Best’s News & Research Service - August 30, 2018 05:09 PM (EDT)
A.M. Best Places Credit Ratings of Maiden Holdings, Ltd. and Subsidiaries Under Review With Negative Implications
- August 30, 2018 05:09 PM (EDT)
Oldwick //BestWire// - A.M. Best has placed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of Maiden Reinsurance, Ltd. (Maiden Re) (Hamilton, Bermuda) and its affiliate, Maiden Reinsurance North America, Inc. (MRNA) (headquartered in Mount Laurel, NJ), under review with negative implications following the announcement that the renewal rights for its U.S. Diversified business were being sold to Transatlantic Reinsurance Company. Additionally, A.M. Best has placed under review with negative implications the Long-Term ICRs of “bbb-” and the associated Long-Term Issue Credit Ratings (Long-Term IR) of Maiden Holdings, Ltd. (Maiden Holdings) (Pembroke, Bermuda) and its intermediate subsidiary, Maiden Holdings North America, Ltd. (Delaware).
The under review with negative implications status reflects uncertainty regarding potential future transactions and their successful completion; the as yet-unresolved, previously disclosed, renewal of the reinsurance agreement with AmTrust Financial Services, Inc. (AmTrust); and the ultimate performance of the reserves related to business assumed from AmTrust. The negative implications also reflect the potential impact that the sale of the U.S. Diversified business will have on the group’s on-going business profile.
The announcement on Aug. 29, 2018, of the renewal rights transaction also indicated that Maiden Holdings is in advanced discussions to sell MRNA, in a transaction covering approximately $1.1 billion in loss and loss-adjustment expense reserves. These actions have evolved from a strategic review of Maiden’s operations announced earlier this year, which have a goal of strengthening the organization’s capital position and improving operating performance, in part through expense reductions. On-going business at Maiden will include its AmTrust business, which accounted for the majority of the enterprise’s revenue in 2017, and its European International Insurance Services and Capital Solutions businesses.
A.M. Best anticipates that the reduction in net premiums written resulting from the renewal rights transaction should drive improvements in risk-adjusted capitalization, as calculated by Best’s Capital Adequacy Ratio (BCAR). A transaction under which the MRNA legal entity will be sold also should benefit BCAR, by removing $1.1 billion in reserves from the enterprise books that have been a source of some variability in loss reserve development in recent years. The group’s balance sheet strength assessment has benefited historically from its focus on high-quality investments, a strategy that is not expected to change. However, other factors that have negatively impacted the balance sheet strength assessment – including the variability in reserves associated with the AmTrust business, negative interest coverage in 2017 and expected in 2018 and substantial servicing requirements for its outstanding securities – remain offsetting considerations.
Improvements to operating performance also are expected as a result of these actions. In addition to scaling its operations to reflect the discontinuation of the U.S. Diversified business, which will have immediate , albeit modest, impact in 2018 and more meaningful benefits in 2019, the U.S. Diversified business historically produced less favorable results than the AmTrust business. There are a number of issues that will be resolved in the near term that will provide an additional perspective on the future operating profitability, such as the renegotiation of the AmTrust reinsurance treaty and the disposition of MRNA.
The organization’s business profile will contract as a result of these actions, with the majority of its current business that is not related to AmTrust being sold. The assessment of business profile reflected, in part, the niche role the company played as a provider of proportional reinsurance in the United States. While recognizing the potential benefits to operating performance over the longer term from discontinuing this operation, which historically had weaker results, the diminution of the business profile is a key factor in the under review with negative implications status.
A.M. Best expects the ratings to remain under review while management’s strategic review and any associated actions are concluded, and A.M. Best completes its assessment of those actions. A.M. Best will monitor any interim developments and take any necessary rating action.
The following Long-Term IRs have been placed under review with negative implications::
Maiden Holdings, Ltd.—
—“bbb-” on $110 million 6.625% senior unsecured notes, due 2046
—“bb” on $165 million 7.125% preferred non-cumulative stock
—“bb” on $150 million 8.25% preferred stock
—“bb” on $150 million 6.7% preferred stock
Maiden Holdings North America, Ltd.—
—“bbb-” on $152.5 million 7.75% senior unsecured notes, due 2043
The following indicative Long-Term IRs under the shelf registration have been placed under review with negative implications:
Maiden Holdings, Ltd.—
—“bbb-” on senior unsecured debt
—“bb+” on subordinated debt
—“bb” on preferred stock
Maiden Holdings North America, Ltd.—
— “bbb-”on senior unsecured debt
— “bb+” on senior subordinated debt
— “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.
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