Maiden Holdings, Ltd. (NASDAQ:MHLD, “Maiden” or the “Company”)
today announced it had entered into a series of strategic
transactions which have materially improved its capital position.
The transactions completed include:
- A loss portfolio transfer and adverse development agreement
(“LPT/ADC”) with Enstar Group Limited (NASDAQ:ESGR, “Enstar”)
pursuant to the previously announced Master Agreement;
- A $330.7 million commutation agreement (“Commutation”) of
certain workers’ compensation loss reserves to AmTrust Financial
Services, Inc. (“AmTrust”); and
- Entry into a Post-Termination Endorsement with AmTrust to:
- Enable operation of the LPT/ADC and supporting collateral
agreements; and
- Amend the program loss corridor between Maiden and AmTrust
pursuant to the terminated Amended and Restated Quota Share
Agreement (the “AmTrust QS Agreement”) between Maiden’s Bermuda
operating company, Maiden Reinsurance Ltd. (“Maiden Bermuda”) and
AmTrust International Insurance, Ltd. (“AII”); and
- Resolution with Enstar related to balances due under the sale
of Maiden Reinsurance North America, Inc. (“MRNA”), which closed on
December 27, 2018, including cancellation of the $25 million excess
of loss reinsurance contract between Maiden Bermuda and Enstar on
the MRNA loss reserves included in that transaction.
“The transactions completed today represent another significant
milestone for Maiden as we continue to stabilize and strengthen the
business in the wake of our 2017 and 2018 results,” said Lawrence
F. Metz, Maiden’s President and Chief Executive Officer. “The
successful closing of these agreements culminates a series of
decisive actions taken since the second half of 2018 to de-risk
Maiden’s balance sheet and improve the Company’s ability to create
incremental shareholder value. We remain committed to working on
the steps necessary to advance Maiden’s recovery.”
Patrick J. Haveron, Maiden’s Chief Financial Officer and Chief
Operating Officer added, “The combined effects of the LPT/ADC and
the newly announced Commutation significantly strengthens our
solvency ratios and further positions Maiden to execute future
steps along our path to recovery. Our ratios now exceed not only
the minimum levels established by the Bermuda Monetary Authority
(“BMA”), but its target levels as well. As our capital position
continues to stabilize and the amount of capital required to
operate Maiden continues to decline, we expect our solvency ratios
to continue to improve throughout 2019 and beyond.”
LPT/ADC
All necessary regulatory approvals have been received for the
LPT/ADC between Maiden Bermuda and Cavello Bay Reinsurance Limited
(“Cavello Bay”), Enstar’s Bermuda operating company. Under the
LPT/ADC, Cavello Bay will assume liabilities for loss reserves as
of December 31, 2018 associated with the AmTrust QS Agreement in
excess of a $2.178 billion retention up to $600.0 million, in
exchange for a premium of $445 million. The LPT/ADC provides Maiden
Bermuda with $155.0 million in adverse development cover over its
carried AmTrust reserves at December 31, 2018.
The LPT/ADC was modified from the previously announced limit of
$675 million in exchange for $500 million, and the modified LPT/ADC
now covers only the AmTrust QS Agreement, as the parties mutually
agreed.
Pursuant to the terms of the LPT/ADC, Maiden Bermuda, Cavello
Bay and AmTrust and certain of its affiliated companies have
entered into a Master Collateral Agreement (“MCA”) to define and
enable the operation of collateral provided under the AmTrust QS
Agreement. Under the MCA, Cavello Bay, on behalf of Maiden Bermuda,
will provide letters of credit (“LOCs”) to AmTrust in an amount
representing Cavello Bay’s obligations under the LPT/ADC. As these
LOCs will replace other collateral currently provided directly by
Maiden Bermuda 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 and related
MCA.
Settlement of funding will occur no later than August 12, 2019
and Maiden will pay Enstar approximately $7.3 million in interest
related to the LPT/ADC premium back to January 1, 2019.
Commutation Agreement
Concurrent with the execution of the LPT/ADC, Maiden Bermuda and
AII entered into the Commutation covering the following business
reinsured by Maiden Bermuda under the AmTrust QS Agreement
(“Commuted Business”):
- All losses incurred in Accident Year 2017 and Accident Year
2018 under California workers’ compensation policies issues by
AII’s affiliates; and
- All losses incurred in Accident Year 2018 under New York
workers’ compensation policies issues by AII’s affiliates.
The commutation payment from Maiden Bermuda to AII is the sum of
the net ceded reserves in the amount of $330.7 million with respect
to the Commuted Business as of December 31, 2018, less payments in
the amount of $17.9 million made by the Maiden Bermuda with respect
to the Commuted Business from January 1, 2019 through the effective
date of the Commutation.
The Commuted Business does not include any business (i)
classified by AII or its affiliates as Specialty Program or
Specialty Middle-Market business or (ii) issued by a Republic Group
company. A “Republic Group company” means any AII affiliate which
also is a direct or indirect subsidiary of Republic Companies,
Inc.
Settlement of funding will occur no later than August 12, 2019
and Maiden will pay AmTrust approximately $6.1 million in interest
related to the commuted reserves back to January 1, 2019.
Maiden received a no objection letter from the BMA regarding the
Commutation Agreement.
Post-Termination Endorsement – AmTrust
Quota Share Agreements
As a result of entering into both the LPT/ADC and the MCA,
certain post-termination endorsements (“Post-Termination
Endorsement”) to the AmTrust QS Agreement were required.
The Post-Termination Endorsement enables the operation of both
the LPT/ADC and MCA by making provision for certain forms of
collateral, including LOCs provided by Cavello Bay on Maiden
Bermuda’s behalf. In addition, the Post-Termination Endorsement
further defines the permitted use and return of collateral.
The Post-Termination Endorsement also increases the required
funding percentage for Maiden Bermuda’s under the collateral
arrangements between the parties from 102% to 105% of its
obligations, subject to a minimum excess funding requirement of $54
million, as may be mutually amended by the parties from time to
time. Under certain defined conditions, Maiden Bermuda may be
required to increase this funding percentage to 110%.
Finally, as part of the Post-Termination Endorsement, the
parties amended the existing loss corridor under the AmTrust QS
Agreement to now include a maximum amount of $40.5 million, the
amount carried by Maiden for this loss corridor coverage as of
March 31, 2019. The loss corridor retained by AII applies to loss
amounts above and below specified loss ratios for certain specialty
program business as defined in the AmTrust QS Agreement. Any
development over and above this maximum amount will be subject to
the coverage of the LPT/ADC, subject to the terms thereof.
Resolution with Enstar of Balances
Related to Sale of MRNA Transaction
Maiden completed the sale of MRNA to Enstar on December 27, 2018
for a price of $286.5 million, subject to post-closing adjustments.
In conjunction with the completion of the LPT/ADC, Maiden and
Enstar have waived the post-closing adjustments procedures subject
to that agreement and have also agreed to cancel the $25 million
excess of loss reinsurance agreement that Maiden Bermuda provided
to Enstar in relation to the MRNA loss reserves acquired by Enstar.
As a result of these agreements, Maiden will recognize a net charge
in its results of operations for the three months ended June 30,
2019 of $16.7 million.
About Maiden Holdings,
Ltd.
Maiden Holdings, Ltd. is a Bermuda-based holding company formed
in 2007. Maiden expects to report its financial results for the
second quarter and six months ended June 30, 2019 after the market
closes on August 9, 2019.
Forward Looking
Statements
This release contains "forward-looking statements" which are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The forward-looking
statements are based on the Company's current expectations and
beliefs concerning future developments and their potential effects
on the Company. There can be no assurance that actual developments
will be those anticipated by the Company. Actual results may differ
materially from those projected as a result of significant risks
and uncertainties, including non-receipt of the expected payments,
changes in interest rates, effect of the performance of financial
markets on investment income and fair values of investments,
developments of claims and the effect on loss reserves, accuracy in
projecting loss reserves, the impact of competition and pricing
environments, changes in the demand for the Company's products, the
effect of general economic conditions and unusual frequency of
storm activity, adverse state and federal legislation, regulations
and regulatory investigations into industry practices, developments
relating to existing agreements, heightened competition, changes in
pricing environments, and changes in asset valuations. Additional
information about these risks and uncertainties, as well as others
that may cause actual results to differ materially from those
projected is contained in Item 1A. Risk Factors in the Company's
Annual Report on Form 10-K for the year ended December 31, 2018 as
updated in periodic filings with the SEC. However these factors
should not be construed as exhaustive. Forward-looking statements
speak only as of the date they are made and the Company undertakes
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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Sard Verbinnen & Co. Maiden-SVC@sardverb.com
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