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.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2018 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20180302005620/en/
A.M. BestJennifer Marshall, CPCU,
ARMDirector+1 908 439 2200, ext.
5327jennifer.marshall@ambest.comorMichael J.
Lagomarsino, CFA, FRMSenior Director+1 908 439 2200,
ext. 5810michael.lagomarsino@ambest.comorChristopher
SharkeyManager, Public Relations+1 908 439 2200, ext.
5159christopher.sharkey@ambest.comorJim
PeavyDirector, Public Relations+1 908 439 2200, ext.
5644james.peavy@ambest.com
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