiaries. The effective rate of income tax was 0.1% for the year ended December 31, 2021 compared to a tax rate of
(0.3)% for the year ended December 31, 2020.
51
Underwriting Results by Reportable Segment
Diversified Reinsurance Segment
The underwriting results and associated ratios for our Diversified Reinsurance segment for the years ended December 31, 2021 and 2020 were as follows:
For the Year Ended December 31,
Gross premiums written
Net premiums written
Net premiums earned
Other insurance revenue
Net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Underwriting income (loss)
Ratios
Net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
Combined ratio
$
$
$
$
2021
2020
($ in thousands)
16,633
16,098
27,681
1,067
(4,286)
(15,093)
(7,827)
1,542
$
$
$
$
14.9 %
52.5 %
27.2 %
79.7 %
94.6 %
40,457
37,258
47,847
1,276
(24,909)
(18,475)
(6,936)
(1,197)
50.7 %
37.6 %
14.1 %
51.7 %
102.4 %
The combined ratio for the year ended December 31, 2021 decreased to 94.6% compared to 102.4% in 2020 largely due to favorable loss development partly offset by higher non-recurring general
and administrative expenses in our IIS business, which increased the expense ratio. Please see the respective sections on net loss and LAE, commissions and other acquisition expenses and general
and administrative expenses for further details on these elements that have impacted the combined ratios.
Premiums - Direct premiums written by Maiden LF and Maiden GF increased by $2.3 million or 11.8% during the year ended December 31, 2021 compared to 2020. Gross premiums written in
the Diversified Reinsurance segment decreased by $23.8 million, or 58.9% for the year ended December 31, 2021 compared to 2020 primarily due to the return of unearned premiums written in a
German Auto quota share reinsurance contract in our IIS business which went into run-off on January 1, 2021.
Net premiums written for the year ended December 31, 2021 decreased by $21.2 million or 56.8% compared to 2020 due to the return of unearned premiums in our German Auto quota share
reinsurance contract which went into run-off on January 1, 2021. The table below shows net premiums written by line of business for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Net Premiums Written
International
Other
Total Diversified Reinsurance
2021
Total
2020
Total
Change in
$
%
$
$
16,098 $
—
16,098 $
37,294 $
(36)
37,258 $
(21,196)
36
(21,160)
(56.8)%
(100.0)%
(56.8)%
Net premiums earned decreased by $20.2 million or 42.1% during the year ended December 31, 2021 compared to 2020 primarily due to lower earned premiums from German Auto programs
which went into run-off on January 1, 2021. The table below shows net premiums earned by line of business for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Net Premiums Earned
International
Other
Total Diversified Reinsurance
2021
Total
2020
Total
Change in
$
%
27,681 $
—
27,681 $
47,883 $
(36)
47,847 $
(20,202)
36
(20,166)
(42.2)%
(100.0)%
(42.1)%
$
$
52
Other Insurance Revenue - Other insurance revenue includes $0.3 million of fee income earned from our GLS business for the year ended December 31, 2021, as well as fee income derived from
our IIS business not directly associated with premium revenue assumed by the Company for the years ended December 31, 2021 and 2020 as specified in the table below. Other income of $0.1
million for the year ended December 31, 2020 was generated from transitional services provided relating to the sale of our U.S. operations.
Other insurance revenue decreased by $0.2 million or 16.4% to $1.1 million for the year ended December 31, 2021 compared to 2020. The decline of $0.4 million in International was primarily
due to the loss of fee income from an auto customer program that went into run-off on July 31, 2021. The table below shows other insurance revenue by source for the years ended December 31, 2021
and 2020:
For the Year Ended December 31,
International
Other income
Total Diversified Reinsurance
2021
2020
($ in thousands)
Change
$
$
765
302
1,067
$
$
1,145
131
1,276
$
$
(380)
171
(209)
Change
%
(33.2) %
130.5 %
(16.4) %
Net Loss and LAE - Net loss and LAE decreased by $20.6 million or 82.8% for the year ended December 31, 2021 compared to 2020 due primarily to the run-off of reinsurance liabilities
associated with our German Auto programs. Net loss and LAE ratio decreased to 14.9% for the year ended December 31, 2021 compared with 50.7% for 2020.
The loss ratio decreased by 35.8 percentage points for the year ended December 31, 2021 compared to 2020. The 2021 loss ratio was impacted by favorable prior year loss reserve development of
$3.6 million or 12.4 percentage points during 2021, compared to the impact of favorable development of $1.3 million or 2.6 percentage points on the loss ratio in 2020.
The 2021 development was due to favorable development in German Auto programs, European Capital Solutions and facultative reinsurance run-off lines. The 2020 development was driven by
favorable experience in facultative reinsurance run-off lines and partly offset by adverse development experienced in European Capital Solutions.
The impact on the net loss and LAE ratios should be considered in conjunction with the commission and other acquisition expense ratio as changes to either ratio can be effected by changes in the
mix of business and the impact of increases in the commission and other acquisition expense rates on pro-rata contracts with loss sensitive features. As a result of these factors, as well as the impact
on the loss ratio described above, the combined ratio decreased by 7.8 percentage points for the year ended December 31, 2021 compared to 2020.
Commission and Other Acquisition Expenses - Commission and other acquisition expenses decreased by $3.4 million or 18.3%, for the year ended December 31, 2021 compared to 2020
primarily due to lower net premiums earned which similarly decreased in this segment.
The commission and other acquisition expense ratio increased 14.9 percentage points to 52.5% for the year ended December 31, 2021 compared to 37.6% for 2020 largely reflecting the late
accrual of contingent commission on run-off business with no earned premiums during 2021. Also, it is due to the change in the mix of pro rata versus excess of loss premiums written during the
year. Please refer to the preceding paragraph for other factors that can impact the combined ratio.
General and Administrative Expenses - General and administrative expenses increased by $0.9 million or 12.8% for the year ended December 31, 2021 compared to 2020. The general and
administrative expense ratio increased to 27.2% for the year ended December 31, 2021 compared to 14.1% for 2020 due to lower net premiums earned which decreased significantly as noted
previously, combined with higher non-recurring expenses. This included severance costs and certain regulatory costs of approximately $1.0 million incurred in our IIS business unit which increased
the expense ratio for the year ended December 31, 2021 compared to the same period in 2020.
The overall expense ratio (including commission and other acquisition expenses) increased to 79.7% for the year ended December 31, 2021 compared to 51.7% for 2020 largely due to higher non-
recurring expenses and commissions combined with net premiums earned which decreased as discussed above.
53
AmTrust Reinsurance Segment
The AmTrust Reinsurance segment reported underwriting income of $10.0 million for the year ended December 31, 2021 compared to underwriting income of $18.5 million for the year ended
December 31, 2020. The underwriting results and associated ratios for the AmTrust Reinsurance segment for the years ended December 31, 2021 and 2020 were as follows:
For the Year Ended December 31,
Gross premiums written
Net premiums written
Net premiums earned
Net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Underwriting income
Ratios
Net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
Combined ratio
$
$
$
$
2021
2020
($ in thousands)
(5,695)
(5,695)
25,312
(3,021)
(9,747)
(2,514)
10,030
$
$
$
$
11.9 %
38.5 %
9.9 %
48.4 %
60.3 %
(9,068)
(8,826)
58,234
(16,890)
(20,321)
(2,552)
18,471
29.0 %
34.9 %
4.4 %
39.3 %
68.3 %
The combined ratio decreased by 8.0 percentage points to 60.3% for the year ended December 31, 2021 compared to 68.3% for 2020 primarily due to favorable prior year development of $24.0
million or 95.0 percentage points during 2021 compared to favorable development of $15.2 million or 26.2 percentage points during 2020. The favorable loss development was partially offset by a
higher underwriting loss for the current accident year during the year ended December 31, 2021 of $14.0 million compared to an underwriting income of $3.3 million for the current accident year in
the same period in 2020. These results were due primarily to higher loss ratios on the run-off of unearned premium for terminated AmTrust reinsurance contracts.
Premiums - The table below shows net premiums written by category for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Net Premiums Written
Small Commercial Business
Specialty Program
Specialty Risk and Extended Warranty
Total AmTrust Reinsurance
2021
2020
Total
% of Total
Total
% of Total
$
$
(6,445)
(876)
1,626
(5,695)
113.2 % $
15.4 %
(28.6)%
100.0 % $
(11,515)
(19)
2,708
(8,826)
130.5 %
0.2 %
(30.7)%
100.0 %
The gross and net premiums written for the year ended December 31, 2021 reflect premium adjustments on Small Commercial Business policies in the AmTrust Quota Share. There were negative
gross and net premiums written for the year ended December 31, 2020 reflecting premium adjustments under the AmTrust Quota Share from April 1, 2020. Furthermore, the termination of the
AmTrust Quota Share and the European Hospital Liability Quota Share as of January 1, 2019 resulted in no new business written under these contracts since 2018.
Net premiums earned decreased by $32.9 million, or 56.5% for the year ended December 31, 2021 compared to 2020 due to termination of the AmTrust Quota Share and European Hospital
Liability Quota Share as of January 1, 2019. The negative premiums earned for the year ended December 31, 2021 in Small Commercial Business were due to premium adjustments on such policies
in the AmTrust Quota Share.
Negative net premiums earned on Small Commercial Business for the year ended December 31, 2020 were due to premium adjustments and earned premium returns for the commutation of
certain home warranty business in the AmTrust Quota Share as of April 1, 2020.
54
The table below details net premiums earned by category for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Net Premiums Earned
Small Commercial Business
Specialty Program
Specialty Risk and Extended Warranty
Total AmTrust Reinsurance
2021
2020
Total
% of Total
Total
% of Total
$
$
(6,095)
(853)
32,260
25,312
(24.1)% $
(3.4)%
127.5 %
100.0 % $
(10,938)
33
69,139
58,234
(18.8)%
0.1 %
118.7 %
100.0 %
Net Loss and Loss Adjustment Expenses - Net loss and LAE decreased by $13.9 million or 82.1%, for the year ended December 31, 2021 compared to 2020 largely due to the impact of net
favorable prior year loss development of $24.0 million combined with lower net earned premiums.
Net loss and LAE ratios decreased to 11.9% for the year ended December 31, 2021 compared to 29.0% for 2020. During the year ended December 31, 2021, the net loss and LAE ratio decreased
by 17.1 points compared to 2020 due to the impact of net favorable prior year loss development which was $24.0 million or 95.0 points during 2021, compared to net favorable prior year
development of $15.2 million or 26.2 points during 2020.
The table below details prior year loss development by lines of business for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
($ in thousands)
Prior Year Loss Development (favorable) adverse
Workers Compensation
Commercial Auto Liability
General Liability
European Hospital Liability
Other
Total AmTrust Reinsurance Prior Year Adverse Development
2021
Total
2020
Total
$
$
(22,242)
(29,918)
20,868
7,885
(637)
(24,044)
$
$
(39,016)
17,650
18,334
683
(12,889)
(15,238)
The current year loss ratio was 106.9% for the year ended December 31, 2021 compared to 55.2% in 2020 due to higher loss ratios on the run-off of unearned premium for terminated reinsurance
contracts.
Commission and Other Acquisition Expenses - Commission and other acquisition expenses decreased by $10.6 million, or 52.0%, for the year ended December 31, 2021 compared to 2020 due
to lower net earned premiums as a result of terminating both quota share agreements with AmTrust effective as of January 1, 2019. The commission and other acquisition expense ratio increased 3.6
points to 38.5% for the year ended December 31, 2021 compared to 34.9% in 2020.
General and Administrative Expenses - General and administrative expenses decreased by $38.0 thousand or 1.5% for the year ended December 31, 2021 compared to 2020. The general and
administrative expense ratio increased to 9.9% for the year ended December 31, 2021 compared to 4.4% in 2020 as a result of lower net earned premiums due to terminating both quota share
agreements with AmTrust as of January 1, 2019.
The overall expense ratio (including commission and other acquisition expenses) increased to 48.4% for the year ended December 31, 2021 compared to 39.3% in 2020 primarily due to relatively
stable administrative segment expenses combined with significantly lower earned premiums as discussed above.
55
Liquidity and Capital Resources
Liquidity
Maiden Holdings is a holding company and transacts no business of its own. We therefore rely on cash flows in the form of dividends, advances, loans and other permitted distributions from our
subsidiary companies to pay expenses and make dividend payments on our common and preference shares. The jurisdictions in which our operating subsidiaries are licensed to write business impose
regulations requiring companies to maintain or meet statutory solvency and liquidity requirements and also place restrictions on the declaration and payment of dividends and other distributions.
As of December 31, 2021, the Company had investable assets of $1.7 billion compared to $2.3 billion as of December 31, 2020. Investable assets are the combined total of our investments, cash
and cash equivalents (including restricted cash), loan to a related party and funds withheld receivable. The decline in our investable assets is primarily the result of our cessation of active reinsurance
underwriting of new prospective risks in 2018 and 2019 which subsequently results in negative operating cash flows to settle claim payments from the run-off of the liabilities from that reinsurance
portfolio in 2021.
As previously indicated, Maiden Reinsurance re-domesticated from Bermuda to Vermont on March 16, 2020. We continue to be actively engaged with the Vermont DFR regarding the formulation
of Maiden Reinsurance's longer term business plan, including its investment policy, changes to which require prior regulatory approval as stipulated by Vermont law or the Vermont DFR for any
active underwriting, capital management or other strategic initiatives. Maiden Reinsurance has received all necessary approvals required to date by the Vermont DFR, including its activities via GLS
and its investment policy, which includes: 1) the expansion of approved asset classes for investment reflecting not only Maiden Reinsurance’s solvency position but the material reduction in required
capital necessary to operate its business as discussed further in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity & Capital Resources –
Cash and Investments; and 2) the purchase of affiliated securities as demonstrated in the recent preference share tender offers. The Investment Policy, as approved and as amended, maintains our
established investment management and governance practices.
Maiden Reinsurance is regulated by the Vermont DFR and is the principal operating subsidiary of Maiden Holdings. At December 31, 2021, Maiden Reinsurance had statutory capital and surplus
of $999.8 million, exceeding the amounts required to be maintained of $132.8 million at December 31, 2021. Under its license as an affiliated reinsurer under the captive licensing laws in the State of
Vermont, Maiden Reinsurance requires the approval of the Vermont DFR for the payment of any dividends. During the years ended December 31, 2021 and 2020, Maiden Reinsurance did not pay
any dividends to Maiden NA and likewise, Maiden NA did not pay any dividends to Maiden Holdings during both periods..
Maiden Holdings has two Swedish domiciled operating subsidiaries, Maiden LF and Maiden GF, which are both regulated by the Swedish FSA. At December 31, 2021, Maiden LF and Maiden
GF each had a statutory capital and surplus of $8.3 million and $10.0 million, respectively, exceeding the amounts required to be maintained of $4.2 million and $5.1 million, respectively, at
December 31, 2021. Maiden LF and Maiden GF are subject to statutory and regulatory restrictions under the Swedish FSA that limit the maximum amount of annual dividends or distributions paid
by Maiden LF and Maiden GF to Maiden Holdings. At December 31, 2021, Maiden LF and Maiden GF are not allowed to pay dividends or distributions without the permission of the Swedish FSA.
During the years ended December 31, 2021 and 2020, Maiden LF and Maiden GF did not pay any dividends to Maiden Holdings.
Maiden Holdings’ wholly owned U.K. subsidiary, Maiden Global, operates as a reinsurance services and holding company. Maiden Global is subject to regulation by the U.K. Financial Conduct
Authority (the "FCA"). At December 31, 2021, Maiden Global is allowed to pay dividends or distributions not exceeding $5.1 million. Maiden Global did not pay any dividends to Maiden Holdings
during the years ended December 31, 2021 and 2020.
We may experience continued volatility in our results of operations which could negatively impact our financial condition and create a reduction in the amount of available distribution or dividend
capacity from our regulated reinsurance subsidiaries, which would also reduce liquidity. Further, we and our insurance subsidiaries may need additional capital to maintain compliance with regulatory
capital requirements and/or be required to post additional collateral under existing reinsurance arrangements, which could reduce our liquidity. Finally, while we have had limited impacts from the
effects of COVID-19 on our financial condition to date, the Company's investment portfolio could be adversely impacted by unfavorable market conditions caused by the pandemic should it continue
longer than anticipated.
Operating, investing and financing cash flows
Our sources of funds historically have consisted of premium receipts net of commissions and brokerage, investment income, net proceeds from capital raising activities, and proceeds from sales,
maturities, pay downs and redemption of investments. Cash is currently used primarily to pay loss and LAE, ceded reinsurance premium, general and administrative expenses, and interest expense,
with the remainder of cash in excess of our operating requirements made available to our investment managers for investment in accordance with our investment policy, as well as for capital
management such as repurchasing our shares.
Our business has undergone significant changes since 2018. As previously noted, we have engaged in a series of transactions that have materially reduced our balance sheet risk and transformed
our operations. As a result of these transactions, we are not engaged in any active underwriting of new prospective reinsurance business thus our net premiums written will continue to be materially
lower and investment income will become a significantly larger portion of our total revenues. We are writing new retroactive risks through GLS, however this will be smaller in relation to the run-off
of our prior reinsurance business. Despite the initial inflow of new business from GLS, this has continued to cause significant negative operating cash flows as we run off the AmTrust Reinsurance
segment reserves as shown in the cash flows table further below.
56
While the development of the GLS platform over time should further enhance our ability to pursue the asset and capital management pillars of our business strategy, we still expect the trend of
negative overall cash flows to continue to reduce our asset base going forward into 2022 and beyond.
We expect to use funds from cash and investment portfolios, collected premiums on reinsurance contracts in force or being run-off, investment income and proceeds from investment sales and
redemptions to meet our expected claims payments and operational expenses. Claim payments will be principally from the run-off of existing reserves for losses and LAE. A significant portion of
those liabilities are collateralized and claim payments will be funded by using this collateral which should provide sufficient funding to fulfill those obligations.
The Company’s management believes its current sources of liquidity are adequate to meet its cash requirements for the next twelve months as we generally expect negative operating cash flows to
be sufficiently offset by positive investing cash flows. While we continue to expect our cash flows to be sufficient to meet our cash requirements and to operate our business, our ability to execute our
asset and capital management initiatives are dependent on maintaining adequate levels of unrestricted liquidity and cash flows. At December 31, 2021 and 2020, unrestricted cash and cash
equivalents and unrestricted fixed maturity investments were $81.1 million and $269.2 million, respectively.
The decrease of $188.1 million in unrestricted cash and fixed maturity investments during 2021 was primarily the result of $136.3 million utilized for the 2021 Preference Share Repurchase
Program, $74.4 million utilized for net purchases of other investments and $37.3 million utilized for net purchases of equity method investments, and $19.1 million for interest payments on the Senior
Notes, partly offset by receipts of $80.0 million from restricted assets as collateral is released by ceding companies upon satisfaction of liabilities, including AmTrust. Please see the related discussion
on cash flows from investing and financing activities below.
The table below summarizes our operating, investing and financing cash flows for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on foreign currency cash
Total (decrease) increase in cash, restricted cash and cash equivalents
Cash Flows from Operating Activities
2021
2020
($ in thousands)
$
$
(394,430) $
464,064
(138,903)
(470)
(69,739) $
(541,775)
596,044
(30,130)
4,409
28,548
Cash flows used in operating activities for the year ended December 31, 2021 were $394.4 million compared to cash flows used in operating activities of $541.8 million for the year
ended December 31, 2020, a decrease of $147.3 million. The operating cash flows used in operations for the years ended December 31, 2021 and 2020 were primarily the result of claims payments
for the terminated AmTrust Quota Share and the European Hospital Liability Quota Share reinsurance agreements, which produced negligible gross premiums written that were more than offset by
claim payments from the run-off of existing reserves for loss and LAE under those agreements.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of proceeds from sales and maturities of investments net of payments for investments acquired. Net cash provided by investing activities
was $464.1 million for the year ended December 31, 2021 compared to $596.0 million for 2020 due to proceeds from sales of fixed maturity investments which were made primarily to settle claim
payments as well as repurchase Preference Shares during the year ended December 31, 2021.
For the year ended December 31, 2021, the proceeds from the sales, maturities and calls exceeded the purchases of fixed maturity securities by $575.4 million compared to net proceeds of $666.3
million during 2020. This was partly offset by $74.4 million utilized for net purchases of other investments and $37.3 million utilized for net purchases of equity method investments during the year
ended December 31, 2021.
Cash Flows from Financing Activities
Cash flows used in financing activities were $138.9 million for the year ended December 31, 2021 compared to $30.1 million during 2020 primarily due to the repurchase of the Company's
Preference Shares. The Company paid $136.3 million for the repurchase of 9,404,012 Preference Shares pursuant to the 2021 Preference Share Repurchase Program as part of its recent capital
management strategy during the year ended December 31, 2021. This compared to 2,827,595 Preference Shares repurchased by the Company during 2020 for aggregate total consideration of $30.1
million pursuant to the 2020 Tender Offer (as defined below).
No dividends on common or preference shares were paid during 2021 and 2020. Our Board of Directors has not declared any common or preference share dividends since the third quarter of
2018.
57
Restrictions, Collateral and Specific Requirements
Maiden Reinsurance is generally required to post collateral security with respect to any reinsurance liabilities it assumes from ceding insurers domiciled in the U.S. to obtain credit on their U.S.
statutory financial statements with respect to reinsurance recoverables due to them. Consequently, cash and cash equivalents and investments are pledged in favor of ceding companies to comply with
relevant insurance regulations or contractual requirements.
At December 31, 2021, the Company had letters of credit outstanding of $53.6 million for collateral purposes which are secured by cash and fixed maturities with a fair value of $72.8 million.
At December 31, 2021 and 2020, restricted cash and cash equivalents and fixed maturity investments used as collateral were $0.6 billion and $1.1 billion, respectively. This collateral represents
87.8% and 80.0% of the fair value of our total fixed maturity investments and cash, restricted cash and cash equivalents at December 31, 2021 and 2020, respectively. The following table provides
additional information on those assets used as collateral at December 31, 2021 and 2020:
December 31,
($ in thousands)
Diversified Reinsurance
AmTrust Reinsurance
Total
As a % of Consolidated Balance Sheet captions
Restricted Cash &
Equivalents
2021
Fixed
Maturities
Total
Restricted Cash &
Equivalents
2020
Fixed
Maturities
$
$
$
$
34,298
5,121
39,419
100.0%
$
$
48,845
493,883
542,728
90.9%
$
$
83,143
499,004
582,147
91.5%
$
$
22,064
39,722
61,786
100.0%
65,355
952,914
1,018,269
83.9%
$
$
Total
87,419
992,636
1,080,055
84.7%
Maiden Reinsurance loaned funds of $168.0 million to AmTrust at December 31, 2021 and 2020, respectively, to partially satisfy its collateral requirements with AII. Advances under the loan are
secured by promissory notes and the loan is carried at cost. On January 30, 2019, in connection with the termination of the AmTrust Quota Share, the Company and AmTrust amended the Loan
Agreement between Maiden Reinsurance, AmTrust and AII, originally entered into on November 16, 2007, to extend the maturity date to January 1, 2025 and the parties acknowledged that due to the
termination of the AmTrust Quota Share, no further loans or advances may be made pursuant to the Loan Agreement.
On January 11, 2019, a portion of the existing trust accounts used for collateral on the AmTrust Quota Share were converted to a funds withheld arrangement. The Company transferred $575.0
million to AmTrust as a funds withheld receivable which currently bears an annual interest rate of 1.8%, subject to annual adjustment. The annual interest rate was 2.65% for the duration of 2020. On
January 24, 2019, Maiden Reinsurance transferred cash of €45.1 million ($51.2 million) to AIU DAC as a funds withheld receivable to serve as collateral for the European Hospital Liability Quota
Share. AIU DAC pays Maiden Reinsurance a fixed annual interest rate of 0.5% on the average daily funds withheld balance which is subject to annual adjustment. At December 31, 2021, the amount
of funds withheld under this agreement was $26.5 million (December 31, 2020 - $28.1 million).
Collateral arrangements with ceding insurers may subject our assets to security interests or require that a portion of our assets be pledged to, or otherwise held by, third parties. Although the
investment income derived from these assets, while held in trust, accrues to our benefit, the investment of these assets is governed by the terms of the letter of credit facilities or the investment
regulations of the state or territory of domicile of the ceding insurer, which may be more restrictive than the investment regulations applicable to the Company under U.S. law in the State of Vermont.
The restrictions may result in lower investment yields on these assets, which may adversely affect our profitability.
We do not anticipate that the restrictions on liquidity resulting from restrictions on the payments of dividends by our subsidiary companies or from assets committed in trust accounts or those
assets used to collateralize letter of credit facilities will have a material impact on our ability to carry out our normal business activities.
58
Cash and Investments
The investment of our funds has generally been designed to ensure safety of principal while generating current income. Accordingly, the majority of our funds have been invested in liquid,
investment-grade fixed income securities which are all designated as AFS at December 31, 2021. As of December 31, 2021 and 2020, our cash and investments consisted of:
At December 31,
Fixed maturities, available-for-sale, at fair value
Equity method investments
Other investments
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Total Investments and Cash (including cash equivalents)
2021
2020
($ in thousands)
597,145 $
83,742
141,725
822,612
26,668
39,419
888,699 $
1,213,411
43,136
63,760
1,320,307
74,040
61,786
1,456,133
$
$
In addition to the discussion on Cash and Cash Equivalents and Fixed Maturities that follows herein, please see "Notes to Consolidated Financial Statements - Note 4 — Investments" included
under Part II Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further discussion on our AFS fixed income securities.
As our insurance liabilities continue to run-off and the required capital to operate our business for regulatory purposes decreases, we have modified Maiden Reinsurance’s investment policy
(which has been approved by the Vermont DFR as noted) and have expanded the range of asset classes we invest in to enhance the income and returns our investment portfolio produces. We
categorize these investments as alternative investments which include "Other Investments" and "Equity Method Investments" on our consolidated balance sheets as discussed in "Note 2 — Significant
Accounting Policies" included under Part II Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Under this revised investment policy, we have increased the amount of alternative investments during 2021 and 2020, and we expect to continue to increase the amounts invested therein. Under
our investment policy, alternative investments could include, but are not limited to, privately held investments, private equities, private credit lending funds, fixed-income funds, hedge funds, equity
funds, real estate (including joint ventures and limited partnerships) and other non-fixed-income investments.
For further details on our alternative investments, in addition to the discussion of the investments herein, please see "Notes to Consolidated Financial Statements Note 4(b). Other Investments and
Equity Method Investments" included under Part II Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Our investment performance is subject to a variety of risks, including risks related to general economic conditions, market volatility, interest rate fluctuations, foreign exchange risk, liquidity risk
and credit and default risk. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other
factors beyond our control. An increase in interest rates could result in significant losses, realized or unrealized, in the value of our investment portfolio. A portion of our portfolio consists of
alternative investments that subject us to restrictions on redemption, which may limit our ability to withdraw funds for some period of time after the initial investment. The values of, and returns on,
such investments may also be more volatile.
We believe our other investments and equity method investments portfolio provides diversification against our fixed-income investments and an opportunity for improved risk-adjusted return,
however, the returns of these investments may be more volatile and we may experience significant unrealized gains or losses in a particular quarter or year. While we believe the returns produced by
these investments will exceed our cost of capital, in particular our cost of debt capital, it is too soon to determine if the actual returns will achieve this objective and it may be an extended period of
time before that determination can be made.
We may utilize and pay fees to various companies to provide investment advisory and/or management services related to these investments. These fees, which would be predominantly based upon
the amount of assets under management, would be included in net investment income. In addition, costs associated with evaluating, analyzing and monitoring these investments may require
additional expenditures than traditional marketable securities. During 2021, our investment expenses associated with our alternative investments decreased compared to 2020.
The substantial majority of our current and future investments are held by Maiden Reinsurance, whose investment policy has been approved by the Vermont DFR. We may utilize a portion of
Maiden Reinsurance's unrestricted assets to purchase affiliated securities and, during the year ended December 31, 2021, we utilized $136.3 million in conjunction with the 2021 Preference Share
Repurchase Program. Maiden Reinsurance has received all necessary approvals for its investment policy. As of December 31, 2021, we have cumulatively invested $165.8 million in the Preference
Shares of Maiden Holdings.
Cash & Cash Equivalents
At December 31, 2021, we consider the levels of cash and cash equivalents we are holding to be within our targeted ranges. During periods when interest rates experience greater volatility, we
have periodically maintained more cash and equivalents to better assess current market conditions and opportunities within our defined risk appetite, and may do so in future periods.
59
Fixed Maturity Investments
The average yield and average duration of our fixed maturities, by asset class, and our cash and cash equivalents (both restricted and unrestricted) are as follows:
December 31, 2021
AFS Fixed maturities
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
Total fixed maturities
Cash and cash equivalents
Total
December 31, 2020
AFS fixed maturities
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
Total AFS fixed maturities
Cash and cash equivalents
Total
Original or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Average yield
(1)
Average
(2)
duration
59,989 $
96,554
3,163
198,946
236,692
595,344
66,087
661,431 $
($ in thousands)
— $
2,429
113
705
10,094
13,341
—
13,341 $
(110) $
(193)
—
(5,093)
(6,144)
(11,540)
—
(11,540) $
59,879
98,790
3,276
194,558
240,642
597,145
66,087
663,232
0.2 %
2.7 %
0.3 %
1.5 %
2.5 %
1.9 %
— %
1.7 %
Original or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Average yield
(1)
Average
(2)
duration
94,468 $
272,124
8,641
184,227
604,463
1,163,923
135,826
1,299,749 $
($ in thousands)
34 $
9,439
1,067
1,611
40,904
53,055
—
53,055 $
— $
(126)
—
(406)
(3,035)
(3,567)
—
(3,567) $
94,502
281,437
9,708
185,432
642,332
1,213,411
135,826
1,349,237
0.1 %
2.5 %
1.1 %
2.2 %
2.3 %
2.2 %
0.1 %
2.0 %
0.9
2.1
7.3
0.5
2.7
1.7
0.0
1.5
1.4
1.9
6.2
0.7
3.1
2.3
0.0
2.1
$
$
$
$
(1) Average yield is calculated by dividing annualized investment income for each sub-component of fixed maturity securities and cash and cash equivalents (including amortization of premium or discount) by amortized cost.
(2) Average duration in years.
During the year ended December 31, 2021, the yield on the 10-year U.S. Treasury bond increased by 59 basis points to 1.52%. The 10-year U.S. Treasury rate is the key risk-free determinant in
the fair value of many of the fixed income securities in our portfolio. The U.S. Treasury yield curve experienced a material upward shift during the year ended December 31, 2021, reflecting concerns
about potential inflation emanating from the combination of: 1) growing confidence in the U.S. economic outlook as the economic effects of the COVID-19 pandemic continue to abate; 2) enactment
of additional significant fiscal stimulus legislation in the U.S.; and 3) continued accommodative monetary policy pursued by central banks globally.
The movement in the market values of our fixed maturity portfolio during the year ended December 31, 2021 generated net unrealized losses of $47.7 million which reduced our book value per
common share by $0.55 during that period. Our investment portfolios may be adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic, which could cause continued
volatility in our results of operations and negatively impact our financial condition.
Interest rate risk is the price sensitivity of a security to changes in interest rates. Credit spread risk is the price sensitivity of a security to changes in credit spreads. As noted, the fair value of our
fixed maturity investments will fluctuate with changes in interest rates and credit spreads. We attempt to maintain adequate liquidity in our fixed maturity investments portfolio with a strategy
designed to emphasize the preservation of our invested assets and provide sufficient liquidity for the prompt payment of claims and contract liabilities. Because we collateralize a significant portion
of our insurance liabilities, unanticipated or large increases in interest rates could require us to utilize significant amounts of unrestricted cash and fixed maturity securities to provide additional
collateral, which could impact our asset and capital management strategy described herein.
We also monitor the duration and structure of our investment portfolio as discussed below. As of December 31, 2021, the aggregate hypothetical change in fair value from an immediate 100 basis
points increase in interest rates, assuming credit spreads remain constant, in our fixed maturity investments portfolio would decrease the fair value of that portfolio by $19.1 million. Actual shifts in
interest rates may not change by the same magnitude across the maturity spectrum or on an individual security and, as a result, the impact on the fair value of our fixed maturity securities may be
materially different from the resulting change in value described above.
60
To limit our exposure to unexpected interest rate increases which would reduce the value of our fixed income securities and reduce our shareholders' equity, we attempt to maintain the duration of
our fixed maturity investment portfolio combined with our cash and cash equivalents, both restricted and unrestricted, within a reasonable range of the duration of our loss reserves. At December 31,
2021 and 2020, these respective durations in years were as follows:
December 31,
Fixed maturities and cash and cash equivalents
Reserve for loss and LAE - gross of LPT/ADC Agreement reserves
Reserve for loss and LAE - net of LPT/ADC Agreement reserves
2021
2020
1.5
4.4
1.4
2.1
3.9
0.9
During the year ended December 31, 2021, the weighted average duration of our fixed maturity investment portfolio decreased by 0.6 years to 1.5 years while the duration for reserve for loss and
LAE increased by 0.5 years to 4.4 years. The differential in duration between these assets and liabilities may fluctuate over time and, in the case of fixed maturities, historically has been affected by
factors such as market conditions, changes in asset mix and prepayment speeds in the case of both our Agency MBS and commercial mortgage-backed securities. At December 31, 2021, the duration
of our fixed maturity investment portfolio decreased compared to December 31, 2020 due to continued sales of fixed maturity investments primarily made to settle claim payments with AmTrust. The
duration of our loss reserves net of the LPT/ADC Agreement was lower than the duration of our fixed maturity investment portfolio at December 31, 2021.
At December 31, 2021, 100.0% of the Company’s U.S. agency bond holdings are mortgage-backed. Additional details on the Agency MBS holdings at December 31, 2021 and 2020 were as
follows:
December 31,
($ in thousands)
FNMA – fixed rate
FHLMC – fixed rate
GNMA - variable rate
GNMA – fixed rate
Total U.S. agency bonds
2021
2020
Fair Value
% of Total
Fair Value
% of Total
$
$
47,419
47,758
3,613
—
98,790
48.0 % $
48.3 %
3.7 %
— %
100.0 % $
119,910
138,733
5,409
17,385
281,437
42.6 %
49.3 %
1.9 %
6.2 %
100.0 %
Agency MBS bonds comprises 16.5% of our fixed maturity investments at December 31, 2021. Given their relative size to our total investments, if faster prepayment patterns were to occur over
an extended period of time, this could potentially limit the growth in our investment income in certain circumstances or reduce the total amount of investment income we earn.
At December 31, 2021 and 2020, 97.8% and 96.1%, respectively, of our fixed maturity investments consisted of investment grade securities. We define a security as being below investment grade
if it has an S&P credit rating of BB+ or equivalent, or less. Please see "Part II, Item 8 - Notes to Consolidated Financial Statements Note 4. Investments" for additional information on the credit rating
of our fixed income portfolio.
61
The security holdings by sector and financial strength rating of our corporate bond holdings at December 31, 2021 and 2020 were as follows:
Ratings
(1)
December 31, 2021
Corporate bonds
Basic Materials
Communications
Consumer
Energy
Financial Institutions
Industrials
Technology
Total Corporate bonds
December 31, 2020
Corporate bonds
Basic Materials
Communications
Consumer
Energy
Financial Institutions
Industrials
Technology
Total Corporate bonds
(1) Ratings as assigned by S&P, or equivalent
AAA, AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+ or lower
Fair Value
% of Corporate bonds
— %
— %
— %
— %
0.6 %
— %
— %
0.6 %
2.4 %
2.4 %
2.4 %
9.4 %
18.8 %
1.0 %
3.7 %
40.1 %
Ratings
(1)
1.7 %
3.2 %
31.3 %
4.8 %
12.9 %
— %
— %
53.9 %
— % $
— %
2.8 %
— %
2.6 %
— %
— %
5.4 % $
($ in thousands)
9,995
13,480
87,753
34,068
84,025
2,393
8,928
240,642
4.1 %
5.6 %
36.5 %
14.2 %
34.9 %
1.0 %
3.7 %
100.0 %
AAA, AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+ or lower
Fair Value
% of Corporate bonds
— %
— %
— %
2.5 %
7.2 %
— %
— %
9.7 %
1.0 %
1.0 %
2.0 %
6.3 %
23.8 %
0.9 %
2.4 %
37.4 %
1.4 %
4.6 %
21.7 %
3.0 %
13.0 %
1.2 %
0.6 %
45.5 %
— % $
1.6 %
1.8 %
2.2 %
1.0 %
0.8 %
— %
7.4 % $
($ in thousands)
15,637
46,167
164,033
89,984
288,649
18,494
19,368
642,332
2.4 %
7.2 %
25.5 %
14.0 %
45.0 %
2.9 %
3.0 %
100.0 %
The table below includes the Company’s ten largest corporate holdings at fair value and as a percentage of all fixed income securities held as at December 31, 2021. As of December 31, 2021,
38.5% are U.S. dollar denominated and 61.5% are Euro denominated, with 41.5% in the Consumer Sector and 33.1% in the Financial Institutions sector:
December 31, 2021
Electricite de France, 4.625%, Due 9/11/2024
Brookfield Asset Management Inc., 4.00% Due 1/15/2025
Anheuser-Busch INBEV NV, 2.875% Due 9/25/2024
Carlsberg Breweries A/S, 2.5%, Due 5/28/2024
Thompson Reuters Corp, 4.3% Due 11/23/23
International Business Machines Corp., 7.0%, Due 10/30/2025
Chubb Ina Holdings Inc., 1.55%, Due 3/15/2028
Kraft Heinz Food Co., 1.5%, Due 5/24/2024
WEA Finance LLC, 3.75%, Due 9/17/2024
FBD Insurance PLC, 5% Due 10/9/2028
Total
(1) Ratings as assigned by S&P, or equivalent
Fair Value
($ in thousands)
% of Total Fixed Income
Holdings
Rating
(1)
$
$
16,473
12,830
12,278
11,983
10,467
8,928
7,823
6,825
6,295
6,225
100,127
2.8 %
2.1 %
2.1 %
2.0 %
1.8 %
1.5 %
1.3 %
1.1 %
1.1 %
1.0 %
16.8 %
A-
A-
BBB+
BBB
BBB
A-
A
BB+
BBB+
NA
62
At December 31, 2021 and 2020, respectively, we held the following non-U.S. dollar denominated securities:
December 31,
($ in thousands)
Non-U.S. dollar denominated corporate bonds
Non-U.S. dollar denominated asset-backed securities
Non-U.S. government bonds
Total non-U.S. dollar denominated securities
2021
2020
Fair Value
% of Total
Fair Value
% of Total
$
$
147,740
113,399
3,275
264,414
55.9 % $
42.9 %
1.2 %
100.0 % $
349,231
—
9,708
358,939
At December 31, 2021 and 2020, respectively, our non-U.S. dollar denominated securities were invested in the following currencies:
December 31,
($ in thousands)
Euro
British Pound
Canadian Dollar
All other
Total non-U.S. dollar denominated securities
2021
2020
Fair Value
% of Total
Fair Value
% of Total
$
$
264,414
—
—
—
264,414
100.0 % $
— %
— %
— %
100.0 % $
329,447
22,861
5,110
1,521
358,939
97.3 %
— %
2.7 %
100.0 %
91.8 %
6.4 %
1.4 %
0.4 %
100.0 %
The net decrease in non-U.S. dollar denominated fixed maturities is primarily due to the sale of Euro denominated corporate bonds during the year ended December 31, 2021. At December 31,
2021 and 2020, all of the Company's non-U.S. government issuers have a rating of AA- or higher by S&P.
For our non-U.S. dollar denominated corporate bonds, the following table summarizes the composition of the fair value of our fixed maturity investments by ratings at December 31, 2021 and
2020:
(1)
Ratings at December 31,
($ in thousands)
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+ or lower
Total non-U.S. dollar denominated corporate bonds
(1) Ratings as assigned by S&P, or equivalent
2021
2020
Fair Value
% of Total
Fair Value
% of Total
$
$
—
—
56,669
78,021
13,050
147,740
— % $
— %
38.4 %
52.8 %
8.8 %
100.0 % $
1,277
31,102
165,585
137,297
13,970
349,231
0.4 %
8.9 %
47.4 %
39.3 %
4.0 %
100.0 %
The Company does not employ any credit default protection against any of the fixed maturity investments held in non-U.S. dollar denominated currencies at December 31, 2021 and 2020,
respectively.
Other Investments and Equity Method Investments
Our alternative investments are categorized as other investments and equity method investments as reported on our consolidated balance sheets. These include private equity, private credit and
hedge funds investments, investments in limited partnerships, as well as investments in direct lending entities and investments in technology-oriented insurance related businesses known as
insurtechs. Private equity investments consist of direct investments in privately held entities, investments in private equity funds and private equity co-investments with sponsoring entities. Private
credit investments consist of loans and other debt securities of privately held entities or investment sponsors.
Our allocation to alternative investments increased to 25.4% of our total cash and investments as of December 31, 2021 compared to 7.3% as of December 31, 2020; and increased to 58.7% of our
total shareholders' equity as of December 31, 2021 compared to 20.3% as of December 31, 2020.
63
Our alternative investments as of December 31, 2021 and 2020 consist of the following asset classes:
December 31,
Privately held equity investments
Real estate investments
Investments in direct lending entities
Private credit funds
Hedge fund investments
Private equity funds
Other investments
Publicly traded equity investments
Total alternative investments
2021
2020
Carrying Value
% of Total
Carrying Value
% of Total
$
$
52,013
44,050
42,976
38,656
32,929
6,906
6,763
1,174
225,467
23.1 % $
19.5 %
19.1 %
17.1 %
14.6 %
3.1 %
3.0 %
0.5 %
100.0 % $
22,844
—
36,571
1,301
29,435
3,044
13,701
—
106,896
21.4 %
— %
34.2 %
1.2 %
27.5 %
2.9 %
12.8 %
— %
100.0 %
For further details on these other investments, please see "Notes to Consolidated Financial Statements: Note 4(b) Other Investments and Equity Method Investments" included under Part II Item 8
"Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Certain of the Company's investments in limited partnerships are related to real estate joint ventures with interests in multi-property projects with varying strategies ranging from the development
of properties to the ownership of income-producing properties. In certain of these joint ventures, the Company has provided certain indemnities, guarantees and commitments to certain parties such
that it may be required to make payments now or in the future. For further details on these financial guarantees, please see "Notes to Consolidated Financial Statements: Note 11 - Commitments,
Contingencies and Guarantees" included under Part II Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
64
Investment Results
The following table summarizes our investment results for the years ended December 31, 2021 and 2020, respectively:
Net investment income
(1)
Fixed income assets
Cash and restricted cash
Other investments, including equities
Investment expenses
Total net investment income
Net realized gains:
Fixed income assets
Other investments, including equities
Total net realized gains
(1)
Net unrealized gains:
Other investments, including equities
Total net unrealized gains
Interest in income of equity method investments:
Interest in income of equity method investments
Total interest in income of equity method investments
Total investment return included in earnings (A)
(4)
Other comprehensive income (loss):
Unrealized losses on AFS and Equity Method Investments excluding foreign exchange (B)
Total investment return = (A) + (B)
Annualized income from fixed income assets and cash
Average aggregate fixed income assets and cash, at cost
Annualized investment book yield
(2)
(2)
Average aggregate invested assets, at fair value
Investment return included in net earnings
Total investment return
(3)
$
$
$
$
$
$
For the Year Ended December 31,
2021
2020
$
$
$
$
$
33,261
(3)
1,103
(2,348)
32,013
9,097
3,377
12,474
174
174
7,748
7,748
52,409
(32,880)
19,529
33,258
1,794,173
1.9 %
56,196
781
621
(2,837)
54,761
24,100
373
24,473
—
—
5,098
5,098
84,332
(3,434)
80,898
56,977
2,521,380
2.3 %
1,986,000
$
2,552,937
2.6 %
1.0 %
3.3 %
3.2 %
1. Includes AFS securities as well as funds withheld receivable, and loan to related party.
2. Fixed income securities includes AFS portfolio, cash and restricted cash, funds withheld receivable, and loan to related party.
3. Average aggregate invested assets include all investments (AFS and alternative investments), cash and restricted cash, loan to related party and funds withheld receivable and is computed as an average of the amounts disclosed in our
quarterly U.S. GAAP consolidated financial statements.
4. Total investment return included in earnings excludes OTTI for the year ended December 31, 2020 which are entirely due to foreign exchange losses.
65
Other Balance Sheet Changes
The following table summarizes the Company's other material balance sheet changes at December 31, 2021 and 2020:
December 31,
Reinsurance balances receivable, net
Reinsurance recoverable on unpaid losses
Deferred commission and other acquisition expenses
Funds withheld receivable
Reserve for loss and LAE
Unearned premiums
Deferred gain on retroactive reinsurance
2021
2020
($ in thousands)
Change
Change
%
$
19,507 $
562,845
36,703
636,412
1,489,373
100,131
48,960
5,777 $
592,571
51,903
654,805
1,893,299
144,271
74,941
13,730
(29,726)
(15,200)
(18,393)
(403,926)
(44,140)
(25,981)
237.7 %
(5.0)%
(29.3)%
(2.8)%
(21.3)%
(30.6)%
(34.7)%
The Company's deferred commission and other acquisition expenses decreased by 29.3% and unearned premiums decreased by 30.6% primarily due to the Partial Termination Amendment with
AmTrust on a cut-off basis and the termination of the remaining business under both quota share contracts with AmTrust which are now in run-off with no new business written beginning January 1,
2019. Reinsurance balances receivable increased by 237.7% primarily due to $17.5 million of premiums receivable not yet due from the European Hospital Liability Quota Share that was recognized
during the third quarter of 2021.
Funds withheld receivable decreased by 2.8% primarily due to lower funds withheld to be utilized as collateral for IIS reinsurance agreements in the Diversified Reinsurance segment.
The Company's reserve for loss and LAE decreased by 21.3% primarily due to the payment of prior year loss claims as well as favorable loss development recognized mainly for the AmTrust
Reinsurance segment.
The decrease in the deferred gain on retroactive reinsurance by 34.7% for the year ended December 31, 2021 is largely attributable to $29.1 million of favorable prior year loss development under
the AmTrust Quota Share which is fully recoverable from Cavello under the LPT/ADC Agreement. This favorable development also impacted the reinsurance recoverable on unpaid losses which
decreased by 5.0% or $29.7 million as at December 31, 2021 compared to December 31, 2020.
Capital Resources
Capital resources consist of funds deployed in support of our operations. In the year ended December 31, 2021, our total capital resources decreased by $143.6 million, or 18.2% compared to
December 31, 2020 primarily due to repurchases of our Preference Shares and unrealized losses on our fixed maturity investment portfolio, partially offset by net income available to common
shareholders.
During the year ended December 31, 2021, book value per common share increased by 65.6% to $2.60 and diluted book value per common share increased by 67.1% to $2.59, compared to
December 31, 2020. This was primarily due to the gain of $91.0 million on the 2021 Preference Share Repurchase Program which increased book value by $1.05 per common share. Book value also
increased due to net income of $26.6 million during the year ended December 31, 2021. Book value growth was partly offset by a net decrease in AOCI of $36.1 million for the year ended
December 31, 2021.
The following table shows the movement in total capital resources at December 31, 2021 and 2020:
December 31,
Preference shares
Common shareholders' equity
Total Maiden shareholders' equity
Senior Notes - principal amount
Total capital resources
2021
2020
($ in thousands)
Change
Change
%
$
$
159,210 $
225,047
384,257
262,500
646,757 $
394,310 $
133,506
527,816
262,500
790,316 $
(235,100)
91,541
(143,559)
—
(143,559)
(59.6)%
68.6 %
(27.2)%
— %
(18.2)%
The net decrease in total capital resources was due to the decline in total shareholders' equity at December 31, 2021 which decreased by $143.6 million, or 27.2% compared to December 31, 2020
due to the following factors:
• net decrease of $136.3 million from the 2021 Preference Share Repurchase Program which consisted of the par value of Preference Shares repurchased of $235.1 million partly offset by: (1)
gains recognized on the repurchase of Preference Shares at market values of $91.0 million for the year ended December 31, 2021 which increased retained earnings; and (2) a net increase in
additional paid-in capital of $7.8 million relating to proportionate share in issuance costs of Preference Shares repurchased, which was previously recognized as a reduction in additional
paid-in capital;
66
• net decrease in AOCI of $36.1 million which arose due to: (1) net unrealized losses on investment of $52.1 million resulting largely from the net decrease in the fair value of $47.7 million
for our fixed income investment portfolio relating to market price movements due to rising interest rates during the year ended December 31, 2021 and $4.4 million related to declines in the
value of equity method investments; less (2) an increase in cumulative translation adjustments of $16.0 million due to the strengthening of the U.S. dollar on the remeasurement of net
insurance-related liabilities denominated in euro during the year ended December 31, 2021; partly offset by:
• net income attributable to Maiden of $26.6 million for the year ended December 31, 2021; and
• net increase due to share-based compensation of $2.1 million.
Please refer to "Notes to Consolidated Financial Statements - Note 6 — Shareholders' Equity" included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K for a discussion of the equity instruments issued by the Company at December 31, 2021 and 2020.
Book value and diluted book value per common share at December 31, 2021 and 2020 were computed as follows:
December 31,
Ending Maiden common shareholders’ equity
Proceeds from assumed conversion of dilutive options
Numerator for diluted book value per common share calculation
Common shares outstanding
Shares issued from assumed conversion of dilutive options and restricted share units
Denominator for diluted book value per common share calculation
Book value per common share
Diluted book value per common share
Common Shares
2021
2020
($ in thousands except share and per share data)
225,047 $
10
225,057 $
86,467,242
494,926
86,962,168
2.60 $
2.59
133,506
10
133,516
84,801,161
1,489,064
86,290,225
1.57
1.55
$
$
$
On February 21, 2017, the Company's Board of Directors approved the repurchase of up to $100.0 million of the Company's common shares from time to time at market prices. During the year
ended December 31, 2021, the Company did not repurchase any common shares under its share repurchase authorization as it is precluded from repurchasing its common shares due to its failure to
pay dividends on its Preference Shares. Until such time as dividends on Preference Shares are paid, the Company will not be able to repurchase or pay dividends on its common shares. At
December 31, 2021, the Company had a remaining authorization of $74.2 million for share repurchases.
Preference Shares
As part of the capital management pillar of our strategy, pursuant to the cash tender offer on December 24, 2020, Maiden Reinsurance accepted for purchase 2,827,595 Preference Shares referred
to as the "2020 Tender Offer". The acquisition by Maiden Reinsurance of the Company's Preference Shares pursuant to the tender offer was made in compliance with Maiden Reinsurance's
investment policy previously approved by the Vermont DFR. Maiden Reinsurance used unrestricted cash of $29.7 million to repurchase the Preference Shares pursuant to the 2020 Tender Offer.
On March 3, 2021, the Company's Board approved the repurchase, including the repurchase by Maiden Reinsurance within its investment guidelines, of up to $100.0 million of the Company's
Preference Shares. On May 6, 2021, the Company's Board of Directors approved the additional repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment
guidelines (as may be amended), of up to $50.0 million of the Company's Preference Shares from time to time at market prices in open market purchases or as may be privately negotiated.
The principal purpose of the 2020 Tender Offer and 2021 Preference Share Repurchase Program is to adjust our capital structure to reflect current operations and the amount of capital required to
operate Maiden Reinsurance. The Board has not declared or paid a dividend on the Preference Shares since 2018 and there can be no assurance that it will declare and pay dividends on the Preference
Shares in the future. The Preference Shares are perpetual and there is no fixed date on which we are required to redeem or otherwise repurchase them.
As part of the capital management pillar of our strategy during 2021, Maiden Reinsurance accepted 9,404,012 Preference Shares for purchase via private negotiation with certain security holders
at an average price of $14.48 per Preference Share. The Company has continued to repurchase Preference Shares subsequent to December 31, 2021 pursuant to a Rule 10b5-1 plan. Please see "Note
16 - Subsequent Events" included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for details.
67
Please refer to "Notes to Consolidated Financial Statements - 'Note 6 — Shareholders' Equity" under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K
for further information on our Preference Shares. At December 31, 2021, the Company has a remaining authorization of $13.8 million for Preference Share repurchases.
Senior Notes
There were no changes in the Company’s Senior Notes at December 31, 2021 compared to December 31, 2020 and the Company did not enter into any short-term borrowing arrangements during
the year ended December 31, 2021. Please refer to "Notes to Consolidated Financial Statements - Note 7 — Long-Term Debt" included under Item 8 "Financial Statements and Supplementary Data"
of this Annual Report on Form 10-K for a discussion of the Senior Notes issued by the Company.
The ratio of Debt to Total Capital Resources at December 31, 2021 and 2020 was computed as follows:
December 31,
Senior notes - principal amount
Maiden shareholders’ equity
Total capital resources
Ratio of debt to total capital resources
Off-Balance Sheet Arrangements
$
$
2021
2020
($ in thousands)
262,500
384,257
646,757
$
$
40.6 %
262,500
527,816
790,316
33.2 %
Certain of the Company's investments in limited partnerships are related to real estate joint ventures with interests in multi-property projects with varying strategies ranging from the development
of properties to the ownership of income-producing properties. In certain of these joint ventures, the Company has provided certain indemnities, guarantees and commitments to certain parties such
that it may be required to make payments now or in the future as further described in the "Notes to Consolidated Financial Statements - Note 11 — Commitments, Contingencies and Guarantees "
included under Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Any loss for which the Company could be liable would be contingent on the default of a loan by the real estate joint venture entity for which the Company provided a financial guarantee to a
lender. While the Company has committed to aggregate limits as to the amount of guarantees it will provide as part of its limited partnerships, guarantees are only provided on an individual
transaction basis and are subject to the terms and conditions of each transaction mutually agreed by the parties involved. The Company is not bound to such guarantees without its express
authorization.
As discussed above, at December 31, 2021, guarantees of $33.3 million have been provided to lenders by the Company on behalf of real estate joint ventures, however, the likelihood of the
Company incurring any losses pertaining to project level financing guarantees was determined to be remote. Therefore, no liability has been accrued under ASC 450-20.
68
Non-GAAP Financial Measures
As defined and described in the Key Financial Measures section, management uses certain key financial measures, some of which are non-GAAP financial measures, to evaluate the Company's
financial performance and the overall growth in value generated for the Company’s common shareholders. Management believes that these financial measures, which may be defined and calculated
differently by other companies, explain the Company’s results to investors in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. The
calculation, reconciliation to nearest GAAP measure and discussion of relevant non-GAAP financial measures used by management are discussed below.
Non-GAAP operating earnings were $60.5 million for the year ended December 31, 2021, compared to $47.1 million in 2020. The improvement in non-GAAP operating earnings was largely due
to:
• gains of $91.0 million from the repurchase of Preference Shares at market values for the year ended December 31, 2021 compared to gains of $38.2 million for Preference Share repurchases
during 2020; partly offset by:
• underwriting loss of $16.0 million for the year ended December 31, 2021 on a current accident year basis compared to underwriting income of $0.8 million for 2020 on a current accident
year basis caused by higher loss ratios along with higher expense ratios caused by a significant decrease in earned premium on the run-off of unearned premium for terminated reinsurance
contracts in our AmTrust Reinsurance segment; and
• lower net investment income which decreased by $22.7 million compared to 2020.
The Company's non-GAAP operating results included a non-GAAP underwriting loss of $17.5 million for the year ended December 31, 2021, compared to non-GAAP underwriting income of
$3.0 million in 2020, due to underwriting results in the AmTrust segment not covered by the LPT/ADC Agreement, specifically the run-off of the AmTrust Quota Share with losses occurring after
December 31, 2018 (including the additional ceding commission paid under the Partial Termination Amendment) and claims related to the European Hospital Liability Quota Share. The decrease in
underwriting results was driven by higher loss ratios on the run-off of unearned premium for terminated reinsurance contracts in the AmTrust Reinsurance segment for the year ended December 31,
2021 as well as higher expense ratios caused by a significant decrease in earned premium.
Non-GAAP operating earnings and Non-GAAP diluted operating earnings per share attributable to common shareholders
Non-GAAP operating earnings and Non-GAAP diluted operating earnings per share attributable to common shareholders can be reconciled to the nearest U.S. GAAP financial measure as follows:
For the Year Ended December 31,
Net income
Add (subtract):
Net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Foreign exchange and other (gains) losses
Decrease in deferred gain on retroactive reinsurance
Interest in income of equity method investments
Non-GAAP operating earnings
Diluted earnings per share attributable to common shareholders
Add (subtract):
Net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Foreign exchange and other (gains) losses
Decrease in deferred gain on retroactive reinsurance
Interest in income of equity method investments
Non-GAAP diluted operating earnings per common share attributable to common shareholders
69
2020
2021
($ in thousands except per share data)
$
$
$
$
117,643 $
(12,648)
—
(7,685)
(29,081)
(7,748)
60,481 $
1.35 $
(0.14)
—
(0.09)
(0.33)
(0.09)
0.70 $
79,957
(24,473)
2,468
8,526
(14,304)
(5,098)
47,076
0.93
(0.29)
0.03
0.11
(0.17)
(0.06)
0.55
Non-GAAP Operating ROACE
Non-GAAP Operating ROACE for the years ended December 31, 2021 and 2020 was computed as follows:
For the Year Ended December 31, and at December 31,
Non-GAAP operating earnings
Opening adjusted common shareholders’ equity
Ending adjusted common shareholders’ equity
Average adjusted common shareholders’ equity
Non-GAAP Operating ROACE
Non-GAAP Underwriting Results and Combined Ratio
The following summarizes our non-GAAP underwriting results for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Gross premiums written
Net premiums written
Net premiums earned
Other insurance revenue
Non-GAAP net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Non-GAAP underwriting (loss) income
(1)
(1)
Ratios:
Non-GAAP net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
Non-GAAP combined ratio
(1)
(1)
$
$
$
$
$
2021
2020
($ in thousands)
$
60,481
208,447
274,990
241,719
25.0 %
2021
2020
($ in thousands)
10,938
10,403
52,993
1,067
(36,388)
(24,840)
(10,341)
(17,509)
$
$
$
$
67.3 %
46.0 %
66.6 %
112.6 %
179.9 %
47,076
155,668
208,447
182,058
25.9 %
31,389
28,432
106,081
1,276
(56,103)
(38,796)
(9,488)
2,970
52.3 %
36.1 %
36.4 %
72.5 %
124.8 %
(1) Non-GAAP underwriting (loss) income, non-GAAP net loss and LAE, non-GAAP net loss and LAE ratio, and non-GAAP combined ratio for the years ended December 31, 2021 and 2020 include the impact of prior year reserve development
subject to the LPT/ADC Agreement in the respective periods. Please see the "Key Financial Measures" section for definitions of non-GAAP underwriting (loss) income, non-GAAP net loss and LAE, non-GAAP net loss and LAE ratio, and non-
GAAP combined ratio.
The non-GAAP underwriting results as well as the non-GAAP loss and LAE and ratios and non-GAAP combined ratios include the impact of favorable prior year loss reserve development under
the AmTrust Quota Share which is fully recoverable from Cavello and subject to the LPT/ADC Agreement with Cavello to show the ultimate economic benefit to the Company.
As shown in the table above, adjusted for the decrease in the deferred gain under the LPT/ADC Agreement of $29.1 million during the year ended December 31, 2021, the non-GAAP
underwriting loss was $17.5 million. This compared to non-GAAP underwriting income of $3.0 million for 2020 when adjusted for the decrease in the deferred gain under the LPT/ADC Agreement
of $14.3 million during the year ended December 31, 2020.
The non-GAAP underwriting results above were due to underwriting results in the AmTrust segment not covered by the LPT/ADC Agreement, specifically the run-off of the AmTrust Quota Share
with losses occurring after December 31, 2018 (including the additional ceding commission paid under the Partial Termination Amendment) as well as claims related to the European Hospital
Liability Quota Share. Underwriting results in the Diversified segment during the years ended December 31, 2021 and 2020, respectively, were relatively stable.
70
The non-GAAP combined ratio during the year ended December 31, 2021 was 179.9% compared to 124.8% during 2020.
For the Year Ended December 31,
Combined ratio
Less: decrease in the deferred gain on the LPT/ADC Agreement
Non-GAAP combined ratio
Non-GAAP Net Loss and LAE
2021
2020
126.1 %
(53.8)%
179.9 %
111.4 %
(13.4)%
124.8 %
Adjusted for the decrease in the deferred gain under the LPT/ADC Agreement, the non-GAAP net loss and LAE for the year ended December 31, 2021 increased by $29.1 million as these
amounts include favorable loss experience for AmTrust reserves subject to the LPT/ADC Agreement which are ultimately recoverable from Cavello. In comparison, adjusted for the decrease in the
deferred gain under the LPT/ADC Agreement during the year ended December 31, 2020, the non-GAAP net loss and LAE increased by $14.3 million since the favorable loss experience on AmTrust
reserves subject to the LPT/ADC Agreement are ultimately recoverable from Cavello.
These adjustments have been reflected in the calculation of non-GAAP Loss and LAE as shown in the table below:
For the Year Ended December 31,
Net loss and LAE
Less: decrease in the deferred gain on the LPT/ADC Agreement
Non-GAAP net loss and LAE
2021
2020
($ in thousands)
7,307 $
(29,081)
36,388 $
41,799
(14,304)
56,103
$
$
Adjusted for the decrease in the deferred gain under the LPT/ADC Agreement of $29.1 million during the year ended December 31, 2021, non-GAAP net loss and LAE was $36.4 million.
Adjusted for decrease in the deferred gain under the LPT/ADC Agreement of $14.3 million during the year ended December 31, 2020, non-GAAP net loss and LAE was $56.1 million. The non-
GAAP net loss and LAE ratio was 67.3% for the year ended December 31, 2021 compared to 52.3% for 2020.
Adjusted Shareholders' Equity, Adjusted Total Capital Resources, Adjusted Book Value per Common Share and Ratio of Debt to Total Adjusted Capital Resources
The Adjusted Shareholders' Equity, Adjusted Total Capital Resources and Adjusted Book Value per Common Share at December 31, 2021 and 2020 reflects the addition of the unamortized
deferred gain under the LPT/ADC Agreement to the GAAP shareholders' equity as depicted in the computations below. The deferred gain under the LPT/ADC Agreement was $45.9 million at
December 31, 2021 compared to $74.9 million at December 31, 2020, and relates to loss reserves subject to that agreement that are fully recoverable from Cavello.
The decrease in the unamortized deferred gain under the LPT/ADC Agreement of $29.1 million for the year ended December 31, 2021 is attributable to $29.1 million in loss and LAE recognized
as favorable loss development in the Company's GAAP income statement subject to the LPT/ADC Agreement. We believe the inclusion of this unamortized deferred gain in these metrics better
reflects the ultimate economic benefit of the LPT/ADC Agreement, which will improve the Company's shareholders' equity over the settlement period under the terms of the agreement.
The Adjusted Shareholders' Equity, Adjusted Total Capital Resources and Adjusted Book Value per Common Share at December 31, 2021 also reflects the addition of the LP Investment
Adjustment of $4.1 million, which pertains to the equity accounting related to the fair value of certain hedged liabilities within an equity method investment held by the Company wherein the ultimate
realizable value of the asset supporting the hedged liabilities cannot currently be recognized at fair value. We believe that this adjustment recognizes future realizable value and reflects the ultimate
economic benefit of this investment which will improve the Company's shareholders' equity over the hedged contract period within the investment.
71
Reconciliation of shareholders' equity to Adjusted shareholders' equity and Adjusted Total Capital Resources
The following table computes adjusted shareholders' equity and adjusted total capital resources by recognizing the unamortized deferred gain under the LPT/ADC Agreement as well as the LP
Investment Adjustment for realizable value of intangible asset in an limited partnership investment at December 31, 2021 and 2020:
December 31,
Preference shares
Common shareholders' equity
Total shareholders' equity
LP Investment Adjustment
Unamortized deferred gain on LPT/ADC Agreement
Adjusted shareholders' equity
Senior Notes - principal amount
Adjusted total capital resources
NM - non meaningful
2021
2020
($ in thousands)
Change
Change
%
$
$
159,210 $
225,047
384,257
4,083
45,860
434,200
262,500
696,700 $
394,310 $
133,506
527,816
—
74,941
602,757
262,500
865,257 $
(235,100)
91,541
(143,559)
4,083
(29,081)
(168,557)
—
(168,557)
(59.6)%
68.6 %
(27.2)%
NM
(38.8)%
(28.0)%
— %
(19.5)%
Reconciliation of Book Value per Common Share to Adjusted Book Value per Common Share
The adjusted book value per common share as reconciled for the recognition of the unamortized deferred gain under the LPT/ADC Agreement as well as the LP Investment Adjustment for
realizable value of intangible asset in limited partnership investment at December 31, 2021 and 2020 was computed as follows:
December 31,
Book value per common share
LP Investment Adjustment
Unamortized deferred gain on LPT/ADC Agreement
Adjusted book value per common share
Ratio of Debt to Adjusted Total Capital Resources
2021
2020
$
$
2.60 $
0.05
0.53
3.18 $
1.57
—
0.89
2.46
Management uses this non-GAAP measure to monitor the financial leverage of the Company. This measure is calculated using the total principal amount of debt divided by the sum of adjusted
total capital resources as computed in the table above. The ratio of Debt to Adjusted Total Capital Resources at December 31, 2021 and 2020 was computed as follows:
December 31,
Senior notes - principal amount
Adjusted shareholders’ equity
Adjusted total capital resources
Ratio of debt to adjusted total capital resources
Currency and Foreign Exchange
$
$
2021
2020
($ in thousands)
262,500
434,200
696,700
$
$
37.7 %
262,500
602,757
865,257
30.3 %
We conduct business in a variety of foreign (non-U.S.) currencies, the principal exposures being the euro and the British pound. Assets and liabilities denominated in foreign currencies are
exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations relative to the U.S. dollar may materially impact our results and financial
position. Our principal exposure to foreign currency risk is our obligation to settle claims in foreign currencies. In addition, to minimize this risk, we maintain and expect to continue to maintain a
portion of our investment portfolio in investments denominated in currencies other than the U.S. dollar. We may employ various strategies (including hedging) to manage our exposure to foreign
currency exchange risk. To the extent that these exposures are not fully hedged or the hedges are ineffective, our results of operations or equity may be adversely effected. At December 31, 2021, no
such hedges or hedging strategies were in force or had been entered into. We measure monetary assets and liabilities denominated in foreign currencies at period end exchange rates, with the resulting
foreign exchange gains and losses recognized in the Consolidated Statements of Income. Revenues and expenses in foreign currencies are converted at quarterly average exchange rates during the
year. The effect of the translation adjustments for foreign operations is included in AOCI.
72
Net foreign exchange gains were $7.5 million during the year ended December 31, 2021 compared to net foreign exchange losses of $8.1 million during the year ended December 31, 2020.
Effects of Inflation
The anticipated effects of inflation are considered explicitly in the pricing of the insured exposures, which are used as the initial estimates of reserves for loss and LAE. In addition, inflation is also
implicitly accounted for in subsequent estimates of loss and LAE reserves, as the expected rate of emergence is in part predicated upon the historical levels of inflation that impact ultimate claim
costs. To the extent inflation causes these costs, particularly medical treatments and litigation costs, to vary from the assumptions made in the pricing or reserving estimates, the Company will be
required to change the reserve for loss and LAE with a corresponding change in its earnings in the period in which the variance is identified. The actual effects of inflation on the results of operations
of the Company cannot be accurately known until claims are ultimately settled.
We continue to monitor inflationary impacts resulting from government stimulus, sharp increases in demand, labor force and supply chain disruptions, among other factors, on our loss cost trends.
For example, Governmental policy responses to inflation may increase interest rates which, in the short term, will have a significant impact on our investments, in particular our fixed maturity
securities. We will continue to monitor our liquidity, capital and potential earnings impact of these changes but remain focused on our asset allocation decisions as described in our "Business
Strategy" section of Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview". Inflation may also result in increased wage pressures for our
operating expenses, as we remain focused on being a competitive employer in our market.
Recent Accounting Pronouncements
Refer to "Notes to Consolidated Financial Statements - Note 2. Significant Accounting Policies" included under Item 8 "Financial Statement and Supplementary Data", of this Annual Report on
Form 10-K for a discussion on recently issued accounting pronouncements not yet adopted.
73
Item 8. Financial Statements and Supplementary Data.
See our Consolidated Financial Statements and Notes thereto commencing on pages F-1 through F-60 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
74
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Report, our management has performed an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) at December 31, 2021. Based on their evaluation, our Principal
Executive Officer and Principal Financial Officer concluded that, at December 31, 2021, our Company’s disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and for the
assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the consolidated financial statements in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance
with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual consolidated financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2021 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
2013. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this
evaluation, management, including our Principal Executive Officer and Principal Financial Officer, have concluded that our internal control over financial reporting is effective as of December 31,
2021 based on those criteria.
The Company's independent auditors have issued an audit opinion on the Company's internal control over financial reporting as of December 31, 2021. This report appears below in the Report of
Independent Registered Public Accounting Firm.
Changes in Internal Control Over Financial Reporting
No changes were made in our internal controls over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d) – 15(f), during the fourth quarter ended December 31,
2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
75
To the Shareholders and Board of Directors of Maiden Holdings, Ltd.
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited Maiden Holdings, Ltd.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Maiden Holdings, Ltd. (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of
December 31, 2021 and 2020 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years then ended, and the
related notes and our report dated March 14, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, NY
March 14, 2022
76
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy Statement for our Annual Meeting of Shareholders to be
held on May 4, 2022 (the "Proxy Statement") captioned "Election of Directors", "Executive Officers", "Audit Committee", "Section 16(a) Beneficial Ownership Reporting Compliance" and
"Nominating and Corporate Governance Committee".
We have adopted a Code of Business Conduct and Ethics for all employees. The Code of Business Conduct and Ethics is available free of charge on our website at www.maiden.bm and is
available in print to any shareholder who requests it. We intend to disclose any amendments to this code by posting such information on our website, and disclose any waivers of this code applicable
to our principal executive officer, principal financial officer, principal accounting officer or controller and other executive officers who perform similar functions through such means or by filing a
Form 8-K.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy Statement captioned "Compensation Discussion and
Analysis", "Director Compensation for 2021", "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report".
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy Statement captioned "Security Ownership of Certain
Beneficial Owners", "Equity Compensation Plan Information" and "Security Ownership of Management".
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy Statement captioned "Certain Relationships and Related
Transactions", "Audit Committee", "Board Independence", "Compensation Committee" and "Nominating and Corporate Governance Committee".
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference from the information responsive thereto in the section in the Proxy Statement captioned "Appointment of Independent Auditors
of Maiden Holdings, Ltd.".
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial statements and schedules
PART IV
Financial statements listed in the accompanying index to our Consolidated Financial Statements starting on page F-1 are filed as part of this Annual Report on Form 10-K, and are included in
Item 8. "Financial Statement and Supplementary Data".
All other schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and
therefore have been omitted.
(b) Exhibits
The exhibits listed in the Exhibit Index starting on page E-1 following the signature page are filed herewith, which Exhibit Index is incorporated herein by reference.
Item 16. Form 10-K Summary.
None.
77
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Pembroke, Bermuda on March 14, 2022.
SIGNATURES
MAIDEN HOLDINGS, LTD.
By:
/s/ Lawrence F. Metz
Name: Lawrence F. Metz
Title: President and Co-Chief Executive Officer
/s/ Patrick J. Haveron
Name: Patrick J. Haveron
Title: Co-Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ Lawrence F. Metz
Lawrence F. Metz
/s/ Patrick J. Haveron
Patrick J. Haveron
/s/ Barry D. Zyskind
Barry D. Zyskind
/s/ Raymond M. Neff
Raymond M. Neff
/s/ Simcha G. Lyons
Simcha G. Lyons
/s/ Yehuda L. Neuberger
Yehuda L. Neuberger
/s/ Steven H. Nigro
Steven H. Nigro
/s/ Holly L. Blanchard
Holly L. Blanchard
/s/ Keith A. Thomas
Keith A. Thomas
President and Co-Chief Executive Officer
(Principal Executive Officer)
Co-Chief Executive Officer and Chief Financial Officer
(Principal Financial Officer)
Chairman
Director
Director
Director
Director
Director
Director
78
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
March 14, 2022
EXHIBIT INDEX
Description
Memorandum of Association (as amended)
Bye-Laws
Form of Common Share Certificate
Form of Indenture for Debt Securities by and among Maiden Holdings North America, Ltd., Maiden Holdings, Ltd., as guarantor, and Wilmington Trust
Company, as trustee
Certificate of Designations of 8.25% Non-Cumulative Preference Shares, Series A, adopted on August 7, 2012
Form of stock certificate evidencing 8.25% Series A Preference Share (included in Exhibit 4.4)
Third Supplemental Indenture, dated November 25, 2013, by and among Maiden Holdings North America, Ltd., Maiden Holdings, Ltd., as guarantor, and
Wilmington Trust Company, as trustee
Form of 7.75% Notes due 2043 (included in Exhibit 4.6)
Certificate of Designations of 7.125% Non-Cumulative Preference Shares, Series C, adopted on November 4, 2015
Form of stock certificate evidencing 7.125% Non-Cumulative Preference Shares, Series C (included in Exhibit 4.8)
Form of Indenture for Debt Securities by and between Maiden Holdings, Ltd., and Wilmington Trust National Association, as trustee
First Supplemental Indenture, dated as of June 14, 2016, by and between Maiden Holdings, Ltd., as guarantor, and Wilmington Trust National Association, as
trustee
Certificate of Designations of 6.700% Non-Cumulative Preference Shares, Series D, adopted on May 2, 2017
Form of stock certificate evidencing 6.700% Non-Cumulative Preference Shares, Series D (included in Exhibit 4.12)
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
2019 Omnibus Incentive Plan as of December 10, 2019
Form of Share Option Agreement under 2019 Omnibus Incentive Plan
Form of Restricted Share under 2019 Omnibus Incentive Plan
Form of Employment Agreement by and between Maiden and Patrick J. Haveron and Lawrence F. Metz, dated as of November 1, 2011
Master Agreement by and between Maiden Holdings, Ltd. and AmTrust Financial Services, Inc., dated as of July 3, 2007
Amendment No. 1 to the Master Agreement by and between Maiden Holdings, Ltd. and AmTrust Financial Services, Inc., dated as of September 17, 2007
Amendment No. 2 to the Master Agreement by and between Maiden Holdings, Ltd. and AmTrust Financial Services, Inc., dated as of January 30, 2019
Amended and Restated Quota Share Reinsurance Agreement by and between Maiden Insurance Company Ltd. and AmTrust International Insurance, Ltd. and
dated as of June 1, 2008
Loan Agreement by and between AmTrust International Insurance, Ltd. and Maiden Insurance Company Ltd., dated as of November 16, 2007
Amendment No. 1 to the Loan Agreement by and between AmTrust International Insurance, Ltd. and Maiden Insurance Company Ltd., dated as of February
15, 2008
Amendment No. 2 to the Loan Agreement by and between Maiden Reinsurance Ltd. and AmTrust Financial Services, Inc., dated as of December 18, 2017
Exhibit
No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1*
10.2*
10.3*
10.4*
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Reference
(1)
(2)
(3)
(4)
(5)
(5)
(6)
(6)
(7)
(7)
(8)
(8)
(9)
(9)
(10)
(11)
(10)
(10)
(12)
(3)
(3)
(13)
(14)
(15)
(15)
(16)
E-1
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
2019 Amendment to the Loan Agreement by and between AmTrust International Insurance, Ltd. and Maiden Reinsurance Ltd., dated as of January 30, 2019.
Asset Management Agreement by and between AII Insurance Management Limited and Maiden Reinsurance Ltd. dated as of January 1, 2018
Novation Agreement between AII Insurance Management Limited, AmTrust Financial Services, Inc and Maiden Reinsurance Ltd. dated as of September 9,
2020
Asset Management Agreement by and between AII Insurance Management Limited and Maiden Life Forsakrings, AB dated as of January 1, 2018
Novation Agreement between AII Insurance Management Limited, AmTrust Financial Services, Inc. and Maiden Life Forsakrings, AB dated as of September
9, 2020
Asset Management Agreement by and between AII Insurance Management Limited and Maiden General Forsakrings, AB dated as of January 1, 2018
Novation Agreement between AII Insurance Management Limited, AmTrust Financial Services, Inc. and Maiden General Forsakrings, AB dated as of
September 9, 2020
Reinsurance Brokerage Agreement by and between Maiden Insurance Company Ltd. and AII Reinsurance Broker Ltd., dated as of July 3, 2007
Endorsement No. 1 to the Amended and Restated Quota Share Reinsurance Agreement by and between Maiden Insurance Company Ltd. and AmTrust
International Insurance, Ltd. dated as of July 26, 2011
Endorsement No. 2 to the Quota Share Reinsurance Contract by and between Maiden Insurance Company Ltd. and AmTrust International Insurance, Ltd.
dated as of March 7, 2013
Endorsement No. 3 to the Amended and Restated Quota Share Agreement between AmTrust International Insurance, Ltd. and Maiden Reinsurance Ltd. dated
as of September 30, 2015
Endorsement No 4. to the Amended and Restated Quota Share Reinsurance Contract by and between Maiden Reinsurance Ltd. and AmTrust International
Insurance, Ltd. dated as of August 8, 2018
Endorsement No. 5 to the Amended and Restated Quota Share Reinsurance Contract by and between Maiden Reinsurance Ltd. and AmTrust International
Insurance, Ltd. dated as of November 6, 2018.
Quota Share Reinsurance Contract by and between Maiden Insurance Company Ltd. and AmTrust Europe Limited and/or AmTrust International Underwriters
Limited dated as of April 1, 2011
Endorsement No. 1 to the Quota Share Reinsurance Contract by and between Maiden Insurance Company Ltd. and AmTrust Europe Limited and/or AmTrust
International Underwriters Limited dated as of July 26, 2011
Endorsement No. 2 to the Quota Share Reinsurance Contract by and between Maiden Insurance Company Ltd. and AmTrust Europe Limited and/or AmTrust
International Underwriters Limited dated as of August 7, 2012
Endorsement No. 3 to the Amended and Restated Quota Share Reinsurance Agreement by and between Maiden Reinsurance Ltd. and AmTrust International
Insurance, Ltd. dated as of March 1, 2015
Endorsement No. 4 to the Quota Share Reinsurance Contract by and between Maiden Reinsurance Ltd. and AmTrust Europe Limited and/or AmTrust
International Underwriters Limited dated as of July 1, 2016
Form of Indemnification Agreement between Maiden Holdings, Ltd. and its officers and directors
Partial Termination Endorsement to the Amended and Restated Quota Share Reinsurance Agreement by and between Maiden Reinsurance Ltd. and AmTrust
International Insurance, Ltd. dated January 1, 2019
Termination Endorsement to the Amended and Restated Quota Share Reinsurance Agreement by and between Maiden Reinsurance Ltd. and AmTrust
International Insurance, Ltd. dated January 30, 2019
(13)
(16)
(16)
(16)
(16)
(16)
(16)
(3)
(17)
(18)
(19)
(20)
(21)
(17)
(17)
(22)
(23)
(24)
†
(25)
(13)
E-2
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101.1
Termination Endorsement to the Quota Share Reinsurance Contract by and between Maiden Reinsurance Ltd. and AmTrust Europe Limited and AmTrust
International Underwriters DAC dated January 30, 2019
Master Agreement by and among Maiden Holdings, Ltd., Maiden Reinsurance Ltd. and Enstar Group Limited dated as of March 1, 2019
Adverse Development Cover Agreement by and between Maiden Reinsurance Ltd. and Cavello Bay Reinsurance Limited, dated July 31, 2019
Commutation Agreement and Release between Maiden Reinsurance Ltd. and AmTrust International Insurance, dated July 31, 2019
Master Collateral Agreement between Maiden Reinsurance Ltd., Cavello Bay Reinsurance Limited, AmTrust Financial Services, Inc., AmTrust International
Insurance, Ltd. and Technology Insurance Company, Inc., dated July 31, 2019
Post-Termination Endorsement No. 1 between Maiden Reinsurance Ltd. and AmTrust International Insurance, Ltd. to the Amended and Restated Quota Share
Reinsurance Agreement, dated July 31, 2019
Post-Termination Endorsement No. 1 between Maiden Reinsurance Ltd. and AmTrust Europe Limited and AmTrust International Underwriters DAC to the
Quota Share Reinsurance Contract, dated January 13, 2020
Post-Termination Endorsement No. 2 between Maiden Reinsurance Ltd. and AmTrust International Insurance, Ltd to the Amended and Restated Quota Share
Reinsurance Agreement, dated January 13, 2020
Post-Termination Endorsement No. 2 between Maiden Reinsurance Ltd. and AmTrust Europe Limited and AmTrust International Underwriters DAC to the
Quota Share Reinsurance Contract, dated May 12, 2020
Commutation Agreement and Release by and between AmTrust International Insurance, Ltd. and Maiden Reinsurance Ltd., dated May 20, 2020
Code of Business Conduct and Ethics
Subsidiaries of the registrant
Consent of Ernst & Young LLP
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certification of CEO
Section 906 Certification of CFO
The following financial information from Maiden Holdings, Ltd.'s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in XBRL (eXtensive
Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2021 and 2020; (ii) the Consolidated Statements of Income for the years ended
December 31, 2021 and 2020; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020; (iv) the Consolidated Statements
of Changes in Shareholders' Equity for the years ended December 31, 2021 and 2020; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2021
and 2020; and (vi) Notes to Consolidated Financial Statements.
(13)
(26)
(27)
(27)
(27)
(27)
(11)
(11)
(16)
(16)
(16)
†
†
†
†
†
†
†
1.
2.
3.
4.
5.
6.
Incorporated by reference to the filing of such exhibit with the registrant's Registration Statement on Form S-8 filed with the SEC on May 18, 2010 (File No. 333-166934).
Incorporated by reference to the filing of such exhibit with the registrant's Registration Statement on S-8 initially filed with the SEC on January 17, 2020 (File No. 333-235948).
Incorporated by reference to the filing of such exhibit with the registrant's Registration Statement on S-1 initially filed with the SEC on September 17, 2007, subsequently amended and declared effective May 6,
2008 (File No. 333-146137).
Incorporated by reference to the filing of such exhibit with the registrant's Registration Statement on S-3 filed with the SEC on February 7, 2011 (File Nos. 333-172107 and 333-172107-01).
Incorporated by reference to the filing of such exhibit with the registrant's Current Report on Form 8-K filed with the SEC on August 22, 2012 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Current Report on Form 8-K filed with the SEC on November 25, 2013 (File No. 001-34042).
E-3
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on November 25, 2015 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on June 14, 2016 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on June 15, 2017 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 18, 2020 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Proxy Statement on Schedule 14A filed with the SEC on November 8, 2019.
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on March 13, 2012 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 31, 2009 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with Amendment No. 2 to the registrant's Registration Statement on S-1 filed with the SEC on March 28, 2008 (No. 333-146137).
7.
8.
9.
10.
11.
12.
13.
14.
15.
16. Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 15, 2021 (No. 001-34042).
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed with the SEC on August 8, 2011 (No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 11, 2013 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2016 filed with the SEC on August 9, 2016 (No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on March 15, 2019 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed with the SEC on November 9, 2018 (No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012 filed with the SEC on August 9, 2012 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on March 1, 2018 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2016 filed with the SEC on November 8, 2016 (No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on January 3, 2019 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant’s Current Report on Form 8-K filed with the SEC on March 4, 2019 (File No. 001-34042).
Incorporated by reference to the filing of such exhibit with the registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed with the SEC on August 9, 2019 (No. 001-34042).
† Filed herewith. * Management contract or compensatory plan or arrangement
E-4
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements and Related Notes
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020
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
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-11
F-16
F-20
F-25
F-28
F-31
F-32
F-33
F-48
F-52
F-54
F-55
F-57
F-59
F-60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Maiden Holdings, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Maiden Holdings, Ltd. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income,
comprehensive income, changes in shareholders' equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its
cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as
of December 31, 2021, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 14, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
F-2
Description of the Matter
Valuation of Incurred but not Reported Reserves
At December 31, 2021, the Company’s reserve for loss and loss adjustment expenses was $1,489 million of which a significant portion is incurred but not
reported reserves. As explained in Notes 2 and 9 of the consolidated financial statements, the reserve for loss and loss adjustment expenses represents
management’s estimate of the ultimate costs of all reported and unreported losses incurred. There is significant uncertainty inherent in determining
management’s estimate of the ultimate cost of all claims that have occurred which is used to determine the incurred but not reported reserves. In particular, the
estimate is sensitive to the selection and weighting of actuarial methodologies used to project the ultimate costs and the selection of assumptions such as
payment and reporting patterns used to determine loss development factors and expected loss ratios.
Auditing management’s estimate of incurred but not reported reserves was complex due to the highly judgmental nature of the significant assumptions used in
the valuation of the estimate. The significant judgment was primarily due to the sensitivity of management’s estimate to the actuarial methods selected and the
assumptions used in the determination of the loss development factors and ultimate claim costs.
How We Addressed the Mater in our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s incurred but not reported reserving
process. This included, among others, controls over the review and approval processes that management has in place for the selection of actuarial methods and
assumptions used in estimating the incurred but not reported reserves.
To test the Company’s estimate of incurred but not reported reserves, our audit procedures included among others, the assistance of our actuarial specialists to
evaluate the assumptions used by comparing the significant assumptions, including payment patterns and expected loss ratios, to the Company’s historical
experience. In addition, we evaluated the selection and the weighting of actuarial methods used by management against the maturity of the accident periods,
changes in case reserve levels and claims settlement patterns. We developed a range of reasonable reserve estimates, which included performing independent
projections for a sample of lines of business and compared the Company’s recorded reserves to the range of reasonable reserve estimates. We also performed a
review of the subsequent development of prior year loss and loss adjustment expense reserves.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
New York, NY
March 14, 2022
F-3
MAIDEN HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2021 and 2020
(In thousands of U.S. dollars, except share and per share data)
2021
2020
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost 2021 - $595,344; 2020 - $1,163,923)
Equity method investments
Other investments
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Accrued investment income
Reinsurance balances receivable, net (includes $17,471 from related parties in 2021)
Reinsurance recoverable on unpaid losses
Loan to related party
Deferred commission and other acquisition expenses (includes $34,170 and $45,732 from related parties in 2021 and 2020, respectively)
Funds withheld receivable (includes $601,460 and $603,093 from related parties in 2021 and 2020, respectively)
Other assets
Total assets
LIABILITIES
Reserve for loss and loss adjustment expenses (includes $1,338,269 and $1,727,193 from related parties in 2021 and 2020, respectively)
Unearned premiums (includes $91,730 and $122,737 from related parties in 2021 and 2020, respectively)
Deferred gain on retroactive reinsurance
Accrued expenses and other liabilities (includes $29,408 and $35,719 from related parties in 2021 and 2020, respectively)
Senior notes - principal amount
Less unamortized issuance costs
Senior notes, net
Total liabilities
Commitments and Contingencies
EQUITY
Preference shares
Common shares ($0.01 par value; 92,316,107 and 89,815,175 shares issued in 2021 and 2020, respectively; 86,467,242 and 84,801,161 shares outstanding in
2021 and 2020, respectively)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
Treasury shares, at cost (5,848,865 and 5,014,014 shares in 2021 and 2020, respectively)
Total Maiden shareholders’ equity
Total liabilities and equity
$
$
$
$
See accompanying notes to Consolidated Financial Statements
F-4
597,145 $
83,742
141,725
822,612
26,668
39,419
5,695
19,507
562,845
167,975
36,703
636,412
4,774
2,322,610 $
1,489,373 $
100,131
48,960
44,542
262,500
7,153
255,347
1,938,353
159,210
923
768,650
(12,215)
(498,295)
(34,016)
384,257
2,322,610 $
1,213,411
43,136
63,760
1,320,307
74,040
61,786
11,240
5,777
592,571
167,975
51,903
654,805
8,051
2,948,455
1,893,299
144,271
74,941
53,002
262,500
7,374
255,126
2,420,639
394,310
898
756,122
23,857
(615,837)
(31,534)
527,816
2,948,455
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
2021
2020
For the Year Ended December 31,
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Net premiums earned
Other insurance revenue
Net investment income
Net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Total revenues
Expenses
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, net
Total expenses
Income before income taxes and interest in income of equity method investments
Less: income tax expense (benefit)
Interest in income in equity method investments
Net income
Gain from repurchase of preference shares
Net income available to Maiden common shareholders
Basic and diluted earnings per share available to common shareholders
Weighted average number of common shares - basic
Adjusted weighted average number of common shares and assumed conversions - diluted
See accompanying notes to Consolidated Financial Statements.
F-5
$
$
$
$
10,938 $
10,403 $
42,590
52,993
1,067
32,013
12,648
—
98,721
7,307
24,840
36,020
19,327
(7,685)
79,809
18,912
15
7,748
26,645
90,998
117,643 $
31,389
28,432
77,649
106,081
1,276
54,761
24,473
(2,468)
184,123
41,799
38,796
39,118
19,324
8,526
147,563
36,560
(104)
5,098
41,762
38,195
79,957
1.35 $
86,068,278
86,072,667
0.93
84,333,514
84,333,655
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
For the Year Ended December 31,
Net income
Other comprehensive (loss) income
Net unrealized holdings (losses) gains on fixed maturity investments arising during the year
Net unrealized holdings losses on equity method investments arising during the year
Adjustment for reclassification of net realized gains recognized in net income
Foreign currency translation adjustment
Other comprehensive (loss) income, before tax
Income tax benefit (expense) related to components of other comprehensive income
Other comprehensive (loss) income, after tax
Comprehensive (loss) income
2021
2020
$
$
26,645 $
(28,900)
(4,414)
(18,787)
15,978
(36,123)
51
(36,072)
(9,427) $
41,762
40,043
—
(12,647)
(21,340)
6,056
(35)
6,021
47,783
See accompanying notes to Consolidated Financial Statements.
F-6
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars)
For the Year Ended December 31,
Preference shares – Series A, C and D
Beginning balance
Repurchase of Preference Shares – Series A
Repurchase of Preference Shares – Series C
Repurchase of Preference Shares – Series D
Ending balance
Common shares
Beginning balance
Issuance of common shares from vesting of stock based compensation
Ending balance
Additional paid-in capital
Beginning balance
Issuance of common shares from vesting of stock based compensation
Share-based compensation expense
Repurchase of preference shares
Cash settlement of restricted shares granted
Ending balance
Accumulated other comprehensive (loss) income
Beginning balance
Change in net unrealized (losses) gains on investment
Foreign currency translation adjustment
Ending balance
Accumulated deficit
Beginning balance
Cash settlement of restricted shares granted
Net income
Gain on repurchase of preference shares
Ending balance
Treasury shares
Beginning balance
Shares repurchased
Ending balance
Total equity
See accompanying notes to Consolidated Financial Statements.
F-7
2021
2020
$
$
394,310 $
(87,977)
(75,669)
(71,454)
159,210
898
25
923
756,122
(25)
4,771
7,847
(65)
768,650
23,857
(52,050)
15,978
(12,215)
(615,837)
(101)
26,645
90,998
(498,295)
(31,534)
(2,482)
(34,016)
384,257 $
465,000
(13,630)
(30,087)
(26,973)
394,310
882
16
898
751,327
(16)
2,445
2,366
—
756,122
17,836
27,361
(21,340)
23,857
(695,794)
—
41,762
38,195
(615,837)
(31,533)
(1)
(31,534)
527,816
MAIDEN HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
For the Year Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization and share-based compensation
Interest in income of equity method investments
Net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Foreign exchange and other (gains) losses, net
Changes in assets – (increase) decrease:
Reinsurance balances receivable, net
Reinsurance recoverable on unpaid losses
Accrued investment income
Deferred commission and other acquisition expenses
Funds withheld receivable
Other assets
Changes in liabilities – increase (decrease):
Reserve for loss and loss adjustment expenses
Unearned premiums
Accrued expenses and other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of fixed maturities
Purchases of other investments
Purchases of equity method investments
Proceeds from sales of fixed maturities
Proceeds from maturities, paydowns and calls of fixed maturities
Proceeds from sale and redemption of other investments
Proceeds from sale and redemption of equity method investments
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Repurchase of preference shares
Cash settlement of restricted shares granted
Repurchase of common shares
Net cash used in financing activities
Effect of exchange rate changes on foreign currency cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash - beginning of year
Cash, cash equivalents and restricted cash - end of year
Reconciliation of cash and restricted cash reported within Consolidated Balance Sheets:
Cash and cash equivalents, end of year
Restricted cash and cash equivalents, end of year
Total cash and cash equivalents and restricted cash and equivalents, end of year
Supplemental information on cash flows
Interest paid
Taxes paid
See accompanying notes to Consolidated Financial Statements.
F-8
2021
2020
$
26,645 $
8,224
(7,748)
(12,648)
—
(7,685)
(11,577)
3,694
5,390
15,013
15,749
(1,834)
(377,706)
(43,416)
(6,531)
(394,430)
(247,553)
(75,688)
(44,050)
477,920
344,989
1,273
6,777
396
464,064
(136,255)
(166)
(2,482)
(138,903)
(470)
(69,739)
135,826
66,087 $
26,668 $
39,419
66,087 $
19,106 $
109
$
$
$
$
41,762
8,689
(5,098)
(24,473)
2,468
8,526
23,406
(7,063)
7,312
25,955
55,802
(3,912)
(581,867)
(77,783)
(15,499)
(541,775)
(458,892)
(33,571)
(39,608)
505,396
619,824
1,932
1,571
(608)
596,044
(30,129)
—
(1)
(30,130)
4,409
28,548
107,278
135,826
74,040
61,786
135,826
19,106
106
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
1. Organization
Maiden Holdings, Ltd. (sometimes referred to as "Maiden Holdings" or "Parent Company") is a Bermuda-based holding company. Together with its subsidiaries (collectively referred to as the
"Company", "We" or "Maiden"), Maiden creates shareholder value by actively managing and allocating our assets and capital, including through ownership and management of businesses and assets
primarily in the insurance and related financial services industries where we can leverage our deep knowledge of those markets. We also provide a full range of legacy services to small insurance
companies, particularly those in run-off or with blocks of reserves that are no longer core, working with clients to develop and implement finality solutions including acquiring entire companies that
enable our clients to meet their capital and risk management objectives. We expect our legacy solutions business to contribute to our active asset and capital management strategies.
Short-term income protection business is written on a primary basis by our wholly owned subsidiaries Maiden Life Försäkrings AB ("Maiden LF") and Maiden General Försäkrings AB ("Maiden
GF") in the Scandinavian and Northern European markets. Insurance support services are provided to Maiden LF and Maiden GF by our UK services company, Maiden Global Holdings Ltd.
(“Maiden Global”) which is also a licensed intermediary in the United Kingdom. Maiden Global had previously operated internationally by providing branded auto and credit life insurance products
through insurer partners, particularly those in the European Union ("EU") and other global markets. These products also produced reinsurance programs which were underwritten by our wholly
owned subsidiary Maiden Reinsurance Ltd. (“Maiden Reinsurance”).
The Company is not actively underwriting reinsurance business on new prospective risks but is now actively underwriting risks on a retroactive basis through our indirect wholly owned subsidiary
Genesis Legacy Solutions ("GLS"). We also have various historic reinsurance programs underwritten by Maiden Reinsurance which are in run-off, including the liabilities associated with AmTrust
Financial Services, Inc. ("AmTrust") reinsurance agreements which were terminated in 2019 as discussed in "Note 10 — Related Party Transactions". In addition, we have a retroactive reinsurance
agreement and a commutation agreement that further reduces our exposure and limits the potential volatility related to AmTrust liabilities, which are discussed in "Note 8 — Reinsurance" of the
Notes to Consolidated Financial Statements.
Since 2018, the Company has engaged in a series of strategic measures that have dramatically reduced the regulatory capital required to operate our business, materially strengthened our solvency
ratios, re-domiciled Maiden Reinsurance from Bermuda to the State of Vermont in the U.S. and ceased active reinsurance underwriting on prospective risks. These transactions can be found in Part II
of our Annual Report on Form 10-K for the year ended December 31, 2020 that was filed with the SEC on March 15, 2021 and are more fully described (as applicable) in "Note 8 — Reinsurance"
and "Note 10 — Related Party Transactions" in these financial statements.
Re-domestication of Maiden Reinsurance
Effective March 16, 2020, we re-domesticated our principal operating subsidiary, Maiden Reinsurance, from Bermuda to the State of Vermont in the U.S., having determined that re-domesticating
Maiden Reinsurance to Vermont enables us to better align our capital and resources with our liabilities, which originate mostly in the U.S., resulting in a more efficient structure. Maiden Reinsurance
is now subject to the statutes and regulations of Vermont in the ordinary course of business. The re-domestication, in combination with other strategic measures described above that were completed
in 2019, have continued to strengthen the Company’s capital position and solvency ratios.
While the Vermont Department of Financial Regulation ("Vermont DFR") is now the group supervisor for the Company, the re-domestication did not apply to the Parent Company which remains
a Bermuda-based holding company. Securities issued by Maiden Holdings were not affected by the re-domestication of Maiden Reinsurance to Vermont. Concurrent with its re-domestication to
Vermont on March 16, 2020, Maiden Holdings contributed as capital the remaining 65% of its ownership in Maiden Reinsurance to our wholly-owned subsidiary Maiden Holdings North America,
Ltd. ("Maiden NA"). Maiden NA now owns 100% of Maiden Reinsurance in the aggregate.
Genesis Legacy Solutions
In November 2020, we formed GLS which specializes in providing a full range of legacy services to small insurance entities, particularly those in run-off or with blocks of reserves that are no
longer core, working with clients to develop and implement finality solutions including acquiring entire companies that enable our clients to meet their capital and risk management objectives. We
believe the formation of GLS is highly complementary to our overall longer-term strategy. GLS, along with other recent insurance industry investments, enables us to leverage our knowledge base
while not re-entering active underwriting of new risks and maintaining an efficient operating profile. We believe GLS not only enhances our profitability through both fee income and effective claims
management services, but it will also increase our asset base through the addition of blocks of reserves or companies that can be successfully wound down.
Effective October 1, 2021, GLS completed its first transaction, a loss portfolio transfer transaction which includes an adverse development cover and GLS continues to develop additional
opportunities consistent with its business plan. The accounting for this transaction is described in "Note 2 — Significant Accounting Policies" under retroactive reinsurance. This should further
enhance our ability to pursue the asset and capital management pillars of our business strategy. As of December 31, 2021, GLS and its subsidiaries had insurance related liabilities including loss
reserves and risk premiums totaling $17,925 and has completed an additional transaction in the first quarter of 2022 with an effective date of December 31, 2021.
F-9
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
1. Organization (continued)
COVID-19 Pandemic
The continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet
known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. Our results of operations, financial condition, and liquidity and capital resources may have
been adversely impacted by the COVID-19 pandemic, and the future impact of the pandemic on our financial condition or results of operations is difficult to predict.
As described herein, the Company has not been engaged in active reinsurance underwriting of prospective risks since early 2019 and is running off the remaining unearned exposures it has
reinsured. The Company's Swedish and UK insurance operations ("IIS unit") do write limited primary insurance coverages that could be exposed to COVID-19 claims. While we assess our exposure
to COVID-19 insurance and reinsurance claims on our existing insurance exposures and remaining reinsurance exposures as limited and immaterial, given the uncertainty surrounding the COVID-19
pandemic and its impact on the insurance industry, our preliminary estimates of loss and loss adjustment expenses ("loss and LAE") and estimates of reinsurance recoverable arising from the COVID-
19 pandemic may materially change. Maiden Reinsurance has not received any COVID-19 claims to date but our companies within our IIS unit have received a limited number of claims related to
those coverages which it deems as immaterial. Unanticipated issues relating to claims and coverage may emerge, which could adversely affect our business by increasing the scope of coverage
beyond our intent and/or increasing the frequency and severity of claims.
The Company's investment portfolio may be adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic, and the Company and its reinsurance subsidiaries may
need additional capital to maintain compliance with regulatory capital requirements and/or be required to post additional collateral under existing reinsurance arrangements, which could reduce our
liquidity. In addition, the Company may experience continued volatility in its results of operations which could negatively impact its financial condition and create a reduction in the amount of
available distribution or dividend capacity from its regulated reinsurance subsidiaries, which would also reduce liquidity.
F-10
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
2. Significant Accounting Policies
Basis of Reporting and Consolidation — These Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. ("U.S. GAAP") and
include the accounts of Maiden Holdings and all of its subsidiaries. These Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair
presentation of the results for the period and all such adjustments are of a normal recurring nature. All significant intercompany transactions and accounts have been eliminated. Certain prior year
comparatives have been reclassified to conform to the current year presentation. The effect of these reclassifications had no impact on previously reported shareholders' equity or net income.
Estimates — The preparation of U.S. GAAP Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates. The significant estimates include, but are not limited to, reserve for loss and loss adjustment expenses ("loss and LAE"), deferred gain on
retroactive reinsurance; recoverability of reinsurance balances receivable, reinsurance recoverable on unpaid losses, funds withheld and deferred commission and other acquisition expenses; valuation
of financial instruments and deferred tax assets; and the determination of other-than-temporary impairment ("OTTI") of investments.
Fixed Maturity Investments — The Company classifies its fixed maturity investments as available-for-sale ("AFS"). The AFS portfolio is reported at fair value and any unrealized gains or losses
are reported as a component of accumulated other comprehensive income ("AOCI") in shareholders' equity. The fair value of fixed maturity investments is generally determined from quotations
received from third-party nationally recognized pricing services ("Pricing Service"), or when such prices are not available, by reference to broker or underwriter bid indications.
Short-term investments - These investments are comprised of securities due to mature within one year of the date of purchase. The Company held no short-term investments as at December 31,
2021 and 2020.
Other investments — The Company accounts for its other investments at fair value in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") Topic 944-325, "Financial Services - Insurance - Investments - Other" ("ASC 944-325"). Other investments are comprised of the following types of investments:
•Privately held investments: These are direct equity investments in common and preferred stock of privately held entities. The fair values are estimated using quarterly financial statements
and/or recent private market transactions. These investments are also comprised of investments in insurtech and other insurance focused companies. The fair value of these start-up insurance
entities are determined using recent private market transactions where applicable. Any changes in fair value are reported in realized gains (losses) and recognized in net earnings.
•Private credit funds: These are privately held equity investments in common stock of entities that lend money valued using the most recently available or quarterly net asset value ("NAV")
statements as provided by the external fund manager or third-party administrator. Any changes in fair value are reported in realized gains (losses) and recognized in net earnings.
•Private equity funds: These are comprised of private equity funds, private equity co-investments with sponsoring entities and investments in real estate limited partnerships and joint
ventures. The fair value is estimated based on the most recently available NAV as advised by the external fund manager or third-party administrator. Any changes in fair value are reported in
realized gains (losses) and recognized in net earnings.
•Investments in direct lending entities: These investments are carried at cost less impairment, if any, with any indication of impairment recognized in income when determined.
•Publicly traded equity investments: These investments are in the common stock of publicly traded entities. The fair value is primarily priced by pricing services, reflecting the closing price
quoted for the final trading day of the period. The common stock is carried at fair value using observable market pricing data and any unrealized gains or losses on the investment is recorded
in net income in the period in which they occur.
The valuation of other investments is further described in Note 5 — Fair Value Measurements. Due to a lag in the valuations of certain funds reported by the investment managers, the Company
may record changes in valuation with up to a three-month lag. The Company regularly reviews and discusses fund performance with the investment managers or sponsors to corroborate the
reasonableness of the reported NAV and to assess whether any events have occurred within the lag period that would affect the valuation of the investments.
Equity Method Investments — Investments in which the Company has significant influence over the operating and financial policies of the investee are classified as equity method investments and
accounted for using the equity method of accounting. In applying the equity method of accounting, investments are initially recorded at cost and are subsequently adjusted based on the Company’s
proportionate share of the investee's net income or loss, net of any distributions received.
Adjustments are based on the most recent available financial information from the investee. Changes in the carrying value of these investments are recorded in net income as interest in income
(loss) of equity method investments. The Company records its share of the investee’s OCI activity based on its proportionate share of the investee's common stock or capital, and books any OCI
activity directly to the equity method investments account, with the offset recorded to the Company's AOCI.
F-11
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
2. Significant Accounting Policies (continued)
Purchases and sales of investments are recorded on a trade date basis. Realized gains or losses on investment sales are determined based on the first in first out cost method. Net investment income
is recognized when earned and includes accrued interest and dividend income together with amortization of market premiums and discounts using the effective yield method, net of investment
management fees. For U.S. government agency mortgage-backed securities ("Agency MBS") and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and
revised as necessary. Any changes required due to movements in effective yields and maturities are recognized on a prospective basis through yield adjustments.
A security is potentially impaired when its fair value falls below its amortized cost. On a quarterly basis, all potentially impaired securities are reviewed to determine whether the impairment is
temporary or OTTI. OTTI assessments are inherently judgmental, especially where securities have experienced severe declines in fair value over a short period. The Company's review process begins
with a quantitative analysis to identify securities to be further evaluated for potential classification as OTTI. For all identified securities, further fundamental analysis is performed that considers, but
is not limited to, the following quantitative and qualitative factors: historic and implied volatility of the security; length of time and extent to which the fair value has been less than amortized cost;
adverse conditions specifically related to the security or to specific conditions in an industry or geographic area; failure, if any, of the issuer of the security to make scheduled payments; and
recoveries or additional declines in fair value subsequent to the balance sheet date.
The Company recognizes OTTI losses within earnings for its impaired fixed maturity securities (i) for which the Company has the intent to sell the security or (ii) it is more likely than not that the
Company will be required to sell the debt security before its anticipated recovery and (iii) for those securities which have a credit loss. In assessing whether a credit loss exists, the Company compares
the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. In instances in which a determination is made that an impairment exists but
the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost
basis, the impairment is separated into (i) the amount of the total impairment related to the credit loss and (ii) the amount of the total impairment related to all other factors.
The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total OTTI related to all other factors is recognized in OCI. In periods after the recognition of
OTTI on the fixed maturity securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous
amortized cost basis less the OTTI recognized in earnings. For fixed maturity securities in which an OTTI loss was recognized in earnings, the difference between the new amortized cost basis and
the cash flows expected to be collected will be amortized into net investment income.
As the Company's investment portfolio is the largest component of its consolidated assets, any OTTI on fixed maturity securities could be material to the Company's financial condition and results
particularly during periods of dislocation in the financial markets.
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:
• Level 1 — Valuations based on unadjusted quoted market prices for identical assets or liabilities that we have the ability to access. Because 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 severity, 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
developed on the basis of the best information available in the particular circumstances. 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 the Level 3 hierarchy.
The Company uses prices and inputs that are current as 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 a financial instrument to be reclassified between hierarchy levels.
F-12
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
2. Significant Accounting Policies (continued)
For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these in the Level 1 hierarchy. The Company receives
quoted market prices from a third party nationally recognized 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 representative 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 quotations for recent activity in positions with the same or
similar characteristics to that investment being valued. 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.
Cash and Cash Equivalents — The Company maintains cash accounts in several banks and brokerage institutions. Cash equivalents consist of investments in money market funds and short-term
investments with an original maturity of 90 days or less and are stated at cost, which approximates fair value. Restricted cash and cash equivalents are separately reported in the Consolidated Balance
Sheets. The Company maintains certain cash and investments in trust accounts used primarily as collateral for unearned premiums and loss and LAE reserves owed to insureds. The Company is
required to maintain minimum balances in these restricted accounts based on pre-determined formulas. Please see "Note 4. (e) Investments" for further details.
Premiums and Related Expenses — For pro-rata contracts and excess-of-loss contracts where no deposit or minimum premium is specified in the contract, premium written is recognized based on
estimates of ultimate premiums provided by the ceding companies. Initial estimates of premium written are recognized in the period in which the underlying risks are incepted. Subsequent
adjustments, based on reports of actual premium by the ceding companies, or revisions in estimates, are recorded in the period in which they are determined. Reinsurance premiums assumed are
generally earned on a pro-rata basis over the terms of the underlying policies or reinsurance contracts. Contracts and policies written on a "losses occurring" basis cover claims that may occur during
the term of the contract or policy, which is typically twelve months. Accordingly, the premium is earned evenly over the term. Contracts which are written on a "risks attaching" basis cover claims
which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts usually extend beyond the original term of the reinsurance contract,
typically resulting in recognition of premiums earned over a 24-month period.
Reinsurance premiums on specialty risk and extended warranty are earned based on the estimated program coverage period. These estimates are based on the expected distribution of coverage
periods by contract at inception, because a single contract may contain multiple coverage period options, and these estimates are revised based on the actual coverage period selected by the original
insured. Unearned premiums represent the portion of premiums written which is applicable to the unexpired term of the contract or policy in force. These premiums can be subject to estimates based
upon information received from ceding companies and any subsequent differences arising on such estimates are recorded in the period in which they are determined.
Assumed and ceded reinsurance contracts that lack a significant transfer of risk are treated as deposits. No deposit contracts are held as at December 31, 2021 and 2020.
Acquisition expenses represent the costs of writing business that vary with, and are primarily related to, the production of that business. Policy and contract acquisition expenses, including
assumed commissions, are deferred and recognized as expense as the related premiums are earned.
The Company considers anticipated investment income in determining the recoverability of these costs and believes they are fully recoverable. A premium deficiency is recognized if the sum of
anticipated loss and LAE, unamortized acquisition expenses less anticipated investment income exceed unearned premiums.
Loss and LAE — Loss and LAE represent the estimated ultimate net costs of all reported and unreported losses incurred through December 31 of the latest fiscal year. The reserve for loss and
LAE is estimated using a statistical analysis of actuarial data and is not discounted for the time value of money. Although considerable variability is inherent in the estimates of reserves for loss and
LAE, management believes that the reserve for loss and LAE is adequate based on known information to date. In estimating loss reserves, the Company utilizes a variety of standard actuarial
methods. These estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available. Such adjustments are included and reported in current
operations as favorable or unfavorable prior period development.
Reinsurance — Reinsurance premiums and loss and LAE ceded to other companies are accounted for on a basis consistent with those used in accounting for original policies issued and pursuant
to the terms of the reinsurance contracts. The Company records premiums earned and loss and LAE incurred and ceded to other companies as reduction of premium revenue and loss and LAE,
respectively. The unexpired portion of reinsurance purchased by the Company (retrocession or reinsurance premiums ceded) is included in other assets and amortized over the contract period in
proportion to the amount of insurance protection provided. The ultimate amount of premiums, including adjustments, is recognized as premiums ceded and amortized over the applicable contract
period to which they apply. Premiums earned are reported net of reinsurance in the Consolidated Statements of Income.
Reinsurance recoverable on unpaid losses relate to the portion of reserves and paid losses and LAE that are ceded to other companies. Reinsurance recoverable on unpaid losses are separately
recorded as an asset in the Consolidated Balance Sheets. The Company remains contingently liable for all loss payments in the event of failure to collect from reinsurers.
F-13
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
2. Significant Accounting Policies (continued)
Retroactive Reinsurance - Retroactive reinsurance agreements are those in which a reinsurer agrees to reimburse the ceding company for liabilities incurred as a result of past insurable loss events.
We do not record any income or expense on recognition of the reinsurance contract's assets and liabilities at inception. Any subsequent remeasurement of the value of liabilities is recorded to net loss
and LAE within the Consolidated Statements of Income.
For ceded retroactive agreement, the excess of the amounts ultimately collectible under the agreement over the consideration paid is recognized as a deferred gain liability which is amortized into
income over the settlement period of the ceded reserves once the paid losses have exceeded the minimum retention. The amount of the deferral is recalculated each period based on actual loss
payments and updated estimates of ultimate losses. If the consideration paid exceeds the ultimate losses collectible under the agreement, the net loss on the retroactive reinsurance agreement is
recognized within income immediately.
At the inception of a run-off retroactive reinsurance contract, if the estimated undiscounted ultimate losses payable are in excess of the premiums received, a deferred charge asset is recorded for
the excess; whereas, if the premiums received are in excess of the estimated undiscounted ultimate losses payable, a deferred gain liability is recorded for the excess, such that we do not record any
gain or loss at the inception of these retroactive reinsurance contracts. The premium consideration that we charge the ceding companies under retroactive reinsurance contracts may be lower than the
undiscounted estimated ultimate losses payable due to the time value of money. After receiving the premium consideration in full from cedents at the inception of the contract, we invest the premium
received over an extended period of time, thereby generating investment income. We expect to generate profits from these retroactive reinsurance contracts when taking into account the premium
received and expected investment income, less contractual obligations and expenses.
Deferred charge assets will be recorded in other assets (if and when applicable), and deferred gain liabilities are recorded in other liabilities, and amortized over the estimated claim payment
period of the related contract with the periodic amortization reflected in income as a component of net loss and LAE. The amortization of deferred charge assets and deferred gain liabilities is
adjusted at each reporting period to reflect new estimates of the amount and timing of remaining loss and LAE payments. Changes in the estimated amount and timing of payments of unpaid losses
may have an effect on the unamortized deferred charge assets and deferred gain liabilities and the amount of periodic amortization.
Debt Obligations and Deferred Debt Issuance Costs — Costs incurred in issuing debt are capitalized and amortized over the contractual life of the debt. The amortization of these costs are
included in interest and amortization expenses in the Consolidated Statements of Income. The unamortized amount of issuance costs is presented as a deduction from the related principal liability for
senior notes in the Consolidated Balance Sheets.
Leases — The Company's leases are all currently classified as operating leases and none of them have non-lease components. For operating leases that have a lease term of more than twelve
months, the Company recognized a lease liability (presented as part of accrued expenses and other liabilities) and a right-of-use asset (presented as part of other assets) in the Consolidated Balance
Sheets at the present value of the remaining lease payments until expiration. As the lease contracts generally do not provide an implicit discount rate, the Company used a weighted-average discount
rate of 10%, representing its estimated secured incremental borrowing rate, in calculating the present value of the lease liability. The Company has made an accounting policy election not to include
renewal, termination, or purchase options that are not reasonably certain of exercise when determining the term of the borrowing. The Company recognizes the related leasing expense on a straight-
line basis over the lease term in the Company's Consolidated Statements of Income.
Non-controlling Interests — The Company accounts for non-controlling interests in subsidiaries in accordance with ASC Topic 810 "Consolidations", and presents any non-controlling
shareholders' interest in the equity section of the Consolidated Balance Sheets. Net income attributable to non-controlling interests is presented separately in the Consolidated Statements of Income.
There are no remaining non-controlling interests in subsidiaries as at December 31, 2021 and 2020.
Income Taxes — The Company accounts for income taxes using ASC Topic 740 "Income Taxes" for subsidiaries operating in taxable jurisdictions. Deferred income taxes reflect the expected
future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. A valuation
allowance is recorded if it is more likely than not that some or all of a deferred tax asset may not be realized. The Company considers future taxable income and feasible tax planning strategies in
assessing the need for a valuation allowance. In the event the Company determines that it will not be able to realize all or part of its deferred income tax assets in the future, an adjustment to the
deferred income tax assets would be charged to income in the period in which such determination is made. In addition, if the Company subsequently assesses that the valuation allowance is no longer
needed, a benefit would be recorded to income in the period in which such determination is made.
U.S. GAAP allows for the recognition of tax benefits of uncertain tax positions only where the position is more likely than not to be sustained assuming examination by tax authorities. A liability
is established for any tax benefit claimed in a tax return in excess of this threshold. Income tax related interest and penalties would be included as income tax expense. The Company has not recorded
or accrued any interest or penalties during the years ended December 31, 2021 and 2020.
Share-Based Compensation Expense — Pursuant to the 2019 Omnibus Incentive Plan, the Company is authorized to issue restricted share awards and performance-based restricted shares, share
options and other equity-based awards to its employees and directors. The Company recognizes the compensation expense for share options and restricted share grants based on the fair value of the
award on the date of grant, over the requisite service vesting period. Forfeitures are accounted for if and when they occur. The estimated fair value of the grant is amortized ratably over its vesting
period as a charge to compensation expense (as a component of general and administrative expenses) and an increase to additional paid-in capital in the Consolidated Shareholders’ Equity.
F-14
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
2. Significant Accounting Policies (continued)
Earnings Per Share — Basic earnings per share are computed based on the weighted-average number of common shares outstanding and exclude any dilutive effects of share options, and
unvested restricted shares units. Dilutive earnings per share are computed using the weighted-average number of common shares outstanding during the period adjusted for the dilutive impact of
share options. The two-class method is used to determine earnings per share based on dividends declared on common shares and participating securities (i.e. distributed earnings) and participation
rights of participating securities in any undistributed earnings. Each unvested restricted share granted by the Company to certain employees and directors is considered a participating security and the
two-class method is used to calculate net income attributable to Maiden common shareholders per common share – basic and diluted. However, any undistributed losses are not allocated to the
participating securities.
Net income available to Maiden common shareholders per common share – basic and diluted is also adjusted for any gain or loss from redemption or induced conversion of the Company's
preference shares. The gain on repurchase of preference shares had an impact of $1.06 per common share for the year ended December 31, 2021.
Treasury Shares — Treasury shares include common shares repurchased by the Company and not subsequently cancelled as well as share repurchases from employees, which represent
withholding in respect of tax obligations on the vesting of restricted shares and performance based shares. Treasury shares are recorded at cost and result in a reduction of the total Maiden
shareholders’ equity in the Consolidated Balance Sheets.
Foreign Currency Transactions — The functional currency of the Company and many of its subsidiaries is the U.S. dollar. For these companies, monetary assets and liabilities denominated in
foreign currencies are translated at year-end exchange rates, with resulting foreign exchange gains and losses recognized in the Consolidated Statements of Income. Revenues and expenses in foreign
currencies are converted at average exchange rates during the year. Monetary assets and liabilities include cash and cash equivalents, reinsurance balances receivable, reinsurance recoverable on
unpaid losses, funds withheld receivable, reserve for loss and LAE and accrued expenses and other liabilities. Accounts that are classified as non-monetary such as deferred commission and other
acquisition expenses and unearned premiums are not revalued.
Assets and liabilities of foreign subsidiaries and divisions, whose functional currency is not the U.S. dollar, are translated at year-end exchange rates. Revenues and expenses of these entities are
translated at average exchange rates during the year. The effects of the foreign currency translation adjustment for foreign entities are included in AOCI. The amount of the cumulative translation
adjustment at December 31, 2021 was $(9,522) (2020 - $(25,500)).
Recently Adopted Accounting Standards Updates
No new accounting standards have been recently adopted for the year ended December 31, 2021.
Recently Issued Accounting Standards Not Yet Adopted
Accounting for Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments: Credit Losses (Topic 326)" replacing the "incurred loss" impairment methodology with an approach based on "expected
losses" to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The
guidance requires financial assets to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the cost of the financial asset
to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 also modified the accounting for AFS debt securities, which must be individually assessed
for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments: Credit Losses Available-for-Sale Debt Securities. Credit losses
relating to AFS debt securities will be recorded through an allowance for credit losses rather than under the current OTTI methodology.
In April 2019, the FASB issued ASU 2019-04 for targeted improvements related to ASU 2016-13 which clarify that an entity should include all expected recoveries in its estimate of the allowance
for credit losses. In addition, for collateral dependent financial assets, the amendments mandate that an allowance for credit losses that is added to the amortized cost basis of the financial asset should
not exceed amounts previously written off. It also clarifies FASB’s intent to include all reinsurance recoverables within the scope of Topic 944 to be within the scope of Subtopic 326-20, regardless of
the measurement basis of those recoverables. The Company's reinsurance recoverable on unpaid losses is currently the most significant financial asset within the scope of ASU 2016-13.
The guidance is effective for public business entities, excluding entities eligible to be smaller reporting companies ("SRCs") as defined by the SEC, for annual periods beginning after December
15, 2019, and interim periods therein. The guidance is effective for all other entities, including public entities eligible to be SRCs, for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. As of December 31, 2021, the Company qualified for SRC status, as determined on the last business day of its most recent second quarter, and thus remains
eligible to follow the reporting deadlines and effective dates applicable to SRCs. Therefore, Topic 326 will not be effective until fiscal year 2023. The Company continues to evaluate the impact of
this guidance on its results of operations, financial condition and liquidity.
F-15
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 Europe. This segment also includes transactions entered into by
GLS which was formed in November 2020 as described in "Note 1 — Organization". Our AmTrust Reinsurance segment includes all business ceded to Maiden Reinsurance by AmTrust, primarily
the quota share reinsurance agreement (“AmTrust Quota Share”) between Maiden Reinsurance and AmTrust’s wholly owned subsidiary, AmTrust International Insurance, Ltd. (“AII”), and the
European hospital liability quota share reinsurance contract ("European Hospital Liability Quota Share") with AmTrust’s wholly owned subsidiaries, AmTrust Europe Limited ("AEL") and AmTrust
International Underwriters DAC ("AIU DAC"), which are both in run-off effective January 1, 2019. Please refer to "Note 10 — Related Party Transactions" for additional information regarding the
AmTrust Reinsurance segment.
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 reportable
segments on an actual basis except salaries and benefits where management’s judgment is applied; however general corporate expenses are not allocated 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, funds withheld receivable, loan to related party, and restricted cash and investments. All remaining assets are allocated to Corporate.
The following tables summarize the underwriting results of our reportable segments and the reconciliation of our reportable segments' underwriting results to consolidated net income:
For the Year Ended December 31, 2021
Gross premiums written
Net premiums written
Net premiums earned
Other insurance revenue
Net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Underwriting income
Reconciliation to net income
Net investment income and net realized and unrealized gains on investment
Interest and amortization expenses
Foreign exchange and other gains, net
Other general and administrative expenses
Income tax expense
Interest in income from equity method investments
Net income
(1)
Net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
(3)
(4)
(2)
Combined ratio
(5)
F-16
Diversified Reinsurance
16,633
16,098
27,681
1,067
(4,286)
(15,093)
(7,827)
1,542
$
$
$
$
$
$
$
$
AmTrust Reinsurance
Total
(5,695)
(5,695)
25,312
—
(3,021)
(9,747)
(2,514)
10,030
$
$
$
$
14.9 %
52.5 %
27.2 %
79.7 %
94.6 %
11.9 %
38.5 %
9.9 %
48.4 %
60.3 %
10,938
10,403
52,993
1,067
(7,307)
(24,840)
(10,341)
11,572
44,661
(19,327)
7,685
(25,679)
(15)
7,748
26,645
13.5 %
46.0 %
66.6 %
112.6 %
126.1 %
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
3. Segment Information (continued)
For the Year Ended December 31, 2020
Gross premiums written
Net premiums written
Net premiums earned
Other insurance revenue
Net loss and LAE
Commission and other acquisition expenses
General and administrative expenses
Underwriting (loss) income
Reconciliation to net income
Net investment income and net realized and unrealized gains on investment
Total other-than-temporary impairment losses
Interest and amortization expenses
Foreign exchange and other losses, net
Other general and administrative expenses
Income tax benefit
Interest in income from equity method investments
Net income
(1)
Net loss and LAE ratio
Commission and other acquisition expense ratio
General and administrative expense ratio
Expense ratio
(3)
(4)
(2)
Combined ratio
(5)
(1) Calculated by dividing the 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 the net loss and LAE ratio and the expense ratio.
F-17
Diversified Reinsurance
40,457
37,258
47,847
1,276
(24,909)
(18,475)
(6,936)
(1,197)
$
$
$
$
$
$
$
$
AmTrust Reinsurance
Total
(9,068)
(8,826)
58,234
—
(16,890)
(20,321)
(2,552)
18,471
$
$
$
$
50.7 %
37.6 %
14.1 %
51.7 %
102.4 %
29.0 %
34.9 %
4.4 %
39.3 %
68.3 %
31,389
28,432
106,081
1,276
(41,799)
(38,796)
(9,488)
17,274
79,234
(2,468)
(19,324)
(8,526)
(29,630)
104
5,098
41,762
38.9 %
36.1 %
36.4 %
72.5 %
111.4 %
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
3. Segment Information (continued)
The following tables summarize the financial position of our reportable segments including the reconciliation to the Company's consolidated total assets at December 31, 2021 and 2020:
December 31, 2021
Reinsurance balances receivable, net
Reinsurance recoverable on unpaid losses
Deferred commission and other acquisition expenses
Loan to related party
Restricted cash and cash equivalents and investments
Funds withheld receivable
Other assets
Total assets - reportable segments
Corporate assets
Total Assets
December 31, 2020
Reinsurance balances receivable, net
Reinsurance recoverable on unpaid losses
Deferred commission and other acquisition expenses
Loan to related party
Restricted cash and cash equivalents and investments
Funds withheld receivable
Other assets
Total assets - reportable segments
Corporate assets
Total Assets
Diversified Reinsurance
AmTrust Reinsurance
Total
1,927 $
2,979
2,533
—
83,143
34,952
582
126,116
—
126,116 $
17,471 $
490,860
34,170
167,975
499,004
601,460
—
1,810,940
—
1,810,940 $
19,398
493,839
36,703
167,975
582,147
636,412
582
1,937,056
385,554
2,322,610
Diversified Reinsurance
AmTrust Reinsurance
Total
5,560 $
4,658
6,171
—
87,419
51,712
860
156,380
—
156,380 $
— $
519,941
45,732
167,975
992,636
603,093
—
2,329,377
—
2,329,377 $
5,560
524,599
51,903
167,975
1,080,055
654,805
860
2,485,757
462,698
2,948,455
$
$
$
$
The following table shows an analysis of gross and net premiums written and net premiums earned by geographic location for the years ended December 31, 2021 and 2020. In the case of
reinsurance business assumed from AmTrust, the table refers to the location of the relevant AmTrust subsidiaries.
For the Year Ended December 31,
Gross premiums written – North America
Gross premiums written – Other (predominantly Europe)
Gross premiums written – Total
Net premiums written – North America
Net premiums written – Other (predominantly Europe)
Net premiums written – Total
Net premiums earned – North America
Net premiums earned – Other (predominantly Europe)
Net premiums earned – Total
F-18
$
$
$
$
$
$
2021
2020
(7,649) $
18,587
10,938 $
(7,320) $
17,723
10,403 $
(6,948) $
59,941
52,993 $
(10,979)
42,368
31,389
(10,836)
39,268
28,432
(10,207)
116,288
106,081
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Net premiums written
Diversified Reinsurance
International
Other
Total Diversified Reinsurance
AmTrust Reinsurance
Small Commercial Business
Specialty Program
Specialty Risk and Extended Warranty
Total AmTrust Reinsurance
Total Net Premiums Written
2021
2020
Total
% of Total
Total
% of Total
$
$
16,098
—
16,098
(6,445)
(876)
1,626
(5,695)
10,403
154.7 % $
— %
154.7 %
(61.9)%
(8.4)%
15.6 %
(54.7)%
100.0 % $
37,294
(36)
37,258
(11,515)
(19)
2,708
(8,826)
28,432
131.2 %
(0.1)%
131.1 %
(40.5)%
(0.1)%
9.5 %
(31.1)%
100.0 %
The following table sets forth financial information relating to net premiums earned by major line of business and reportable segment for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Net premiums earned
Diversified Reinsurance
International
Other
Total Diversified Reinsurance
AmTrust Reinsurance
Small Commercial Business
Specialty Program
Specialty Risk and Extended Warranty
Total AmTrust Reinsurance
Total Net Premiums Earned
2021
2020
Total
% of Total
Total
% of Total
$
$
27,681
—
27,681
(6,095)
(853)
32,260
25,312
52,993
52.2 % $
— %
52.2 %
(11.5)%
(1.6)%
60.9 %
47.8 %
100.0 % $
47,883
(36)
47,847
(10,938)
33
69,139
58,234
106,081
45.1 %
— %
45.1 %
(10.3)%
— %
65.2 %
54.9 %
100.0 %
F-19
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
4. Investments
As discussed in Note 2 — Significant Accounting Policies, the Company holds: (i) AFS portfolios of fixed maturity securities, carried at fair value; (ii) other investments, of which certain
investments are carried at fair value and investments in direct lending entities are carried at cost less impairment; (iii) equity method investments; and (iv) funds held - directly managed.
a) Fixed Maturities
The amortized cost, gross unrealized gains and losses, and fair value of fixed maturities at December 31, 2021 and 2020 are as follows:
December 31, 2021
Fixed maturities:
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
(1)
Total fixed maturity investments
December 31, 2020
Fixed maturities:
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
(1)
Total fixed maturity investments
Original or
amortized cost
Gross
unrealized gains
Gross
unrealized losses
Fair value
59,989 $
96,554
3,163
198,946
236,692
595,344 $
— $
2,429
113
705
10,094
13,341 $
(110) $
(193)
—
(5,093)
(6,144)
(11,540) $
59,879
98,790
3,276
194,558
240,642
597,145
Original or
amortized cost
Gross
unrealized gains
Gross
unrealized losses
Fair value
94,468 $
272,124
8,641
184,227
604,463
1,163,923 $
34 $
9,439
1,067
1,611
40,904
53,055 $
— $
(126)
—
(406)
(3,035)
(3,567) $
94,502
281,437
9,708
185,432
642,332
1,213,411
$
$
$
$
(1) Asset-backed securities are comprised primarily of collateralized loan obligations.
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.
December 31, 2021
Maturity
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
U.S. agency bonds – mortgage-backed
Asset-backed securities
(1)
Total fixed maturities
(1) Asset-backed securities are comprised primarily of collateralized loan obligations.
F-20
Fixed maturities
Amortized cost
Fair value
$
$
66,193 $
202,405
30,634
612
299,844
96,554
198,946
595,344 $
65,742
206,028
31,476
551
303,797
98,790
194,558
597,145
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
4. Investments (continued)
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:
December 31, 2021
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Asset-backed securities
Corporate bonds
(1)
Total temporarily impaired fixed maturity securities
(1) Asset-backed securities are comprised primarily of collateralized loan obligations.
Less than 12 Months
12 Months or More
Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
$
$
59,879 $
4,415
117,148
38,537
219,979 $
(110) $
(193)
(5,057)
(2,775)
(8,135) $
— $
—
5,064
27,852
32,916 $
— $
—
(36)
(3,369)
(3,405) $
59,879 $
4,415
122,212
66,389
252,895 $
(110)
(193)
(5,093)
(6,144)
(11,540)
At December 31, 2021, there were 44 securities in an unrealized loss position with a fair value of $252,895 and unrealized losses of $11,540. Of these securities in an unrealized loss position,
there were 8 securities in our portfolio that have been in an unrealized loss position for twelve months or greater with a fair value of $32,916 and unrealized losses of $3,405.
December 31, 2020
U.S. agency bonds – mortgage-backed
Asset-backed securities
Corporate bonds
(1)
Total temporarily impaired fixed maturity securities
Less than 12 Months
12 Months or More
Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
$
$
19,360 $
13,371
31,839
64,570 $
(85) $
(217)
(890)
(1,192) $
5,646 $
31,052
65,296
101,994 $
(41) $
(189)
(2,145)
(2,375) $
25,006 $
44,423
97,135
166,564 $
(126)
(406)
(3,035)
(3,567)
(1) Asset-backed securities are comprised primarily of collateralized loan obligations.
At December 31, 2020, there were 53 securities in an unrealized loss position with a fair value of $166,564 and unrealized losses of $3,567. Of these securities in an unrealized loss position, there
were 35 securities in our portfolio that have been in an unrealized loss position for twelve months or greater with a fair value of $101,994 and unrealized losses of $2,375.
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 December 31, 2021, we determined that unrealized losses on fixed maturities were primarily due to changes in interest rates as well as the impact of foreign
exchange rate changes on certain foreign currency denominated fixed maturities since their date of purchase. All fixed maturity securities continue to pay the expected coupon payments under the
contractual terms of the securities. Any credit-related impairment related to fixed maturity securities that the Company does not intend to sell or is not more likely than not that the Company will be
required to sell before its anticipated recovery of their amortized cost basis is recognized in net income, with the non-credit related impairment recognized in comprehensive income. Based on our
analysis, our fixed maturity portfolio is of high credit quality and we believe the amortized cost basis of the securities will be ultimately recovered. The Company continually monitors the credit
quality of the fixed maturity investments to assess if it is probable that it will receive the contractual or estimated cash flows in the form of principal and interest. For the year ended December 31,
2021, there was no impairment recognized on the Company's portfolio of fixed maturity securities, compared to $2,468 in OTTI charges recorded in earnings on four fixed maturity securities for the
year ended December 31, 2020.
F-21
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
4. Investments (continued)
The following tables summarize the credit ratings of our fixed maturity securities as at December 31, 2021 and 2020:
December 31, 2021
U.S. treasury bonds
U.S. agency bonds
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+ or lower
Total fixed maturities
(1)
December 31, 2020
U.S. treasury bonds
U.S. agency bonds
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+ or lower
Total fixed maturities
(1)
Amortized cost
Fair value
% of Total
fair value
59,989 $
96,554
161,179
38,999
99,748
126,770
12,105
595,344 $
59,879
98,790
156,706
39,140
99,962
129,618
13,050
597,145
Amortized cost
Fair value
% of Total
fair value
94,468 $
272,124
96,453
114,751
265,725
274,406
45,996
1,163,923 $
94,502
281,437
97,515
118,534
281,364
292,493
47,566
1,213,411
10.0 %
16.6 %
26.2 %
6.6 %
16.7 %
21.7 %
2.2 %
100.0 %
7.8 %
23.2 %
8.0 %
9.8 %
23.2 %
24.1 %
3.9 %
100.0 %
$
$
$
$
(1)
Based on Standard & Poor’s ("S&P"), or equivalent, ratings
b) Other Investments and Equity Method Investments
Certain of the Company's other investments and equity method investments are subject to restrictions on redemptions and sales that are determined by the governing documents, which could limit
our ability to liquidate those investments. These restrictions may include lock-ups, redemption gates, restricted share classes, restrictions on the frequency of redemption and notice periods. A gate is
the ability to deny or delay a redemption request. Certain other investments and equity method investments may not have any restrictions governing their sale, but there is no active market and no
guarantee that we will be able to execute a sale in a timely manner. In addition, even if certain other investments and equity method investments are not eligible for redemption or sales are restricted,
the Company may still receive income distributions from those investments.
Other investments
The table below shows the composition of the Company's other investments as at December 31, 2021 and 2020:
December 31,
Privately held equity investments
Private credit funds
Private equity funds
Publicly traded equity investments
Total other investments at fair value
Investments in direct lending entities (at cost)
Total other investments
2021
2020
Carrying Value
% of Total
Carrying Value
% of Total
$
$
52,013
38,656
6,906
1,174
98,749
42,976
141,725
36.7 % $
27.3 %
4.9 %
0.8 %
69.7 %
30.3 %
100.0 % $
22,844
1,301
3,044
—
27,189
36,571
63,760
35.8 %
2.0 %
4.8 %
— %
42.6 %
57.4 %
100.0 %
The Company's investments in direct lending entities of $42,976 at December 31, 2021 (2020 - $36,571) are carried at cost less impairment, if any, with any indication of impairment recognized
in net income when determined. Please see "Note 5(d) - Fair Value Measurements" for additional information regarding this investment.
F-22
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
4. Investments (continued)
The Company's unfunded commitments on other investments held at December 31, 2021 and 2020 were as follows:
December 31,
Private equity funds
Private credit funds
Investments in direct lending entities
Privately held equity investments
Total unfunded commitments on other investments
Equity Method Investments
2021
2020
Amount
% of Total
Amount
% of Total
$
$
10,762
22,236
13,216
14,463
60,677
17.7 % $
36.7 %
21.8 %
23.8 %
100.0 % $
326
33,584
19,823
9,580
63,313
0.5 %
53.0 %
31.3 %
15.2 %
100.0 %
The equity method investments include hedge fund investments, real estate investments and other investments. The table below shows the carrying value of the Company's equity method
investments as at December 31, 2021 and 2020:
December 31,
Real estate investments
Hedge fund investments
Other investments
Total equity method investments
Carrying Value
% of Total
Carrying Value
% of Total
2021
2020
$
$
44,050
32,929
6,763
83,742
52.6 % $
39.3 %
8.1 %
100.0 % $
—
29,435
13,701
43,136
— %
68.2 %
31.8 %
100.0 %
The equity method investments above include limited partnerships which are variable interests issued by variable interest entities ("VIEs"). The Company does not have the power to direct the
activities that are most significant to the economic performance of these VIEs, therefore, the Company is not the primary beneficiary of these VIEs. The Company is deemed to have limited influence
over the operating and financial policies of the investee and accordingly, these investments are reported under the equity method of accounting. In applying the equity method of accounting, the
investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the investee's net income or loss.
Generally, the maximum exposure to loss on these interests is limited to the amount of commitment made by the Company. However, certain of the Company's equity method investments are
related to real estate joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties to the ownership of income-producing properties. In
certain of these joint ventures, the Company has provided certain indemnities, guarantees and commitments to certain parties such that it may be required to make payments now or in the future and
are more fully described (as applicable) in "Note 11 - Commitments, Contingencies and Guarantees" in these consolidated financial statements. The Company's remaining unfunded commitments on
equity method investments as at December 31, 2021 was $25,950.
c) Net Investment Income
Net investment income was derived from the following sources for the years ended December 31, 2021 and 2020:
For the Year Ended December 31,
Fixed maturities
Income on funds withheld
Interest income from loan to related party
Cash and cash equivalents and other investments
Investment expenses
Net investment income
2021
2020
$
$
19,146 $
10,623
3,492
1,100
34,361
(2,348)
32,013 $
36,258
15,942
3,996
1,402
57,598
(2,837)
54,761
d) Net Realized and Unrealized Gains (Losses) 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 tables show the net realized and unrealized gains (losses) on
investment included in the Consolidated Statements of Income for the years ended December 31, 2021 and 2020:
F-23
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
4. Investments (continued)
For the Year Ended December 31, 2021
Fixed maturities
Other investments
Net realized and unrealized gains (losses) on investment
For the Year Ended December 31, 2020
Fixed maturities
Other investments
Net realized and unrealized gains (losses) on investment
Gross gains
Gross losses
Net
$
$
9,838
8,074
17,912
$
$
(741)
(4,523)
(5,264)
$
$
1
Gross gains
Gross losses
Net
$
$
24,101 $
392
24,493 $
(1) $
(19)
(20) $
24,100
373
24,473
Realized gains and losses from other investments detailed in the tables above include both sales of securities and unrealized gains and losses from fair value changes. The unrealized gains
recognized in net income for other investments still held at December 31, 2021 and 2020, respectively, were as follows:
For the Year Ended December 31,
Net gains recognized for other investments during the period
Less: Net gains recognized for other investments divested during the period
Net unrealized gains recognized for other investments still held at reporting date
2021
2020
$
$
3,551 $
(3,377)
174 $
—
—
—
Proceeds from sales of fixed maturities were $477,920 and $505,396 for the years ended December 31, 2021, and 2020, respectively. Net unrealized gains on fixed maturity investments were as
follows at December 31, 2021 and 2020, respectively:
December 31,
Fixed maturities
Equity method investments
Total net unrealized (losses) gains
Deferred income tax
Net unrealized (losses) gains, net of deferred income tax
Change, net of deferred income tax
e) Restricted Cash and Cash Equivalents and Investments
2021
2020
$
$
$
1,801
(4,414)
(2,613)
(80)
(2,693)
(52,050)
$
$
$
49,488
—
49,488
(131)
49,357
27,361
The Company is required to provide collateral for its reinsurance liabilities under various reinsurance agreements and utilizes trust accounts to collateralize business with reinsurance
counterparties. The assets in trust as collateral are mostly cash and highly rated fixed maturities. The fair values of these restricted assets were as follows at December 31, 2021 and 2020:
December 31,
Restricted cash – third party agreements
Restricted cash – related party agreements
Total restricted cash
Restricted investments – in trust for third party agreements at fair value (amortized cost: 2021 – $48,860; 2020 – $63,253)
Restricted investments – in trust for related party agreements at fair value (amortized cost: 2021 – $493,128; 2020 – $913,466)
Total restricted investments
Total restricted cash and investments
$
$
2021
2020
19,177 $
20,242
39,419
48,845
493,883
542,728
582,147 $
20,547
41,239
61,786
63,281
954,988
1,018,269
1,080,055
F-24
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
5. Fair Value Measurements
a) Fair Values of Financial Instruments measured at fair value
ASC 825, "Disclosure About Fair Value of Financial Instruments", requires all entities to disclose the fair value of their financial instruments for both assets and liabilities recognized and not
recognized within the balance sheet, and 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 measured at fair value held at December 31, 2021 and 2020.
U.S. government and U.S. agency — includes bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage
Association, Federal National Mortgage Association and the Federal Farm Credit Banks Funding Corporation. 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 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 bonds are observable market inputs, the fair values of non-U.S. government and 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 values are included in the Level 2 fair value hierarchy.
Corporate and municipal bonds — are bonds issued by corporations, U.S. state and municipality entities or agencies. that on acquisition are rated BBB-/Baa3 or higher. These securities are
generally priced by independent pricing services. The credit spreads are sourced from broker/dealers, trade prices and new issue market. Where pricing is unavailable from pricing services, custodian
pricing or non-binding quotes are obtained from broker-dealers to estimate fair values. As significant inputs used to price corporate and municipal bonds are observable market inputs, fair values are
included in the Level 2 fair value hierarchy.
Other investments — These investments are comprised of the following types of investments:
•Privately held equity investments: These are direct equity investments in common and preferred stock of privately held entities. The fair values are estimated using quarterly financial
statements and/or recent private market transactions and thus included under Level 3 of the fair value hierarchy due to unobservable market data used for valuation.
•Private credit funds: These are privately held equity investments in common stock of entities that lend money valued using the most recently available or quarterly NAV statements as
provided by the external fund manager or third-party administrator and therefore measured using the NAV as a practical expedient.
•Private equity funds: These are comprised of private equity funds, private equity co-investments with sponsoring entities and investments in real estate limited partnerships and joint
ventures. The fair value is estimated based on the most recently available NAV as advised by the external fund manager or third-party administrator. The fair values are therefore measured
using the NAV as a practical expedient.
•Publicly traded equity investments - The fair value of publicly traded equity securities is priced by pricing services, reflecting the closing price quoted for the final trading day of the period.
The common stock is carried at fair value using observable market pricing data and is included in the Level 1 fair value hierarchy. Any unrealized gains or losses on the investment is
recorded in net income in the period in which they occur.
b) Fair Value Hierarchy
The Company’s estimates of fair value for its 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 valuation methodology whenever available. In determining the level of the hierarchy
in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active trading markets and the lowest priority to unobservable inputs that reflect significant market
assumptions.
F-25
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
5. Fair Value Measurements (continued)
At December 31, 2021 and 2020, the Company classified its financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
December 31, 2021
Fixed maturities
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
Other investments
(1)
Total
As a percentage of total assets
December 31, 2020
Fixed maturities
U.S. treasury bonds
U.S. agency bonds – mortgage-backed
Non-U.S. government bonds
Asset-backed securities
Corporate bonds
Other investments
(1)
Total
As a percentage of total assets
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
$
$
$
$
59,879
—
—
—
—
1,174
61,053
2.6 %
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
94,502
—
—
—
—
—
94,502
$
$
$
$
—
98,790
3,276
194,558
240,642
—
537,266
23.1 %
Significant
Other
Observable
Inputs
(Level 2)
—
281,437
9,708
185,432
642,332
—
1,118,909
$
$
$
$
—
—
—
—
—
27,094
27,094
$
$
—
—
—
—
—
70,481
70,481
1.2 %
3.0 %
Significant
Unobservable
Inputs
(Level 3)
Fair Value Based on NAV
Practical Expedient
—
—
—
—
—
22,844
22,844
$
$
—
—
—
—
—
4,345
4,345
$
$
$
$
59,879
98,790
3,276
194,558
240,642
98,749
695,894
29.9 %
Total Fair
Value
94,502
281,437
9,708
185,432
642,332
27,189
1,240,600
3.2 %
37.9 %
0.8 %
0.1 %
42.0 %
(1) Asset-backed securities is comprised primarily of collateralized loan obligations.
The Company utilizes the Pricing Service to assist in determining the fair value of its investments; however, management is ultimately responsible for all fair values presented in the Company’s
financial statements. This includes responsibility for monitoring the fair value process, ensuring objective and reliable valuation practices, and pricing of assets and liabilities and use of pricing
sources. The Company analyzes and reviews the information and prices received from the Pricing Service to ensure that the prices provided represent a reasonable estimate of fair value.
The Pricing Service was utilized to estimate fair value measurements for 99.0% and 99.1% of our fixed maturities at December 31, 2021 and 2020, respectively. The Pricing Service utilizes
market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury bonds generally do not trade actively on a daily basis,
the Pricing Service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing and these have been classified as Level 2 within
the fair value hierarchy.
At December 31, 2021 and 2020, approximately 1.0% and 0.9%, respectively, of our fixed maturities were valued using the market approach. At December 31, 2021, one security or $6,225 (2020
- two securities or $10,809) of fixed maturities classified as Level 2 was priced using a quotation from a broker and/or custodian as opposed to the Pricing Service due to lack of information available.
At December 31, 2021 and 2020, the Company has not adjusted any pricing provided to it based on the review performed by its investment managers.
During the year ended December 31, 2021, the Company transferred its equity investment in an insurtech start-up company focused on technological advancement in the automobile insurance
industry out of Level 3 within the fair value hierarchy and into Level 1 due to the recent completion of its initial public offering. There were no transfers to or from Level 3 during the year ended
December 31, 2020.
F-26
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
5. Fair Value Measurements (continued)
c) Level 3 Financial Instruments
At December 31, 2021, the Company holds Level 3 financial instruments of $27,094 (2020 - $22,844) which includes privately held equity investments in common and preferred stocks. The fair
values of these investments are estimated using quarterly unaudited financial statements or recent private market transactions, where applicable. Due to significant unobservable inputs in these
valuations, the Company classifies their fair values as Level 3 within the fair value hierarchy.
The following table provides a summary of quantitative information regarding the significant unobservable inputs used in determining the fair value of other investments measured at fair value on
a recurring basis under the Level 3 classification at December 31, 2021:
Privately held equity investments
Privately held equity investments
Total Level 3 investments
Fair Value
25,294
1,800
27,094
$
$
Valuation Technique
Quarterly financial statements
Recent market transactions
Unobservable Inputs
Estimated maturity dates
Liquidity discount rates
1.0 years
Range
to
3.0 years
The following table shows the reconciliation of the beginning and ending balances for other investments measured at fair value on a recurring basis using Level 3 inputs for the year ended
December 31, 2021 and 2020. The Company includes any related interest and dividend income in net investment income and thus, are excluded from the reconciliation in the table below:
Balance - beginning of period
Purchases
Transfers out of Level 3
Total Level 3 investments - end of period
For the Year Ended December 31,
2021
2020
$
$
22,844 $
5,250
(1,000)
27,094 $
1,800
21,044
—
22,844
d) Financial Instruments Disclosed, But Not Carried, at Fair Value
The fair value of financial instruments accounting guidance also applies to financial instruments disclosed, but not carried at fair value, except for certain financial instruments related to insurance
contracts.
At December 31, 2021, the carrying values of cash and cash equivalents (including restricted amounts), accrued investment income, reinsurance balances receivable, loan to related party and
certain other assets and liabilities approximate their fair values due to their inherent short duration. As these financial instruments are not actively traded, the fair values of these financial instruments
are classified as Level 2.
The investments made by direct lending entities are carried at cost less impairment, if any, which approximates fair value. The fair value estimates of these investments are not based on observable
market data and, as a result, have been categorized as Level 3.
The fair values of the Senior Notes (as defined in "Note 7 - Long-Term Debt") are based on indicative market pricing obtained from a third-party pricing service which uses observable market
inputs, and therefore, the fair values of these liabilities are classified as Level 2. The following table presents the respective carrying value and fair value for the Senior Notes as at December 31, 2021
and 2020:
Senior Notes - MHLA – 6.625%
Senior Notes - MHNC – 7.75%
Total Senior Notes
December 31, 2021
December 31, 2020
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
110,000 $
152,500
262,500 $
94,820 $
140,300
235,120 $
110,000 $
152,500
262,500 $
90,772
132,126
222,898
F-27
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
6. Shareholders’ Equity
At December 31, 2021, the aggregate authorized share capital of the Company is 150,000,000 shares from which 92,316,107 common shares were issued, of which 86,467,242 common shares are
outstanding, and 18,600,000 preference shares were issued, all of which are outstanding. The remaining 39,083,893 shares are undesignated at December 31, 2021. Excluding the preference shares
held by Maiden Reinsurance, a total of 6,368,393 preference shares are held by non-affiliates.
a) Common shares
The Company's common shares have a par value of $0.01 per share. Our common shareholders are entitled to receive dividends and allocated one vote per common share subject to downward
adjustment under certain circumstances. For the years ended December 31, 2021 and 2020, the Company's Board of Directors did not declare any dividends to common shareholders.
The following table shows the summary of changes in the Company's common shares outstanding:
For the Year Ended December 31,
Outstanding shares – January 1
Issuance of vested restricted shares and restricted share units
Shares repurchased
Outstanding shares – December 31
b) Preference shares
2021
84,801,161
2,500,932
(834,851)
86,467,242
2020
83,148,458
1,653,537
(834
84,801,161
On March 3, 2021, the Company's Board of Directors approved the repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment guidelines, of up to $100,000 of
the Company's preference shares from time to time at market prices in open market purchases or as may be privately negotiated. On May 6, 2021, the Company's Board of Directors approved the
additional repurchase, including the repurchase by Maiden Reinsurance in accordance with its investment guidelines (as may be amended), of up to $50,000 of the Company's preference shares from
time to time at market prices in open market purchases or as may be privately negotiated. The authorizations that were approved on March 3, 2021 and May 6, 2021 as described above are
collectively referred to as the "2021 Preference Share Repurchase Program".
The following table shows the summary of the Company's preference shares repurchases made during the years ended December 31, 2021 and 2020:
Series A
Series C
Series D
Total
Total price paid
Gain on purchase
Number of shares purchased
Average price of shares
purchased
Number of shares purchased
Average price of shares
purchased
2021
2020
3,519,093 $
3,026,764
2,858,155
9,404,012
14.74
14.36
14.27
14.48
545,218 $
1,203,466
1,078,911
2,827,595
10.50
10.50
10.50
10.50
$
$
136,155
90,998
$
$
29,690
38,195
The following table shows the summary of changes for the Company's preference shares outstanding (including the total of the Company's preference shares held by Maiden Reinsurance pursuant
to the 2020 Tender Offer and the 2021 Preference Share Repurchase Program) at December 31, 2021:
Outstanding shares issued by Maiden Holdings
Less: Total shares held by Maiden Reinsurance - December 31, 2021
Total shares held by non-affiliates December 31, 2021
Percentage held by Maiden Reinsurance - December 31, 2021
Series A
Series C
Series D
6,000,000
4,064,311
1,935,689
6,600,000
4,230,230
2,369,770
6,000,000
3,937,066
2,062,934
Total
18,600,000
12,231,607
6,368,393
67.7 %
64.1 %
65.6 %
65.8 %
The Company had a remaining authorization of $13,845 for preference share repurchases at December 31, 2021. The Company has continued to repurchase preference shares subsequent to
December 31, 2021 pursuant to a Rule 10b5-1 plan. Please see "Note 16 - Subsequent Events" for details.
F-28
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
6. Shareholders’ Equity (continued)
Dividends on the Series A, Series C and Series D preference shares are non-cumulative. Consequently, in the event a dividend is not declared on the preference shares for any dividend period,
holders will not be entitled to receive a dividend for such period, and such undeclared dividend will not accrue and will not be payable. The holders of Series A, Series C and Series D preference
shares will be entitled to receive dividend payments only when, as and if declared by the Company's Board of Directors or a duly authorized committee of the Board of Directors per the terms of the
certificates of designations. During any dividend period, so long as any Series A, Series C and Series D preference shares remain outstanding, unless the full dividends for the latest completed
dividend period on all outstanding preference shares have been declared and paid, no dividend shall be paid or declared on the common shares.
The holders of the preference share series have no voting rights other than the right to elect up to two directors if preference share dividends are not declared and paid for six or more dividend
periods. For the years ended December 31, 2021 and 2020, the Company did not declare or pay dividends on any of the preference share series. The Company's Board of Directors has not authorized
or declared a dividend since the dividend period starting on December 1, 2018 with respect to the Series A, Series C and Series D preference shares.
At March 15, 2020, because preference share dividends were not declared and paid for six quarterly dividend periods, holders of record with at least 20% of voting power of any of the preference
shares Series A, C and D were collectively entitled to vote for the election of a total of two additional members of the Company's Board. On December 15, 2020, holders of the Company's preference
share Series A, C and D collectively elected two additional members to the Company's Board, though these directors were not renominated for re-election at the 2021 Annual General Meeting of
Shareholders by qualifying preference shareholders.
Preference Shares - Series A
On August 22, 2012, the Company issued and authorized a total of 6,000,000 8.25% Preference Shares – Series A (the "Series A"), par value $0.01 per share, at a price of $25 per preference
share. The Series A have no stated maturity date and are redeemable in whole or in part at the sole option of the Company any time after August 29, 2017 at a redemption price of $25 per preference
share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
Preference Shares – Series C
On November 25, 2015, the Company issued and authorized a total of 6,600,000 7.125% Preference Shares – Series C (the "Series C"), par value $0.01 per share, at a price of $25 per preference
share. The Series C shares have no stated maturity date and are redeemable in whole or in part at the sole option of the Company any time after December 15, 2020 at a redemption price of $25 per
preference share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
Preference Shares – Series D
On June 15, 2017, the Company issued and authorized a total of 6,000,000, 6.7% Preference Shares – Series D (the "Series D"), par value $0.01 per share, at a price of $25 per preference share.
The Series D have no stated maturity date and are redeemable in whole or in part at the sole option of the Company any time after June 15, 2022, subject to certain regulatory restrictions at a
redemption price of $25 per preference share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Additionally, at any time prior to June 15, 2022, the
Company may redeem all but not less than all of the Series D at a redemption price of $25 per share, plus declared and unpaid dividends, if any, to, but excluding, the date of redemption subject to
certain conditions and regulatory approval.
c) Treasury Shares
On February 21, 2017, the Company's Board of Directors approved the repurchase of up to $100,000 of the Company's common shares from time to time at market prices. At December 31, 2021
and 2020, the Company has a remaining authorization of $74,245 for common share repurchases. No repurchases were made during the years ended December 31, 2021 and 2020 under the common
share repurchase plan.
During the year ended December 31, 2021, the Company repurchased a total of 834,851 (2020 - 834) common shares at an average price per share of $2.97 (2020 - $1.13) from employees, which
represent tax withholding in respect of tax obligations on the vesting of both non-performance-based and discretionary performance-based restricted shares.
F-29
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
6. Shareholders’ Equity (continued)
d) Accumulated Other Comprehensive (Loss) Income
The following tables set forth financial information regarding the changes in the balances of each component of AOCI for the years ended December 31, 2021 and 2020:
For the Year Ended December 31, 2021
Beginning balance
Other comprehensive (loss) income before reclassifications
Amounts reclassified from AOCI to net income, net of tax
Net current period other comprehensive (loss) income
Ending balance, Maiden shareholders
For the Year Ended December 31, 2020
Beginning balance
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI to net income, net of tax
Net current period other comprehensive income (loss)
Ending balance, Maiden shareholders
Change in net unrealized
gains on investment
Foreign currency translation
adjustments
Total
49,357 $
(33,263)
(18,787)
(52,050)
(2,693) $
(25,500) $
15,978
—
15,978
(9,522) $
Change in net unrealized
gains on investment
Foreign currency translation
adjustments
Total
21,996 $
40,008
(12,647)
27,361
49,357 $
(4,160) $
(21,340)
—
(21,340)
(25,500) $
$
$
$
$
The table below presents details about amounts reclassified from AOCI for the years ended December 31, 2021 and 2020:
Consolidated Statements of Income Line Item that Includes Reclassification
Net realized gains on investment
Net impairment losses recognized in earnings
Total before tax
Income tax expense
Total after tax
For the Year Ended December 31,
2021
2020
$
$
18,787 $
—
18,787
—
18,787 $
23,857
(17,285)
(18,787)
(36,072)
(12,215)
17,836
18,668
(12,647)
6,021
23,857
15,115
(2,468)
12,647
—
12,647
F-30
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
7. Long-Term Debt
Senior Notes
At December 31, 2021 and 2020, both Maiden Holdings and its wholly owned subsidiary, Maiden NA, had outstanding publicly-traded senior notes which were issued in 2016 ("2016 Senior
Notes") and 2013 ("2013 Senior Notes"), respectively (collectively "Senior Notes"). The 2013 Senior Notes issued by Maiden NA are fully and unconditionally guaranteed by Maiden Holdings. The
Senior Notes are unsecured and unsubordinated obligations of the Company.
The following tables detail the issuances outstanding at December 31, 2021 and 2020:
December 31, 2021
Principal amount
Less: unamortized issuance costs
Carrying value
December 31, 2020
Principal amount
Less: unamortized issuance costs
Carrying value
Other details:
Original debt issuance costs
Maturity date
Earliest redeemable date (for cash)
Coupon rate
Effective interest rate
2016 Senior Notes
2013 Senior Notes
Total
$
$
$
$
$
$
$
$
$
$
110,000
3,463
106,537
2016 Senior Notes
110,000
3,516
106,484
3,715
June 14, 2046
June 14, 2021
6.625 %
7.07 %
152,500
3,690
148,810
2013 Senior Notes
152,500
3,858
148,642
$
$
$
$
262,500
7,153
255,347
262,500
7,374
255,126
Total
5,054
December 1, 2043
December 1, 2018
7.75 %
8.04 %
The interest expense incurred on the Senior Notes for the year ended December 31, 2021 was $19,106 (2020 - $19,106), of which $1,342 was accrued at both December 31, 2021 and 2020,
respectively. The issuance costs related to the Senior Notes were capitalized and are being amortized over the effective life of the Senior Notes. The amortization expense was $221 for the year ended
December 31, 2021 (2020 - $218).
Under the terms of the 2013 Senior Notes, the 2013 Senior Notes can be redeemed, in whole or in part, at Maiden NA's option at any time and from time to time, until maturity at a redemption
price equal to 100% of the principal amount of the notes to be redeemed plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date. Maiden
NA is required to give at least thirty days and not more than sixty days' notice prior to the redemption date.
Under the terms of the 2016 Senior Notes, the 2016 Senior Notes can be redeemed, in whole or in part, at Maiden Holdings' option at any time and from time to time, until maturity at a
redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption
date. Maiden Holdings is required to give at least thirty days and not more than sixty days notice prior to the redemption date.
F-31
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
8. Reinsurance
The Company uses reinsurance and retrocessional agreements ("ceded reinsurance") to mitigate volatility, reduce its exposure to certain risks and provide capital support. Ceded reinsurance
provides for the recovery of a portion of loss and LAE under certain circumstances without relieving the Company of its obligations to the policyholders. The Company remains liable to the extent
that any of its reinsurers or retrocessionaires fails to meet their obligations. Loss and LAE incurred and premiums earned are reported after deduction for ceded reinsurance. In the event that one or
more of our reinsurers or retrocessionaires are unable to meet their obligations under these agreements, the Company would not realize the full value of the reinsurance recoverable balances.
The effect of ceded reinsurance on net premiums written and earned and on net loss and LAE for the years ended December 31, 2021 and 2020 was as follows:
For the Year Ended December 31,
Premiums written
Direct
Assumed
Ceded
Net
Premiums earned
Direct
Assumed
Ceded
Net
Loss and LAE
Gross loss and LAE
Loss and LAE ceded
Net
2021
2020
21,866 $
(10,928)
(535)
10,403 $
22,857 $
31,497
(1,361)
52,993 $
9,344 $
(2,037)
7,307 $
19,550
11,839
(2,957)
28,432
19,711
89,461
(3,091)
106,081
57,146
(15,347)
41,799
$
$
$
$
$
$
The Company's reinsurance recoverable on unpaid losses balance as at December 31, 2021 was $562,845 (2020 - $592,571) presented in the Consolidated Balance Sheets. At December 31, 2021
and 2020, the Company had no valuation allowance against reinsurance recoverable on unpaid losses.
On December 27, 2018, Cavello Bay Reinsurance Limited ("Cavello") and Maiden Reinsurance entered into a retrocession agreement pursuant to which certain assets and liabilities associated
with the U.S. treaty reinsurance business held by Maiden Reinsurance were 100.0% retroceded to Cavello in exchange for a ceding commission. The reinsurance recoverable on unpaid losses due
from Cavello under this retrocession agreement was $69,006 at December 31, 2021 (2020 - $67,972).
On July 31, 2019, Maiden Reinsurance and Cavello entered into the LPT/ADC Agreement, pursuant to which Cavello assumed the loss reserves as of December 31, 2018 associated with the
AmTrust Quota Share in excess of a $2,178,535 retention up to $600,000, in exchange for a retrocession premium of $445,000. The $2,178,535 retention is subject to adjustment for paid losses
subsequent to December 31, 2018. The LPT/ADC Agreement provides Maiden Reinsurance with $155,000 in adverse development cover over its carried AmTrust Quota Share loss reserves at
December 31, 2018. The LPT/ADC Agreement meets the criteria for risk transfer and is thus accounted for as retroactive reinsurance. Cumulative ceded losses exceeding $445,000 are recognized as
a deferred gain liability and amortized into income over the settlement period of the ceded reserves in proportion to cumulative losses collected over the estimated ultimate reinsurance recoverable.
The amount of the deferral is recalculated each period based on loss payments and updated estimates. Consequently, cumulative adverse development subsequent to December 31, 2018 may result in
significant losses from operations until periods when the deferred gain is recognized as a benefit to earnings. As of December 31, 2021, the reinsurance recoverable on unpaid losses under the
retroactive reinsurance agreement was $490,860 while the deferred gain liability under the LPT/ADC Agreement was $45,860 (December 31, 2020 - $519,941 and $74,941, respectively).
Amortization of the deferred gain will not occur until paid losses have exceeded the minimum retention under the LPT/ADC Agreement, which is estimated to be in 2024.
Cavello provided collateral in the form of a letter of credit in the amount of $445,000 to AmTrust under the LPT/ADC Agreement and Cavello is subject to additional collateral funding
requirements as explained in "Note 10 — Related Party Transactions". As of December 31, 2021, the amount of collateral required was $401,642. Under the terms of the LPT/ADC Agreement, the
covered losses associated with the Commutation and Release Agreement with AmTrust are eligible to be covered but recoverable only when such losses are paid or settled by AII or its affiliates,
provided such losses and other related amounts shall not exceed $312,786. Cavello's parent company, Enstar Group Limited ("Enstar"), has credit ratings of BBB from both Standard & Poor's and
Fitch Ratings at December 31, 2021.
F-32
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses
General
The Company uses both historical experience and industry-wide loss development factors to provide a reasonable basis for estimating future losses. In the future, certain events may be beyond the
control of management, such as changes in law, judicial interpretations of law, and rates of inflation, which may favorably or unfavorably impact the ultimate settlement of the Company’s loss and
LAE reserves.
The anticipated effect of inflation is implicitly considered when estimating liabilities for loss and LAE. While anticipated changes in claim costs due to inflation are considered in estimating the
ultimate claim costs, changes in the average severity of claims are caused by a number of factors that vary with the individual type of policy written. Ultimate losses are projected based on historical
trends adjusted for implemented changes in underwriting standards, claims handling, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual
development and are modified if necessary.
The reserving process begins with the collection and analysis of paid losses and incurred claims data for each of the Company's contracts. While reserves are mostly reviewed on a contract by
contract basis, paid loss and incurred claims data is also aggregated into reserving segments. The segmental data is disaggregated by reserving class and further disaggregated by either accident year
(i.e. the year in which the loss event occurred) or by underwriting year (i.e. the year in which the contract generating the premium and losses incepted). In cases where the Company uses underwriting
year information, reserves are subsequently allocated to the respective accident year. The reserve for loss and LAE comprises:
December 31,
Reserve for reported loss and LAE
Reserve for losses incurred but not reported ("IBNR")
Reserve for loss and LAE
The following table represents a reconciliation of the beginning and ending gross and net loss and LAE reserves:
For the Year Ended December 31,
Gross loss and LAE reserves, January 1
Less: reinsurance recoverable on unpaid losses, January 1
Net loss and LAE reserves, January 1
Net incurred losses related to:
Current year
Prior years
Net paid losses related to:
Current year
Prior years
Retroactive ceded reinsurance
Retroactive assumed reinsurance
Effect of foreign exchange rate movements
Net loss and LAE reserves, December 31
Reinsurance recoverable on unpaid losses, December 31
Gross loss and LAE reserves, December 31
Actuarial Methods Used to Estimate Loss and LAE Reserves
$
$
$
$
2021
2020
851,950 $
637,423
1,489,373 $
998,691
894,608
1,893,299
2021
2020
1,893,299 $
592,571
1,300,728
34,912
(27,605)
7,307
(10,026)
(389,231)
(399,257)
29,081
14,825
(26,156)
926,528
562,845
1,489,373 $
2,439,907
623,422
1,816,485
58,332
(16,533)
41,799
(22,405)
(608,324)
(630,729)
38,009
—
35,164
1,300,728
592,571
1,893,299
The Company utilizes a variety of standard actuarial methods in its analysis of loss reserves. The selections from these various methods are based on the loss development characteristics of the
specific line of business and significant actuarial judgment. The actuarial methods utilized include:
The Expected Loss Ratio ("ELR") method is a technique that is multiplicative and applies an expected loss ratio to premium earned to yield the estimated ultimate losses. The ELR assumption is
generally derived from pricing information and historical experience of the business. This method is frequently used for the purpose of stability in the early valuations of an underwriting year with
large and uncertain loss development factors. This technique does not take into account actual loss emergence for the underwriting year being projected. As an underwriting year matures and actual
loss experience becomes more credible, other methods may be applied in determining the estimated ultimate losses.
F-33
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
The Loss Development ("LD") method is a reserving method in which ultimate losses are estimated by applying a loss development factor to actual reported (or paid) loss experience. This method
fully utilizes actual experience. Multiplication of underwriting year actual reported (or paid) losses by its respective development factor produces the estimated ultimate losses. The LD method is
based upon the assumption that the relative change in a given underwriting year’s losses from one evaluation point to the next is similar to the relative change in prior underwriting years’ losses at
similar evaluation points. In addition, this method is based on the assumption that the reserving and payment patterns as well as the claim handling procedures have not changed substantially over
time. In the case where changes to the payment patterns or the claim handling procedures are identified, historical losses are adjusted to the current basis, and development factors are selected based
on the relative change of the adjusted losses (the Berquist Sherman method is one example of this approach). When a company has a sufficiently reliable loss development history, a development
pattern based on the company’s historical indications may be used to develop losses to ultimate values.
The Bornhuetter-Ferguson ("BF") reserving technique is used for long-tailed or lower frequency, more volatile lines. It is also useful in situations where the reported loss experience is relatively
immature and/or lacks sufficient credibility for the application of methods that are more heavily reliant on emerged experience. The BF method is an additive IBNR method that combines the ELR
and LD techniques by splitting the expected loss into two pieces - expected reported (or paid) losses and expected unreported (or unpaid) losses. Expected unreported (unpaid) losses, estimated by the
use of loss development factors, are added to the current actual reported (or paid) losses to produce an estimate of ultimate losses by underwriting year. The BF method introduces an element of
stability that moderates the impact of inconsistent changes in paid and reported losses.
The average frequency and severity ("FS") reserving technique is used for lines where claim count is available, and the estimate of loss development factors is more difficult due to volatility in
historical data. The available data for such lines is usually more volatile in the estimation of future losses using the LD and BF reserving methods. The FS method uses historical data to estimate the
average number of ultimate claims (frequency) and the average costs of closed claims (severity). The estimate of ultimate losses by underwriting year is the result of the multiplication of the ultimate
number of claims and the average cost of a claim.
With the guidance of the methods above, actuarial judgment is applied in the determination of ultimate losses. In general, the Company’s segments have varying levels of seasoning with which the
Company has direct experience and as a result, differing methods are utilized to estimate loss and LAE reserves in each segment.
In the Diversified Reinsurance segment, the Company utilizes the ELR approach at the onset of reserving an account, the BF method for business with less but maturing loss experience, and as the
experience matures the LD method. For proportional or pro-rata business, the Company typically relies heavily on the actual historical contract experience to estimate reserving parameters such as
loss development factors, whereas for excess of loss business there will be more usage of industry and/or Company benchmark assumptions.
The Company underwrote the AmTrust Reinsurance segment from July 1, 2007 until the Final AmTrust QS Terminations effective January 1, 2019. A large proportion of the exposure in the
underlying book of business has significant seasoning, and allows for a significant amount of credibility in using parameters derived from historical experience to calculate reserve estimates. Some
segments of the book are a result of recent acquisitions or newer markets for AmTrust. These segments require a greater level of assumptions and professional judgment in deriving ultimate losses,
which inherently implies a wider range of reasonable estimates. As a result, the Company has tended to rely on a weighted approach which primarily employs the LD method for aspects of the
segment with ample historical data, while also considering the ELR or BF method for exposure resulting from recent acquisitions, or a relative business with a more limited level of experience. The
FS method is also considered for segments of the AmTrust Reinsurance book of business for which claim count information is available. Additional data detailing items such as class of business,
state, claim counts, frequency and severity is available, further enhancing the reserve analysis.
Prior Year Development
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves established in previous calendar years. The favorable or unfavorable
development reflects changes in management's best estimate of the ultimate losses under the relevant reinsurance policies after considerable review of changes in actuarial assessments. The following
table summarizes the favorable prior period development experienced in each of our reportable segments for the years ended December 31, 2021 and 2020:
For the Year Ended
December 31, 2021
December 31, 2020
Diversified Reinsurance
$
3,561 $
1,295
AmTrust Reinsurance
Total
24,044 $
15,238
27,605
16,533
F-34
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
During 2021, the Company's incurred losses decreased for 2020 and prior accident years by $27,605 or 2.1% of prior year net loss and LAE reserves. The Company had decreased incurred losses
for 2019 and prior accident years of $16,533 or 0.9% during 2020. The net favorable prior year loss development of $27,605 for the year ended December 31, 2021 was primarily driven by $24,044
of favorable loss development in the AmTrust Reinsurance segment combined with net favorable loss development of $3,561 in the Diversified Reinsurance segment.
In the Diversified Reinsurance segment, net favorable prior year loss development was $3,561 for the year ended December 31, 2021 (2020 - $1,295) primarily due to favorable development in
facultative reinsurance run-off business as well as auto programs in Australia, the U.K. and Germany. The favorable prior year development of $1,295 for the year ended December 31, 2020 was
primarily due to favorable development in facultative reinsurance run-off lines partly offset by adverse development in European Capital Solutions.
In the AmTrust Reinsurance segment, net favorable prior year development was $24,044 for the year ended December 31, 2021 (2020 - favorable $15,238). This was primarily due to favorable
development of $22,242 in Workers Compensation and favorable development of $29,918 in Commercial Auto Liability; partly offset by adverse development of $7,885 in Hospital Liability and
adverse development of $20,868 in General Liability.
Net favorable prior year development of $15,238 for the year ended December 31, 2020 included favorable development of $39,016 in Workers Compensation and favorable development of
$12,889 in Other lines, partly offset by adverse development of $17,650 in Commercial Auto Liability and adverse development of $18,334 in General Liability.
The adjustment for retroactive ceded reinsurance of $29,081 represents the decrease in the reinsurance recoverable on unpaid losses under the LPT/ADC Agreement with Cavello that was
recognized in the year ended December 31, 2021 (2020 - $38,009) in the reconciliation of our beginning and ending gross and net loss and LAE reserves presented above. It reflects the corresponding
decrease in the deferred gain on retroactive reinsurance for favorable development on reserves covered under the LPT/ADC Agreement with Cavello of $29,081 during the year ended December 31,
2021 (2020 - $14,304). This adjustment also includes the Workers Compensation commuted losses of $23,705 during the year ended December 31, 2020. The deferred gain on retroactive reinsurance
represents the cumulative adverse development under the AmTrust Quota Share covered under the LPT/ADC Agreement at December 31, 2021 and 2020. Amortization of the deferred gain will not
occur until paid losses have exceeded the minimum retention under the LPT/ADC Agreement, which is estimated to be in 2024.
a) Claims Development
The following is a summary of the Company's incurred and paid loss development by accident year, net of reinsurance, from the last ten calendar years including the total reserve for losses, IBNR,
plus development on reported loss and LAE for both of our reportable segments, Diversified Reinsurance and AmTrust Reinsurance, as of December 31, 2021. Information prior to 2021 is included
as unaudited supplementary information. The incurred and paid amounts have been translated from the local currency to U.S. dollars using the December 31, 2021 spot rate for all years presented in
the table below in order to isolate changes in foreign exchange rates from loss development. As a reinsurer of primarily quota share contracts, claim counts are available on a very limited basis.
Therefore claim counts have not been provided in the tables below as it is impractical to do so.
The Diversified Reinsurance segment incurred and paid losses are analyzed by the following lines of business: (1) International; and (2) European Capital Solutions. The AmTrust Reinsurance
segment incurred and paid losses are analyzed by the following lines of business: (1) Workers’ Compensation; (2) Commercial Auto Liability; (3) General Liability; (4) European Hospital Liability;
and (5) All Other Lines. There are a number of factors to consider when evaluating the information in these tables:
• In the Diversified Reinsurance segment, contracts are written on both an accident year and underwriting year basis, some are multi-line and the majority of the premium is associated with
proportional contracts. Many proportional treaty reinsurance contracts are submitted using quarterly bordereau reporting by underwriting year. However, the remaining losses can generally
only be allocated to accident years based on estimated premium earning and loss reporting patterns. Further estimates are required to allocate losses to line of business. Multi-line accounts
are generally analyzed on an individual basis by line of business, but are booked in the Company’s records to a contract, rather than to each individual line of business within a contract. For
the purpose of this disclosure allocations are made to the various lines of business. Management’s assumptions and allocation procedures for these tables may produce results that differ from
the actual loss emergence reported by line of business each quarter;
• The AmTrust Reinsurance segment consists primarily of two contracts, the European Hospital Liability Quota Share and a much larger quota share that includes all other covered business,
the AmTrust Quota Share. There is also a small amount of excess of loss business that has not been written since 2009 which is included as a reconciling item. Maiden receives several
cession statements and uses these to report premiums in three categories - Small Business Commercial, Specialty Program and Specialty Risk and Extended Warranty in Note 3. Segment
Information. The tables provided include allocations of IBNR reserves to line of business by accident year. Management’s assumptions and allocation procedures for these tables may
produce results that differ from the actual loss emergence reported by line of business each quarter; and
• For both segments, the premium and exposure for prior accident years is often reported to us in subsequent periods, as reporting lags exist from an insurer to a reinsurer. This leads to
increases in the provision for loss and LAE in prior years, but does not reduce expected income (and in many cases can result in additional income).
F-35
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Diversified Reinsurance Segment
The following tables represent information on the Company's incurred loss and LAE and cumulative paid loss and LAE, both net of reinsurance, since 2011 for our Diversified Reinsurance
segment. The development tables below included reserves acquired from the loss portfolio transfer agreement associated with the GMAC International Insurance Services ("IIS") business as at
November 30, 2010 of $98,827. For the purposes of disclosure, the reserves from the loss portfolio transfer was allocated to the original accident year.
Many pro-rata contracts are big enough that specific company development patterns are used. The ELR from the pricing of the account is typically used for the first year or more until the data
suggests an alternative result is likely. Use of the ELR method transitions to the BF and then the LD method. For smaller contracts, benchmark development patterns may be used in both the pricing
to establish the ELR and the reserving. The use of benchmark patterns is more prevalent in excess of loss business and the movement to experience based methods is slower.
Diversified Reinsurance - International
The international business written by our IIS team is mainly proportional treaty business, a significant portion of which is Personal Auto quota share but also comprises credit life quota share. Life
and personal accident business is also written on a direct basis by Maiden LF. The IIS team works with insurance partners, automobile manufacturers and their related credit providers and other
organizations to design and implement insurance programs in both auto distribution-related and other consumer insurance products.
For the auto quota share exposure, our initial underwriting year loss projections are generally based on the ELR method, derived from account pricing analyses. Payment and reporting patterns are
predominantly short-tailed, and the movement away from the ELR to BF or LD methods typically happens very rapidly. Credit life reserves are primarily a function of reporting lag, typically only
one or several months on average. The reserves are calculated using a FS methodology, where the frequency is a function of the average claims lag and the average per claims severity.
F-36
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Diversified
Reinsurance -
International
For the
Year Ended
December 31,
Accident
Year:
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
For the
Year Ended
December 31,
Accident
Year:
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Incurred loss and LAE, net of reinsurance
At
December 31,
2021
Total
IBNR
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
$
$
79,244
48,414
51,076
79,144
48,453
49,319
45,495
$
78,894
48,637
49,594
50,639
42,607
$
77,274
48,594
49,700
51,958
48,387
42,814
$
79,349
48,424
49,782
51,460
48,258
44,230
38,661
Unaudited
$
81,349
48,803
50,043
52,060
48,153
44,724
40,668
36,791
Unaudited
Unaudited
Unaudited
$
81,042
49,049
49,763
52,281
47,926
44,161
40,006
36,244
45,031
$
82,083
49,007
49,714
52,670
48,002
44,177
39,965
35,170
42,985
36,470
$
82,196
48,967
49,643
52,599
47,742
44,017
40,361
34,050
43,242
37,563
27,568
$
82,515
48,968
49,749
52,705
47,624
43,683
39,881
34,058
43,297
36,659
26,766
6,611
$
512,516
$
64
9
20
(93
1
(312
(338
7
(844
5
4,26
1,01
4,78
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Cumulative paid loss and LAE, net of reinsurance
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
$
$
43,379
45,469
23,916
48,282
47,091
40,857
24,575
$
50,016
48,329
43,240
43,883
23,766
$
51,605
48,748
44,329
46,367
42,054
21,787
$
53,121
48,980
44,656
47,711
44,328
39,379
22,320
Unaudited
$
54,600
49,121
45,238
48,179
45,552
41,436
36,443
19,098
Unaudited
Unaudited
Unaudited
$
56,295
49,234
45,354
48,392
45,810
42,479
38,292
33,554
20,879
$
57,752
49,300
45,368
48,472
45,918
42,900
39,052
35,322
37,672
17,295
$
58,857
49,385
45,454
48,794
46,038
43,183
39,696
36,158
39,769
31,204
11,900
$
$
60,008
49,456
45,562
48,445
46,213
43,402
40,270
36,597
41,898
33,899
21,905
3,635
471,290
41,226
Total net reserves
F-37
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Diversified Reinsurance - European Capital Solutions
The European Capital Solutions business is mainly a portfolio of assumed reinsurance in Europe which is now in run-off. Maiden Reinsurance began writing treaty reinsurance contracts under this
initiative in 2016 therefore only six calendar years of the Company's incurred and paid loss development by accident year have been provided in the tables below.
Diversified Reinsurance - European Capital Solutions
For the Year Ended December 31,
Accident Year:
2016
2017
2018
2019
2020
Total
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
Incurred loss and LAE, net of reinsurance
2021
At December 31, 2021
Total IBNR
$
4,899 $
4,973 $
8,824
5,390 $
10,232
23,891
5,643 $
9,130
25,772
16,273
5,981 $
8,811
26,420
16,677
232
$
5,865 $
9,188
26,232
16,598
208
58,091 $
182
705
2,979
3,269
43
7,178
For the Year Ended December 31,
Accident Year:
2016
2017
2018
2019
2020
Total
Total net reserves
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Cumulative paid loss and LAE, net of reinsurance
$
791 $
2,340 $
1,952
3,311 $
4,125
3,231
4,699 $
5,821
5,944
5,758
4,832 $
6,552
12,587
6,031
92
$
5,017
7,152
18,134
7,547
90
37,940
20,151
The following tables represent information on the Company's incurred loss and LAE and cumulative paid loss and LAE, both net of reinsurance, by significant line of business since 2011 for our
AmTrust Reinsurance segment. All data shown for the AmTrust Reinsurance segment in the tables that follow are from the Company’s quota share contracts with AmTrust, both the multi-year
AmTrust Quota Share and the annually renewable European Hospital Liability Quota Share. AmTrust purchases significant reinsurance for losses above $10 million covered by the AmTrust Quota
Share. The Company’s share of AmTrust’s losses net of reinsurance in the AmTrust Quota Share is generally 40%.
Additionally, for the Specialty Program portion of Covered Business only, AmTrust will be responsible for ultimate net loss otherwise recoverable from Maiden Reinsurance to the extent that the
loss ratio to Maiden Reinsurance, which shall be determined on an inception to date basis from July 1, 2007 through the date of calculation, is between 81.5% and 95%. Above and below the defined
corridor, Maiden Reinsurance has reinsured losses at its proportional 40% share per the AmTrust Quota Share. Effective July 31, 2019, the Loss Corridor was amended such that the maximum
amount covered is $40,500, the amount calculated by Maiden Reinsurance for the Loss Corridor coverage as of March 31, 2019. As of December 31, 2021, the projected amount subject to the Loss
Corridor is $42,710 which exceeds the maximum amount covered. Any further development above this amount will be subject to the coverage of the LPT/ADC Agreement.
Recoverables from the LPT/ADC Agreement are displayed in the column "Impact of LPT/ADC" in the tables below. Amounts have been allocated to Accident Year and line of business according
to the timing of the respective losses, based on the currently projected payout patterns. These allocations may shift over time as actual payments are made and payout patterns are re–estimated. Please
refer to "Note 8 — Reinsurance" for additional information regarding the LPT/ADC Agreement.
F-38
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
AmTrust Reinsurance: Workers’ Compensation
This reserve class consists of the Workers’ Compensation portion of the AmTrust Quota Share. The business is written in the U.S. by AmTrust from both their Small Commercial Business and
Specialty Program business units. The Small Commercial Business unit focuses on writing smaller, niche workers' compensation exposures in generally low-hazard occupations. Workers’
Compensation business written in the Specialty Program unit is typically part of programs consisting of multiple lines of business. The business is produced by managing general agents with AmTrust
regularly adding new programs and terminating or renegotiating unprofitable ones. Our initial underwriting year loss projections are generally based on the ELR method, derived from historical
performance after the consideration of loss and premium trends. Since it is proportional exposure, and due to the size and the classes of business insured by AmTrust, this reserving class is much
shorter tailed than a traditional workers compensation book, and the transition to the BF and the LD methods happens relatively quickly, within the first several years.
F-39
Workers'
Compensation
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Incurred loss and LAE, net of reinsurance (excluding impact of LPT/ADC Agreement)
At December 31, 2021
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Total IBNR
Impact of
LPT/ADC
$
81,493 $
82,438 $
81,240 $
82,301 $
83,039 $
102,245
113,880
125,549
136,960
103,864
118,209
130,712
168,016
237,019
109,213
120,243
132,728
173,946
245,765
379,589
106,204
125,020
133,995
171,040
238,392
365,515
474,140
105,901
124,073
133,916
172,692
242,447
382,260
474,212
528,906
83,622 $
107,165
123,968
135,379
181,616
261,915
419,748
526,269
568,006
615,957
84,710 $
110,175
127,215
138,600
192,087
276,249
457,363
551,145
627,728
654,362
592,566
83,952 $
109,664
127,381
139,685
188,879
273,571
455,521
545,271
603,529
613,577
580,528
12,751
86,117 $
109,021
126,621
141,272
192,263
281,580
449,374
549,857
579,849
593,920
575,765
9,945
$
86,292 $
110,207
126,516
137,355
187,089
277,365
445,258
547,439
568,791
591,122
585,009
10,871
3,673,314 $
2,297 $
2,478
6,691
2,476
6,063
11,159
27,950
37,772
55,180
44,485
40,214
841
237,606 $
2,498
3,675
5,091
7,041
11,801
17,716
33,599
47,662
56,733
84,351
105,018
—
375,185
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
Cumulative paid loss and LAE, net of reinsurance
$
72,823 $
83,464
82,614
69,357
45,030
76,018 $
89,462
95,120
91,414
88,382
56,249
77,370 $
93,425
103,280
105,584
119,059
121,182
69,512
78,161 $
96,396
108,171
114,107
138,706
168,785
189,954
86,695
79,230 $
98,811
114,639
115,966
150,543
199,300
268,467
246,616
110,051
81,159 $
100,103
115,014
122,579
158,807
216,527
321,258
338,642
284,501
111,508
82,436 $
101,823
115,959
124,315
164,512
227,502
355,414
388,640
380,602
274,596
110,954
82,709 $
102,877
116,332
125,843
168,154
234,342
370,176
417,736
428,651
448,551
409,986
3,907
2021
82,676
104,205
115,508
130,413
174,436
252,506
392,101
466,868
471,382
507,903
499,349
8,070
3,205,417
271
468,168
(375,185)
92,983
82,286 $
103,771
114,730
129,408
172,251
248,103
383,529
448,867
449,347
485,611
465,762
5,821
$
Total net reserves excluding impact of ADC
Impact of ADC
Total net reserves including impact of ADC
All outstanding liabilities prior to 2008, net of reinsurance
F-40
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
AmTrust Reinsurance: General Liability
This reserve class consists of the General Liability portion of the AmTrust Quota Share. The business is written in the U.S. by AmTrust from both their Small Commercial Business and Specialty
Program business units. The Small Commercial Business unit focuses on writing smaller niche business, typically under-served by the broader insurance market, which typically have limits of
$1,000. General Liability business written in the Small Commercial Business unit grew substantially following AmTrust’s renewal rights acquisition in 2014. Specialty Program business may contain
a mix of exposures from retail operations, contractors, manufacturers, and other premises.
Our initial underwriting year loss projections are generally based on the ELR method, derived from historical performance after the consideration of loss and premium trends. This proportional
exposure is medium tailed, and the IBNR is typically derived from the use of the initial ELR, or the FS method as claim counts emerge, for the first several years following the earning of the
exposure, followed by a transition to the BF and the LD methods.
F-41
$
$
General
Liability
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Incurred loss and LAE, net of reinsurance (excluding impact of LPT/ADC Agreement)
At December 31, 2021
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Total IBNR
Impact of
LPT/ADC
31,921 $
28,384
28,850
24,731
21,281
33,051 $
29,123
34,761
35,628
33,445
42,021
33,792 $
30,902
36,455
40,557
42,450
43,116
65,469
34,169 $
32,418
38,536
42,100
48,851
66,869
66,558
118,111
35,985 $
34,040
38,298
45,303
50,800
68,641
77,930
95,766
98,149
36,627 $
34,863
41,597
49,338
55,991
79,731
99,873
122,942
114,864
116,158
37,605 $
35,138
42,884
52,746
59,948
89,204
111,970
139,518
120,911
133,533
121,991
36,996 $
35,410
43,062
53,499
63,429
92,032
116,085
154,071
148,371
165,268
153,822
5,427
40,398 $
36,228
45,490
55,607
63,704
95,050
119,367
154,529
147,858
161,354
148,817
6,017
$
40,381 $
35,733
44,778
54,683
64,052
96,342
119,782
154,939
147,996
162,856
148,295
5,981
1,075,818 $
3,327 $
689
669
695
4,471
3,689
10,123
13,452
19,131
29,103
39,473
4,360
129,182 $
161
171
443
695
1,302
2,534
5,734
10,590
14,049
18,410
21,760
—
75,849
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Cumulative paid loss and LAE, net of reinsurance
26,288 $
13,904
11,187
6,072
5,084
29,384 $
19,727
19,010
12,158
13,224
4,996
32,849 $
24,298
26,429
22,963
18,020
10,226
3,503
32,423 $
28,312
30,948
31,619
29,752
32,249
24,581
20,849
32,765 $
30,924
34,125
39,350
40,864
44,698
36,026
33,963
6,402
34,935 $
32,878
37,317
41,257
45,775
58,377
57,678
52,350
21,959
6,967
36,699 $
33,473
39,214
47,141
53,526
70,074
77,259
79,291
45,855
27,001
7,907
34,893 $
32,487
39,888
49,178
56,538
76,996
86,101
98,278
67,064
51,545
24,618
27
37,253 $
34,984
42,509
51,492
55,350
83,571
92,861
112,542
88,627
79,531
42,792
314
$
37,278
34,999
43,076
52,592
57,913
87,178
96,521
120,546
101,764
97,356
65,947
717
795,887
8
279,939
(75,849)
204,090
Total net reserves excluding impact of ADC
Impact of ADC
Total net reserves including impact of ADC
All outstanding liabilities prior to 2008, net of reinsurance
F-42
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
AmTrust Reinsurance: Commercial Auto Liability
Commercial Auto Liability is written in the U.S. and included in the Small Commercial Business and Specialty Program business units within the AmTrust Quota Share. The Small Commercial
Business unit focuses on writing smaller niche business, typically under-served by the broader insurance market, and policies typically have limits of $1,000. Auto Liability business written in the
Small Commercial Business unit grew substantially following a large renewal rights acquisition completed by AmTrust in 2014. Commercial Auto Liability business written in the Specialty Program
unit is typically part of programs consisting of multiple lines of business.
Our initial underwriting year loss projections are generally based on the ELR method, derived from historical performance after the consideration of loss and premium trends. This proportional
exposure is relatively short tailed, and the transition to the BF and the LD methods happens relatively quickly, within the first several years.
F-43
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Commercial
Auto Liability
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
For the Year
Ended December
31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Incurred loss and LAE, net of reinsurance (excluding impact of LPT/ADC Agreement)
At December 31, 2021
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Total IBNR
Impact of
LPT/ADC
$
32,769
$
33,700
$
34,522
$
34,584
$
35,975
$
35,521
$
35,382
$
35,542
$
37,746
$
37,854
$
2,052
$
26,275
33,457
24,292
20,863
28,551
37,154
29,577
32,691
33,473
30,812
38,043
32,578
40,076
44,771
47,525
31,024
40,193
33,839
44,812
50,647
55,023
66,967
30,468
40,523
34,790
48,116
59,702
73,966
92,955
121,828
30,919
42,146
36,149
46,150
63,162
82,427
106,560
118,210
156,575
31,033
41,996
36,065
45,753
62,163
89,299
119,141
144,077
189,257
177,150
31,064
42,070
34,643
45,917
63,620
92,572
127,560
171,504
220,457
224,780
79,172
31,082
40,637
34,707
45,902
63,532
94,238
129,849
170,275
230,972
230,200
77,371
31,019
40,631
34,690
45,753
63,589
93,208
129,082
167,479
220,471
219,800
73,023
—
$
1,156,599
$
437
218
481
(59)
388
1,098
1,607
2,849
14,751
30,511
22,415
(7)
76,741
$
60
47
29
1
—
41
289
1,190
2,291
3,538
6,870
—
—
14,356
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
Cumulative paid loss and LAE, net of reinsurance
$
29,386
$
30,975
$
32,643
$
33,536
$
34,074
$
34,803
$
35,284
$
36,968
$
34,982
$
18,736
21,050
12,333
6,693
22,959
28,602
18,813
14,979
8,267
26,975
34,855
25,808
26,508
19,865
8,450
29,226
37,734
29,769
35,460
34,379
22,858
13,102
29,829
39,413
32,362
43,745
48,122
42,960
39,179
19,071
29,842
39,750
33,130
44,165
57,349
64,459
62,945
48,595
26,863
30,204
40,282
33,155
45,555
59,600
79,766
86,433
76,635
69,657
30,018
31,194
40,395
33,451
45,751
62,331
87,458
107,707
113,174
115,623
67,080
9,456
Total net reserves excluding impact of ADC
Impact of ADC
Total net reserves including impact of ADC
All outstanding liabilities prior to 2008, net of reinsurance
F-44
30,337
40,407
33,872
45,819
62,562
90,761
118,753
133,826
154,600
107,184
22,799
7
$
35,013
30,340
40,411
34,005
45,812
62,968
91,000
121,605
145,727
176,863
138,770
34,365
7
956,886
57
199,770
(14,356)
185,414
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
AmTrust Reinsurance: European Hospital Liability
AmTrust entered this line of business in Italy in 2010 when it believed there were significant opportunities in what had traditionally been an under-performing market. European Hospital Liability
policies are written on a claim made basis. Maiden wrote a separate annually renewable contract covering this exposure in 2011 which is not part of the AmTrust Quota Share. Currently, most
exposure remains in Italy with a modest amount of exposure to other European nations. The European Hospital Liability Quota Share is a claims made exposure, and in many instances claims are
eventually closed with no liability. This phenomena is estimated during the reserving process, and can result in a provision for pure IBNR (reserves for claims which have not yet been reported)
which is minimal or negative. This estimate will vary as the exposure matures which could result in changes to the level of reserves. Also, severity for known claims and expenses can increase over
time, which requires a provision for IBNR. The net result is a relatively small amount of IBNR.
Our initial underwriting year loss projections are generally based on the ELR method, derived from historical performance after the consideration of loss and premium trends. Loss reporting for
this line is unique, as a large proportion of claims are initially reserved but eventually closed with no payment, as the insurer is found to have no liability after investigation of the fundamentals of the
claim. In addition, the underlying insurance policies assumed are subject to deductibles on both a per claim and aggregate basis. For these reasons, the LD method is not typically employed to
estimate aggregate losses, although development methodologies are used individually in estimating losses gross of per claim and policy deductibles and the impacts of each type of deductible.
European
Hospital Liability
For the Year Ended
December 31,
Accident Year:
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
For the Year Ended
December 31,
Accident Year:
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
Total net reserves
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
Incurred loss and LAE, net of reinsurance
At December 31,
2021
2021
Total IBNR
$
23,340 $
80,228
36,130 $
81,767
49,292
49,918 $
80,974
61,927
51,283
47,483 $
103,830
64,600
54,001
47,811
65,382 $
92,881
84,867
57,842
46,419
44,764
63,398 $
87,946
77,599
64,360
60,438
51,533
41,210
60,789 $
113,658
99,463
81,154
66,451
67,448
52,506
44,861
Cumulative paid loss and LAE, net of reinsurance
63,077 $
118,559
105,355
86,454
69,622
69,999
54,648
31,818
15,984
63,362 $
119,502
106,763
87,509
69,862
68,467
53,189
32,759
14,796
$
64,135 $
120,978
108,415
88,875
72,202
69,830
51,176
32,112
15,777
623,500 $
(2,958)
2,673
4,327
6,729
6,349
8,557
6,566
796
4,383
37,422
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
2018
Unaudited
2019
Unaudited
2020
Unaudited
2021
$
4,370 $
4,836
12,895 $
15,461
3,005
23,663 $
35,187
15,114
4,229
28,946 $
45,830
26,004
11,913
3,492
35,966 $
58,922
39,676
24,762
11,106
3,604
41,611 $
69,477
49,876
35,244
22,928
10,705
1,286
45,829 $
77,552
55,895
39,547
29,262
17,737
4,441
926
49,634 $
83,713
63,189
46,649
35,141
23,593
7,612
2,280
11,531
54,217 $
93,821
76,488
58,632
46,094
35,019
14,774
5,432
1,611
$
57,204
98,918
82,089
61,616
45,598
37,642
20,363
7,816
3,043
414,289
209,211
F-45
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
AmTrust Reinsurance - All Other Lines: This category includes all lines except Workers' Compensation, General Liability, and Commercial Auto from the Small Commercial Business and
Specialty Program Divisions. The predominant exposures are property and auto physical damage.
Incurred loss and LAE, net of reinsurance (excluding impact of LPT/ADC Agreement)
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
$
28,724
20,349
15,182
19,948
14,697
$
28,715
11,959
24,718
26,343
18,443
17,806
$
29,149
13,329
15,484
27,509
19,426
17,630
20,597
$
29,237
14,309
16,078
22,359
21,898
28,058
25,268
52,706
$
29,070
14,492
16,105
22,616
18,673
22,918
26,021
54,857
79,654
29,576
16,088
17,071
23,376
19,850
21,313
24,958
49,631
74,948
104,637
2018
2019
Unaudited
$
29,574
15,653
17,059
23,506
20,260
21,669
26,278
49,463
72,384
96,812
96,910
Unaudited
$
29,519 $
14,617
15,438
21,469
19,578
21,735
24,929
47,882
73,602
92,904
103,489
37,945
2020
Unaudited
24,045 $
15,750
15,905
21,515
17,969
20,644
21,496
44,939
67,060
96,196
101,553
43,146
At December 31, 2021
2021
Total IBNR
Impact of
LPT/ADC
$
24,016
15,373
15,905
21,500
17,811
20,639
21,491
44,749
66,944
96,104
101,913
43,554
—
(4,928)
373
52
151
(275)
1,174
(2)
678
6,631
1,636
(1,607)
2,560
(103)
6,340
$
$
—
—
—
—
152
247
122
50
111
247
491
—
—
1,420
Cumulative paid loss and LAE, net of reinsurance
2012
Unaudited
2013
Unaudited
2014
Unaudited
2015
Unaudited
2016
Unaudited
2017
Unaudited
$
29,710
8,084
12,332
16,424
10,308
$
29,900
8,743
13,012
17,571
14,031
11,877
$
31,217
11,093
15,375
21,279
16,033
15,997
12,028
$
29,388
13,105
15,748
22,044
16,936
17,509
20,277
28,929
$
29,177
13,870
16,058
22,715
17,946
20,258
20,940
45,208
42,795
30,833
15,224
16,919
23,892
18,205
20,456
22,018
42,631
69,805
48,903
2018
2019
Unaudited
$
Unaudited
$
30,683
15,051
16,786
23,661
18,685
20,447
26,194
41,962
65,452
80,726
56,539
29,234 $
14,009
15,285
21,481
17,559
19,343
21,405
44,179
63,234
80,735
86,455
22,095
$
489,999
$
2020
Unaudited
2021
24,706 $
14,954
15,853
21,343
18,071
20,146
21,497
43,622
63,450
93,212
98,386
38,793
4
$
28,850
14,986
15,854
21,339
18,077
19,465
21,493
43,895
60,008
93,541
101,158
40,427
103
66
479,262
(2)
10,735
(1,420)
9,315
Total net reserves excluding impact of ADC
Impact of ADC
Total net reserves including impact of ADC
All outstanding liabilities prior to 2008, net of reinsurance
F-46
$
$
All Other Lines
For the Year Ended
December 31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
For the Year Ended
December 31,
Accident Year:
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
9. Reserve for Loss and Loss Adjustment Expenses (continued)
Reconciliation of Development Tables to Consolidated Balance Sheet
The following table represents a reconciliation of the net incurred and paid claims development tables to the reserve for loss and LAE in the Consolidated Balance Sheet at December 31, 2021:
Diversified Reinsurance
International
European Capital Solutions
Other reconciling items
Total Diversified Reinsurance - Segment
AmTrust Reinsurance
Workers' Compensation
General Liability
Commercial Auto Liability
European Hospital Liability
All Other Lines
Total
Other reconciling items
Total AmTrust Reinsurance - Segment
Other
Total reserves for loss and LAE
b) Claims duration disclosure
Total Net Reserves
(including impact of ADC)
December 31, 2021
Reinsurance Recoverables
on unpaid claims
Total Gross Reserves
$
41,226 $
20,151
17,742
79,119
2,979 $
—
—
2,979
92,983
204,090
185,414
209,211
9,315
701,013
146,396
847,409
—
375,185
75,849
14,356
—
1,420
466,810
24,050
490,860
69,006
44,205
20,151
17,742
82,098
468,168
279,939
199,770
209,211
10,735
1,167,823
170,446
1,338,269
69,006
$
926,528 $
562,845 $
1,489,373
The following unaudited supplementary information represents the average annual percentage payout of net loss and LAE by age, net of reinsurance, for both our reportable segments at
December 31, 2021:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Average annual payout of incurred claims by age, net of reinsurance
Diversified Reinsurance
International
European Capital Solutions
AmTrust Reinsurance
Workers' Compensation
General Liability
Commercial Auto Liability
European Hospital Liability
All other lines
49.7 %
5.4 %
18.7 %
6.1 %
12.2 %
3.6 %
56.9 %
38.2 %
15.1 %
31.7 %
10.8 %
18.1 %
7.9 %
32.3 %
5.3 %
15.6 %
17.9 %
13.6 %
19.3 %
11.7 %
2.8 %
2.8 %
20.6 %
8.6 %
16.4 %
18.7 %
11.6 %
5.3 %
0.8 %
8.2 %
5.2 %
13.9 %
13.4 %
11.3 %
3.1 %
(0.6)%
8.7 %
4.1 %
9.5 %
6.7 %
9.7 %
(4.1)%
(0.5)%
— %
3.2 %
6.4 %
3.0 %
7.4 %
0.7 %
(0.5)%
— %
2.6 %
5.7 %
0.3 %
6.9 %
(0.7)%
(0.7)%
— %
1.7 %
2.1 %
0.5 %
6.8 %
(3.9)%
1.6 %
— %
1.8 %
4.1 %
0.5 %
6.3 %
(0.3)%
The average annual payout of incurred claims by age, net of reinsurance, is calculated using the amount of claims paid in each development year and is compared with the estimated incurred
claims as of the most recent period presented.
F-47
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
10. Related Party Transactions
The Founding Shareholders of the Company were Michael Karfunkel, George Karfunkel and Barry Zyskind. Based on each individual's most recent public filing, Leah Karfunkel (wife of the late
Michael Karfunkel) owns or controls approximately 7.8% of the Company's outstanding common shares and Barry Zyskind (the Company's non-executive chairman) owns or controls approximately
7.3% of the Company's outstanding common shares. George Karfunkel owns or controls less than 5.0% of the Company's outstanding common shares. Leah Karfunkel and George Karfunkel are
directors of AmTrust, and Barry Zyskind is the chief executive officer and chairman of AmTrust. Leah Karfunkel, George Karfunkel and Barry Zyskind own or control approximately 53.2% of the
ownership interests of Evergreen Parent LP, the ultimate parent of AmTrust.
The following describes transactions that have transpired between the Company and AmTrust:
AmTrust Quota Share
Effective July 1, 2007, the Company and AmTrust entered into a master agreement, as amended ("Master Agreement"), by which they caused Maiden Reinsurance and AII to enter into the
AmTrust Quota Share by which AII retroceded to Maiden Reinsurance an amount equal to 40% of the premium written by subsidiaries of AmTrust, net of the cost of unaffiliated inuring reinsurance
and 40% of losses. The Master Agreement further provided that AII receive a ceding commission of 31% of ceded written premiums. On June 11, 2008, Maiden Reinsurance and AII amended the
AmTrust Quota Share to add Retail Commercial Package Business to the Covered Business (as defined in the AmTrust Quota Share). AII receives a ceding commission of 34.375% on Retail
Commercial Package Business. On July 1, 2016, the agreement was renewed through June 30, 2019. Effective July 1, 2018, the amount AEL ceded to Maiden Reinsurance was reduced to 20%.
Effective July 1, 2013, for the Specialty Program portion of Covered Business only, AII was responsible for ultimate net loss otherwise recoverable from Maiden Reinsurance to the extent that the
loss ratio to Maiden Reinsurance, which shall be determined on an inception to date basis from July 1, 2007 through the date of calculation, is between 81.5% and 95% ("Loss Corridor"). Above and
below the Loss Corridor, Maiden Reinsurance continued to reinsure losses at its proportional 40% share of the AmTrust Quota Share. Effective July 31, 2019, the Loss Corridor was amended such
that the maximum amount covered is $40,500, the amount calculated by Maiden Reinsurance for the Loss Corridor coverage as of March 31, 2019. Any development above this maximum amount
will be subject to the coverage of the LPT/ADC Agreement.
Effective January 1, 2019, Maiden Reinsurance and AII entered into a partial termination amendment ("Partial Termination Amendment") which amended the AmTrust Quota Share. The Partial
Termination Amendment provided for the cut-off of the ongoing and unearned premium of AmTrust’s Small Commercial Business, comprising workers’ compensation, general liability, umbrella
liability, professional liability (including cyber liability) insurance coverages, and U.S. Specialty Risk and Extended Warranty ("Terminated Business") as of December 31, 2018. Under the Partial
Termination Amendment, the ceding commission payable by Maiden Reinsurance for its remaining in-force business immediately prior to January 1, 2019 increased by five percentage points with
respect to in-force remaining business (excluding Terminated Business) and related unearned premium as of January 1, 2019. The Partial Termination Amendment resulted in Maiden Reinsurance
returning $647,980 in unearned premium to AII, or $436,760 net of applicable ceding commission and brokerage as calculated during the second quarter of 2019.
Subsequently, on January 30, 2019, Maiden Reinsurance and AII agreed to terminate the remaining business subject to the AmTrust Quota Share on a run-off basis effective as of January 1, 2019.
Effective July 31, 2019, Maiden Reinsurance and AII entered into a Commutation and Release Agreement which provided for AII to assume all reserves ceded by AII to Maiden Reinsurance with
respect to its proportional 40% share of the ultimate net loss under the AmTrust Quota Share related to the commuted business including: (a) all losses incurred in Accident Year 2017 and Accident
Year 2018 under California workers' compensation policies and as defined in the AmTrust Quota Share ("Commuted California Business"); and (b) all losses incurred in Accident Year 2018 under
New York workers' compensation policies ("Commuted New York Business"), and together with the Commuted California Business ("Commuted Business") in exchange for the release and full
discharge of Maiden Reinsurance's obligations to AII with respect to the Commuted Business. The Commuted Business excludes any business classified by AII as Specialty Program or Specialty
Risk business.
Maiden Reinsurance paid $312,786 ("Commutation Payment"), which is the sum of the net ceded reserves in the amount of $330,682 with respect to the Commuted Business as of December 31,
2018 less payments in the amount of $17,896 made by Maiden Reinsurance with respect to the Commuted Business from January 1, 2019 through July 31, 2019. The Commutation Payment was
settled on August 12, 2019 and Maiden Reinsurance paid AII approximately $6,335 in interest related to the Commutation Payment premium, calculated at the rate of 3.30% per annum from January
1, 2019 through August 12, 2019.
AII and Maiden Reinsurance also agreed that as of July 31, 2019, the AmTrust Quota Share was deemed amended as applicable so that the Commuted Business is no longer included as part of
Covered Business under the AmTrust Quota Share.
On January 30, 2019, in connection with the termination of the reinsurance agreement described above, the Company and AmTrust entered into a second amendment to the Master Agreement
between the parties, originally entered into on July 3, 2007, to remove the provisions requiring AmTrust to reinsure business with the Company.
F-48
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
10. Related Party Transactions (continued)
European Hospital Liability Quota Share
Effective April 1, 2011, Maiden Reinsurance entered into the European Hospital Liability Quota Share with AEL and AIU DAC. Pursuant to the terms of the European Hospital Liability Quota
Share, Maiden Reinsurance assumed 40% of the premiums and losses related to policies classified as European Hospital Liability, including associated liability coverages and policies covering
physician defense costs, written or renewed on or after April 1, 2011. The European Hospital Liability Quota Share also covers policies written or renewed on or before March 31, 2011, but only with
respect to losses that occur, accrue or arise on or after April 1, 2011. The maximum limit of liability attaching shall be €5,000 (€10,000 effective January 1, 2012) or currency equivalent (on a 100%
basis) per original claim for any one original policy. Maiden Reinsurance paid a ceding commission of 5% on contracts assumed under the European Hospital Liability Quota Share.
Effective July 1, 2016, the European Hospital Liability Quota Share was amended such that Maiden Reinsurance assumes from AEL 32.5% of the premiums and losses of all policies written or
renewed on or after July 1, 2016 until June 30, 2017 and 20% of all policies written or renewed on or after July 1, 2017. Thereafter, on January 30, 2019, Maiden Reinsurance, AEL and AIU DAC
agreed to terminate the European Hospital Liability Quota Share on a run-off basis effective as of January 1, 2019.
The table below shows the effect of both of these quota share arrangements with AmTrust on the Company's Consolidated Income Statements for the years ended December 31, 2021 and 2020,
respectively:
For the Year Ended December 31,
Gross and net premiums written
Net premiums earned
Net loss and loss adjustment expenses
Commission and other acquisition expenses
Collateral provided to AmTrust
a) AmTrust Quota Share
$
2021
2020
(5,695) $
25,312
(3,438)
(9,747)
(9,068)
57,992
(17,031)
(20,321)
To provide AmTrust's U.S. insurance subsidiaries with credit for reinsurance on their statutory financial statements, AII, as the direct reinsurer of AmTrust's insurance subsidiaries, established
trust accounts ("Trust Accounts") for their benefit. Maiden Reinsurance has provided appropriate collateral to secure its proportional share under the AmTrust Quota Share of AII's obligations to the
AmTrust subsidiaries to whom AII is required to provide collateral which can include (a) assets loaned by Maiden Reinsurance to AII for deposit into the Trust Accounts, pursuant to a loan
agreement between those parties, (b) assets transferred by Maiden Reinsurance for deposit into the Trust Accounts, or (c) a letter of credit obtained by Maiden Reinsurance and delivered to an
AmTrust subsidiary on AII's behalf. Maiden Reinsurance may provide any or a combination of these forms of collateral, provided that the aggregate value thereof equals Maiden Reinsurance's
proportionate share of its obligations under the AmTrust Quota Share. Maiden Reinsurance satisfied its collateral requirements under the AmTrust Quota Share with AII as follows:
•. by lending funds of $167,975 at December 31, 2021 and 2020 pursuant to a loan agreement entered into between those parties. Advances under the loan are secured by promissory notes.
This loan was assigned by AII to AmTrust effective December 31, 2014 and is carried at cost. Interest is payable at a rate equivalent to the Federal Funds Effective Rate ("Fed Funds") plus
200 basis points per annum. The interest income on the loan was $3,492 for the year ended December 31, 2021 (2020 - $3,996) and the effective yield was 2.1% (2020 - 2.4%).
•. on January 30, 2019, in connection with the termination of the reinsurance agreements described above, the Company and AmTrust amended the Loan Agreement between Maiden
Reinsurance, AmTrust and AII, originally entered into on November 16, 2007, by extending the maturity date to January 1, 2025 and specifies that due to the termination of the AmTrust
Quota Share, no further loans or advances may be made pursuant to the Loan Agreement;
•. effective December 1, 2008, the Company entered into a Reinsurer Trust Assets Collateral agreement to provide to AII sufficient collateral to secure its proportional share of AII's obligations
to the U.S. AmTrust subsidiaries. The amount of the collateral at December 31, 2021 was approximately $246,874 (2020 - $666,879) and the accrued interest was $1,171 (2020 - $3,048).
Please refer to "Note 4. (e) Investments" for additional information.
•. on January 11, 2019, a portion of the existing Trust Accounts used for collateral on the AmTrust Quota Share were converted to a funds withheld arrangement. The Company transferred
$575,000 to AmTrust as a funds withheld receivable which currently has an annual interest rate of 1.8%, subject to annual adjustment. The annual interest rate was 2.65% for the year ended
December 31, 2020. At December 31, 2021, the balance of funds withheld was $575,000 (2020 - $575,000) and the accrued interest was $2,609 (2020 - $3,845). The interest income on the
funds withheld receivable was $10,350 for the year ended December 31, 2021 (2020 - $15,297).
F-49
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
10. Related Party Transactions (continued)
Pursuant to the terms of the LPT/ADC Agreement, Maiden Reinsurance, Cavello and AmTrust and certain of its affiliated companies entered into a Master Collateral Agreement (“MCA”) to
define and enable the operation of collateral provided under the AmTrust Quota Share. Under the MCA, Cavello provided letters of credit on behalf of Maiden Reinsurance to AmTrust in an amount
representing Cavello's obligations under the LPT/ADC Agreement. Because these letters of credit replaced other collateral previously provided directly by Maiden Reinsurance to AmTrust, the MCA
coordinates the collateral protection that will be provided to AmTrust to ensure that no gaps in collateral funding occur by operation of the LPT/ADC Agreement and related MCA. As a result of
entering into both the LPT/ADC Agreement and the MCA, certain post-termination endorsements (“PTEs”) to the AmTrust Quota Share between AII and Maiden Reinsurance were required.
Effective July 31, 2019, the PTEs: i) enable the operation of both the LPT/ADC Agreement and MCA by making provision for certain forms of collateral, including letters of credit provided by
Cavello on Maiden Reinsurance’s behalf, and further defines the permitted use and return of collateral; and ii) increase the required funding percentage for Maiden Reinsurance under the collateral
arrangements between the parties to 105% of its obligations, subject to a minimum excess funding requirement of $54,000, as may be mutually amended by the parties from time to time. Under
certain defined conditions, Maiden Reinsurance may be required to increase this funding percentage to 110%.
Effective March 16, 2020, Maiden Reinsurance discontinued as a Bermuda company and completed its re-domestication to the State of Vermont. Bermuda is a Solvency II equivalent jurisdiction
and the State of Vermont is not such a jurisdiction; therefore, the collateral provided under the respective agreements with AmTrust subsidiaries was strengthened to reflect the impact of the re-
domestication concurrent with the date of Maiden Reinsurance’s re-domestication to Vermont. Maiden Reinsurance and AmTrust agreed to: 1) amend the AmTrust Quota Share pursuant to Post
Termination Endorsement No. 2 effective March 16, 2020; and 2) amend the European Hospital Liability Quota Share pursuant to Post Termination Endorsement No. 1 effective March 16, 2020.
Pursuant to the terms of Post Termination Endorsement No. 2 to the AmTrust Quota Share, Maiden Reinsurance strengthened the collateral protection provided by Maiden Reinsurance to AII by
increasing the required funding percentage for Maiden Reinsurance under the collateral arrangements between the parties to 110% of its obligations, subject to a minimum excess funding requirement
of $54,000, as may be mutually amended by the parties from time to time. Post Termination Endorsement No. 2 also sets forth conditions by which the funding percentage will be reduced and the
sequence of how collateral will be utilized as obligations as defined under the AmTrust Quota Share are satisfied.
Pursuant to the terms of Post Termination Endorsement No. 1 to the European Hospital Liability Quota Share, Maiden Reinsurance strengthened the collateral protection provided by Maiden
Reinsurance to AEL and AIU DAC by increasing the required funding percentage for Maiden Reinsurance under the collateral arrangements between the parties to the greater of 120% of the
Exposure (as defined therein) and the amount of security required to offset the increase in the Solvency Capital Requirement (“SCR”) that results from the changes in the SCR which arise out of
Maiden Reinsurance's re-domestication as compared to the SCR calculation if Maiden Reinsurance had remained domesticated in a Solvency II equivalent jurisdiction with a solvency ratio above
100% and provided collateral equivalent to 100% of the Exposure.
b) European Hospital Liability Quota Share
Collateral has been provided to both AEL and AIU DAC under the European Hospital Liability Quota Share. For AEL, the amount of collateral held in reinsurance trust accounts at December 31,
2021 was $244,488 (2020 - $318,063) and the accrued interest was $1,273 (2020 - $2,283). For AIU DAC, the Company utilizes funds withheld to satisfy its collateral requirements. At December 31,
2021, the funds withheld balance was $26,460 (2020 - $28,093) and the accrued interest was $141 (2020 - $318). AIU DAC pays Maiden Reinsurance a fixed annual interest rate of 0.5% on the
average daily funds withheld balance which is subject to annual adjustment. The interest income on the funds withheld receivable was $147 for the year ended December 31, 2021 (2020 - $350).
Brokerage Agreement
Effective July 1, 2007, the Company entered into a reinsurance brokerage agreement with AII Reinsurance Broker Ltd. ("AIIB"), a wholly owned subsidiary of AmTrust. Pursuant to the brokerage
agreement, AIIB provided brokerage services relating to the AmTrust Quota Share and the European Hospital Liability Quota Share for a fee equal to 1.25% of the premium assumed. AIIB was not
the Company's exclusive broker. The brokerage agreement was terminated as of March 15, 2019.
Maiden Reinsurance recorded $316 of reinsurance brokerage expense for the year ended December 31, 2021 (2020 - $725), and deferred reinsurance brokerage of $1,147 at December 31, 2021
(2020 - $1,534) as a result of this agreement.
Asset Management Agreement
Effective July 1, 2007, the Company entered into an asset management agreement with AII Insurance Management Limited ("AIIM"), a wholly owned subsidiary of AmTrust, pursuant to which
AIIM agreed to provide investment management services to the Company. Effective January 1, 2018, AIIM provides investment management services for a quarterly fee of 0.02125% of the average
value of the account. The agreement may be terminated upon 30 days written notice by either party. The Company recorded $846 of investment management fees for the year ended December 31,
2021 (2020 - $1,369) under this agreement.
F-50
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
10. Related Party Transactions (continued)
On September 9, 2020, Maiden Reinsurance, AmTrust and AIIM entered into a novation agreement, effective July 1, 2020, which provided for the novation of the asset management agreement,
dated January 1, 2018 between Maiden Reinsurance and AIIM, and the release by Maiden Reinsurance of AIIM's obligations under the asset management agreement. The novation mandates that
AmTrust is to be bound by the terms of the asset management agreement in place of AIIM and AmTrust agrees to perform any and all past, present and future obligations of AIIM under the asset
management agreement.
On November 13, 2020, Maiden LF, Maiden GF, AmTrust and AIIM entered into a novation agreement, effective July 1, 2020, which provided for the novation of the asset management
agreement, dated January 1, 2018 between Maiden LF, Maiden GF and AIIM, and the release by Maiden LF and Maiden GF of AIIM's obligations under the asset management agreement. The
novation mandates that AmTrust is to be bound by the terms of the asset management agreement in place of AIIM and AmTrust agrees to perform any and all past, present and future obligations of
AIIM under the asset management agreement.
Insurance Management Services Agreement
Effective August 31, 2019, the Company entered into an agreement with Risk Services - Vermont, Inc. ("Risk Services"), an affiliate of AmTrust. Pursuant to the agreement, Risk Services agreed
to provide insurance management services to the Company including regulatory compliance services in connection with the re-domestication, licensing and operation of Maiden Reinsurance in the
State of Vermont. The initial term of the agreement is three years and will automatically renew for an additional three years until either party gives written notice of its intention to terminate this
agreement at least three months prior to the commencement of the next applicable period.
The fee for this agreement was an initial $100 retainer for re-domestication services paid in 2019 and $100 annually with reimbursement for reasonable out-of-pocket expenses incurred by Risk
Services pursuant to the terms of the agreement. The Company recorded $100 of annual fees for the year ended December 31, 2021 (2020 - $100).
683 Capital Partners, LP (“683 Partners”)
At December 31, 2021, 683 Partners and its affiliates own or control approximately 6.8% of the outstanding common shares of the Company. 683 Partners and its affiliates are not related parties
as defined in ASC 850: Related Party Disclosures.
Limited Partnership Agreement with 683 Capital Management, LLC ("683 Capital")
In July 2020, the Company and 683 Capital entered into a limited partnership agreement (“683 LP Agreement”) whereby 683 Capital will separately manage certain funds of Maiden Reinsurance
at its discretion, subject to guidelines established by the parties. Under the 683 LP Agreement, Maiden Reinsurance will pay 683 Capital a management fee and subject to certain metrics agreed to by
the parties, an incentive fee upon attainment of those metrics. Maiden Reinsurance may periodically and in its discretion increase the amount invested under the 683 LP Agreement, and subject to
certain conditions, reduce the amount invested under the 683 LP Agreement. Hedge fund investments of $32,929 were managed by 683 Capital under this agreement at December 31, 2021
(December 31, 2020 - $29,435).
F-51
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
11. Commitments, Contingencies and Guarantees
a) Concentrations of Credit Risk
At December 31, 2021 and 2020, the Company’s assets where significant concentrations of credit risk may exist include investments, cash and cash equivalents, loan to related party, reinsurance
recoverable on unpaid losses and funds withheld receivable. Please refer to "Note 8 — Reinsurance" for additional information regarding the Company's credit risk exposure on its reinsurance
counterparties including the impact of the LPT/ADC Agreement effective January 1, 2019. The Company requires its reinsurers to have adequate financial strength. The Company evaluates the
financial condition of its reinsurers and monitors its concentration of credit risk on an ongoing basis. Provisions are made for amounts considered potentially uncollectible. Letters of credit are
provided by its reinsurers for material amounts recoverable as discussed in "Note 8 — Reinsurance".
The Company manages the concentration of credit risk in its investment portfolio through issuer and sector exposure limitations. The Company believes it bears minimal credit risk in its cash on
deposit. The Company also monitors the credit risk related to the loan to related party and funds withheld receivable, within which the largest balances are due from AmTrust. AmTrust has a financial
strength/credit rating of A- (Excellent) from A.M. Best at December 31, 2021. To mitigate credit risk, the Company generally has a contractual right of offset thereby allowing claims to be settled net
of any premiums or loan receivable. The Company believes these balances as at December 31, 2021 will be fully collectible.
b) Concentrations of Revenue
During the year ended December 31, 2021, net premiums earned from AmTrust accounted for $25,312 or 47.8% of total net premiums earned (2020 – $57,992 or 54.7%).
c) Brokers
The Company formerly marketed its Diversified Reinsurance segment through third-party intermediaries as well as directly through its own marketing efforts. The majority of business within the
Diversified Reinsurance segment was marketed directly through our own efforts therefore there was no significant reliance on brokers for the years ended December 31, 2021 and 2020.
d) Letters of Credit
At December 31, 2021, the Company had letters of credit outstanding of $53,566 (2020 - $67,386) for collateral purposes which are secured by cash and fixed maturities with a fair value of
$72,823 at December 31, 2021 (2020 - $83,041).
e) Employment Agreements
The Company has entered into employment agreements with certain individuals. The employment agreements provide for executive benefits and severance payments under certain circumstances.
f) Operating Lease Commitments
The Company leases office spaces, housing, office equipment and company vehicles under various operating leases expiring in various years through 2024. The Company entered into a new office
leasing arrangement and terminated its former office leasing arrangement in Bermuda during the year ended December 31, 2021. The Company's leases are currently classified as operating leases and
none of them have any non-lease components. For operating leases that have a lease term of more than twelve months, and whose lease payments are above a certain threshold, the Company
recognizes a lease liability and a right-of-use asset in the Consolidated Balance Sheets at the present value of the remaining lease payments until expiration. As the lease contracts generally do not
provide an implicit discount rate, the Company used the weighted-average discount rate of 10%, representing its secured incremental borrowing rate, in calculating the present value of the lease
liability. The amount of $473 is recorded as a lease liability within accrued expenses and other liabilities with an equivalent amount for the right-of-use asset presented as part of other assets at
December 31, 2021 (2020 - $1,638). The Company's weighted-average remaining lease term is approximately 2.8 years at December 31, 2021.
g) Investment Commitments and Related Financial Guarantees
The Company had total unfunded commitments on other investments of $95,677 at December 31, 2021 (2020 - $63,313). Please refer to "Note 4 (b) Other Investments" for details on unfunded
commitments for other investments held at December 31, 2021. The total unfunded commitments on other investments at December 31, 2021 also includes commitments for future investments for
which the Company had agreements to fund at December 31, 2021. The Company had unfunded commitments on equity method investments of $25,950 at December 31, 2021.
Certain of the Company's investments in limited partnerships are related to real estate joint ventures with interests in multi-property projects with varying strategies ranging from the development
of properties to the ownership of income-producing properties. In certain of these joint ventures, the Company has provided certain indemnities, guarantees and commitments to certain parties such
that it may be required to make payments now or in the future.
Any loss for which the Company could be liable would be contingent on the default of a loan by the real estate joint venture entity for which the Company provided a financial guarantee to a
lender. While the Company has committed to aggregate limits as to the amount of guarantees it will provide as part of its limited partnerships, guarantees are only provided on an individual
transaction basis and are subject to the terms and conditions of each transaction mutually agreed by the parties involved. The Company is not bound to such guarantees without its express
authorization.
F-52
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
11. Commitments, Contingencies and Guarantees (continued)
As discussed above, at December 31, 2021, guarantees of $33,305 have been provided to lenders by the Company on behalf of real estate joint ventures, however, the likelihood of the Company
incurring any losses pertaining to project level financing guarantees was determined to be remote. Therefore, no liability has been accrued under ASC 450-20.
h) Other Collateral
In the ordinary course of business, the Company enters into reinsurance agreements that may include terms which could require the Company to collateralize certain of its obligations.
i) Deposit Insurance
The Company maintains cash and cash equivalents balances at financial institutions in the U.S., Bermuda and other international jurisdictions. In the U.S., the Federal Deposit Insurance
Corporation secures accounts up to $250. In certain other international jurisdictions, there exist similar protections. Management monitors balances in excess of insured limits and believes they do not
represent a significant credit risk to the Company.
j) Legal Proceedings
Except as noted below, the Company is not a party to any material legal proceedings. From time to time, the Company is subject to routine legal proceedings, including arbitration, arising in the
ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Based on the
Company's opinion, the eventual outcome of these legal proceedings is not expected to have a material adverse effect on its financial condition or results of operations.
In April 2009, the Company learned that Bentzion S. Turin, the former Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Reinsurance, sent a letter to the
U.S. Department of Labor claiming that his employment with the Company was terminated in retaliation for corporate whistle-blowing in violation of the whistle-blower protection provisions of the
Sarbanes-Oxley Act of 2002. Mr. Turin alleged that he was terminated for raising concerns regarding corporate governance with respect to the negotiation of the terms of the Trust Preferred
Securities Offering. He seeks reinstatement as Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Reinsurance, back pay and legal fees incurred. On December
31, 2009, the U.S. Secretary of Labor found no reasonable cause for Mr. Turin’s claim and dismissed the complaint in its entirety. Mr. Turin objected to the Secretary's findings and requested a
hearing before an administrative law judge in the U.S. Department of Labor. The Company moved to dismiss Mr. Turin's complaint, and its motion was granted by the Administrative Law Judge on
June 30, 2011. On July 13, 2011, Mr. Turin filed a petition for review of the Administrative Law Judge's decision with the Administrative Review Board in the U.S. Department of Labor. On March
29, 2013, the Administrative Review Board reversed the dismissal of the complaint on procedural grounds, and remanded the case to the administrative law judge. The administrative hearing began in
September 2014 and concluded in November 2018. On September 2, 2021, Administrative Law Judge Theresa C. Timlin of the U.S. Department of Labor issued a decision and order which denied
Mr. Turin’s complaint in full. On September 16, 2021, Mr. Turin filed a petition for review of the Administrative Law Judge's decision with the Administrative Review Board in the U.S. Department
of Labor. The Company believes that it had good and sufficient reasons for terminating Mr. Turin's employment and that the claim is without merit. The Company will continue to vigorously defend
itself against this claim.
A putative class action complaint was filed against Maiden Holdings, Arturo M. Raschbaum, Karen L. Schmitt, and John M. Marshaleck in the United States District Court for the District of New
Jersey on February 11, 2019. On February 19, 2020, the Court appointed lead plaintiffs, and on May 1, 2020, lead plaintiffs filed an amended class action complaint (the “Amended Complaint”).The
Amended Complaint asserts violations of Section 10(b) of the Exchange Act and Rule 10b-5 (and Section 20(a) for control person liability) arising in large part from allegations that Maiden failed to
take adequate loss reserves in connection with reinsurance provided to AmTrust. Plaintiffs further claim that certain of Maiden Holdings’ representations concerning its business, underwriting and
financial statements were rendered false by the allegedly inadequate loss reserves, that these misrepresentations inflated the price of Maiden Holdings' common stock, and that when the truth about
the misrepresentations was revealed, the Company’s stock price fell, causing Plaintiffs to incur losses. On September 11, 2020, a motion to dismiss was filed on behalf of all Defendants. On August 6,
2021, the Court issued an order denying, in part, Defendants’ motion to dismiss, ordering Plaintiffs to file a shorter amended complaint no later than August 20, 2021, and permitting discovery to
proceed on a limited basis. We believe the claims are without merit and we intend to vigorously defend ourselves. It is possible that additional lawsuits will be filed against the Company, its
subsidiaries and its respective officers due to the diminution in value of our securities as a result of our operating results and financial condition. It is currently uncertain as to the effect of such
litigation on our business, operating results and financial condition.
F-53
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
12. Earnings per Common Share
The following is a summary of the elements used in calculating basic and diluted earnings per common share:
For the Year Ended December 31,
Numerator:
Net income
Gain from repurchase of preference shares – Series A, C and D
Amount allocated to participating common shareholders
Net income allocated to Maiden common shareholders
Denominator:
Weighted average number of common shares – basic
Potentially dilutive securities:
Share options and restricted share units
Adjusted weighted average common shares – diluted
(2)
(1)
Basic and diluted earnings per share attributable to Maiden common shareholders
2021
2020
26,645 $
90,998
(1,021)
116,622 $
41,762
38,195
(1,386)
78,571
86,068,278
84,333,514
4,389
86,072,667
1.35
$
141
84,333,655
0.93
$
$
$
(1) This represents the share in net income using the two-class method for holders of non-vested restricted shares issued to the Company's employees under the 2019 Omnibus Incentive Plan.
(2) Please refer to "Note 6 — Shareholders' Equity" and "Note 14 — Share Compensation and Pension Plans" in the Notes to Consolidated Financial Statements for the terms and conditions of securities that could potentially be dilutive in the
future. For the year ended December 31, 2021, there were 4,389 potentially dilutive securities.
F-54
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
13. Income Taxes
Under current Bermuda law, Maiden Holdings received an undertaking from the Bermuda government exempting them from all local income, withholding and capital gains taxes until March 31,
2035. At the present time, no such taxes are levied in Bermuda. Maiden Holdings believes that they operate in a manner such that they will not be considered to be engaged in a trade or business in
the U.S. Accordingly, Maiden Holdings has not recorded any provision for U.S. taxation.
Maiden NA files a consolidated federal income tax return for the Company’s U.S. based subsidiaries, including Maiden Reinsurance, which re-domesticated to Vermont on March 16, 2020 and, as
a result, became subject to U.S. taxes. Maiden NA has Net Operating Loss carry-forwards ("NOLs") and other Deferred Tax Assets (“DTAs”) and Deferred Tax Liabilities (“DTLs”) that are not
presently recognized as a net DTA because a full valuation allowance is currently carried against them.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act) to mitigate the economic impacts of COVID-19. The Company believes that the
provisions of the CARES Act will not have a material impact on its U.S. federal tax liabilities.
Our U.S. subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for federal income taxes has been determined
under the principles of the consolidated tax provisions of the U.S. Internal Revenue Code and Regulations. Should our U.S. subsidiaries pay a dividend outside the U.S. group, withholding taxes will
apply. Tax years 2018 to 2020 are subject to examination in the U.S by the Internal Revenue Service.
The Company has subsidiary operations in various other locations around the world, including Australia, Ireland, Sweden and the United Kingdom, that are subject to relevant taxes in those
jurisdictions. These subsidiaries are not under examination but generally remain subject to examination in all applicable jurisdictions for tax years from 2018 through 2021. Deferred income taxes
have not been accrued with respect to certain undistributed earnings of foreign subsidiaries as it is the intention that such earnings will remain reinvested or will not be taxable. If the earnings were to
be distributed, as dividends or otherwise, such amounts may be subject to withholding tax in the country of the paying entity. Currently, however, no withholding taxes have been accrued.
There were no unrecognized tax benefits at December 31, 2021 and 2020. Income before taxes and income tax benefit for the years ended December 31, 2021 and 2020 are as follows:
For the Year Ended December 31,
Loss before income taxes – Domestic (Bermuda)
Income before income taxes – Foreign (U.S. and others)
Total income before income taxes
Current tax expense – Domestic (Bermuda)
Current tax expense – Foreign (U.S. and others)
Total current tax expense
Deferred tax expense – Domestic (Bermuda)
Deferred tax benefit – Foreign (U.S. and others)
Total deferred tax benefit
Total income tax expense (benefit)
F-55
2021
2020
$
$
$
$
$
$
$
(23,345) $
50,005
26,660 $
— $
244
244 $
— $
(229)
(229) $
15 $
(9,648)
51,306
41,658
—
155
155
—
(259)
(259)
(104)
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
13. Income Taxes (continued)
The following table is a reconciliation of the actual income tax rate for the years ended December 31, 2021 and 2020 to the amount computed by applying the effective tax rate of 0.0% under
Bermuda law to the Company's income before income taxes:
For the Year Ended December 31,
Income before income taxes
Less: income tax expense (benefit)
Net income
Reconciliation of effective tax rate (% of income before income taxes)
Bermuda tax rate
U.S. taxes at statutory rates
Re-domestication of Maiden Reinsurance to the U.S.
Valuation allowance in respect of U.S. taxes
Other jurisdictions
Actual tax rate
2021
2020
$
$
26,660
15
26,645
$
$
— %
24.3 %
— %
(22.3)%
(1.9)%
0.1 %
41,658
(104)
41,762
— %
19.2 %
(117.3)%
98.1 %
(0.3)%
(0.3)%
Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant
components of the Company's deferred tax assets and liabilities at December 31, 2021 and 2020 were as follows:
December 31,
Deferred tax assets:
Net operating losses
Unearned premiums
Capital loss carry-forward
Net unrealized losses on investments
Discounting of net loss and LAE reserves
Interest limitation
Deferred gain on retroactive reinsurance
Others
Deferred tax assets before valuation allowance
Valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Deferred commission and other acquisition expenses
Net unrealized gains on investment
Others
Deferred tax liabilities
Net deferred tax asset
2021
2020
$
48,346 $
4,202
2,831
2,236
30,423
11
10,282
840
99,171
90,077
9,094
8,201
—
53
8,254
$
840 $
44,259
6,017
4,234
—
37,568
—
23,719
776
116,573
96,414
20,159
11,327
8,197
3
19,527
632
The net deferred tax asset at December 31, 2021 was $840 (2020 - $632). The Company recorded an increase in its deferred tax assets of $63,421 and an increase in its deferred tax liabilities of
$16,120 as a result of the re-domestication of Maiden Reinsurance on March 16, 2020. A valuation allowance has been established against the net U.S. deferred tax assets which is primarily
attributable to net operating losses and capital losses. At this time, the Company believes it is necessary to establish a valuation allowance against the U.S. net deferred tax assets due to insufficient
positive evidence regarding the utilization of these losses. During 2021, the Company recorded a decrease in the valuation allowance of $6,337 (2020 - increase of $40,845).
At December 31, 2021, the Company has available net operating loss carry-forwards of $230,220 (2020 - $210,756) for income tax purposes which expire beginning in 2029. At December 31,
2021, the Company also has a capital loss carry-forward of $13,483 (2020 - $20,161) which will expire in 2023.
F-56
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
14. Share Compensation and Pension Plans
The Company’s Amended and Restated 2007 Share Incentive Plan ("2007 Plan") provided for grants of options, restricted shares and restricted share units. New shares were issued upon exercise
of options and vesting of restricted shares and share units. The total number of common shares currently reserved for issuance under the Plan was 10,000,000. The 2007 Plan was administered by the
Compensation Committee of the Board of Directors (the "Committee").
2019 Omnibus Incentive Plan
During the 2019 Annual General Meeting of Shareholders of the Company held on December 10, 2019, the 2007 Plan was terminated, assumed by and replaced with the 2019 Omnibus Incentive
Plan ("2019 Omnibus Plan"). The Company filed with the Securities and Exchange Commission ("SEC") the Form S-8 "Securities offered to employees pursuant to employee benefit plans" on
January 20, 2020, which covers the offer and resale of up to 11,289,956 of the Company's common shares. Such shares may be offered and sold from time to time by certain officers and directors of
the Company who have acquired or will acquire such shares pursuant to the 2019 Plan.
Share Options
Exercise prices of options are established at or above the fair market value of the Company’s common shares at the date of grant. Under the 2019 Omnibus Plan, unless otherwise determined by
the Committee and provided in an award agreement, 25% of the options will become exercisable on the first anniversary of the grant date, with an additional 6.25% of the options vesting each quarter
thereafter based on the grantee’s continued employment over a four-year period, and will expire ten years after grant date.
The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant
date for the award and each vesting date. The Company has estimated the fair value of all share option awards on the date of the grant by applying the Black-Scholes-Merton multiple-option pricing
valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.
This table shows all share option activity under the 2019 Omnibus Plan for the years ended December 31, 2021 and 2020:
Outstanding, December 31, 2019
Expired
Forfeited
Outstanding, December 31, 2020
Expired
Outstanding, December 31, 2021
Total exercisable at December 31, 2021
Number of
Share
Options
Weighted
Average
Exercise
Price
484,129 $
(213,379)
(6,250)
264,500
(49,500)
215,000
211,250
Weighted
Average
Remaining
Contractual
Term
3.63 years
4.72 years
4.28 years
4.23 years
8.44
7.50
7.20
9.22
10.57
8.91
9.05
Aggregate
Intrinsic
Value
Range of Option Exercise Prices (Low to
High)
$
—
$1.31
$13.98
—
13.00
7.00
1.31
1.31
1.31
13.98
13.98
13.98
The weighted average grant date fair value is $2.13 (2020 - $2.23) for all options outstanding at December 31, 2021. There was $1 (2020 - $9) of total unrecognized compensation cost related to
non-vested options at December 31, 2021 which will be recognized during the next 1.04 years. There were no options exercised for the years ended December 31, 2021 and 2020.
Restricted Shares
The fair value of each restricted share is determined based on the market value of the Company's common shares on the date of grant. The total estimated fair value is amortized as an expense on a
straight-line basis over the requisite service period as determined by the Committee, which varies between zero to three years for employees and one year for directors.
Non-Performance-Based ("NPB") Restricted Shares
The Company changed its practice of awarding a fixed number of restricted share units to the non-employee directors in 2019 and currently grants each non-employee director $65 worth of
compensation in the form of either restricted shares, which vest on the first anniversary of the grant, share options or cash.
For the year ended December 31, 2021, the Company issued a total of 238,750 (2020 - 333,330) restricted shares to non-employee directors as well as employees for compensation related to their
services. The restricted shares for non-employee directors were issued on June 1, 2021 pursuant to the 2019 Omnibus Plan and vest in full on June 1, 2022. It is the Company's intention that annually,
on or around June 1, each non-employee director will receive a grant of $65 worth of compensation which, if non-cash compensation, will vest on the first anniversary of the grant. The restricted
shares issued to other employees will vest after two years of service. The total fair value of NPB Restricted Shares that vested during the year ended December 31, 2021 was $1,442 (2020 - $1,136).
F-57
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
14. Share Compensation and Pension Plans (continued)
Discretionary Performance-Based ("PB") Restricted Shares
During the year ended December 31, 2021, a total of 1,322,410 (2020 - 982,974) restricted shares were granted to senior management and employees pursuant to the 2019 Omnibus Plan, of which
1,322,410 (2020 - 744,680) restricted shares vested immediately. The remaining restricted shares issued to other senior employees will vest within two years of service. The total fair value of PB
Restricted Shares that vested during the year ended December 31, 2021 was $3,623 (2020 - $700).
The following table shows the summary of activity for the Company's restricted share awards:
Non-vested at December 31, 2019
Awards granted
Awards vested
Awards forfeited
Non-vested at December 31, 2020
Awards granted
Awards vested
Awards forfeited
Non-vested at December 31, 2021
Non-Performance-Based Restricted Shares
Number of
Restricted Shares
Weighted Average Grant-
Date Fair Value
Discretionary Performance-Based Restricted Shares
Weighted Average Grant-
Date Fair Value
Number of
Restricted Shares
$
1,818,797
333,330
(908,857)
—
1,243,270
238,750
(1,178,522)
(54,166)
249,332
1.24
1.20
1.25
—
1.22
3.44
1.22
1.20
3.35
— $
982,974
(744,680)
—
238,294
1,322,410
(1,322,410)
(200)
238,094
—
1.02
0.94
—
1.26
2.74
2.74
1.26
1.26
Total unrecognized compensation cost of $511 related to restricted shares at December 31, 2021, which will be recognized during the next 1.00 year. Total share-based expense for the year ended
December 31, 2021 was $4,771 (2020 - $2,445).
Pension Plans
The Company provides pension benefits to eligible employees principally through its sponsorship of various defined contribution plans which vary by subsidiary. The Company’s total expenses
for its defined contribution pension plans for the year ended December 31, 2021 was $764 (2020 - $782).
F-58
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
15. Statutory Requirements and Dividend Restrictions
Our insurance and reinsurance operations are subject to insurance and/or reinsurance laws and regulations in the jurisdictions in which they operate. These regulations include certain liquidity and
solvency requirements whereby restrictions are imposed on the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the
insurance regulatory authorities. The statutory capital and surplus and statutory net (loss) income of our principal operating subsidiaries in their respective jurisdictions were as follows:
Statutory Capital and Surplus
December 31, 2021
December 31, 2020
Statutory Net Income (Loss)
For the Year Ended December 31, 2021
For the Year Ended December 31, 2020
a) Bermuda
Maiden Reinsurance
Maiden LF
Maiden GF
$
(a)
$
(a)
999,843 $
972,350
36,309 $
52,707
8,250 $
9,944
(899) $
(1,164)
9,972
10,663
(1,018)
32
Effective March 16, 2020, the Company's principal operating subsidiary Maiden Reinsurance re-domesticated from Bermuda to the State of Vermont in the U.S. Maiden Reinsurance is therefore
subject to the statutes and regulations of Vermont in the ordinary course of business. We determined that re-domesticating Maiden Reinsurance to Vermont enables us to better align our capital and
resources with our liabilities, which originate mostly in the U.S., resulting in a more efficient structure. The re-domestication, in combination with other strategic measures as described in "Note
1 — Organization", has strengthened the Company’s capital position and solvency ratios. While the Vermont DFR is now the group supervisor for the Company, the re-domestication did not apply to
the Parent Company which remains a Bermuda-based holding company.
b) United States of America
Under Vermont statutory regulations, no captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the
Commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of
amounts specified by, or determined in accordance with formulas approved by, the Commissioner. Notwithstanding the provisions of 11B Vermont Statutes Annotated chapter 13, a captive insurance
may make such distributions as are in conformity with its purposes and approved by the Commissioner. Maiden Reinsurance did not pay any dividends during the years ended December 31, 2021 and
2020.
Maiden Reinsurance is also required to maintain minimum levels of solvency and liquidity as determined by Vermont law, and to comply with Risk-Based Capital ("RBC") requirements and
licensing rules as specified by the National Association of Insurance Commissioners ("NAIC"). RBC is used to evaluate the adequacy of capital and surplus maintained by Maiden Reinsurance in
relation to risks associated with: (i) asset risk; (ii) insurance risk; (iii) interest rate risk and (iv) business risk. At December 31, 2021, Maiden Reinsurance's statutory capital and surplus exceeded the
amount required to be maintained of $132,779 as of that date.
c) Sweden
The Company has two Swedish domiciled insurance subsidiaries in Sweden, Maiden LF and Maiden GF, both regulated by the Swedish Finansinspektionen ("Swedish FSA"). Maiden LF was
required to maintain a minimum level of statutory capital and surplus of $4,207 at December 31, 2021 (2020 - $5,204). This requirement was met by Maiden LF throughout the respective years. LF's
statutory assets were $16,819 at December 31, 2021 (2020 - $19,705) and its statutory capital and surplus was $8,250 at December 31, 2021 (2020 - $9,944). Maiden LF is subject to statutory and
regulatory restrictions under the Swedish FSA that limit the maximum amount of annual dividends or distributions paid by Maiden LF to Maiden Holdings. As of December 31, 2021 and 2020,
Maiden LF was not allowed to pay dividends or distributions without the permission of the Swedish FSA. No dividends were paid during the years ended December 31, 2021 and 2020.
Maiden GF was required to maintain a minimum level of statutory capital and surplus of $5,059 at December 31, 2021 (2020 - $6,905). This requirement was met by Maiden GF throughout the
respective years. GF's statutory assets were $15,297 at December 31, 2021 (2020 - $13,832) and its statutory capital and surplus was $9,972 at December 31, 2021 (2020 - $10,663). Maiden GF is
subject to statutory and regulatory restrictions under the Swedish FSA that limit the maximum amount of annual dividends or distributions paid by Maiden GF to Maiden Holdings. As of
December 31, 2021, Maiden GF was allowed to pay dividends or distributions not exceeding $0 (2020 - $311). No dividends were paid during the years ended December 31, 2021 and 2020.
F-59
MAIDEN HOLDINGS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
16. Subsequent Events
In September 2021, the Company authorized the open market repurchase of its outstanding preference shares in accordance with a written plan adopted pursuant to Rule 10b5-1 of the Securities
Exchange Act of 1934. The plan expires on March 31, 2022. The Company intends to finance these repurchases using its available unrestricted cash.
Subsequent to December 31, 2021, under the Rule 10b5-1 plan, the Company repurchased via the open market (i) 170,633 shares of the Company's 7.125% Non-Cumulative Preference Shares
Series C at an average price of $11.67 per share, and (ii) 85,828 shares of the Company's 6.7% Non-Cumulative Preference Shares Series D at an average price of $10.97 per share for a total amount
of $2,933. The acquisition by Maiden Reinsurance of these preference shares were made in compliance with the Company's investment guidelines previously approved by the Vermont DFR. These
purchases will result in a gain on purchase of approximately $3,263 in the first quarter of 2022. The Company has a remaining authorization of $10,911 for preference share repurchases.
As of March 14, 2022, Maiden Reinsurance owns 67.7%, 66.7% and 67.0% of the outstanding shares of the Series A, Series C and Series D Preference Shares, respectively.
F-60
INDEMINFICATION AGREEMENT This Agreement, made and entered into as of the 10th day of December, 2019 (“Agreement”), among and between Maiden Holdings, Ltd., a Bermuda company (the “Company”), and the individual listed on the signature page hereof (the “Indemnitee”); WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that he or she will serve or continue to serve the Company free from undue concern that he will not be so indemnified; and WHEREAS, Indemnitee is willing to serve, for or on behalf of the Company, on the condition that he be so indemnified; NOW THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee to hereby covenant and agree as follows: SECTION 1. Service by Indemnitee. Indemnitee agrees to continue to serve as a director and/or officer of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). SECTION 2. Indemnification – General. The Company shall indemnify, and advance Expenses (as hereinafter defined) to Indemnitee as provided by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. The indemnification provide under this Agreement is in addition to and not in lieu of any other indemnification provided to Indemnitee by any other agreement or by operation of law. SECTION 3. Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his or
her Corporate Status (as hereinafter defined), he or she is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his or her conduct was unlawful. SECTION 4. Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reasons of his or her Corporate Status, he or she is, or is threated to be made, party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with such Proceeding if he acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification against such expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company if applicable law prohibits such indemnification; provided, however, that if applicable law so permits, indemnification against Expenses shall nevertheless be made by the Company in such event if and only to the extent that the Court in which such Proceeding shall have been brought or is pending, shall
determine. SECTION 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he or she shall be
2 indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding, but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For the purposes of this section and without limitation the termination of any claim, issue or matter in such a Proceeding by settlement or dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. SECTION 6. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. SECTION 7. Advancement of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty (20) days after the receipt by the Company of a statement of statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined (pursuant to Section 8 below) that Indemnitee is not entitled to be indemnified against such Expenses. SECTION 8. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under
this Agreement, Indemnitee shall submit to the Secretary of the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) unless Indemnitee shall request that such determination be made by the board of Directors or the stockholders, in which case by the person or persons or in the manner provided for in clauses (ii) or (iii) of this Section 8(b) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable, or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) by the stockholders of the Company; or (iii) as provided in Section 9(bb) of this Agreement; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which he or she is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorney’s fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
3 (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to the Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may within seven (7) days after such written notice of election shall have been given, delivered to the Company or the Indemnitee, as the case may be, a written objection to such election. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Supreme Court of the State of New York in New York County or other court of competent jurisdiction for resolution of any objection which shall been made by the Company or
Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of his Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 19(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). SECTION 9. Presumptions and Effect of Certain Proceedings. (a) If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement, if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof the overcome that presumption in connection with the making by any person or entity or any determination contrary to that presumption. (b) If the person or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shal
be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such sixty (60) day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluation of documentation and/or information relating thereto; and provided further, that the foregoing provisions or this Section 9(b) shall not apply (i) if the
4 determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration an at annual meeting thereof to be held within seventy (70) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders (i) is called within fifteen (15) days after such receipt for the purposes of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by the Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contender or its equivalent, shall not (except as otherwise expressly provide in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any Criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. SECTION 10. Remedies of Indemnitee (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) the determination of entitlement of indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and such determination shall not have been made and delivered in a
written opinion within ninety (90) days after receipt by the Company of the request for indemnification, or (iv) payment of indemnification is not made pursuant to Section 6 of this Agreement within ten (10) days after receipt by the Company of a written request therefore, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of New York, or in any other court of competent jurisdiction, of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence with proceeding pursuant to this Section 10(a). The Company shall not oppose Indemnitee’s right to see any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration, commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in a judicial proceeding or arbitration commenced pursuant to this Section 10 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of his Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make
5 Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before such arbitrator that the Company is bound by all the provision of this Agreement. (e) In the vent that the Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expense in Section 17 of this Agreement) actually and reasonably incurred by him or her, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. SECTION 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation (a) The rights of indemnification and to receive advancement of Expenses as provided by the Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or termination of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or termination. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suite to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. SECTION 12. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a director and/or office, or (b) the final termination of all pending Proceedings in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. SECTION 13. Severability. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reasons whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing
6 any such provisions held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement ((including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. SECTION 14. Exception to Right of Indemnification or Advancement of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any claim therein, brought or made by him against the Company. SECTION 15. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. SECTION 16. Heading. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. SECTION 17. Definitions. For purposes of this Agreement: (a) “Change in Control” means a change in control of the Company shall be deemed to have occurred if after the Effective Date (i) any “person” other than principal shareholders or an affiliate thereof as of the Effective Date is or becomes the “beneficial owner” directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities; or (ii) th
Company is a party to a merger, consolidation, sale of assets or other reorganized, as a consequence of which members of the Board of Directors in office immediately prior to such a transaction or event constitute less than a majority of the Board of Directors thereafter. Company in this section 17(a) shall mean Maiden Holdings, Ltd. and any related or affiliated company in which the Indemnitee is an officer, director or employee. (b) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) “Effective Date” means December 10th, 2019. (e) “Expenses” shall include all reasonable attorney’s fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (f) “Independent Counsel” means a law firm, or member of a law firm, which is experienced in matters of corporation law and neither currently is, nor in the past five years has been retained to represent: (i) the Company in any material matter, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the forgoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would
7 have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this agreement. (g) “Proceeding” includes any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement. SECTION 18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. SECTION 19. Notice by Indemnitee. Indemnitee agrees as promptly as practicable to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. SECTION 20. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipt for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to the Indemnitee, to: The address of the respective Indemnitee located on the signature page at the end of this Agreement. (b) If the Company, to: Ideation House, 1st floor 94 Pitts Bay Road Hamilton HM 08, Bermuda
8 SECTION 21. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ATTEST Maiden Holdings, Ltd. By: Secretary [title] INDEMNITEE Address:
SUBSIDIARIES OF THE REGISTRANT
Subsidiary
Maiden Holdings, Ltd.
Maiden Holdings North America, Ltd.
Maiden Global Servicing Company, LLC
Maiden Reinsurance Ltd.
Genesis Legacy Solutions, LLC ("GLS")
GLS Services Company
Genesis Legacy Insurance Company (Vermont) Limited
Cypress – Genesis Incorporated Cell Company
AMS – Genesis Incorporated Cell Company
NEKO 2018 A, LLC
NEKO 2018 D, LLC
NEKO 2018 E, LLC
94 Pembroke GP Corp.
94 Pembroke LP Corp.
Maiden Life Försäkrings AB
Maiden General Försäkrings AB
Regulatory Capital Limited
Maiden Global Holdings Ltd.
Note
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(9)
(9)
(9)
(9)
Exhibit 21.1
Jurisdiction
Delaware
Delaware
Vermont
Delaware
Delaware
Vermont
Vermont
Vermont
Texas
Texas
Texas
British Columbia
British Columbia
Sweden
Sweden
Ireland
England & Wales
100% wholly owned subsidiary of Maiden Holdings North America, Ltd.
(1) All subsidiaries are 100% wholly owned by Maiden Holdings, Ltd. unless otherwise noted.
(2)
(3) Effective March 16, 2020, Maiden Reinsurance Ltd. is domiciled in Vermont, United States and became 100% wholly owned subsidiary by Maiden Holdings North America, Ltd.
(4) GLS was acquired by Maiden Reinsurance Ltd. on November 24, 2020.
(5)
(6)
(7)
(8)
(9)
100% wholly owned subsidiary of GLS.
100% wholly owned subsidiary of GLS Services Company incorporated on July 19, 2021
100% wholly owned subsidiary of GLS Services Company incorporated on July 21, 2021.
100% wholly owned subsidiary of GLS Services Company incorporated on December 29, 2021.
100% wholly owned subsidiary of Maiden Reinsurance Ltd.
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-235948) of our reports dated March 14, 2022, with respect to the
consolidated financial statements of Maiden Holdings, Ltd. and the effectiveness of internal control over financial reporting of Maiden Holdings, Ltd. included in this
Annual Report (Form 10-K) for the year ended December 31, 2021.
Exhibit 23.1
/s/ Ernst & Young LLP
New York, NY
March 14, 2022
CERTIFICATION
EXHIBIT 31.1
I, Lawrence F. Metz, certify that:
1.
I have reviewed this annual report on Form 10-K of Maiden Holdings, Ltd.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 14, 2022
/s/ Lawrence F. Metz
Lawrence F. Metz
President and Co-Chief Executive Officer
CERTIFICATION
EXHIBIT 31.2
I, Patrick J. Haveron, certify that:
1.
I have reviewed this annual report on Form 10-K of Maiden Holdings, Ltd.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 14, 2022
/s/ Patrick J. Haveron
Patrick J. Haveron
Co-Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Maiden Holdings, Ltd.
(the “Company”), hereby certifies, to such officer's knowledge, that:
The Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
CERTIFICATION
Exhibit 32.1
March 14, 2022
By:
/s/ Lawrence F. Metz
Lawrence F. Metz
President and Co-Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code)
and is not being filed as part of the Report.
CERTIFICATION
Exhibit 32.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Maiden Holdings, Ltd.
(the “Company”), hereby certifies, to such officer's knowledge, that:
The Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
March 14, 2022
By:
/s/ Patrick J. Haveron
Patrick J. Haveron
Co-Chief Executive Officer and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code)
and is not being filed as part of the Report.