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FOR IMMEDIATE RELEASE
OLDWICK - MARCH 02, 2018 01:32 PM (EST)
A.M. Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” from “bbb” of Maiden Holdings, Ltd. (MHLD) [NASDAQ: MHLD] (Hamilton, Bermuda) and its downstream, intermediate holding company, Maiden Holdings North America, Ltd. (Delaware), as well as all associated Long-Term Issue Credit Ratings (Long-Term IRs). In addition, A.M. Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term ICRs to “a-” from “a” for MHLD’s insurance operating subsidiaries, Maiden Reinsurance Ltd. (Hamilton, Bermuda) and Maiden Reinsurance North America, Inc. (headquartered in Mount Laurel, NJ). All of these Credit Rating (rating) outlooks have been revised to negative from stable. (Please see below for a list of the Long-Term IRs.)
The ratings reflect the companies’ balance sheet strength, which A.M. Best assesses as very strong, its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The negative outlooks reflect a decline in balance sheet strength and the potential that continuation of recent underwriting and operating trends could lead to negative action on the rating.
Balance sheet strength deteriorated in 2017, as a result of a decline in surplus driven by poor results in Maiden’s AmTrust Reinsurance business segment. This business, which historically performed at a favorable combined ratio, was impacted by adverse development of prior years’ loss reserves during 2017. Overall loss reserve development for Maiden had been adverse in 2016 as a result of deterioration in its Diversified Reinsurance business segment, driven mostly by the commercial auto line. The combination of two consecutive years of overall adverse reserve development and the decline in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), due to the decrease in surplus and increase in loss reserves is reflected in the very strong balance sheet strength assessment.
The group’s results were consistently profitable on an underwriting basis prior to 2016 and on operating basis through 2016. In addition, the group’s operating performance historically has been more stable than the peer group averages. However, Maiden’s underwriting and operating performance has not benefitted in previous years from the relatively benign catastrophe environment (as Maiden does not have significant catastrophe exposure due to the nature of its products) nor from substantial levels of favorable development of its casualty business that have boosted results of reinsurance peers. While results in recent years have not been in-line with historical performance, A.M. Best still views operating performance as adequate.
The neutral business profile reflects the geographic spread of the group’s business throughout the United States, with a growing portion of its business reinsuring exposures outside the U.S., and the benefits of the quota share business model, which provide the group with more predictable losses as a result of the typically low-severity, high frequency nature of losses. Offsetting these rating factors are the customer concentration, with the AmTrust Reinsurance segment comprising approximately 70% of the group’s business, and its modest position within the reinsurance market.
ERM is appropriate for an organization of Maiden’s size and complexity. It has a well-developed and embedded framework for assessing, managing and monitoring risk, clearly defined risk tolerances and generally manages its higher-risk products well. The adverse reserve development experienced by the group in recent years indicates that its management of the risks associated with reserves is not currently in line with the profile of those risks.
The holding company’s debt- to-total capital and debt-to-tangible capital ratios, adjusted to afford equity credit for preferred debt and with accumulated other comprehensive income (AOCI) removed, are within A.M. Best’s guidelines at year-end 2017. Unadjusted leverage ratios are elevated, however, reflecting the predominance of hybrid securities in the capital structure. Interest coverage metrics historically have been in-line with guidelines, but were negative in 2017 as a result of the organization’s net loss. A return of coverage metrics to a level that is within guidelines is expected in 2018.
The negative outlook indicates that positive rating action is unlikely over the next 24 to 36 months; however, a positive change in the outlook could take place in the medium to long term if underwriting and operating results return to historical levels while balance sheet strength, business profile and ERM remain supportive of the current rating, with no significant further adverse development of loss reserves.
Negative rating actions could result if the group’s operating and underwriting performance does not return to historical levels consistently over the near-to-medium term, from a substantive change in the group’s relationship with its largest client that negatively impacts Maiden’s balance sheet strength or prospective operating performance, from deterioration in the financial condition of MHLD, or from any material deterioration in risk-adjusted capitalization that negatively impacts A.M. Best’s view of balance sheet strength.
The following Long-Term IRs have been downgraded with the outlooks revised to negative from stable:
Maiden Holdings, Ltd.—
—to “bbb-” from “bbb” on $110 million 6.625% senior unsecured notes, due 2046
—to “bb” from “bb+” on $165 million 7.125% preferred non-cumulative stock
—to “bb” from “bb+” on $150 million 8.25% preferred stock
—to “bb” from “bb+” on $150 million 6.7% preferred stock
Maiden Holdings North America, Ltd.—
—to “bbb-” from “bbb” on $152.5 million 7.75% senior unsecured notes, due 2043
The following indicative Long-Term IRs under the shelf registration have been downgraded with the outlooks revised to negative from stable:
Maiden Holdings, Ltd.—
—to “bbb-” from “bbb” on senior unsecured debt
—to “bb+” from “bbb-” on subordinated debt
—to “bb” from “bb+” on preferred stock
Maiden Holdings North America, Ltd.—
—to “bbb-” from “bbb” on senior unsecured debt
—to “bb+” from “bbb-” on senior subordinated debt
—to “bb” from “bb+” on junior subordinated debt
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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