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Maiden Holdings Q1 Earnings Fall, Underwriting Remains Profitable

By Beth McKenna - May 6, 2016 at 5:24PM

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The Bermuda-based reinsurance company's quarterly metrics were once again a mixed bag, although its key combined ratio remains under 100%.

Maiden Holdings (MHLD 3.09%) reported its first-quarter 2016 earnings after the market closed on Wednesday. The Bermuda-based reinsurance company's written premiums ticked slightly down, and net income fell from the year-ago period. Positively, premiums earned and investment income increased, and the company remains profitable from an underwriting standpoint. 

Shares of Maiden rose 3.7% on Thursday. Notably for income investors, the stock's annualized dividend yield is 4.5% at the current share price. 

Maiden Holdings key quarterly numbers

Metric

Q1 2016

Q1 2015

Growth (YOY)

Net premiums written

$792.8 million

$796.9 million

(0.5)%

Net premiums earned

$616 million

$577.3 million

6.7%

Net operating earnings

$28.3 million

$26.6 million

6.4%

Net operating earnings per share

$0.37

$0.35

5.7%

Operating return on common equity (annualized)

12.3%

11.4%

7.9%

Net investment income

$36.3 million

$28.3 million

28.5%

Net income

$27.2 million

$32.4 million

(16)%

Earnings per share (EPS)

$0.35

$0.41

(14.6)%

Loss ratio

65%

64.8%

0.3%

Combined ratio

98.9%

98.2%

0.7%

Data source: Maiden Holdings.

While the combined ratio (loss ratio plus expense ratio) has ticked up from the year-ago period, Maiden remains profitable from an underwriting standpoint since this ratio is less than 100%. Positively, the combined ratio has decreased on a sequential basis; it was 99.9% in the fourth quarter of 2015.    

Long-term investors shouldn't grant too much meaning to analysts' estimates, as Wall Street is focused on the short term. This is especially true with Maiden because there are only two analysts providing projections. That said, analysts' expectations often help explain market reactions. So, it's worth noting that analysts were looking for net operating earnings per share of $0.37 on premiums earned of $609.6 million. Maiden beat premium expectations and met the operating earnings consensus.

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, and it accounted for nearly 71% of Maiden's net written premium and just over 69% of its earned premium in 2015. The "diversified" segment includes reinsurance Maiden provides to all other insurance companies.

AmTrust's quarterly results

Metric

Q1 2016

Q1 2015

Growth (YOY)

Net premiums written

$506.7 million

$502.8 million

7.8%

Net premiums earned

$443.8 million

$384.7 million

15.4%

Combined ratio

95.3%

94.6%

0.7%

Data source: Maiden Holdings.

  • Segment growth was moderated by the commutation announced in the fourth quarter of 2015 and the completion of the absorption of new business following the acquisition of Tower Group. (A commutation is an agreement between a reinsured and a reinsurer that terminates the reinsurance obligation and involves the reinsurer paying funds at present value that are not yet due under the reinsurance agreement. Basically, it's like a buyout of the reinsurance policy, which means Maiden won't be on the hook for paying claims in the future for the involved policies.) 
  • With solid premium growth and an attractive combined ratio (the lower the better), this segment continues to perform well.

Diversified's quarterly results

Metric

Q1 2016

Q1 2015

Growth (YOY)

Net premiums written

$286.1 million

$294.2 million

(2.8)%

Net premiums earned

$172.3 million

$192.7 million

(10.6)%

Combined ratio

102.9%

101.1%

1.8%

Data source: Maiden Holdings.

  • The combined ratio increased from the year-ago period due to continued higher auto liability claims in the U.S. However, it's improved sequentially, as it was 103.9% in the fourth quarter of 2015. 

What management had to say
CEO Art Raschbaum emphasized the positive in the press release, while acknowledging the reinsurance market remains "highly competitive":

For the quarter, Maiden generated a 12.3% operating return on common equity, with book value per common share increasing over 12% versus year end 2015. While the reinsurance market remains highly competitive, Maiden continues to focus on disciplined organic growth with existing clients and implementation of new business initiatives in the U.S. and Europe. In the quarter, we benefited from continued strong investment income, profitable underwriting and lower expense relativities. Maiden's gross premiums written grew by 3.6% versus the first quarter of 2015 with continued prospects for disciplined growth for the balance of the year. 

Looking ahead 
Maiden's results were a mixed bag. Its investment portfolio continues to grow nicely, and it continues to generate double-digit operating returns on equity. As has been the case in the last few quarters, AmTrust continues to perform well from premium growth and underwriting performance standpoints. The challenge remains improving underwriting performance in its diversified segment, which has a combined ratio of 102.9%.

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Stocks Mentioned

Maiden Holdings, Ltd. Stock Quote
Maiden Holdings, Ltd.
MHLD
$2.00 (3.09%) $0.06
AmTrust Financial Services, Inc. Stock Quote
AmTrust Financial Services, Inc.
AFSI

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