Image source: Maiden Holdings.
Maiden Holdings (MHLD 1.44%) reported its second quarter 2016 earnings after the market closed on Wednesday. The Bermuda-based reinsurance company's written and earned premiums ticked up, and net operating earnings and investment income were flat, while net income increased solidly from the year-ago period.
Shares of Maiden were flat in after-hours trading on Thursday. While the stock has struggled in 2016, its dividend yield is an attractive 4% at the current share price.
Key numbers
|
Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Net premiums written |
$650.4 million |
$629.6 million |
3.3% |
|
Net premiums earned |
$637.6 million |
$609.4 million |
4.6% |
|
Net operating earnings |
$28.4 million |
$28.4 million |
-- |
|
Net operating earnings per share |
$0.37 |
$0.37 |
-- |
|
Operating return on common equity (annualized) |
11.3% |
12.2% |
(110 basis points) |
|
Net investment income |
$35.3 million |
$35.2 million |
-- |
|
Net income |
$30.9 million |
$20.5 million |
50.7% |
|
Earnings per share (EPS) |
$0.39 |
$0.27 |
44.4% |
|
Loss ratio |
66.8% |
67.8% |
(100 basis points) |
|
Combined ratio |
98.6% |
99.2% |
(60 basis points) |
Data source: Maiden Holdings.
On a positive note, the combined ratio (incurred losses plus expenses over earned premiums) ticked down from the year-ago period. A lower combined ratio is good because it means that a company is taking in more than it's paying out. Maiden continues to be profitable from an underwriting standpoint since this ratio is less than 100%. Moreover, this improvement is due to a decline in the loss ratio, rather than the expense ratio, reflecting improved underwriting results.
Analysts were projecting net operating earnings per share of $0.40 on premiums earned of $629.15 million. Maiden beat the premium expectation but fell short of the operating earnings consensus. Long-term investors shouldn't give too much credence to these estimates since Wall Street is focused on the short term. This is especially true with a company like Maiden, where only three analysts provide estimates. That said, Wall Street expectations can be helpful to know because they often help explain market reactions.
Results by segment
Maiden reports results for two business segments. The largest is AmTrust, which consists of reinsurance it provides to AmTrust Financial Services (AFSI). AmTrust was founded by the same team that started Maiden. The diversified segment includes reinsurance Maiden provides to all other insurance companies.
AmTrust's results
|
Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Net premiums written |
$489.1 million |
$484.8 million |
0.9% |
|
Net premiums earned |
$446.8 million |
$424.6 million |
5.2% |
|
Combined ratio |
94.9% |
95.2% |
(30 basis points) |
Data source: Maiden Holdings.
- Segment premium growth continues to be moderated by the commutation announced in the fourth quarter of 2015 and the absorption of new business from the acquisition of Tower Group. (A commutation is an agreement between a reinsured and a reinsurer that terminates the reinsurance obligation. It's basically like a buyout of the reinsurance policy.)
- This segment continues to perform well from an underwriting profitability standpoint, as a 94.9% combined ratio is very solid.
Diversified's results
|
Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Net premiums written |
$161.3 million |
$144.8 million |
11.4% |
|
Net premiums earned |
$190.8 million |
$184.8 million |
3.2% |
|
Combined ratio |
103.4% |
103.6% |
(20 basis points) |
Data source: Maiden Holdings.
- Adverse commercial auto loss developments continue to negatively impact the underwriting profitability of this segment. The combined ratio is essentially flat from the prior year's period. Sequentially, it ticked up slightly -- though not meaningfully -- as it was 102.9% last quarter.
- The segment had nice premium growth, but this will only prove to be a positive if the business is more profitable than the current overall book of business.
What management had to say
CEO Art Raschbaum said in the press release:
Notwithstanding a competitive operating environment and continued pressure on investment yields, our overall results reflect continued underwriting profitability and strong growth in book value while achieving an annualized return on common equity of 12.3% and an annualized operating return on common equity of 11.3%. This marks the 12th consecutive quarter of double digit operating returns. While revenue growth has moderated for our AmTrust Reinsurance segment versus a strong prior year quarter impacted by acquisitions, the Diversified Reinsurance segment growth continues to benefit primarily from the expansion of existing client relationships in the U.S. and our developing European capital solutions business.
Takeaway
Maiden's key metrics mostly moved in the right direction or at least were unchanged from the year-ago period. AmTrust continues to perform well from premium growth and underwriting profitability standpoints. For Maiden's (profitability) ship to more swiftly set sail, the company needs to bring down the combined ratio in the diversified segment -- or further improve underwriting profitability on the AmTrust side enough to compensate for the diversified anchor.
