A.M. Best Downgrades Credit Ratings of Maiden Holdings, Ltd. & Insurance Subsidiaries; Maintains Under Review with Negative I...
15 November 2018 - 9:32AM
Business Wire
A.M. Best has downgraded the Long-Term Issuer Credit
Rating (Long-Term ICR) to “bb” from “bbb-” of Maiden Holdings, Ltd.
[NASDAQ:MHLD] (Pembroke, Bermuda) and its downstream intermediate
holding company, Maiden Holdings North America, Ltd. (MHNA)
(Delaware). All Long-Term Issue Credit Ratings (Long-Term IR) of
MHLD and MHNA also have been downgraded (see below for detailed
list). At the same time, A.M. Best has downgraded the Financial
Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term
ICR to “bbb” from “a-” of Maiden Reinsurance, Ltd. (Maiden Re)
(Pembroke, Bermuda), Maiden Holdings’ primary operating subsidiary,
and Maiden Reinsurance North America, Inc. (MRNA) (Jefferson City,
MO), the U.S. operating affiliate of Maiden Re. The ratings remain
under review with negative implications. See below for a list of
issues and ratings.
The Credit Ratings (ratings) reflect Maiden Re’s balance sheet
strength, which A.M. Best categorizes as strong, as well as its
marginal operating performance, limited business profile and
appropriate enterprise risk management (ERM).
The balance sheet strength assessment reflects the historical
levels of risk-adjusted capitalization and the group’s conservative
investment portfolio. As noted in MHLD’s third quarter 2018 10-Q
filing, at Sept. 30, 2018, risk-adjusted capital levels declined
substantially from their year-end 2017 levels as action was taken
with respect to its reserves in advance of signing a loss portfolio
transfer (LPT) agreement with Enstar Group Limited (Enstar) for the
loss reserves related to its quota share reinsurance with AmTrust
Financial Services, Inc. (AmTrust), a related party to MHLD.
Earlier in the third quarter, MHLD and Enstar also entered into an
agreement whereby Enstar will acquire MRNA, in addition to assuming
the liabilities associated with MHLD’s reserves for its U.S.
Diversified business segment in Maiden Re via novation and
retrocession agreements. Finally, during the third quarter MHLD
entered into and immediately closed a renewal rights transaction
with Transatlantic Reinsurance Company for the existing portfolio
of its U.S. treaty reinsurance portfolio.
As of Sept. 30, 2018, regulatory approval for the U.S.
Diversified transactions with Enstar was pending, leaving the
associated reserves on MHLD’s books. In conjunction with those
agreements, MHLD wrote off goodwill and intangible assets related
to that business of approximately $74 million. At the same time,
the reserves related to the AmTrust business were increased by
approximately $200 million. In combination with other losses,
equity declined by over $300 million in the quarter. As a result,
the group’s risk-adjusted capitalization as measured by Best’s
Capital Adequacy Ratio (BCAR) has declined. However, the announced
transactions are projected to improve risk-adjusted capital
calculated by BCAR. Should the transactions not have the expected
impact on risk-adjusted capital, further negative rating action may
be taken.
Operating performance has been assessed as marginal, as A.M.
Best expects MHLD to post a third consecutive underwriting loss and
a substantial net loss for the full year 2018, based on
year-to-date results. While the adverse loss reserve development
that has driven a significant portion of the losses will be removed
from the group’s books by the transactions, future performance will
be dependent on its ability to complete and successfully implement
its strategic review.
The limited business profile reflects recent and expected
changes in MHLD’s operations. While MHLD’s business was
historically concentrated in its AmTrust segment, which accounted
for approximately 70% of its 2017 business, its Diversified segment
was an important factor in the previous neutral assessment of the
organization’s business profile. MRNA had a niche in providing
proportional reinsurance programs to local and regional insurance
companies in the United States, which gave it a unique role within
the global reinsurance industry. A.M. Best expects the AmTrust
quota share reinsurance agreement to produce materially less
premium going forward. With the sale of the Diversified business
and the reduction in the AmTrust assumption, the group’s profile
within the global reinsurance market will be reduced. The group
will continue to generate business through its International
Insurance Services (IIS) platform, but that niche product, in
combination with the continuing AmTrust relationship, is supportive
of a limited business profile assessment.
The appropriate assessment of ERM reflects the expectations at
the “bbb” rating level, and that the assessments of other building
blocks reflect areas where the effectiveness of the ERM program has
been challenged.
The ratings will remain under review pending completion of the
announced transactions and management’s strategic review, and while
A.M. Best assesses their impact. The failure of the transactions to
have the expected effect on risk-adjusted capital could result in
negative rating action, as could further material reductions in the
group’s equity in the interim.
The following Long-Term IRs have been downgraded, the
under-review with negative implications status maintained:
Maiden Holdings, Ltd.—--to “bb” from “bbb-” on $110 million
6.625% senior unsecured notes, due 2046--to “b+” from “bb” on $165
million 7.125% preferred non-cumulative stock--to “b+” from “bb” on
$150 million 8.25% preferred stock--to “b+” from “bb” on $150
million 6.7% preferred stock
Maiden Holdings North America, Ltd.—--to “bb” 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, the under review with negative
implications status maintained:
Maiden Holdings, Ltd.—--to “bb” from “bbb-” on senior unsecured
debt--to “bb-” from “bb+” on subordinated debt--to “b+” from “bb”
on preferred stock
Maiden Holdings North America, Ltd.—--to “bb” from “bbb-”on
senior unsecured debt--to “bb-” from “bb+” on senior subordinated
debt--to “b+” 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 a global rating agency and information provider
with a unique focus on the insurance industry. Visit
www.ambest.com for more information.
Copyright © 2018 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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A.M. BestJennifer MarshallDirector+1 908
439 2200, ext. 5327jennifer.marshall@ambest.comorAnthony
DiodatoManaging Director+1 908 439 2200, ext.
5704anthony.diodato@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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