MAIDEN HOLDINGS, LTD. – 10-Q – 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 unaudited Condensed
Consolidated Financial Statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q (this "Form 10-Q" or this "Report"). References in
this Form 10-Q to the terms "we", "us", "our", "the Company", "Maiden" or other
similar terms mean the consolidated operations of Maiden Holdings, Ltd. and its
subsidiaries, unless the context requires otherwise. References in this Form
10-Q to the term "Maiden Holdings" means Maiden Holdings, Ltd. only. Certain
reclassifications have been made for 2020 to conform to the 2021 presentation
and have no impact on consolidated net income and total equity previously
reported.
Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q includes projections concerning financial
information and statements concerning future economic performance and events,
plans and objectives relating to management, operations, products and services,
and assumptions underlying these projections and statements. These projections
and statements are forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995 and are not historical facts but
instead represent only our belief regarding future events, many of which, by
their nature, are inherently uncertain and outside our control. These
projections and statements may address, among other things, our strategy for
growth, product development, financial results and reserves. Our actual results
and financial condition may differ, possibly materially, from these projections
and statements and therefore you should not place undue reliance on
them. Factors that could cause our actual results and financial condition to
differ, possibly materially, from those in the specific projections and
statements are discussed throughout this Management's Discussion and Analysis of
Financial Condition and Results of Operations and in "Risk Factors" in Item 1A
of Part I of our Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission ("SEC") on March 15, 2021, however, these factors should not
be construed as exhaustive. Forward-looking statements speak only as of the date
they are made and we undertake no obligation to update or revise any
forward-looking statement that may be made from time to time, whether as a
result of new information, future developments or otherwise, except as required
by law.
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Overview

Maiden Holdings is a Bermuda-based holding company. As a result of a series of
actions we have taken in recent years discussed below under Recent Developments,
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. 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
through our wholly owned subsidiary, 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
Europe and other global markets. These products also produced reinsurance
programs which were underwritten by our wholly owned subsidiary Maiden
Reinsurance Ltd. ("Maiden Reinsurance").
We are not actively underwriting reinsurance business presently but have some
historic reinsurance programs underwritten by Maiden Reinsurance which are in
run-off. We continue to run-off the underwriting liabilities related to our
contracts with AmTrust Financial Services, Inc. ("AmTrust") which we terminated
in 2019. We also have a Loss Portfolio Transfer and Adverse Development Cover
Agreement ("LPT/ADC Agreement") with Cavello Bay Reinsurance Limited ("Cavello")
and a commutation agreement that further reduces our exposure to and limits the
potential volatility related to these AmTrust liabilities, as discussed in "Note
8. Reinsurance" of the Notes to Condensed Consolidated Financial Statements
included in Part I Item 1. "Financial Information".
As discussed in Item 1. "Business" of our Annual Report on Form 10-K for the
year ended December 31, 2020 filed with the SEC on March 15, 2021, the sale of
Maiden Reinsurance North America, Inc. ("Maiden US") and the termination of both
of our quota share contracts with AmTrust materially reduced our gross and net
premiums written since 2018. We have significantly reduced our operating
expenses and continue to take steps to reduce these costs further.
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. 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.
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.
The measures we have taken were initiated in 2018, when our Board of Directors
initiated a review of strategic alternatives ("Strategic Review") to evaluate
ways to increase shareholder value after a period of continuing higher than
targeted combined ratios and lower returns on equity than expected. This
Strategic Review 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.
Please refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section included under Item 7 of our Annual Report on
Form 10-K for the year ended December 31, 2020 for further information.
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, in combination with other
strategic measures described above that were completed in 2019, will continue to
strengthen the Company's capital position and solvency ratios.
While the Vermont Department of Financial Regulation ("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
Holdings North America, Ltd. ("Maiden NA"). Maiden NA now owns 100% of Maiden
Reinsurance in the aggregate.
Maiden NA also maintains a portfolio of cash and fixed maturity investments,
along with other strategic investments, of $16.7 million at September 30, 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 carry-forwards ("NOLs") which were $234.0 million
as of September 30, 2021. These NOLs, in combination with additional net
deferred tax assets ("DTAs")
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primarily related to our insurance liabilities result in a net DTA (before
valuation allowance) of $91.7 million or $1.06 per common share as of
September 30, 2021. These net DTAs are not presently recognized on the Company's
consolidated balance sheet as a full valuation allowance is currently carried
against them. As our profitability continues to improve, however, we are
evaluating this valuation allowance and the appropriate amount required. For
further details, please see "Note 16. Taxation" included under Item 8 "Financial
Statements and Supplementary Data" in our Annual Report on Form 10-K for the
year ended December 31, 2020. 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 part of the Strategic Review.
Business Strategy
We continue to re-evaluate our operating strategy during 2021 while leveraging
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, whether via asset and capital management or
active reinsurance underwriting, or a combination of both. 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 risks are likely to present more limited
opportunities compared to other strategic initiatives which may produce greater
shareholder value. As a result, our strategic focus continues on activities
which utilize our unrestricted cash and investments to manage our capital and
where prudent, enhance our investment return by investing in asset classes which
we believe will produce appropriate returns. By enhancing our profitability
through increased investment returns, we believe we also increase the likelihood
of fully utilizing the significant NOLs described above which may create
additional shareholder value.
The measures implemented now enable 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 both pillars of
these strategies as discussed herein. 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.
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 have increased 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
our capital management initiatives, although we are careful to approach these
strategies in a deliberate fashion.
In November 2020, we formed Genesis Legacy Solutions ("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. 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 has
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. This should further enhance our
ability to pursue the asset and capital management pillars of our business
strategy.
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 and continue to run off the remaining unearned exposures we have
reinsured. Our Swedish and UK insurance operations ("IIS unit") 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 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 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.
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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 our 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.
Three and Nine Months Ended September 30, 2021 and 2020 Financial Highlights
For the Three Months Ended September 30,                             2021                2020              Change
Summary Consolidated Statement of Income Data
(unaudited):                                                          ($ in 

thousands except per share data)

Net (loss) income                                              $     (3,140)          $  2,162          $  (5,302)
Gain from repurchase of preference shares                             6,004                  -              6,004
Net income attributable to Maiden common shareholders                 2,864              2,162                702
Basic and diluted earnings per common share:
Net income attributable to common shareholders(2)                      0.03               0.03                  -
Gain from repurchase of preference securities per common
share                                                                  0.07                  -               0.07
Gross premiums written                                                6,821              3,517              3,304
Net premiums earned                                                  15,030             24,305             (9,275)
Underwriting (loss) income(3)                                        (3,649)             3,402             (7,051)
Net investment income                                                 7,477             12,686             (5,209)
Combined ratio(4)                                                     154.8   %          109.4  %            45.4
Non-GAAP measures:
Non-GAAP operating loss(1)                                     $    

(3,114) $ (2,313) $ (801)
Non-GAAP basic and diluted operating loss per common
share(1)

                                                              (0.04)             (0.03)             (0.01)

Annualized non-GAAP operating return on average common
shareholders' equity(1)

                                                (4.5)  %           (5.6) %             1.1

For the Nine Months Ended September 30,                              2021                2020              Change
Summary Consolidated Statement of Income Data
(unaudited):                                                          ($ in 

thousands except per share data)

Net income                                                     $     14,258           $ 32,235          $ (17,977)
Gain from repurchase of preference shares                            87,168                  -             87,168
Net income attributable to Maiden common shareholders               101,426             32,235             69,191

Basic and diluted earnings per common share:
Net income attributable to Maiden common shareholders(2)               1.17               0.38               0.79
Gain from repurchase of preference shares per common
share                                                                  1.01                  -               1.01
Gross premiums written                                                7,865             20,233            (12,368)
Net premiums earned                                                  40,106             76,828            (36,722)
Underwriting income (loss)(3)                                         6,377               (308)             6,685
Net investment income                                                24,596             44,959            (20,363)
Combined ratio(4)                                                     137.0   %          124.6  %            12.4
Non-GAAP measures:
Non-GAAP operating earnings(1)                                 $     58,135 

$ 2,041 $ 56,094
Non-GAAP basic and diluted operating earnings per common
share(1)

                                                               0.67               0.02               0.65

Annualized non-GAAP operating return on average common
shareholders' equity(1)                                                32.3   %            1.8  %            30.5



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