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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File No. 001-34042

MAIDEN HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)

Bermuda
(State or other jurisdiction of
incorporation or organization)
98-0570192
(IRS Employer
Identification No.)
 
 
131 Front Street, Hamilton, Bermuda
(Address of principal executive offices)
HM12
(Zip Code)

(441) 298-4900
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes o No x

As of November 1, 2016, the number of the Registrant's Common Stock ($.01 par value) outstanding was 86,131,861.





INDEX
 
 
Page
PART I - Financial Information
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 (audited)
 
 
 
 
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share data)
 
September 30, 2016 (Unaudited)
 
December 31, 2015
(Audited)
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost 2016: $3,660,873; 2015: $3,562,864)
$
3,748,342


$
3,508,088

Fixed maturities, held-to-maturity, at amortized cost (fair value 2016: $798,081; 2015: $598,975)
759,973

 
607,843

Other investments, at fair value (cost 2016: $10,860; 2015: $10,816)
12,268


11,812

Total investments
4,520,583


4,127,743

Cash and cash equivalents
67,459


89,641

Restricted cash and cash equivalents
366,563


242,859

Accrued investment income
33,884


32,288

Reinsurance balances receivable, net (includes $220,555 and $147,365 from related parties in 2016 and 2015, respectively)
535,015


377,318

Reinsurance recoverable on unpaid losses
97,070


71,248

Loan to related party
167,975


167,975

Deferred commission and other acquisition expenses, net (includes $388,099 and $341,025 from related parties in 2016 and 2015, respectively)
451,698


397,548

Goodwill and intangible assets, net
80,135


81,920

Other assets
147,580


115,038

Total assets
$
6,467,962

 
$
5,703,578

LIABILITIES
 
 
 
Reserve for loss and loss adjustment expenses (includes $1,676,647 and $1,443,639 from related parties in 2016 and 2015, respectively)
$
2,759,518


$
2,510,101

Unearned premiums (includes $1,204,853 and $1,077,460 from related parties in 2016 and 2015, respectively)
1,571,435


1,354,572

Accrued expenses and other liabilities
150,741


135,897

Liability for securities purchased
78,581


3,976

Senior Notes - principal amount
362,500


360,000

Less unamortized issuance costs
11,172

 
10,067

Senior notes, net
351,328

 
349,933

Total liabilities
4,911,603

 
4,354,479

Commitments and Contingencies


 


EQUITY
 
 
 
Preference shares
315,000


480,000

Common shares ($0.01 par value: 87,178,902 and 74,735,785 shares issued in 2016 and 2015, respectively; 86,128,999 and 73,721,140 shares outstanding in 2016 and 2015, respectively)
872


747

Additional paid-in capital
747,203


579,178

Accumulated other comprehensive income (loss)
123,876


(23,767
)
Retained earnings
373,340


316,184

Treasury shares, at cost (1,049,903 and 1,014,645 shares in 2016 and 2015, respectively)
(4,991
)

(4,521
)
Total Maiden shareholders’ equity
1,555,300

 
1,347,821

Noncontrolling interest in subsidiaries
1,059


1,278

Total equity
1,556,359

 
1,349,099

Total liabilities and equity
$
6,467,962

 
$
5,703,578


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands of U.S. dollars, except per share data)


 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016

2015

2016

2015
Revenues:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
706,854


$
628,501


$
2,259,290


$
2,136,935

Net premiums written
 
$
690,653


$
599,153


$
2,133,911


$
2,025,754

Change in unearned premiums
 
7,625


59,367


(182,060
)

(180,495
)
Net premiums earned
 
698,278

 
658,520

 
1,951,851

 
1,845,259

Other insurance revenue
 
2,345


2,177


8,696


9,408

Net investment income
 
35,666


32,843


107,291


96,260

Net realized gains on investment
 
1,900


1,216


4,511


2,327

Total other-than-temporary impairment losses
 
—


(1,060
)

—


(1,060
)
Portion of loss recognized in other comprehensive income (loss)
 
—

 
—

 
—

 
—

Net impairment losses recognized in earnings
 
—

 
(1,060
)
 
—

 
(1,060
)
Total revenues
 
738,189

 
693,696

 
2,072,349


1,952,194

Expenses:
 
 
 
 
 
 
 
 
Net loss and loss adjustment expenses
 
466,751


444,172


1,297,361


1,236,505

Commission and other acquisition expenses
 
206,706


197,639


587,501


551,678

General and administrative expenses
 
16,952


16,453


49,738


48,951

Interest and amortization expenses
 
6,856


7,266


21,314


21,796

Accelerated amortization of senior note issuance cost
 
—


—


2,345


—

Amortization of intangible assets
 
616


710


1,846


2,130

Foreign exchange and other gains
 
(687
)

(1,427
)

(6,474
)

(4,062
)
Total expenses
 
697,194

 
664,813

 
1,953,631

 
1,856,998

Income before income taxes
 
40,995

 
28,883

 
118,718

 
95,196

Income tax expense
 
199

 
368

 
1,206

 
1,636

Net income
 
40,796

 
28,515

 
117,512

 
93,560

Loss attributable to noncontrolling interest
 
56


69


166


116

Net income attributable to Maiden shareholders
 
40,852

 
28,584

 
117,678

 
93,676

Dividends on preference shares
 
(9,023
)
 
(6,085
)

(27,723
)

(18,253
)
Net income attributable to Maiden common shareholders
 
$
31,829

 
$
22,499

 
$
89,955

 
$
75,423

Basic earnings per share attributable to Maiden common shareholders
 
$
0.42


$
0.31

 
$
1.20

 
$
1.03

Diluted earnings per share attributable to Maiden common shareholders
 
$
0.40


$
0.30

 
$
1.15

 
$
0.99

Dividends declared per common share
 
$
0.14

 
$
0.13

 
$
0.42

 
$
0.39


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
 


4


MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands of U.S. dollars)


 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016

2015
 
2016
 
2015
Net income
 
$
40,796

 
$
28,515

 
$
117,512

 
$
93,560

Net unrealized holding gains (losses) on available-for-sale fixed maturities arising during the period
 
8,888

 
(17,191
)
 
155,052

 
(80,725
)
Adjustment for reclassification of net realized (gains) losses recognized in net income
 
(1,202
)

(11
)

578


(5
)
Foreign currency translation adjustment
 
(2,730
)
 
(741
)
 
(7,927
)
 
8,316

Other comprehensive income (loss), before tax
 
4,956

 
(17,943
)
 
147,703

 
(72,414
)
Income tax benefit (expense) related to components of other comprehensive income
 
11

 
18

 
(28
)
 
82

Other comprehensive income (loss), after tax
 
4,967

 
(17,925
)
 
147,675

 
(72,332
)
Comprehensive income
 
45,763

 
10,590

 
265,187

 
21,228

Net loss attributable to noncontrolling interest
 
56

 
69

 
166

 
116

Other comprehensive (income) loss attributable to noncontrolling interest
 
(17
)
 
(1
)
 
(32
)
 
46

Comprehensive loss attributable to noncontrolling interest
 
39

 
68

 
134

 
162

Comprehensive income attributable to Maiden shareholders
 
$
45,802

 
$
10,658

 
$
265,321

 
$
21,390


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.



5

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(in thousands of U.S. dollars)

For the Nine Months Ended September 30,

2016

2015
Preference shares
 
 
 
 
Beginning balance
 
$
480,000

 
$
315,000

Less: mandatory conversion of Preference Shares - Series B
 
(165,000
)
 
—

Ending balance
 
315,000

 
315,000

Common shares
 
 
 
 
Beginning balance
 
747

 
739

Exercise of options and issuance of shares
 
4

 
8

Shares issued on mandatory conversion of Preference Shares - Series B
 
121

 
—

Ending balance
 
872

 
747

Additional paid-in capital
 
 
 
 
Beginning balance
 
579,178

 
578,445

Exercise of options and issuance of common shares
 
662

 
3,072

Share-based compensation expense
 
2,625

 
2,519

Mandatory conversion of Preference Shares - Series B
 
164,879

 
—

Others
 
(141
)
 
—

Ending balance
 
747,203

 
584,036

Accumulated other comprehensive income
 
 
 
 
Beginning balance
 
(23,767
)
 
95,293

Change in net unrealized gains (losses) on investments, net
 
155,602

 
(80,648
)
Foreign currency translation adjustments
 
(7,959
)
 
8,362

Ending balance
 
123,876

 
23,007

Retained earnings
 
 
 
 
Beginning balance
 
316,184

 
255,084

Net income attributable to Maiden shareholders
 
117,678

 
93,676

Dividends on preference shares
 
(27,723
)
 
(18,253
)
Dividends on common shares
 
(32,799
)
 
(28,711
)
Ending balance
 
373,340

 
301,796

Treasury shares
 
 
 
 
Beginning balance
 
(4,521
)
 
(3,867
)
Shares repurchased for treasury
 
(470
)
 
(654
)
Ending balance
 
(4,991
)
 
(4,521
)
Noncontrolling interest in subsidiaries
 
 
 
 
Beginning balance
 
1,278

 
472

Change in minority interest
 
(54
)
 
1,710

Dividend paid to noncontrolling interest
 
(31
)
 
(303
)
Loss attributable to noncontrolling interest
 
(166
)
 
(116
)
Foreign currency translation adjustments
 
32

 
(46
)
Ending balance
 
1,059

 
1,717

Total equity
 
$
1,556,359

 
$
1,221,782


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

6

MAIDEN HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands of U.S. dollars)
For the Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
117,512

 
$
93,560

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
16,841

 
7,077

Net realized gains on investment
 
(4,511
)
 
(2,327
)
Net impairment losses recognized in earnings
 
—

 
1,060

Foreign exchange and other gains
 
(6,474
)
 
(4,062
)
Changes in assets – (increase) decrease:
 
 
 
 
Reinsurance balances receivable, net
 
(154,091
)
 
14,093

Reinsurance recoverable on unpaid losses
 
(26,281
)
 
(17,374
)
Accrued investment income
 
(1,537
)
 
(3,110
)
Deferred commission and other acquisition expenses
 
(49,713
)
 
(57,838
)
Other assets
 
(32,027
)
 
(64,512
)
Changes in liabilities – increase (decrease):
 
 
 
 
Reserve for loss and loss adjustment expenses
 
250,937

 
291,123

Unearned premiums
 
204,752

 
238,726

Accrued expenses and other liabilities
 
10,749

 
29,596

Net cash provided by operating activities
 
326,157

 
526,012

Cash flows from investing activities:
 
 
 
 
Purchases of fixed maturities – available-for-sale
 
(732,001
)
 
(1,095,162
)
Purchases of other investments
 
(167
)
 
(144
)
Proceeds from sales of fixed maturities – available-for-sale
 
101,923

 
116,093

Proceeds from maturities and calls of fixed maturities
 
442,490

 
467,910

Proceeds from redemption of other investments
 
572

 
344

(Increase) decrease in restricted cash and cash equivalents, net
 
(103,685
)
 
41,022

Other, net
 
(521
)
 
(715
)
Net cash used in investing activities
 
(291,389
)
 
(470,652
)
Cash flows from financing activities:
 
 
 
 
Senior notes issuance, net of issuance costs
 
106,424

 
—

Redemption of 2011 senior notes
 
(107,500
)
 
—

Common share issuance
 
666

 
3,080

Repurchase of common shares for treasury
 
(470
)
 
(654
)
Dividends paid to common shareholders
 
(31,062
)
 
(28,616
)
Dividends paid to preference shareholders
 
(27,723
)
 
(18,253
)
Net cash used in financing activities
 
(59,665
)
 
(44,443
)
Effect of exchange rate changes on foreign currency cash
 
2,715

 
(1,485
)
Net (decrease) increase in cash and cash equivalents
 
(22,182
)
 
9,432

Cash and cash equivalents, beginning of period
 
89,641

 
108,119

Cash and cash equivalents, end of period
 
$
67,459

 
$
117,551


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

7
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)



1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Maiden Holdings, Ltd. ("Maiden Holdings") and its subsidiaries (the "Company" or "Maiden") and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP" or "U.S. GAAP") for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All significant inter-company transactions and accounts have been eliminated.

These interim unaudited Condensed Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

These unaudited Condensed Consolidated Financial Statements, including these notes, should be read in conjunction with the Company's audited Consolidated Financial Statements, and related notes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. Certain reclassifications have been made for 2015 to conform to the 2016 presentation and have no impact on net income and total equity previously reported.

2. Significant Accounting Policies

There have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2015 with the exception of the following:

Transition related to Accounting Standards Update ("ASU") No. 2015-03: Simplifying the Presentation of Debt Issuance Costs

Effective January 1, 2016, the Company adopted the new guidance under ASU 2015-03 which requires that debt issuance costs be presented as a direct deduction from the related debt liability rather than as an asset in the balance sheet. The amortization of such costs is reported as an interest expense. The Company applied this new guidance retrospectively to all prior periods presented. The adoption of this new guidance reduced the December 31, 2015 audited consolidated total assets and total liabilities by $10,067, respectively, representing the amount of unamortized issuance costs related to our Senior Notes which was previously presented as part of other assets. There was no impact on the net income, related per-share amounts or the retained earnings for the periods affected by the adoption of this guidance.

Recently Issued Accounting Standards Not Yet Adopted

Disclosures about Short-Duration Contracts

In May 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-09 which is aimed at providing users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgments in estimating claims, and the timing, frequency and severity of claims. The new disclosures are required for short-duration insurance contracts issued by insurers. For public business entities, this guidance will be effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted and should be applied retrospectively by providing comparative disclosures for each period presented. As this guidance is disclosure-related only, the adoption of this guidance will not have a material impact on the Company’s statements of operations and financial position.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01 that will change how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. It does not change the guidance for classifying and measuring investments in debt securities and loans. Under the new guidance, entities will have to measure many equity investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. This includes investments in partnerships, unincorporated joint ventures and limited liability companies that do not result in consolidation and are not accounted for under the equity method. Entities will no longer be able to recognize unrealized holding gains and losses on equity securities they classify today as available for sale ("AFS") in Accumulated Other Comprehensive Income ("AOCI"). They also will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.



8
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


2. Significant Accounting Policies (continued)

Accounting for Leases

In February 2016, the FASB issued final Accounting Standards Codification ("ASC") 842 guidance that requires lessees to put most leases on their balance sheets but recognize expenses on their income statement in a manner similar to today's accounting. The guidance also eliminates today's real-estate-specific provisions for all entities. All entities classify leases to determine how to recognize lease-related revenue and expense. The U.S. GAAP standard is effective for public business entities and certain not-for-profit entities and employee benefit plans for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued ASU 2016-09 guidance that outlines changes for certain aspects of share-based payments to employees, such as accounting for forfeitures, which applies to the Company. Under the new guidance, the entities can elect to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The guidance is effective for public business entities for fiscal year beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for all entities, in any annual or interim period for which financial statements haven't been issued or made available for issuance, but all of the guidance must be adopted in the same period. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

Accounting for Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13 guidance that changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard's provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods therein. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU 2016-15 guidance to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance amends ASC 230 Statement of Cash Flows, a principles based requiring judgment to determine the appropriate classification of cash flow as operating, investing or financing activities which created diversity in how certain cash receipts and cash payments were classified. The new guidance clarifies that if a receipt or payment has aspects of more than one class of cash flows and cannot be separated, the classification will depend on the predominant source or use. While the new guidance attempts to clarify how the predominance principle should be applied, judgment will still be required. The guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Early adoption is permitted. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.

Intra-Entity Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16 guidance that will require entities to recognize the income tax effects of intercompany sales and transfers of assets other than inventory as expense or benefit, in the period in which the transfer occurs as opposed to being deferred the income tax effects until the intercompany asset has been sold to an outside party, according to the current guidance in effect. The new guidance will require companies to defer the income tax effects only of intercompany transfers of inventory. The companies will be required to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. In addition, companies will record deferred tax balances with an offset to opening retained earnings for amounts they haven't recognized under the new guidance. If a valuation allowance is necessary on the date of the adoption, that allowance will be recorded with an offset to opening retained earnings. The new guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Early adoption is permitted. The Company is evaluating the impact of this new guidance on its consolidated results of operations and financial condition.







9
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting

The Company currently has two reportable segments: Diversified Reinsurance and AmTrust Reinsurance. Our Diversified Reinsurance segment consists of a portfolio of predominantly property and casualty reinsurance business focusing on regional and specialty property and casualty insurance companies primarily located in the U.S. and Europe. Our AmTrust Reinsurance segment includes all business ceded to Maiden Reinsurance Ltd. ("Maiden Bermuda") by subsidiaries of AmTrust Financial Services, Inc. ("AmTrust"), primarily the AmTrust Quota Share and the European Hospital Liability Quota Share. Please refer to "Note 7. Related Party Transactions" for additional information. In addition to our reportable segments, the results of operations of the former NGHC Quota Share segment and the remnants of the U.S. excess and surplus ("E&S") business have been included in the "Other" category.

The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. General and administrative expenses are allocated to the segments on an actual basis except salaries and benefits where management’s judgment is applied. The Company does not allocate general corporate expenses to the segments. In determining total assets by reportable segment, the Company identifies those assets that are attributable to a particular segment such as reinsurance balances receivable, reinsurance recoverable on unpaid losses, deferred commission and other acquisition expenses, loans, goodwill and intangible assets, restricted cash and cash equivalents and investments and prepaid reinsurance premiums. All remaining assets are allocated to Corporate.

The following tables summarize our reporting segment's underwriting results and the reconciliation of our reportable segments and Other category's underwriting results to our consolidated net income:
For the Three Months Ended September 30, 2016

Diversified Reinsurance

AmTrust Reinsurance

Other

Total
Gross premiums written
 
$
186,750

 
$
520,104

 
$
—

 
$
706,854

Net premiums written

$
179,092


$
511,561


$
—


$
690,653

Net premiums earned

$
175,141


$
523,137


$
—


$
698,278

Other insurance revenue

2,345


—


—


2,345

Net loss and loss adjustment expenses ("LAE")

(132,396
)

(334,310
)

(45
)

(466,751
)
Commission and other acquisition expenses

(39,868
)

(166,836
)

(2
)

(206,706
)
General and administrative expenses

(9,038
)

(759
)

—


(9,797
)
Underwriting income (loss)

$
(3,816
)

$
21,232


$
(47
)

$
17,369

Reconciliation to net income












Net investment income and realized gains on investment










37,566

Interest and amortization expenses
 
 
 
 
 
 
 
(6,856
)
Amortization of intangible assets










(616
)
Foreign exchange and other gains










687

Other general and administrative expenses










(7,155
)
Income tax expense










(199
)
Net income










$
40,796














Net loss and LAE ratio (1)

74.6
%

63.9
%

 

66.6
%
Commission and other acquisition expense ratio (2)

22.5
%

31.9
%

 

29.5
%
General and administrative expense ratio (3)

5.1
%

0.1
%

 

2.4
%
Combined ratio (4)

102.2
%

95.9
%

 

98.5
%









10
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting (continued)
For the Three Months Ended September 30, 2015
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
174,307

 
$
454,194

 
$
—

 
$
628,501

Net premiums written
 
$
163,710

 
$
435,443

 
$
—

 
$
599,153

Net premiums earned
 
$
193,207

 
$
465,313

 
$
—

 
$
658,520

Other insurance revenue
 
2,177

 
—

 
—

 
2,177

Net loss and LAE
 
(142,468
)
 
(297,780
)
 
(3,924
)
 
(444,172
)
Commission and other acquisition expenses
 
(51,714
)
 
(146,008
)
 
83

 
(197,639
)
General and administrative expenses
 
(8,218
)
 
(656
)
 
—

 
(8,874
)
Underwriting income (loss)
 
$
(7,016
)
 
$
20,869

 
$
(3,841
)
 
$
10,012

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
34,059

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(1,060
)
Interest and amortization expenses
 
 
 
 
 
 
 
(7,266
)
Amortization of intangible assets
 
 
 
 
 
 
 
(710
)
Foreign exchange and other gains
 
 
 
 
 
 
 
1,427

Other general and administrative expenses
 
 
 
 
 
 
 
(7,579
)
Income tax expense
 
 
 
 
 
 
 
(368
)
Net income
 
 
 
 
 
 
 
$
28,515

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
72.9
%
 
63.9
%
 
 
 
67.2
%
Commission and other acquisition expense ratio (2)
 
26.5
%
 
31.4
%
 
 
 
29.9
%
General and administrative expense ratio (3)
 
4.2
%
 
0.1
%
 
 
 
2.5
%
Combined ratio (4)
 
103.6
%
 
95.4
%
 
 
 
99.6
%

11
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting (continued)
For the Nine Months Ended September 30, 2016
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
667,388

 
$
1,591,902

 
$
—

 
$
2,259,290

Net premiums written
 
$
626,522

 
$
1,507,389

 
$
—

 
$
2,133,911

Net premiums earned
 
$
538,152

 
$
1,413,699

 
$
—

 
$
1,951,851

Other insurance revenue
 
8,696

 
—

 
—

 
8,696

Net loss and LAE
 
(395,718
)
 
(898,703
)
 
(2,940
)
 
(1,297,361
)
Commission and other acquisition expenses
 
(139,895
)
 
(447,604
)
 
(2
)
 
(587,501
)
General and administrative expenses
 
(26,717
)
 
(2,308
)
 
—

 
(29,025
)
Underwriting income (loss)
 
$
(15,482
)
 
$
65,084

 
$
(2,942
)
 
$
46,660

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
111,802

Interest and amortization expenses
 
 
 
 
 
 
 
(21,314
)
Accelerated amortization of senior note issuance cost
 
 
 
 
 
 
 
(2,345
)
Amortization of intangible assets
 
 
 
 
 
 
 
(1,846
)
Foreign exchange and other gains
 
 
 
 
 
 
 
6,474

Other general and administrative expenses
 
 
 
 
 
 
 
(20,713
)
Income tax expense
 
 
 
 
 
 
 
(1,206
)
Net income
 
 
 
 
 
 
 
$
117,512

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
72.4
%
 
63.5
%
 
 
 
66.2
%
Commission and other acquisition expense ratio (2)
 
25.6
%
 
31.7
%
 
 
 
30.0
%
General and administrative expense ratio (3)
 
4.8
%
 
0.2
%
 
 
 
2.5
%
Combined ratio (4)
 
102.8
%
 
95.4
%
 
 
 
98.7
%
























12
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting (continued)
For the Nine Months Ended September 30, 2015
 
Diversified Reinsurance
 
AmTrust Reinsurance
 
Other
 
Total
Gross premiums written
 
$
631,294

 
$
1,505,642

 
$
(1
)
 
$
2,136,935

Net premiums written
 
$
602,693

 
$
1,423,060

 
$
1

 
$
2,025,754

Net premiums earned
 
$
570,694

 
$
1,274,563

 
$
2

 
$
1,845,259

Other insurance revenue
 
9,408

 
—

 
—

 
9,408

Net loss and LAE
 
(417,846
)
 
(811,016
)
 
(7,643
)
 
(1,236,505
)
Commission and other acquisition expenses
 
(152,332
)
 
(399,291
)
 
(55
)
 
(551,678
)
General and administrative expenses
 
(25,976
)
 
(2,200
)
 
—

 
(28,176
)
Underwriting income (loss)
 
$
(16,052
)
 
$
62,056

 
$
(7,696
)
 
$
38,308

Reconciliation to net income
 
 
 
 
 
 
 
 
Net investment income and realized gains on investment
 
 
 
 
 
 
 
98,587

Net impairment losses recognized in earnings
 
 
 
 
 
 
 
(1,060
)
Interest and amortization expenses
 
 
 
 
 
 
 
(21,796
)
Amortization of intangible assets
 
 
 
 
 
 
 
(2,130
)
Foreign exchange and other gains
 
 
 
 
 
 
 
4,062

Other general and administrative expenses
 
 
 
 
 
 
 
(20,775
)
Income tax expense
 
 
 
 
 
 
 
(1,636
)
Net income
 
 
 
 
 
 
 
$
93,560

 
 
 
 
 
 
 
 
 
Net loss and LAE ratio (1)
 
72.0
%
 
63.6
%
 
 
 
66.7
%
Commission and other acquisition expense ratio (2)
 
26.3
%
 
31.3
%
 
 
 
29.7
%
General and administrative expense ratio (3)
 
4.5
%
 
0.2
%
 
 
 
2.7
%
Combined ratio (4)
 
102.8
%
 
95.1
%
 
 
 
99.1
%
(1) Calculated by dividing net loss and LAE by net premiums earned and other insurance revenue.
(2) Calculated by dividing commission and other acquisition expenses by net premiums earned and other insurance revenue.
(3) Calculated by dividing general and administrative expenses by net premiums earned and other insurance revenue.
(4) Calculated by adding together the net loss and LAE ratio, commission and other acquisition expense ratio and general and administrative expense ratio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following tables summarize the total assets of our reportable segments including the reconciliation to our consolidated assets at September 30, 2016 and December 31, 2015:
September 30, 2016
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,929,455

 
$
3,937,523

 
$
5,866,978

Corporate assets
 
—

 
—

 
600,984

Total Assets
 
$
1,929,455

 
$
3,937,523

 
$
6,467,962

December 31, 2015
 
Diversified
Reinsurance
 
AmTrust
Reinsurance
 
Total
Total assets - reportable segments
 
$
1,644,541

 
$
3,178,859

 
$
4,823,400

Corporate assets
 
—

 
—

 
880,178

Total Assets
 
$
1,644,541

 
$
3,178,859

 
$
5,703,578



13
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting (continued)

The following tables set forth financial information relating to net premiums written and earned by major line of business and reportable segment for the three and nine months ended September 30, 2016 and 2015:
For the Three Months Ended September 30,
 
2016

2015
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
30,606

 
4.4
%
 
$
29,574

 
4.9
%
Casualty
 
115,360

 
16.7
%
 
101,191

 
16.9
%
Accident and Health
 
14,845

 
2.2
%
 
12,918

 
2.2
%
International
 
18,281

 
2.6
%
 
20,027

 
3.3
%
Total Diversified Reinsurance
 
179,092

 
25.9
%
 
163,710

 
27.3
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
314,677

 
45.6
%
 
231,416

 
38.6
%
Specialty Program
 
98,895

 
14.3
%
 
86,612

 
14.5
%
Specialty Risk and Extended Warranty
 
97,989

 
14.2
%
 
117,415

 
19.6
%
Total AmTrust Reinsurance
 
511,561

 
74.1
%
 
435,443

 
72.7
%
 
 
$
690,653

 
100.0
%
 
$
599,153

 
100.0
%
For the Three Months Ended September 30,
 
2016
 
2015
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
29,921

 
4.3
%
 
$
39,593

 
6.0
%
Casualty
 
105,893

 
15.2
%
 
115,646

 
17.6
%
Accident and Health
 
18,436

 
2.6
%
 
14,093

 
2.1
%
International
 
20,891

 
3.0
%
 
23,875

 
3.6
%
Total Diversified Reinsurance
 
175,141

 
25.1
%
 
193,207

 
29.3
%
AmTrust Reinsurance
 
 
 
 
 
 
 
 
Small Commercial Business
 
320,596

 
45.9
%
 
257,296

 
39.1
%
Specialty Program
 
89,856

 
12.9
%
 
80,302

 
12.2
%
Specialty Risk and Extended Warranty
 
112,685

 
16.1
%
 
127,715

 
19.4
%
Total AmTrust Reinsurance
 
523,137

 
74.9
%
 
465,313

 
70.7
%
 
 
$
698,278

 
100.0
%
 
$
658,520

 
100.0
%
    


















14
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


3. Segment Reporting (continued)
For the Nine Months Ended September 30,
 
2016
 
2015
Net premiums written
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
123,991

 
5.8
%
 
$
128,482

 
6.3
%
Casualty
 
365,332

 
17.1
%
 
359,530

 
17.8
%
Accident and Health
 
68,140

 
3.2
%
 
53,483

 
2.7
%
International
 
69,059

 
3.2
%
 
61,198

 
3.0
%
Total Diversified Reinsurance
 
626,522

 
29.3
%
 
602,693

 
29.8
%
AmTrust Reinsurance
 


 


 
 
 
 
Small Commercial Business
 
983,601

 
46.1
%
 
857,617

 
42.3
%
Specialty Program
 
268,193

 
12.6
%
 
262,068

 
12.9
%
Specialty Risk and Extended Warranty
 
255,595

 
12.0
%
 
303,375

 
15.0
%
Total AmTrust Reinsurance
 
1,507,389

 
70.7
%
 
1,423,060

 
70.2
%
Other
 
—

 
—
%
 
1

 
—
%
 
 
$
2,133,911

 
100.0
%
 
$
2,025,754

 
100.0
%

For the Nine Months Ended September 30,
 
2016
 
2015
Net premiums earned
 
Total
 
% of Total
 
Total
 
% of Total
Diversified Reinsurance
 
 
 
 
 
 
 
 
Property
 
$
103,023

 
5.3
%
 
$
112,878

 
6.1
%
Casualty
 
313,736

 
16.1
%
 
350,549

 
19.0
%
Accident and Health
 
55,788

 
2.8
%
 
41,361

 
2.2
%
International
 
65,605

 
3.4
%
 
65,906

 
3.6
%
Total Diversified Reinsurance
 
538,152

 
27.6
%
 
570,694

 
30.9
%
AmTrust Reinsurance
 


 


 


 


Small Commercial Business
 
864,699

 
44.3
%
 
734,731

 
39.8
%
Specialty Program
 
251,543

 
12.9
%
 
210,690

 
11.4
%
Specialty Risk and Extended Warranty
 
297,457

 
15.2
%
 
329,142

 
17.9
%
Total AmTrust Reinsurance
 
1,413,699

 
72.4
%
 
1,274,563

 
69.1
%
Other
 
—

 
—
%
 
2

 
—
%
 
 
$
1,951,851

 
100.0
%
 
$
1,845,259

 
100.0
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    

15
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


4. Investments

(a) Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of investment in fixed maturities and other investments as of September 30, 2016 and December 31, 2015 are as follows:
September 30, 2016
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,183

 
$
317

 
$
—

 
$
5,500

U.S. agency bonds – mortgage-backed
 
1,572,387

 
34,128

 
(737
)
 
1,605,778

U.S. agency bonds – other
 
4,256

 
362

 
—

 
4,618

Non-U.S. government and supranational bonds
 
35,579

 
264

 
(3,181
)
 
32,662

Asset-backed securities
 
205,534

 
7,306

 
(49
)
 
212,791

Corporate bonds
 
1,775,739

 
75,202

 
(31,688
)
 
1,819,253

Municipal bonds
 
62,195

 
5,545

 
—

 
67,740

Total AFS fixed maturities
 
3,660,873

 
123,124

 
(35,655
)
 
3,748,342

Held-to-maturity ("HTM") fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
759,973

 
38,941

 
(833
)
 
798,081

Total HTM fixed maturities
 
759,973

 
38,941

 
(833
)
 
798,081

Other investments
 
10,860

 
1,408

 
—

 
12,268

Total investments
 
$
4,431,706

 
$
163,473

 
$
(36,488
)
 
$
4,558,691

December 31, 2015
 
Original or
amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,714

 
$
312

 
$
(16
)
 
$
6,010

U.S. agency bonds – mortgage-backed
 
1,471,782

 
15,399

 
(10,190
)
 
1,476,991

U.S. agency bonds – other
 
23,734

 
577

 
—

 
24,311

Non-U.S. government and supranational bonds
 
35,128

 
—

 
(4,584
)
 
30,544

Asset-backed securities
 
165,719

 
1,174

 
(1,089
)
 
165,804

Corporate bonds
 
1,798,610

 
38,070

 
(97,012
)
 
1,739,668

Municipal bonds
 
62,177

 
2,583

 
—

 
64,760

Total AFS fixed maturities
 
3,562,864

 
58,115

 
(112,891
)
 
3,508,088

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
607,843

 
3,458

 
(12,326
)
 
598,975

Total HTM fixed maturities
 
607,843

 
3,458

 
(12,326
)
 
598,975

Other investments
 
10,816

 
1,091

 
(95
)
 
11,812

Total investments
 
$
4,181,523

 
$
62,664

 
$
(125,312
)
 
$
4,118,875


During the second quarter of 2016, we designated additional fixed maturities with a total fair value of $155,538 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $15,770 at the designation date was reported in the carrying value of the HTM securities and is amortized through Other Comprehensive Income over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount.

The contractual maturities of our fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without prepayment penalties.

16
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


4. Investments (continued)
 
 
AFS fixed maturities
 
HTM fixed maturities
September 30, 2016
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
124,653

 
$
120,322

 
$
—

 
$
—

Due after one year through five years
 
483,935

 
486,485

 
223,261

 
226,753

Due after five years through ten years
 
1,260,222

 
1,308,224

 
531,624

 
566,140

Due after ten years
 
14,142

 
14,742

 
5,088

 
5,188

 
 
1,882,952

 
1,929,773

 
759,973

 
798,081

U.S. agency bonds – mortgage-backed
 
1,572,387

 
1,605,778

 
—

 
—

Asset-backed securities
 
205,534

 
212,791

 
—

 
—

Total fixed maturities
 
$
3,660,873

 
$
3,748,342

 
$
759,973

 
$
798,081


The following tables summarize fixed maturities and other investments in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
 
Less than 12 Months
 
12 Months or more
 
Total
September 30, 2016
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency bonds – mortgage-backed
 
$
13,029

 
$
(27
)
 
$
54,566

 
$
(710
)
 
$
67,595

 
$
(737
)
Non–U.S. government and supranational bonds
 
1,081

 
(41
)
 
27,645

 
(3,140
)
 
28,726

 
(3,181
)
Asset-backed securities
 
21,746

 
(49
)
 
—

 
—

 
21,746

 
(49
)
Corporate bonds
 
171,844

 
(1,551
)
 
355,317

 
(30,970
)
 
527,161

 
(32,521
)
Total temporarily impaired fixed maturities
 
$
207,700

 
$
(1,668
)
 
$
437,528

 
$
(34,820
)
 
$
645,228

 
$
(36,488
)

As of September 30, 2016, there were approximately 132 securities in an unrealized loss position with a fair value of $645,228 and unrealized losses of $36,488. Of these securities, there are 94 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $437,528 and unrealized losses of $34,820.
 
 
Less than 12 Months
 
12 Months or more
 
Total
December 31, 2015
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
1,119

 
$
(16
)
 
$
—

 
$
—

 
$
1,119

 
$
(16
)
U.S. agency bonds – mortgage-backed
 
443,331

 
(4,113
)
 
170,053

 
(6,077
)
 
613,384

 
(10,190
)
Non–U.S. government and supranational bonds
 
6,958

 
(365
)
 
22,586

 
(4,219
)
 
29,544

 
(4,584
)
Asset-backed securities
 
89,838

 
(1,089
)
 
—

 
—

 
89,838

 
(1,089
)
Corporate bonds
 
752,911

 
(41,352
)
 
399,779

 
(67,986
)
 
1,152,690

 
(109,338
)
Total temporarily impaired fixed maturities
 
1,294,157

 
(46,935
)
 
592,418

 
(78,282
)
 
1,886,575

 
(125,217
)
Other investments
 
4,905

 
(95
)
 
—

 
—

 
4,905

 
(95
)
Total temporarily impaired fixed maturities and other investments
 
$
1,299,062

 
$
(47,030
)
 
$
592,418

 
$
(78,282
)
 
$
1,891,480

 
$
(125,312
)








17
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)

4. Investments (continued)

As of December 31, 2015, there were approximately 270 securities in an unrealized loss position with a fair value of $1,891,480 and unrealized losses of $125,312. Of these securities, there are 93 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $592,418 and unrealized losses of $78,282.

Other-Than-Temporary Impairments ("OTTI")

The Company performs quarterly reviews of its investment portfolio in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. At September 30, 2016, we have determined that the unrealized losses on fixed maturities were primarily due to widening of credit spreads since their date of purchase. Because we do not intend to sell these securities and it is not more likely than not that we will be required to do so until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore, we do not consider these fixed maturities to be other-than-temporarily impaired at September 30, 2016. For the three and nine months ended ended September 30, 2016, the Company recognized no OTTI. For the three and nine months ended September 30, 2015, there was a credit impairment in respect of one corporate bond which resulted in the recognition of OTTI of $1,060 for both periods.

The following summarizes the credit ratings of our fixed maturities:
Ratings* as of September 30, 2016
 
Amortized cost
 
Fair value
 
% of Total
fair value
Fixed maturities
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,183

 
$
5,500

 
0.1
%
U.S. agency bonds
 
1,576,643

 
1,610,396

 
35.4
%
AAA
 
164,038

 
173,127

 
3.8
%
AA+, AA, AA-
 
244,901

 
255,882

 
5.6
%
A+, A, A-
 
1,300,659

 
1,344,515

 
29.6
%
BBB+, BBB, BBB-
 
964,197

 
990,817

 
21.8
%
BB+ or lower
 
165,225

 
166,186

 
3.7
%
Total
 
$
4,420,846

 
$
4,546,423

 
100.0
%
Ratings* as of December 31, 2015
 
Amortized cost
 
Fair value
 
% of Total
fair value
Fixed maturities
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,714

 
$
6,010

 
0.1
%
U.S. agency bonds
 
1,495,516

 
1,501,302

 
36.6
%
AAA
 
170,190

 
170,391

 
4.1
%
AA+, AA, AA-
 
222,506

 
223,084

 
5.4
%
A+, A, A-
 
1,075,550

 
1,066,794

 
26.0
%
BBB+, BBB, BBB-
 
1,077,064

 
1,039,228

 
25.3
%
BB+ or lower
 
124,167

 
100,254

 
2.5
%
Total
 
$
4,170,707

 
$
4,107,063

 
100.0
%
*Based on Standard & Poor’s ("S&P"), or equivalent, ratings












18
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


4. Investments (continued)

(b) Other Investments

The following table shows our portfolio of other investments:
 
 
September 30, 2016
 
December 31, 2015
 
 
Fair value
 
% of Total fair value
 
Fair value
 
% of Total fair value
Investment in quoted equity
 
$
5,560

 
45.3
%
 
$
4,905

 
41.5
%
Investments in limited partnerships
 
5,708

 
46.5
%
 
5,907

 
50.0
%
Other
 
1,000

 
8.2
%
 
1,000

 
8.5
%
Total other investments
 
$
12,268

 
100.0
%
 
$
11,812

 
100.0
%

The Company has an unfunded commitment on its investments in limited partnerships of approximately $525 at September 30, 2016.

(c) Realized Gains on Investment

Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. The following provides an analysis of net realized gains on investment included in the unaudited Condensed Consolidated Statements of Income:
For the Three Months Ended September 30, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
1,813

 
$
—

 
$
1,813

Other investments
 
87

 
—

 
87

Net realized gains on investment
 
$
1,900

 
$
—

 
$
1,900

For the Three Months Ended September 30, 2015
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
1,216

 
$
—

 
$
1,216

Net realized gains on investment
 
$
1,216

 
$
—

 
$
1,216

For the Nine Months Ended September 30, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
4,953

 
$
(891
)
 
$
4,062

Other investments
 
449

 
—

 
449

Net realized gains on investment
 
$
5,402

 
$
(891
)
 
$
4,511

For the Nine Months Ended September 30, 2015
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
2,264

 
$
—

 
$
2,264

Other investments
 
63

 
—

 
63

Net realized gains on investment
 
$
2,327

 
$
—

 
$
2,327


Proceeds from sales of AFS fixed maturities were $15,260 and $101,923 for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $29,595 and $116,093, respectively). Net unrealized gains were as follows:    
 
 
 
 
 
 
 
 
 
 
 
 
 
 








19
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)

4. Investments (continued)
 
 
September 30, 2016
 
December 31, 2015
Fixed maturities
 
$
100,196

 
$
(55,024
)
Other investments
 
1,408

 
996

Total net unrealized gain (loss)
 
101,604

 
(54,028
)
Deferred income tax expense
 
(114
)
 
(84
)
Net unrealized gains, net of deferred income tax
 
$
101,490

 
$
(54,112
)
Change in net unrealized gains, net of deferred income tax
 
$
155,602

 
 

(d) Restricted Cash and Cash Equivalents and Investments

We are required to maintain assets to serve as collateral for our reinsurance liabilities under various reinsurance agreements. We also utilize trust accounts to collateralize business with our reinsurance counterparties. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows:
 
 
September 30, 2016

December 31, 2015
Restricted cash and cash equivalents – third party agreements
 
$
112,038

 
$
102,837

Restricted cash and cash equivalents – related party agreements
 
254,433

 
139,944

Restricted cash and cash equivalents – U.S. state regulatory authorities
 
92

 
78

Total restricted cash and cash equivalents
 
366,563

 
242,859

Restricted investments AFS – in trust for third party agreements at fair value (amortized cost: 2016 – $1,233,629; 2015 – $1,081,202)
 
1,256,528

 
1,067,602

Restricted investments AFS – in trust for related party agreements at fair value (amortized cost: 2016 – $1,969,268; 2015 – $1,781,178)
 
2,011,761

 
1,754,705

Restricted investments HTM – in trust for related party agreements at fair value (amortized cost: 2016 – $759,973; 2015 – $607,843)
 
798,081

 
598,975

Restricted investments AFS – in trust for U.S. state regulatory authorities (amortized cost: 2016 – $4,055; 2015 – $4,071)
 
4,312

 
4,303

Total restricted investments
 
4,070,682

 
3,425,585

Total restricted cash and cash equivalents and investments
 
$
4,437,245

 
$
3,668,444


5. Fair Value of Financial Instruments

(a) Fair Values of Financial Instruments

FASB ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between open market participants at the measurement date. Additionally, ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

•
Level 1 — Valuations based on unadjusted quoted market prices for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples of assets and liabilities utilizing Level 1 inputs include: exchange-traded equity securities and U.S. treasury bonds;

•
Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data. Examples of assets and liabilities utilizing Level 2 inputs include: U.S. government-sponsored agency securities; non-U.S. government and supranational obligations; commercial mortgage-backed securities ("CMBS"); collateralized loan obligations ("CLO"); corporate and municipal bonds; and




20
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)

5. Fair Value of Financial Instruments (continued)

•
Level 3 — Valuations based on models where significant inputs are not observable. The unobservable inputs reflect our own assumptions about assumptions that market participants would use. Examples of assets and liabilities utilizing Level 3 inputs include: insurance and reinsurance derivative contracts; and hedge and credit funds with partial transparency.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. We use prices and inputs that are current at the measurement date. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in the Level 1 hierarchy. The Company receives the quoted market prices from a third party nationally recognized pricing service provider ("the Pricing Service"). When quoted market prices are unavailable, the Company utilizes the Pricing Service to determine an estimate of fair value. The fair value estimates are included in the Level 2 hierarchy. The Company will challenge any prices for its investments which are considered not to be representation of fair value. If quoted market prices and an estimate from the Pricing Service are unavailable, the Company produces an estimate of fair value based on dealer quotations for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. The Company determines whether the fair value estimate is in the Level 2 or Level 3 hierarchy depending on the level of observable inputs available when estimating the fair value. The Company bases its estimates of fair values for assets on the bid price as it represents what a third party market participant would be willing to pay in an orderly transaction.

ASC 825, “Disclosure About Fair Value of Financial Instruments", requires all entities to disclose the fair value of their financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value.

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held at September 30, 2016.

U.S. government and U.S. agencies — Bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage Association and the Federal National Mortgage Association. The fair values of U.S. treasury bonds are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. treasury bonds is an actively traded market given the high level of daily trading volume. The fair values of U.S. agency bonds are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.

Non-U.S. government and supranational bonds — These securities are generally priced by independent pricing services. The Pricing Service may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the Pricing Service typically uses analytical models which may incorporate spreads, interest rate data and market/sector news. As the significant inputs used to price non-U.S. government and supranational bonds are observable market inputs, the fair values of non-U.S. government and supranational bonds are included in the Level 2 fair value hierarchy.

Asset-backed securities — These securities comprise CMBS and CLO originated by a variety of financial institutions that on acquisition are rated BBB-/Baa3 or higher. These securities are priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price the CMBS and CLO are observable market inputs, the fair value of the CMBS and CLO is included in the Level 2 fair value hierarchy.

Corporate bonds — Bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher. These securities are generally priced by independent pricing services. The spreads are sourced from broker/dealers, trade prices and the new issue market. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.
 
Municipal bonds — Bonds issued by U.S. state and municipality entities or agencies. The fair values of municipal bonds are generally priced by independent pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, municipal bonds are classified within Level 2.




21
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)

5. Fair Value of Financial Instruments (continued)

Other investments — Includes both quoted and unquoted investments. The fair value of our quoted equity investment is obtained from the Pricing Service and is classified within Level 1. Unquoted other investments comprise investments in limited partnerships and an investment in preference shares of a start-up insurance producer. The fair values of the limited partnerships are determined by the fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals, and as such, the fair values are included in the Level 3 fair value hierarchy. The fair value of the investment in preference shares of a start-up insurance producer was determined using recent private market transactions and as such, the fair value is included in the Level 3 fair value hierarchy.

Reinsurance balances receivable — The carrying values reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair value due to short term nature of the assets.

Loan to related party — The carrying value reported in the accompanying condensed consolidated balance sheets for this financial instrument approximates its fair value.

Senior notes — The amount reported in the accompanying condensed consolidated balance sheets for these financial instruments represents the carrying value of the notes. The fair values are based on indicative market pricing obtained from a third-party service provider and as such, are included in the Level 2 hierarchy.

(b) Fair Value Hierarchy

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
September 30, 2016
 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,500

 
$
—

 
$
—

 
$
5,500

U.S. agency bonds – mortgage-backed
 
—

 
1,605,778

 
—

 
1,605,778

U.S. agency bonds – other
 
—

 
4,618

 
—

 
4,618

Non-U.S. government and supranational bonds
 
—

 
32,662

 
—

 
32,662

Asset-backed securities
 
—

 
212,791

 
—

 
212,791

Corporate bonds
 
—

 
1,819,253

 
—

 
1,819,253

Municipal bonds 
 
—

 
67,740

 
—

 
67,740

Other investments
 
5,560

 
—

 
6,708

 
12,268

Total
 
$
11,060

 
$
3,742,842

 
$
6,708

 
$
3,760,610

As a percentage of total assets
 
0.2
%
 
57.9
%
 
0.1
%
 
58.2
%
















22
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


5. Fair Value of Financial Instruments (continued)

December 31, 2015
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable
Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
AFS fixed maturities
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
6,010

 
$
—

 
$
—

 
$
6,010

U.S. agency bonds – mortgage-backed
 
—

 
1,476,991

 
—

 
1,476,991

U.S. agency bonds – other
 
—

 
24,311

 
—

 
24,311

Non-U.S. government and supranational bonds
 
—

 
30,544

 
—

 
30,544

Asset-backed securities
 
—

 
165,804

 
—

 
165,804

Corporate bonds
 
—

 
1,739,668

 
—

 
1,739,668

Municipal bonds
 
—

 
64,760

 
—

 
64,760

Other investments
 
4,905

 
—

 
6,907

 
11,812

Total
 
$
10,915

 
$
3,502,078

 
$
6,907

 
$
3,519,900

As a percentage of total assets
 
0.2
%
 
61.4
%
 
0.1
%
 
61.7
%

The Company utilized a Pricing Service to estimate fair value measurements for approximately 99.9% of its fixed maturities at September 30, 2016 and December 31, 2015, respectively. The Pricing Service utilizes market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury bonds generally do not trade on a daily basis, the Pricing Service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing and these have been classified as Level 2. At September 30, 2016 and December 31, 2015, 0.1% of the fixed maturities are valued using the market approach. At each date, a total of two securities, or approximately $5,451 and $4,943, respectively, of Level 2 fixed maturities, were priced using a quotation from a broker and/or custodian as opposed to the Pricing Service due to lack of information available. At September 30, 2016 and December 31, 2015, we have not adjusted any pricing provided to us based on the review performed by our investment managers. There have not been any transfers between Level 1 and Level 2 during the periods represented by these unaudited Condensed Consolidated Financial Statements.

(c) Level 3 Financial Instruments

The Company has determined that its investments in Level 3 securities are not material to its financial position or results of operations. The following table presents changes in Level 3 for our financial instruments measured at fair value on a recurring basis:
 
 
For the Three Months Ended
Other investments:
 
September 30, 2016

September 30, 2015
Balance at beginning of period
 
$
6,562

 
$
6,906

Total realized gains – included in net realized gains on investment
 
87

 
—

Change in total unrealized gains – included in other comprehensive income (loss)
 
29

 
161

Purchases
 
75

 
—

Redemptions
 
(45
)
 
(270
)
Balance at end of period
 
$
6,708

 
$
6,797











23
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)



5. Fair Value of Financial Instruments (continued)

 
 
For the Nine Months Ended
Other investments:
 
September 30, 2016
 
September 30, 2015
Balance at beginning of period
 
$
6,907

 
$
6,581

Total realized gains – included in net realized gains on investment
 
449

 
63

Change in total unrealized gains – included in other comprehensive income (loss)
 
(243
)
 
353

Purchases
 
167

 
144

Redemptions
 
(572
)
 
(344
)
Balance at end of period
 
$
6,708

 
$
6,797

 
 
 
 
 
(d) Financial Instruments not measured at Fair Value

The following table presents the fair value and carrying value of the financial instruments not measured at fair value:
 
 
September 30, 2016
 
December 31, 2015
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial Assets
 
 
 
 
 
 
 
 
HTM - corporate bonds
 
$
759,973

 
$
798,081

 
$
607,843

 
$
598,975

Total financial assets
 
$
759,973

 
$
798,081

 
$
607,843

 
$
598,975

Financial Liabilities
 
 
 
 
 
 
 
 
MHNA - 8.25%
 
$
—

 
$
—

 
$
107,500

 
$
110,424

MHNB - 8.00%
 
100,000

 
102,608

 
100,000

 
105,328

MHNC - 7.75%
 
152,500

 
164,395

 
152,500

 
165,456

MHLA - 6.625%
 
110,000

 
114,752

 
—

 
—

Total financial liabilities
 
$
362,500

 
$
381,755

 
$
360,000

 
$
381,208


6. Long-Term Debt

Senior Notes

Maiden Holdings and its wholly owned subsidiary, Maiden Holdings North America, Ltd. ("Maiden NA"), completed public debt offerings on four separate occasions, with the issuance of Senior Notes in 2011, 2012, 2013 and 2016, respectively, (the "Senior Notes"). Each of the issuances made by Maiden NA, namely the 2011, 2012 and 2013 Senior Notes, is fully and unconditionally guaranteed by the Company. The Senior Notes are an unsecured and unsubordinated obligation of the Company.

On June 14, 2016, Maiden Holdings issued $110,000 6.625% Senior Notes for cash.

On June 15, 2016, Maiden NA fully redeemed all of its 2011 Senior Notes using the proceeds from the 2016 Senior Notes issuance. The 2011 Senior Notes were redeemed at a redemption price equal to 100% of the principal amount of $107,500 plus accrued and unpaid interest on the principal amount being redeemed up to, but not including, the redemption date. As a result, the Company accelerated the amortization of the remaining debt issuance cost of $2,345.

The following table details the Company's outstanding Senior Notes issuances as of September 30, 2016:







24
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


6. Long-Term Debt (continued)
 
 
2012 Senior Notes
 
2013 Senior Notes
 
2016 Senior Notes
Principal
 
$
100,000

 
$
152,500

 
$
110,000

Debt Issuance Costs
 
3,406

 
5,054

 
3,715

Net Proceeds
 
$
96,594

 
$
147,446

 
$
106,285

 
 
 
 
 
 
 
Unamortized debt issuance costs
 
$
2,894

 
$
4,574

 
$
3,704

 
 
 
 
 
 
 
Other details:
 
 
 
 
 
 
Maturity date
 
March 27, 2042

 
December 1, 2043

 
June 14, 2046

Earliest redeemable date (for cash)
 
March 27, 2017

 
December 1, 2018

 
June 14, 2021

Coupon rate
 
8.00
%
 
7.75
%
 
6.625
%
Effective interest rate
 
8.31
%
 
8.04
%
 
7.07
%

7. Related Party Transactions

The Founding Shareholders of the Company are Michael Karfunkel, George Karfunkel and Barry Zyskind. Michael Karfunkel passed away on April 27, 2016. As of September 30, 2016, Leah Karfunkel (wife of Michael Karfunkel), George Karfunkel and Barry Zyskind own or control approximately 17.4% of the outstanding shares of the Company. Leah Karfunkel and George Karfunkel are directors of AmTrust, and Barry Zyskind is the president, CEO and chairman of AmTrust, and combined they own or control approximately 49.3% of the outstanding shares of AmTrust. AmTrust owns 11.6% of the issued and outstanding shares of National General Holdings Corporation ("NGHC") common stock, and the Michael Karfunkel 2005 Family Trust (which is controlled by Leah Karfunkel) owns 43.0% of the common stock of NGHC. Barry Zyskind is the non-executive chairman of NGHC.

AmTrust

The following describes transactions between the Company and AmTrust.

AmTrust Quota Share Reinsurance Agreement

Effective July 1, 2007, the Company and AmTrust entered into a master agreement, as amended (the "Master Agreement"), by which Maiden Bermuda, a wholly owned subsidiary of the Company, and AmTrust's Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd. ("AII"), to enter into a quota share reinsurance agreement (the "Reinsurance Agreement"). Under the Reinsurance Agreement, AII retrocedes to Maiden Bermuda an amount equal to 40% of the premium written by subsidiaries of AmTrust, net of the cost of unaffiliated inuring reinsurance (and in the case of AmTrust's U.K. insurance subsidiary, AmTrust Europe Limited ("AEL"), net of commissions) and 40% of losses. The Master Agreement further provided that AII receives a ceding commission of 31% of ceded written premiums.

On June 11, 2008, Maiden Bermuda and AII amended the Reinsurance Agreement to add Retail Commercial Package Business to the Covered Business. AII receives a ceding commission of 34.375% on Retail Commercial Package Business.

On July 1, 2016 the agreement was renewed through June 30, 2019. The agreement automatically renews for successive three-year periods thereafter unless AII or Maiden Bermuda elects to so terminate the Reinsurance Agreement by giving written notice to the other party not less than nine months prior to the expiration of any successive three-year period. Either party is entitled to terminate on thirty days' notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden Bermuda, run-off, or a reduction of 50% or more of the shareholders' equity of Maiden Bermuda or the combined shareholders' equity of AII and the AmTrust subsidiaries.

In 2015, Maiden Bermuda and AII entered into an agreement to commute certain liabilities as of December 31, 2015. The commuted reserve value of $107,000, represents full and final settlement of all liabilities related to this business and as a result of this agreement, this business is no longer being ceded to Maiden.

Additionally, for the Specialty Program portion of Covered Business only, AII will be responsible for ultimate net loss otherwise recoverable from Maiden Bermuda to the extent that the loss ratio to Maiden Bermuda, which shall be determined on an inception to date basis from July 1, 2007 through the date of calculation, is between 81.5% and 95%. Above and below the defined corridor, Maiden Bermuda will continue to reinsure losses at its proportional 40% share per the Reinsurance Agreement.





25
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


7. Related Party Transactions (continued)

AmTrust European Hospital Liability Quota Share Agreement ("European Hospital Liability Quota Share")

Effective April 1, 2011, Maiden Bermuda, entered into a quota share reinsurance contract with AEL and AmTrust International Underwriters Limited ("AIUL"), both wholly owned subsidiaries of AmTrust. Pursuant to the terms of the contract, Maiden Bermuda assumed 40% of the premiums and losses related to policies classified as European Hospital Liability, including associated liability coverages and policies covering physician defense costs, written or renewed on or after April 1, 2011. The contract also covers policies written or renewed on or before March 31, 2011, but only with respect to losses that occur, accrue or arise on or after April 1, 2011. The maximum limit of liability attaching shall be €5,000 (€10,000 effective January 1, 2012) or currency equivalent (on a 100% basis) per original claim for any one original policy. Maiden Bermuda will pay a ceding commission of 5%. The agreement has been renewed through March 31, 2017 and can be terminated at any April 1 by either party on four months notice.

Effective July 1, 2016, the contract was amended such that Maiden Bermuda assumes from AEL 32.5% of the premiums and losses of all policies written or renewed on or after July 1, 2016 until June 30, 2017 and 20% of all policies written or renewed on or after July 1, 2017.

The Company recorded approximately $163,336 and $447,767 of ceding commission expense for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $141,348 and $389,501, respectively) as a result of both these quota share arrangements with AmTrust.

Other Reinsurance Agreements

Effective September 1, 2010, the Company, through a subsidiary, entered into a quota share reinsurance agreement with Technology Insurance Company, Inc. ("Technology"), a subsidiary of AmTrust. Under the agreement, we ceded (a) 90% of its gross liability written under the Open Lending Program ("OPL") and (b) 100% of its surplus lines general liability business under the Naxos Avondale Specialty Casualty Program ("NAXS"). Our involvement is limited to certain states where Technology was not fully licensed. The agreement also provides that we receive a ceding commission of 5% of ceded written premiums.

The OPL program was terminated on December 31, 2011, on a run-off basis, and the NAXS program was terminated on October 31, 2012. We recorded $0 and $12 of ceded premiums and $0 and $1 ceding commission income for the three and nine months ended September 30, 2016, (September 30, 2015 - $14 and $59 of premiums ceded and $0 and $3 of ceding commission income, respectively).

Effective April 1, 2012, the Company, through a subsidiary, entered into a reinsurance agreement with AmTrust's wholly owned subsidiary, AmTrust North America, Inc. ("AmTrust NA"). We indemnify AmTrust NA, on an excess of loss basis, as a result of losses occurring on AmTrust NA's new and renewal policies relating to the lines of business classified as Automobile Liability by AmTrust NA in its annual statement utilizing the specific underwriting guidelines defined in the reinsurance agreement. AmTrust NA shall retain the first $1,000 of loss, per any one policy or per any one loss occurrence. This agreement has a term of one year and automatically renews annually unless terminated pursuant to the terms of the agreement. Under this agreement, for the three and nine months ended September 30, 2016, the Company recorded approximately $305 and $745 net premiums earned and $87 and $187 of commission expense, respectively, (September 30, 2015 - $154 and $483 net premiums earned and $35 and $117 commission expense, respectively).

Collateral provided to AmTrust

a) AmTrust Quota Share Reinsurance Agreement

In order to provide AmTrust's U.S. insurance subsidiaries with credit for reinsurance on their statutory financial statements, AII, as the direct reinsurer of the AmTrust's insurance subsidiaries, has established trust accounts ("Trust Accounts") for their benefit. Maiden Bermuda has agreed to provide appropriate collateral to secure its proportional share under the Reinsurance Agreement of AII's obligations to the AmTrust subsidiaries to whom AII is required to provide collateral. This collateral may be in the form of (a) assets loaned by Maiden Bermuda to AII for deposit into the Trust Accounts, pursuant to a loan agreement between those parties, (b) assets transferred by Maiden Bermuda for deposit into the Trust Accounts, (c) a letter of credit obtained by Maiden Bermuda and delivered to an AmTrust subsidiary on AII's behalf, or (d) premiums withheld by an AmTrust subsidiary at Maiden Bermuda's request in lieu of remitting such premiums to AII. Maiden Bermuda may provide any or a combination of these forms of collateral, provided that the aggregate value thereof equals Maiden Bermuda's proportionate share of its obligations under the Reinsurance Agreement with AII.








26
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


7. Related Party Transactions (continued)

Maiden Bermuda satisfied its collateral requirements under the Reinsurance Agreement with AII as follows:

•by lending funds in the amount of $167,975 at September 30, 2016 and December 31, 2015 pursuant to a loan agreement entered into between those parties. This loan was assigned to AmTrust effective December 31, 2014 and is carried at cost. Interest is payable at a rate equivalent to the one-month LIBOR plus 90 basis points per annum; and

•effective December 1, 2008, the Company entered into a Reinsurer Trust Assets Collateral agreement to provide to AII sufficient collateral to secure its proportional share of AII's obligations to the U.S. AmTrust subsidiaries. The amount of the collateral, at September 30, 2016, was approximately $2,805,607 (December 31, 2015 - $2,256,383) and the accrued interest was $18,400 (December 31, 2015 - $15,448). Please refer to "Note 4. (d) Investments" for additional information.

b) European Hospital Liability Quota Share

AEL requested that Maiden Bermuda provide collateral to secure its proportional share under the European Hospital Liability Quota Share agreement. Please refer to "Note 4. (d) Investments" for additional information.

Brokerage Agreement

Effective July 1, 2007, the Company entered into a reinsurance brokerage agreement with AII Reinsurance Broker Ltd. ("AIIB"), a wholly owned subsidiary of AmTrust. Pursuant to the brokerage agreement, AIIB provides brokerage services relating to the Reinsurance Agreement and, the European Hospital Liability Quota Share agreement for a fee equal to 1.25% of the premium assumed. The brokerage fee is payable in consideration of AIIB's brokerage services. AIIB is not the Company's exclusive broker. The agreement may be terminated upon 30 days written notice by either party. Maiden Bermuda recorded approximately $6,652 and $18,330 of reinsurance brokerage expense for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $5,854 and $16,161, respectively) and deferred reinsurance brokerage of $15,051 at September 30, 2016 (December 31, 2015 - $13,464) as a result of this agreement.

Asset Management Agreement

Effective July 1, 2007, the Company entered into an asset management agreement with AII Insurance Management Limited ("AIIM"), a wholly owned subsidiary of AmTrust, pursuant to which AIIM has agreed to provide investment management services to the Company. AIIM provides investment management services for a quarterly fee of 0.0375% if the average value of the account for the previous calendar quarter is greater than $1 billion. The agreement may be terminated upon 30 days written notice by either party. The Company recorded approximately $1,780 and $5,122 of investment management fees for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $1,518 and $4,455, respectively) as a result of this agreement.

Other

The Company entered into time sharing agreements for the lease of aircraft owned by AmTrust Underwriters, Inc. ("AUI"), a wholly owned subsidiary of AmTrust, and by AmTrust on March 1, 2011 and November 5, 2014, respectively.

The agreements automatically renew for successive one-year terms unless terminated in accordance with the provisions of the agreements. Pursuant to the agreements, the Company will reimburse AUI and AmTrust for actual expenses incurred as allowed by Federal Aviation Regulations. For the three and nine months ended September 30, 2016, the Company recorded an expense of $22 and $61, respectively (September 30, 2015 - $20 and $70, respectively) for the use of the aircraft.

NGHC

The following describes transactions between the Company and NGHC and its subsidiaries:

NGHC Quota Share Reinsurance Agreement ("NGHC Quota Share")

Maiden Bermuda, effective March 1, 2010, had a 50% participation in the NGHC Quota Share, by which it received 25% of net premiums of the personal lines automobile business and assumed 25% of the related net losses. On August 1, 2013, the Company and NGHC mutually agreed the termination of the NGHC Quota Share on a run-off basis effective on that date. Consequently, Maiden Bermuda recorded no ceding commission expense for the three and nine months ended September 30, 2016 and 2015, respectively, as a result of this transaction.

Other

Effective April 1, 2015, Maiden US renewed the Medical Excess of Loss reinsurance agreement with wholly owned subsidiaries of NGHC, Distributors Insurance Company PCC, AIBD Insurance Company IC and Professional Services Captive Corporation IC. Pursuant to this agreement, Maiden US indemnified on an excess of loss basis, for the amounts of net loss, paid from April 1,



27
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


7. Related Party Transactions (continued)


2015 through March 31, 2016. Maiden US was liable for 100% of the net loss for each covered person per agreement year in excess of the $1,175 retention (each covered person per agreement year). Maiden US' liability did not exceed $8,825 per covered person per agreement year. In addition, Maiden US continued to indemnify extra contractual obligations with a maximum liability of $2,000. This agreement terminated on March 31, 2016 and Maiden US was relieved of all liability hereunder for losses incurred or paid subsequent to such termination date. Under these agreements, Maiden US recorded approximately $0 and $157 of premiums earned for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $218 and $328, respectively).

Effective May 1, 2015, Maiden US entered into an agreement with several NGHC subsidiaries for medical excess of loss programs. This program covers employer aggregate and traditional specific medical stop loss policies underwritten by the Managing General Agent that they support. The NGHC companies covered under the treaty are Integon Indemnity Insurance Company, Integon National Insurance Company and National Health Insurance Company. This agreement was renewed for another year and now terminates on April 30, 2017 with either party having the right to cancel by giving 60 days notice to the other party in the event that other party fails to maintain certain financial and other criteria. Upon expiration of this agreement, coverage remains in full force and effect on all assumed liability for policies in force on the date of expiration until expiration, cancellation or next anniversary date of such subject policies.

The treaty limit of the aggregate medical stop loss is subject to a limit of $4,000 in excess of $1,000 any one insured person. The treaty limit on the traditional specific medical stop loss Layer 1 is subject to a limit of $1,000 in excess of $1,000 any one insured person; Layer 2 is subject to a limit of $3,000 in excess of $2,000 any one insured person and Layer 3 is subject to a limit of $5,000 in excess of $5,000. In addition to these limits, the Company shall cover extra contractual obligations arising under this agreement with a maximum liability of $2,000.

Under these agreements, Maiden US recorded approximately $136 and $295 of premiums earned for the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $19 and $22, respectively).

8. Earnings per Common Share

The following is a summary of the elements used in calculating basic and diluted earnings per common share:    
For the Three Months Ended September 30,
 
2016

2015
Numerator:
 
 
 
 
Net income attributable to Maiden shareholders
 
$
40,852

 
$
28,584

Dividends on preference shares - Series A
 
(3,094
)
 
(3,094
)
Dividends on convertible preference shares - Series B
 
(2,991
)
 
(2,991
)
Dividends on preference shares - Series C
 
(2,938
)
 
—

 Amount allocated to participating common shareholders(1)
 
(19
)
 
(17
)
Numerator for basic EPS - net income allocated to Maiden common shareholders
 
$
31,810

 
$
22,482

Potentially dilutive securities
 
 
 
 
Dividends on convertible preference shares - Series B
 
2,991

 
2,991

Numerator for diluted EPS - net income allocated to Maiden common shareholders after assumed conversion
 
$
34,801

 
$
25,473

Denominator:
 
 
 
 
Weighted average number of common shares outstanding – basic
 
75,993,451

 
73,638,980

Potentially dilutive securities:
 
 
 
 
Share options and restricted share units
 
1,100,206

 
1,294,767

Convertible preference shares(2)
 
9,057,294

 
10,809,258

Adjusted weighted average number of common shares and assumed conversions – diluted
 
86,150,951

 
85,743,005

Basic earnings per share attributable to Maiden common shareholders:
 
$
0.42

 
$
0.31

Diluted earnings per share attributable to Maiden common shareholders:
 
$
0.40

 
$
0.30

    








28
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


8. Earnings per Common Share (continued)

For the Nine Months Ended September 30,
 
2016
 
2015
Numerator:
 
 
 
 
Net income attributable to Maiden shareholders
 
$
117,678

 
$
93,676

Dividends on preference shares - Series A
 
(9,282
)
 
(9,282
)
Dividends on convertible preference shares - Series B
 
(8,971
)
 
(8,971
)
Dividends on preference shares - Series C
 
(9,470
)
 
—

 Amount allocated to participating common shareholders(1)
 
(55
)
 
(59
)
Numerator for basic EPS - net income allocated to Maiden common shareholders
 
$
89,900

 
$
75,364

Potentially dilutive securities
 
 
 
 
Dividends on convertible preference shares- Series B
 
8,971

 
8,971

Numerator for diluted EPS - net income allocated to Maiden common shareholders after assumed conversion
 
$
98,871

 
$
84,335

Denominator:
 
 
 
 
Weighted average number of common shares outstanding – basic
 
74,625,839

 
73,403,998

Potentially dilutive securities:
 
 
 
 
Share options and restricted share units
 
1,085,740

 
1,272,746

Convertible preference shares(2)
 
10,306,440

 
10,809,258

Adjusted weighted average number of common shares and assumed conversions – diluted
 
86,018,019

 
85,486,002

Basic earnings per share attributable to Maiden common shareholders:
 
$
1.20

 
$
1.03

Diluted earnings per share attributable to Maiden common shareholders:
 
$
1.15

 
$
0.99

 
 
 
 
 
(1) This represents earnings allocated to the holders of non-vested restricted shares issued to the Company's employees under the 2007 Share Incentive Plan.
(2) Please refer to "Notes to Consolidated Financial Statements" included under Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015 for the terms and conditions of each of these anti-dilutive instruments. The mandatory convertible preference shares - series B were included in the calculation of diluted earnings per share only for the period that they were outstanding. On September 15, 2016, the Company's $165,000 mandatory convertible preference shares - Series B were automatically converted into 12,069,090 of the Company's common shares at a conversion rate of 3.6573 per preference share.

9. Shareholders' Equity

At September 30, 2016, the aggregate authorized share capital of the Company is 150,000,000 shares from which the Company has issued 87,178,902 common shares, of which 86,128,999 are outstanding, and issued 12,600,000 preference shares. The remaining 50,221,098 are undesignated at September 30, 2016. For further discussion on the components of Shareholders' Equity, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Mandatory Convertible Preference Shares - Series B

On September 15, 2016, each of the then outstanding Preference Share - Series B were automatically converted into 12,069,090 of the Company's common shares at a conversion rate of 3.6573 per preference share.

Treasury Shares

On January 1, 2016, February 15, 2016, February 17, 2016 and March 10, 2016, the Company repurchased 3,351 shares at a price per share of $14.91, 10,255 shares at a price per share of $13.16, 1,183 shares at a price per share of $13.36 and 20,469 shares
at a price per share of $13.16, respectively, from employees, which represent withholdings in respect of tax obligations on the vesting of restricted shares and performance based shares.












29
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


9. Shareholders' Equity (continued)

Accumulated Other Comprehensive Income

The following tables set forth financial information regarding the changes in the balances of each component of AOCI:
For the Three Months Ended September 30, 2016
 
Change in net unrealized gains on investments
 
Foreign currency translation adjustments
 
Total
Beginning balance
 
$
93,793

 
$
25,034

 
$
118,827

Other comprehensive income before reclassifications
 
8,899

 
(2,730
)
 
6,169

Amounts reclassified from AOCI to net income, net of tax
 
(1,202
)
 
—

 
(1,202
)
Net current period other comprehensive income
 
7,697

 
(2,730
)
 
4,967

Ending balance
 
101,490

 
22,304

 
123,794

Less: AOCI attributable to noncontrolling interest
 
—

 
(82
)
 
(82
)
Ending balance, Maiden shareholders
 
$
101,490

 
$
22,386

 
$
123,876

For the Three Months Ended September 30, 2015
 
Change in net unrealized gains on investments
 
Foreign currency translation adjustments
 
Total
Beginning balance
 
$
15,115

 
$
25,722

 
$
40,837

Other comprehensive loss before reclassifications
 
(17,173
)
 
(741
)
 
(17,914
)
Amounts reclassified from AOCI to net income, net of tax
 
(11
)
 
—

 
(11
)
Net current period other comprehensive loss
 
(17,184
)
 
(741
)
 
(17,925
)
Ending balance
 
(2,069
)
 
24,981

 
22,912

Less: AOCI attributable to noncontrolling interest
 
—

 
(95
)
 
(95
)
Ending balance, Maiden shareholders
 
$
(2,069
)
 
$
25,076

 
$
23,007

For the Nine Months Ended September 30, 2016
 
Change in net unrealized gains on investments
 
Foreign currency translation adjustments
 
Total
Beginning balance
 
$
(54,112
)
 
$
30,231

 
$
(23,881
)
Other comprehensive income before reclassifications
 
155,024

 
(7,927
)
 
147,097

Amounts reclassified from AOCI to net income, net of tax
 
578

 
—

 
578

Net current period other comprehensive income
 
155,602

 
(7,927
)
 
147,675

Ending balance
 
101,490

 
22,304

 
123,794

Less: AOCI attributable to noncontrolling interest
 
—

 
(82
)
 
(82
)
Ending balance, Maiden shareholders
 
$
101,490

 
$
22,386

 
$
123,876


For the Nine Months Ended September 30, 2015
 
Change in net unrealized gains on investments
 
Foreign currency translation adjustments
 
Total
Beginning balance
 
$
78,579

 
$
16,665

 
$
95,244

Other comprehensive loss before reclassifications
 
(80,643
)
 
8,316

 
(72,327
)
Amounts reclassified from AOCI to net income, net of tax
 
(5
)
 
—

 
(5
)
Net current period other comprehensive loss
 
(80,648
)
 
8,316

 
(72,332
)
Ending balance
 
(2,069
)
 
24,981

 
22,912

Less: AOCI attributable to noncontrolling interest
 
—

 
(95
)
 
(95
)
Ending balance, Maiden shareholders
 
$
(2,069
)
 
$
25,076

 
$
23,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

30
MAIDEN HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands of U.S. dollars, except share and per share data)


10. Commitments and Contingencies

There are no material changes from the commitments and contingencies previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Dividends Declared

On August 3, 2016, the Company's Board of Directors authorized the following quarterly dividend:
 
 
Dividend per Share
 
Payable on:
 
Record date:
Common shares
 
$
0.14

 
October 19, 2016
 
October 5, 2016

Legal Proceedings

From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Based on the Company's opinion, the eventual outcome of these legal proceedings is not expected to have a material adverse effect on its financial condition or results of operations.

In April 2009, the Company learned that Bentzion S. Turin, the former Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Bermuda, sent a letter to the U.S. Department of Labor claiming that his employment with the Company was terminated in retaliation for corporate whistle blowing in violation of the whistle blower protection provisions of the Sarbanes-Oxley Act of 2002. Mr. Turin alleged concerns regarding corporate governance with respect to negotiation of the terms of the Trust Preferred Securities Offering and seeks reinstatement as Chief Operating Officer, General Counsel and Secretary of Maiden Holdings and Maiden Bermuda, back pay and legal fees incurred. On December 31, 2009, the U.S. Secretary of Labor found no reasonable cause for Mr. Turin’s claim and dismissed the complaint in its entirety. Mr. Turin objected to the Secretary's
findings and requested a hearing before an administrative law judge in the U.S. Department of Labor. The Company moved to dismiss Mr. Turin's complaint, and its motion was granted by the Administrative Law Judge on June 30, 2011.

On July 13, 2011, Mr. Turin filed a petition for review of the Administrative Law Judge's decision with the Administrative Review Board in the U.S. Department of Labor. The Company filed its brief in opposition to the petition for review on October 19, 2011. On March 29, 2013, the Administrative Review Board reversed the dismissal of the complaint on procedural grounds, and remanded the case to the administrative law judge. The administrative hearing began in September 2014, and we expect it to conclude in 2017. The Company believes that it had ample reason for terminating such employment for good and sufficient legal cause, and the Company believes that the claim is without merit and is vigorously defending this claim.

11. Subsequent Events

On November 1, 2016, the Company's Board of Directors authorized the following quarterly dividends:
 

Dividend per Share

Payable on:

Record date:
Common shares

$
0.15


January 17, 2017

January 3, 2017
Preference shares - Series A

$
0.515625


December 15, 2016

December 1, 2016
Preference shares - Series C
 
$
0.445313

 
December 15, 2016
 
December 1, 2016


31



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Form 10-Q" or this "Report"). References in this Form 10-Q to the terms "we", "us", "our", "the Company" or other similar terms mean the consolidated operations of Maiden Holdings, Ltd. and its subsidiaries, unless the context requires otherwise. References in this Form 10-Q to the term "Maiden Holdings" means Maiden Holdings, Ltd. only. Amounts in tables may not reconcile due to rounding differences. Certain reclassifications have been made for 2015 to conform to the 2016 presentation and have no impact on net income and total equity previously reported.
 
Note on Forward-Looking Statements
 
This Quarterly Report on Form 10-Q includes projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. These projections and statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These projections and statements may address, among other things, our strategy for growth, product development, financial results and reserves. Our actual results and financial condition may differ, possibly materially, from these projections and statements and therefore you should not place undue reliance on them. Factors that could cause our actual results and financial condition to differ, possibly materially, from those in the specific projections and statements are discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations and in "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 1, 2016. The projections and statements in this Report speak only as of the date of this Report and we undertake 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.

Overview
 
We are a Bermuda-based holding company formed in June 2007 primarily focused on serving the needs of regional and specialty insurers in the U.S. and Europe by providing innovative reinsurance and capital solutions designed to support their capital needs. We specialize in reinsurance solutions that optimize financing by providing coverage within the more predictable and actuarially credible lower layers of coverage and/or reinsuring risks that are believed to be lower hazard, more predictable and generally not susceptible to significant claims from natural catastrophes. Our tailored solutions include a variety of value added services focused on helping our clients grow and prosper.

We have operations in Bermuda and the United States which provide reinsurance through our wholly owned subsidiaries, Maiden Reinsurance Ltd. ("Maiden Bermuda") and Maiden Reinsurance North America, Inc. ("Maiden US"). Maiden Life Försäkrings AB ("Maiden LF") is a life insurer organized in Sweden and writes credit life insurance on a primary basis in support of Maiden Global Holdings, Ltd.'s ("Maiden Global") business development efforts.

Our business consists of two reportable segments: Diversified Reinsurance and AmTrust Reinsurance.

The market conditions in which we operate have historically been cyclical, experiencing periods of price erosion followed by rate strengthening as a result of catastrophes or other significant losses that affect the overall capacity of the industry to provide coverage. The global reinsurance market continues to experience significant competition in most lines of business. Abundant new capital investment from sources not considered traditional investors in the reinsurance industry, primarily in the property catastrophe segment of the reinsurance market, continues to impact overall industry competitive conditions. Developments that could lead to a change in those competitive conditions have either not occurred or have been slow to emerge and the present outlook is for a continuation of the current levels of competition being experienced.

While the business we write as part of our business model remains somewhat more insulated from these competitive conditions, we continue to experience residual pricing pressures as a result of these broader industry conditions. As market conditions evolve, we continue to maintain our adherence to disciplined underwriting by declining business when pricing, terms and conditions do not meet our underwriting and pricing standards. We believe that we are well positioned to take advantage of market conditions should the pricing environment become more favorable.

Since our founding in 2007, we have entered into a series of significant strategic and capital transactions that have transformed the scope and scale of our business while maintaining our low volatility, non-catastrophe risk profile. These transactions have supported the growth in our gross premiums written to in excess of $2.6 billion in 2015 while significantly enhancing our total capital resources. Total capital resources are approximately $1.9 billion at September 30, 2016.

Most recently, on September 15, 2016, the Company's $165.0 million mandatory convertible preference shares - Series B were automatically converted into 12,069,090 of the Company's common shares at a conversion rate of 3.6573 per preference share.

On June 14, 2016, Maiden Holdings issued $110.0 million 6.625% Senior Notes and used the cash proceeds to fully redeem all of Maiden Holdings North America, Ltd.'s ("Maiden NA") 8.25% 2011 Senior Notes due 2041 on June 15, 2016, thus lowering our cost of capital.


32

Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for further information.

Three and nine months ended September 30, 2016 and 2015 Financial Highlights
For the Three Months Ended September 30,
 
2016

2015

% Change
 
 
($ in Millions except per share data)
 
 
Summary Consolidated Statement of Income Data:
 
 
 
 
 
 
Net Income
 
$
40.7


$
28.5

 
43.1
 %
Net income attributable to Maiden common shareholders
 
31.8

 
22.5

 
41.5
 %
Net operating earnings attributable to Maiden common shareholders(1)
 
30.2

 
25.8

 
17.2
 %
Diluted earnings per common share:
 
 
 
 
 
 
Net income attributable to Maiden common shareholders(2)
 
$
0.40

 
$
0.30

 
33.3
 %
Net operating earnings attributable to Maiden common shareholders(1)
 
$
0.39

 
$
0.34

 
14.7
 %
Dividends per common share
 
$
0.14

 
$
0.13

 
7.7
 %
Gross premiums written
 
$
706.9

 
$
628.5

 
12.5
 %
Net premiums earned
 
698.3

 
658.5

 
6.0
 %
Underwriting income (3)
 
17.3

 
10.0

 
73.5
 %
Net investment income
 
35.7

 
32.8

 
8.6
 %
Combined ratio(4)
 
98.5
%
 
99.6
%
 
(1.1
)%
Annualized operating return on average common shareholders' equity(1)
 
11.0
%
 
11.3
%
 
(2.7
)%
For the Nine Months Ended September 30,
 
2016
 
2015
 
% Change
 
 
($ in Millions except per share data)
 
 
Summary Consolidated Statement of Income Data:
 
 
 
 
 
 
Net Income
 
$
117.5

 
$
93.5

 
25.6
 %
Net income attributable to Maiden common shareholders
 
90.0

 
75.4

 
19.3
 %
Net operating earnings attributable to Maiden common shareholders(1)
 
87.0

 
80.8

 
7.7
 %
Diluted earnings per common share:
 
 
 
 
 
 
Net income attributable to Maiden common shareholders(2)
 
$
1.15

 
$
0.99

 
16.2
 %
Net operating earnings attributable to Maiden common shareholders(1)
 
$
1.11

 
$
1.05

 
5.7
 %
Dividends per common share
 
$
0.42

 
$
0.39

 
7.7
 %
Gross premiums written
 
$
2,259.3

 
$
2,136.9

 
5.7
 %
Net premiums earned
 
1,951.8

 
1,845.2

 
5.8
 %
Underwriting income (3)
 
46.6

 
38.3

 
21.8
 %
Net investment income
 
107.3

 
96.2

 
11.5
 %
Combined ratio(4)
 
98.7
%
 
99.1
%
 
(0.4
)%
Annualized operating return on average common shareholders' equity(1)
 
11.8
%
 
11.8
%
 
—
 %
 
 
 
 
 
 
 

33

 
 
September 30, 2016
 
December 31, 2015
 
% Change
 
 
($ in Millions except per share data)
 
 
Summary Consolidated Balance Sheet Data:
 
 
 
 
 
 
Total investments and cash and cash equivalents(5)
 
$
4,954.6

 
$
4,460.2

 
11.1
 %
Total assets
 
6,468.0

 
5,703.6

 
13.4
 %
Reserve for loss and LAE
 
2,759.5

 
2,510.1

 
9.9
 %
Senior notes, net
 
351.3

 
349.9

 
0.4
 %
Maiden common shareholders' equity
 
1,240.3

 
867.8

 
42.9
 %
Maiden shareholders' equity
 
1,555.3

 
1,347.8

 
15.4
 %
Total capital resources(6)
 
1,917.8

 
1,707.8

 
12.3
 %
Ratio of debt to total capital resources
 
18.9
%
 
21.1
%
 
(10.4
)%
 
 
 
 
 
 
 
Book Value:
 
 
 
 
 
 
Book value per common share(7)
 
$
14.40

 
$
11.77

 
22.3
 %
Accumulated dividends per common share
 
3.17

 
2.75

 
15.3
 %
Book value per common share plus accumulated dividends
 
$
17.57

 
$
14.52

 
21.0
 %
Change in book value per common share plus accumulated dividends
 
$
3.05

 
 
 


 
 
 
 
 
 
 
Diluted book value per common share(8)
 
$
14.20

 
$
11.61

 
22.3
 %

(1)
Operating earnings, operating earnings per common share and annualized operating return on average common shareholders' equity are non-GAAP financial measures. See "Key Financial Measures" for additional information and a reconciliation to the nearest GAAP financial measure (net income).

(2)
Please refer to "Note 8. Earnings per Common Share" of the Notes to Condensed Consolidated Financial Statements for the calculation of basic and diluted earnings per common share.

(3)
Underwriting income is calculated as net premiums earned plus other insurance revenue less net loss and LAE, commission and other acquisition expenses and general and administrative expenses directly related to underwriting activities.

(4)
Calculated by adding together the net loss and LAE ratio, commission and other acquisition expense ratio and general and administrative expense ratio.

(5)
Total investments and cash and cash equivalents includes both restricted and unrestricted.

(6)
Total capital resources is the sum of the Company's principal amount of debt and Maiden shareholders' equity. See "Key Financial Measures" for additional information.

(7)
Book value per common share is calculated using common shareholders’ equity (shareholders' equity excluding the aggregate liquidation value of our preference shares) divided by the number of common shares outstanding.

(8)
Diluted book value per common share is calculated by dividing common shareholders' equity, adjusted for assumed proceeds from the exercise of dilutive options, by the number of outstanding common shares plus dilutive options and restricted share units (assuming exercise of all dilutive stock based awards). The Mandatory Convertible Preference Shares - Series B are excluded at December 31, 2015, as they are anti-dilutive.

Key Financial Measures

In addition to the Consolidated Balance Sheets and Consolidated Statements of Income and Comprehensive Income, management uses certain key financial measures, some of which are non-GAAP measures, to evaluate its financial performance and the overall growth in value generated for the Company’s common shareholders. Management believes that these measures, which may be defined differently by other companies, better explain the Company’s results in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. The non-GAAP measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. These key financial measures are:

Operating Earnings and Operating Earnings per Common Share: Management believes that the use of operating earnings and diluted operating earnings per share enables investors and other users of the Company’s financial information to analyze its performance in a manner similar to how management analyzes performance. Management also believes that these measures follow industry practice and, therefore, allow the users of financial information to compare the Company’s performance with its industry peer group, and that the equity analysts and certain rating agencies which follow the Company, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. Operating earnings should not be viewed as a substitute for U.S. GAAP net income.


34

Operating earnings are a performance measure used by management to focus on the underlying fundamentals of the Company's operations by excluding, on a recurring basis: (1) net realized gains or losses on investment; (2) foreign exchange and other gains or losses; (3) amortization of intangible assets and non-cash deferred tax expenses; and (4) loss and related activity from our run-off operations comprised of our former segment NGHC Quota Share and our divested U.S. E&S business. We exclude net realized gains or losses on investment and foreign exchange and other gains or losses as we believe these are influenced by market opportunities and other factors. We do not believe amortization of intangible assets and loss and related activity from our run-off operations are representative of our ongoing business. We believe all of these amounts are largely independent of our business and underwriting process and including them distorts the analysis of trends in our operations.

We also excluded certain non-recurring expenditures that are material to understanding our results of operations. For the nine months ended September 30, 2016, we exclude the accelerated amortization of senior note issuance cost. For the three and nine months ended September 30, 2015, we also excluded net impairment losses on investment recognized in earnings.

Operating earnings and diluted operating earnings per common share can be reconciled to the nearest U.S. GAAP financial measure as follows:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 

2016

2015
 
2016
 
2015
 
 
($ in Millions except per share data)
Net income attributable to Maiden common shareholders
 
$
31.8

 
$
22.5

 
$
90.0

 
$
75.4

Add (subtract):
 
 
 
 
 
 
 
 
Net realized gains on investment
 
(1.9
)
 
(1.2
)
 
(4.5
)
 
(2.3
)
Net impairment losses recognized in earnings
 
—

 
1.1

 
—

 
1.1

Foreign exchange and other gains
 
(0.7
)
 
(1.5
)
 
(6.4
)
 
(4.1
)
Amortization of intangible assets and non-cash deferred tax expense
 
0.9

 
1.0

 
2.7

 
3.0

Divested E&S business and NGHC run-off
 
0.1

 
3.9

 
2.9

 
7.7

Accelerated amortization of senior note issuance costs
 
—

 
—

 
2.3

 
—

Net operating earnings attributable to Maiden common shareholders
 
$
30.2


$
25.8

 
$
87.0

 
$
80.8

 
 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Maiden shareholders
 
$
0.40

 
$
0.30

 
$
1.15

 
$
0.99

Add (subtract):
 
 
 
 
 
 
 
 
Net realized gains on investment
 
(0.02
)
 
(0.01
)
 
(0.05
)
 
(0.03
)
Net impairment losses recognized in earnings
 
—

 
0.01

 
—

 
0.01

Foreign exchange and other gains
 
(0.01
)
 
(0.02
)
 
(0.08
)
 
(0.05
)
Amortization of intangible assets and non-cash deferred tax expense
 
0.02

 
0.02

 
0.03

 
0.04

Divested E&S business and NGHC run-off
 
—

 
0.04

 
0.03

 
0.09

Accelerated amortization of senior note issuance cost
 
—

 
—

 
0.03

 
—

Diluted operating earnings per common share attributable to Maiden shareholders
 
$
0.39

 
$
0.34

 
$
1.11

 
$
1.05

    
Operating Return on Average Common Equity ("Operating ROACE"): Management uses Operating ROACE as a measure of profitability that focuses on the return attributable to Maiden common shareholders. It is calculated using operating earnings attributable to common shareholders (as calculated above) divided by average Maiden common shareholders' equity. Management has set a long-term target of Operating ROACE at 15%, on average, which management believes provides an attractive return to our common shareholders for the risk they are assuming from investing in our business.

Operating ROACE for the three and nine months ended September 30, 2016 and 2015 was computed as follows:
 
 
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
 
 
2016

2015
2016
 
2015
 
 
($ in Millions)
Net operating earnings attributable to Maiden common shareholders
 
$
30.2

 
$
25.8

$
87.0

 
$
80.8

Opening common shareholders’ equity
 
1,049.7

 
908.7

867.8

 
925.7

Ending common shareholders’ equity
 
1,240.3

 
905.1

1,240.3

 
905.1

Average common shareholders’ equity(1)
 
1,091.2

 
906.9

981.2

 
915.4

Operating ROACE
 
11.0
%
 
11.3
%
11.8
%
 
11.8
%

35

(1) Average common shareholders' equity for the three and nine months ended September 30, 2016 is adjusted for the period the Mandatory Convertible Preference Shares - Series B are outstanding (prior to mandatory conversion date of September 15, 2016).

Book Value per Common Share and Diluted Book Value per Common Share: Management uses growth in both of these metrics as a prime measure of the value we are generating for our common shareholders, as management believes that growth in each metric ultimately results in growth in the Company’s common share price. These metrics are impacted by the Company’s net income and external factors, such as interest rates, which can drive changes in unrealized gains or losses on our investment portfolio. At September 30, 2016, the book value per common share and diluted book value per common share both increased by 22.3% compared to December 31, 2015 (see "Liquidity and Capital Resources - Investments" on page 45 for further information). Book value per common share and diluted book value per common share at September 30, 2016 and December 31, 2015 was computed as follows:
 
 
September 30, 2016

December 31, 2015
 
 
($ in Millions except per share data)
Ending common shareholders’ equity
 
$
1,240.3

 
$
867.8

Proceeds from assumed conversion of dilutive options
 
13.1

 
13.4

Numerator for diluted book value per common share calculation
 
$
1,253.4

 
$
881.2

 
 
 
 
 
Common shares outstanding
 
86,128,999

 
73,721,140

Shares issued from assumed conversion of dilutive options and restricted share units
 
2,166,892

 
2,166,545

Denominator for diluted book value per common share calculation
 
88,295,891

 
75,887,685

 
 
 
 
 
Book value per common share
 
$
14.40

 
$
11.77

Diluted book value per common share(1)
 
$
14.20

 
$
11.61

(1) The Mandatory Convertible Preference Shares - Series B are excluded at December 31, 2015, as they are anti-dilutive.

Ratio of Debt to Total Capital Resources: Management uses this measure to monitor the financial leverage of the Company. This measure is calculated using the total principal amount of debt divided by the the sum of total capital resources. The ratio of Debt to Total Capital Resources at September 30, 2016 and December 31, 2015 was computed as follows:
 
 
September 30, 2016
 
December 31, 2015
 
 
($ in Millions)
Senior notes
 
$
362.5

 
$
360.0

Maiden shareholders’ equity
 
1,555.3

 
1,347.8

Total capital resources
 
$
1,917.8


$
1,707.8

Ratio of debt to total capital resources
 
18.9
%
 
21.1
%

Certain Operating Measures and Relevant Factors

Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a general discussion on "Certain Operating Measures" utilized by the Company and the "Relevant Factors" associated with these Certain Operating Measures.

Critical Accounting Policies and Estimates
 
The Company's critical accounting policies and estimates are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 1, 2016. The critical accounting policies and estimates should be read in conjunction with "Part I, Item 1 - Notes to Condensed Consolidated Financial Statements (unaudited) Note 2. Significant Accounting Policies" included in this Form 10Q and "Notes to Consolidated Financial Statements Note 2. Significant Accounting Policies" included in the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC. There have been no material changes in the application of our critical accounting estimates subsequent to that report.

36

 
Results of Operations

Selected unaudited Condensed Consolidated Statements of Income data:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016

2015
 
2016
 
2015
 
 
($ in Millions)
 
($ in Millions)
Gross premiums written
 
$
706.9

 
$
628.5

 
$
2,259.3

 
$
2,136.9

Net premiums written
 
$
690.7

 
$
599.2

 
$
2,133.9

 
$
2,025.8

Net premiums earned
 
$
698.3

 
$
658.5

 
$
1,951.8

 
$
1,845.2

Other insurance revenue
 
2.3

 
2.2

 
8.7

 
9.4

Net loss and loss adjustment expense
 
(466.8
)
 
(444.2
)
 
(1,297.4
)
 
(1,236.5
)
Commission and other acquisition expenses
 
(206.7
)
 
(197.6
)
 
(587.5
)
 
(551.6
)
General and administrative expenses
 
(9.8
)
 
(8.9
)
 
(29.0
)
 
(28.2
)
Underwriting income
 
17.3

 
10.0

 
46.6

 
38.3

Other general and administrative expenses
 
(7.2
)
 
(7.6
)
 
(20.7
)
 
(20.8
)
Net investment income
 
35.7

 
32.8

 
107.3

 
96.2

Net realized gains on investment
 
1.9

 
1.2

 
4.5

 
2.3

Net impairment losses recognized in earnings
 
—

 
(1.1
)
 
—

 
(1.1
)
Accelerated amortization of senior note issuance costs
 
—

 
—

 
(2.3
)
 
—

Amortization of intangible assets
 
(0.6
)
 
(0.7
)
 
(1.8
)
 
(2.1
)
Foreign exchange and other gains
 
0.7

 
1.5

 
6.4

 
4.1

Interest and amortization expenses
 
(6.9
)
 
(7.3
)
 
(21.3
)
 
(21.8
)
Income tax expense
 
(0.2
)
 
(0.3
)
 
(1.2
)
 
(1.6
)
Net Income
 
40.7

 
28.5

 
117.5

 
93.5

Loss attributable to noncontrolling interest
 
0.1

 
0.1

 
0.2

 
0.2

Dividends on preference shares
 
(9.0
)
 
(6.1
)
 
(27.7
)
 
(18.3
)
Net income attributable to Maiden common shareholders
 
$
31.8

 
$
22.5

 
$
90.0

 
$
75.4

Ratios
 
 
 
 
 
 
 
 
Net loss and LAE ratio(1)
 
66.6
%
 
67.2
%
 
66.2
%
 
66.7
%
Commission and other acquisition expense ratio(2)
 
29.5
%
 
29.9
%
 
30.0
%
 
29.7
%
General and administrative expense ratio(3)
 
2.4
%
 
2.5
%
 
2.5
%
 
2.7
%
Expense ratio(4)
 
31.9
%
 
32.4
%
 
32.5
%
 
32.4
%
Combined ratio(5)
 
98.5
%
 
99.6
%
 
98.7
%
 
99.1
%
(1) Calculated by dividing net loss and LAE by net premiums earned and other insurance revenue.
(2) Calculated by dividing commission and other acquisition expenses by net premiums earned and other insurance revenue.
(3) Calculated by dividing general and administrative expenses by net premiums earned and other insurance revenue.
(4) Calculated by adding together the commission and other acquisition expense ratio and general and administrative expense ratio.
(5) Calculated by adding together the net loss and LAE ratio and expense ratio.

Net Income

Net income for the three and nine months ended September 30, 2016 was $40.7 million and $117.5 million compared to $28.5 million and $93.5 million for the same periods in 2015, respectively.
 
The increase in net income for the three months ended September 30, 2016 compared to the same period in 2015 was due to higher underwriting income and, to a lesser extent, investment income offset partially by lower foreign exchange gains. Underwriting income was favorably impacted by an increase in net premiums earned in our AmTrust Reinsurance segment and lower unfavorable development on our run-off business reported in our Other category.

The increase in net income for the nine months ended September 30, 2016 compared to the same period in 2015 was primarily driven by an increase in net investment income and, to a lesser extent, improvements in underwriting income. Other factors

37

positively impacting net income included slight increases of $2.3 million in foreign exchange gains and $2.2 million in realized gains on investment.

The following is a summary of the results of our operations for the three and nine months ended ended September 30, 2016, compared to the same periods in 2015:

Net Premiums Written

Net premiums written increased by $91.5 million, or 15.3%, and $108.1 million or 5.3%, for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. The increase in net premiums written for the three and nine months ended September 30, 2016 compared to the same periods in 2015 included growth in both the AmTrust Reinsurance and Diversified Reinsurance segments.

The following tables compare net premiums written by our reportable segments, reconciled to the total consolidated net premiums written:
For the Three Months Ended September 30,
 
2016

2015

Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Diversified Reinsurance
 
$
179.1

 
25.9
%
 
$
163.7

 
27.3
%
 
$
15.4

 
9.4
%
AmTrust Reinsurance
 
511.6

 
74.1
%
 
435.5

 
72.7
%
 
76.1

 
17.5
%
Total reportable segments
 
$
690.7

 
100.0
%
 
$
599.2

 
100.0
%
 
$
91.5

 
15.3
%

For the Nine Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Diversified Reinsurance
 
$
626.5

 
29.3
%
 
$
602.7

 
29.8
%
 
$
23.8

 
4.0
%
AmTrust Reinsurance
 
1,507.4

 
70.7
%
 
1,423.1

 
70.2
%
 
84.3

 
5.9
%
Total reportable segments
 
$
2,133.9

 
100.0
%
 
$
2,025.8

 
100.0
%
 
$
108.1

 
5.3
%
 
 
 
 
 
 
 
 
 
 
 
 
The increases in net premiums written in our AmTrust Reinsurance segment for the three and nine months ended September 30, 2016 compared to the same periods in 2015 are due to organic growth as well as acquisitions made by AmTrust, partially offset by the impact of the 2015 partial commutation. For the three months ended September 30, 2016, the initial cession of certain of these acquisitions resulted in a growth rate compared to the same period in 2015 that may not be representative of quarterly growth rates on a prospective basis. Please refer to the analysis of our AmTrust Reinsurance segment on page 42 for further details.

Net premiums written in our Diversified Reinsurance segment increased by $15.4 million or 9.4% and $23.8 million or 4.0% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. The increase was mainly due to growth in the Diversified Reinsurance segment's U.S. casualty and accident and health premiums and the European treaty contracts written by Maiden Bermuda in 2016. Please refer to the analysis of our Diversified Reinsurance segment on page 40 for further details.

Net Premiums Earned

Net premiums earned increased by $39.8 million or 6.0% and $106.6 million or 5.8% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The increase in net premiums earned was primarily the result of strong growth in our AmTrust Reinsurance segment offset by the decrease in our Diversified Reinsurance segment earned premiums.

The following tables compare net premiums earned by our reportable segments, reconciled to the total consolidated net premiums earned:
For the Three Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Diversified Reinsurance
 
$
175.2

 
25.1
%
 
$
193.2

 
29.3
%
 
$
(18.0
)
 
(9.4
)%
AmTrust Reinsurance
 
523.1

 
74.9
%
 
465.3

 
70.7
%
 
57.8

 
12.4
 %
Total reportable segments
 
$
698.3

 
100.0
%
 
$
658.5

 
100.0
%
 
$
39.8

 
6.0
 %


38

For the Nine Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Diversified Reinsurance
 
$
538.1

 
27.6
%
 
$
570.7

 
30.9
%
 
$
(32.6
)
 
(5.7
)%
AmTrust Reinsurance
 
1,413.7

 
72.4
%
 
1,274.5

 
69.1
%
 
139.2

 
10.9
 %
Total reportable segments
 
$
1,951.8

 
100.0
%
 
$
1,845.2

 
100.0
%
 
$
106.6

 
5.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
The increase in net premiums earned in the AmTrust Reinsurance segment for the three and nine months ended September 30, 2016, compared to the same periods in 2015, reflects the impact of AmTrust's strong growth in 2015 from a combination of acquisition activity and ongoing organic growth. Please refer to the analysis of our AmTrust Reinsurance segment on page 42 for further discussion.

Net premiums earned in our Diversified Reinsurance segment decreased by $18.0 million or 9.4% and $32.6 million or 5.7% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. Earned premiums decreased due to the impact of lower 2015 net premiums written for the segment. Please refer to the analysis of our Diversified Reinsurance segment on page 40 for further discussion.

Other Insurance Revenue 

All of our Other Insurance Revenue is produced by our Diversified Reinsurance segment. Please refer to page 42 for further discussion.

Net Investment Income and Net Realized Gains on Investment

Net Investment Income - Net investment income increased by $2.9 million or 8.6% and $11.1 million or 11.5% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively.

For the three and nine months ended September 30, 2016, average investable assets grew by 14.0% and 15.0% compared to the same periods in 2015, respectively. The Company's average book yield for the three months ended September 30, 2016 was marginally lower compared to the same period in 2015. The growth in net investment income, particularly when compared with the growth in invested assets, continues to be impacted by the low current interest rate environment along with elevated levels of cash maintained by the Company in response to recent volatility within that interest rate environment.

The following table details the Company's average investable assets and average book yield:
 
 
For the Three Months Ended September 30,

For the Nine Months Ended September 30,
 
 
2016

2015

2016

2015
 
 
($ in Millions)
 
($ in Millions)
Average investable assets(1)
 
$
4,991.5

 
$
4,376.7

 
$
4,842.1

 
$
4,210.6

Average book yield(2)
 
2.9
%
 
3.0
%
 
3.0
%
 
3.0
%

(1)The average of the sum of the cost or amortized cost of the Company's investments, cash and cash equivalents (including restricted cash), loan to related party and due to broker at the beginning and end of each quarter during the last three months and twelve months, respectively.
(2)Annualized ratio of net investment income over average investable assets.
 
Net Realized Gains on Investment - Net realized gains on investment were $1.9 million and $4.5 million for the three and nine months ended September 30, 2016, compared to $1.2 million and $2.3 million for the same periods in 2015, respectively.





Net Loss and Loss Adjustment Expenses

Net loss and LAE increased by $22.6 million or 5.1% and $60.9 million or 4.9% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. This increase reflects the continued growth of the business combined with net adverse development experienced in the Diversified Reinsurance segment.

The net loss and LAE ratios were generally stable at 66.6% and 66.2% for the three and nine months ended September 30, 2016 compared to 67.2% and 66.7% for the same periods in 2015, respectively. The impact on the net loss and LAE ratios should be considered in conjunction with the commission and other acquisition expense ratio as changes to either ratio arise primarily due to changes in the mix of business and the impact of the change in the commission and other acquisition expense rates on quota share contracts with loss sensitive features.

39


Commission and Other Acquisition Expenses

Commission and other acquisition expenses increased by $9.1 million or 4.6% and $35.9 million or 6.5% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The commission and other acquisition expense ratio decreased to 29.5% and increased to 30.0% for the three and nine months ended September 30, 2016 compared to 29.9% and 29.7% for the same periods in 2015, respectively. Please refer to the reasons for the changes in the ratio discussed in the Net Loss and Loss Adjustment Expenses section above.

General and Administrative Expenses

General and administrative expenses include expenses which are segregated for analytical purposes as a component of underwriting income and comprise:
 
 
For the Three Months Ended September 30,

For the Nine Months Ended September 30,
 
 
2016

2015

2016

2015
 
 
($ in Millions)
 
($ in Millions)
General and administrative expenses – segments
 
$
9.8

 
$
8.9

 
$
29.0

 
$
28.2

General and administrative expenses – corporate
 
7.2

 
7.6

 
20.7

 
20.8

Total general and administrative expenses
 
$
17.0

 
$
16.5

 
$
49.7

 
$
49.0

General and administrative expense ratio
 
2.4
%
 
2.5
%
 
2.5
%
 
2.7
%

Total general and administrative expenses increased by $0.5 million or 3.0%, and $0.7 million or 1.6% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively.

Interest and Amortization Expenses

The interest and amortization expenses related to our Senior Notes were $6.9 million and $21.3 million for the three and nine months ended September 30, 2016, compared to $7.3 million and $21.8 million for the same periods in 2015, respectively. The weighted average effective interest rate for the Company's debt was 7.8% and 8.1% for the three and nine months ended September 30, 2016, respectively, compared to 8.3% for both the three and nine months ended September 30, 2015. Refer to "Notes to Consolidated Financial Statements Note 7. Long Term Debt" included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the Company’s Senior Notes.

On June 15, 2016, Maiden NA fully redeemed all of its 2011 Senior Notes using the proceeds from the 2016 Senior Notes issuance. The 2011 Senior Notes were redeemed at a redemption price equal to 100% of the principal amount of $107.5 million plus accrued and unpaid interest on the principal amount being redeemed up to, but not including, the redemption date. As a result, the Company accelerated the amortization of the remaining debt issuance cost of $2.3 million.

Income Tax Expense

The Company recorded an income tax expense of $0.2 million and $1.2 million for the three and nine months ended September 30, 2016 compared to $0.3 million and $1.6 million for the same periods in 2015, respectively. These amounts relate to income tax on the earnings of our international subsidiaries and state taxes incurred by our U.S. subsidiaries. The effective rate of income tax was 0.5% and 1.0% for the three and nine months ended September 30, 2016, compared to 1.3% and 1.7% for the same periods in 2015, respectively.

Dividends on Preference Shares

For the three and nine months ended September 30, 2016, dividends paid to preference shareholders increased by $2.9 million or 48.3% and $9.4 million or 51.9% compared to the same periods in 2015, respectively. The increase is attributable to the issuance of 6,600,000 7.125% Preference Shares - Series C on November 25, 2015.




Underwriting Results by Reportable Segment

Diversified Reinsurance Segment

The underwriting results and associated underwriting ratios for the Diversified Reinsurance segment were as follows:

40

 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016

2015
 
2016
 
2015
 
 
($ in Millions)
Gross premiums written
 
$
186.8

 
$
174.3

 
$
667.4

 
$
631.3

Net premiums written
 
$
179.1

 
$
163.7

 
$
626.5

 
$
602.7

Net premiums earned
 
$
175.2

 
$
193.2

 
$
538.1

 
$
570.7

Other insurance revenue
 
2.3

 
2.2

 
8.7

 
9.4

Net loss and LAE
 
(132.4
)
 
(142.5
)
 
(395.7
)
 
(417.9
)
Commission and other acquisition expenses
 
(39.9
)
 
(51.7
)
 
(139.9
)
 
(152.3
)
General and administrative expenses
 
(9.0
)
 
(8.2
)
 
(26.7
)
 
(26.0
)
Underwriting loss
 
$
(3.8
)
 
$
(7.0
)
 
$
(15.5
)
 
$
(16.1
)
Ratios
 
 
 
 
 
 
 
 
Net loss and LAE ratio
 
74.6
%
 
72.9
%
 
72.4
%
 
72.0
%
Commission and other acquisition expense ratio
 
22.5
%
 
26.5
%
 
25.6
%
 
26.3
%
General and administrative expense ratio
 
5.1
%
 
4.2
%
 
4.8
%
 
4.5
%
Expense ratio
 
27.6
%
 
30.7
%
 
30.4
%
 
30.8
%
Combined ratio
 
102.2
%
 
103.6
%
 
102.8
%
 
102.8
%

The combined ratio for the three and nine months ended September 30, 2016 decreased to 102.2% and remained flat at 102.8% compared to 103.6% and 102.8% for the same periods in 2015, respectively. Reserve development in commercial auto continued to unfavorably impact the Diversified Reinsurance segment resulting in underwriting losses both for the three and nine months ended September 30, 2016 and 2015.

Premiums - Gross premiums written increased by $12.5 million or 7.1% and $36.1 million or 5.7% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The increase was primarily due to growth in U.S. casualty and accident and health premiums and the European treaty contracts written by Maiden Bermuda in 2016.

Net premiums written increased by $15.4 million or 9.4% and $23.8 million or 4.0% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively, due to the same circumstances as described above related to this segment's gross premiums written. The following tables illustrate net premiums written by line of business in this segment:
For the Three Months Ended September 30,
 
2016

2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Written
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Property
 
$
30.6

 
17.1
%
 
$
29.6

 
18.1
%
 
$
1.0

 
3.5
 %
Casualty
 
115.4

 
64.4
%
 
101.2

 
61.8
%
 
14.2

 
14.0
 %
Accident and Health
 
14.8

 
8.3
%
 
12.9

 
7.9
%
 
1.9

 
14.9
 %
International
 
18.3

 
10.2
%
 
20.0

 
12.2
%
 
(1.7
)
 
(8.7
)%
Total Diversified Reinsurance
 
$
179.1

 
100.0
%
 
$
163.7

 
100.0
%
 
$
15.4

 
9.4
 %

For the Nine Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Written
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Property
 
$
124.0

 
19.8
%
 
$
128.5

 
21.3
%
 
$
(4.5
)
 
(3.5
)%
Casualty
 
365.3

 
58.3
%
 
359.5

 
59.7
%
 
5.8

 
1.6
 %
Accident and Health
 
68.1

 
10.9
%
 
53.5

 
8.9
%
 
14.6

 
27.4
 %
International
 
69.1

 
11.0
%
 
61.2

 
10.1
%
 
7.9

 
12.8
 %
Total Diversified Reinsurance
 
$
626.5

 
100.0
%
 
$
602.7

 
100.0
%
 
$
23.8

 
4.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 


41

Net premiums earned decreased by $18.0 million or 9.4% for the three months ended September 30, 2016 compared to the same period in 2015 and decreased by $32.6 million or 5.7% for the nine months ended September 30, 2016 compared to the same period in 2015. The following table shows net premiums earned by line of business:
For the Three Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Earned
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Property
 
$
29.9

 
17.1
%
 
$
39.6

 
20.5
%
 
$
(9.7
)
 
(24.4
)%
Casualty
 
105.9

 
60.5
%
 
115.6

 
59.8
%
 
(9.7
)
 
(8.4
)%
Accident and Health
 
18.5

 
10.5
%
 
14.1

 
7.3
%
 
4.4

 
30.8
 %
International
 
20.9

 
11.9
%
 
23.9

 
12.4
%
 
(3.0
)
 
(12.5
)%
Total Diversified Reinsurance
 
$
175.2

 
100.0
%
 
$
193.2

 
100.0
%
 
$
(18.0
)
 
(9.4
)%
For the Nine Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Earned
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Property
 
$
103.0

 
19.1
%
 
$
112.9

 
19.8
%
 
$
(9.9
)
 
(8.7
)%
Casualty
 
313.7

 
58.3
%
 
350.5

 
61.4
%
 
(36.8
)
 
(10.5
)%
Accident and Health
 
55.8

 
10.4
%
 
41.4

 
7.2
%
 
14.4

 
34.9
 %
International
 
65.6

 
12.2
%
 
65.9

 
11.6
%
 
(0.3
)
 
(0.5
)%
Total Diversified Reinsurance
 
$
538.1

 
100.0
%
 
$
570.7

 
100.0
%
 
$
(32.6
)
 
(5.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Within the Diversified Reinsurance segment, the business written by both Maiden US and our non-U.S. operations experienced a decrease in net premiums earned for the three and nine months ended September 30, 2016 compared to the same periods in 2015 due to the decline in written premium in 2015. Net premiums earned were also reduced further due to the impact of higher ceded premiums related to the retrocessional quota share agreement entered in 2015. These decreases, however, were slightly reduced by earned premiums from the European treaty contracts written by Maiden Bermuda in 2016.

Other Insurance Revenue - Other insurance revenue increased by $0.1 million, or 7.7% and decreased by $0.7 million or 7.6%, for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The net decrease for the nine months ended September 30, 2016 compared to the same period in 2015 was mainly caused by weaker auto sales in Europe.

Net Loss and Loss Adjustment Expense - Net loss and LAE decreased by $10.1 million or 7.1% for the three months ended September 30, 2016 and decreased by $22.2 million or 5.3% for the nine months ended September 30, 2016 compared to the same periods in 2015, respectively.

Net loss and LAE ratios were 74.6% and 72.4% for the three and nine months ended September 30, 2016 compared to 72.9% and 72.0% in the same periods in 2015, respectively. The impact on the net loss and LAE ratios should be considered in conjunction with the commission and other acquisition expense ratio as changes to these ratios are significantly impacted by changes in the mix of business and the impact of loss sensitive features. The loss and LAE ratios in 2016 continue to be impacted by adverse development in U.S. commercial auto.

Commission and Other Acquisition Expenses - Commission and other acquisition expenses decreased by $11.8 million, or 22.9% for the three months ended September 30, 2016 and decreased by $12.4 million or 8.2% for the nine months ended September 30, 2016 compared to the same periods in 2015, respectively. The commission and other acquisition expense ratios were 22.5% and 25.6% for the three and nine months ended September 30, 2016 compared to 26.5% and 26.3% for the same periods in 2015, respectively. Please refer to the reasons for the changes in the ratio discussed in the Net Loss and Loss Adjustment Expenses section above.

General and Administrative Expenses - General and administrative expenses increased by $0.8 million, or 10.0% for the three months ended September 30, 2016 and increased by $0.7 million or 2.9%, for the nine months ended September 30, 2016 compared to the same periods in 2015, respectively. The general and administrative expense ratios were 5.1% and 4.8% for the three and nine months ended September 30, 2016, compared to 4.2% and 4.5% for the same periods in 2015, respectively.

AmTrust Reinsurance Segment

The AmTrust Reinsurance segment reported continuing profitable growth for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. However, the segment experienced a modest increase in the combined ratio to 95.9% from 95.4% during the three months ended September 30, 2016 and to 95.4% from 95.1% during the nine months ended September 30, 2016 compared to the same periods in 2015, respectively. These increases were largely due to changes in the mix of business and higher commercial auto loss ratios.

42


The following table details the underwriting results and associated ratios for the AmTrust Reinsurance segment:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015

2016
 
2015
 
 
($ in Millions)
Gross premiums written
 
$
520.1

 
$
454.2

 
$
1,591.9

 
$
1,505.6

Net premiums written
 
$
511.6

 
$
435.5

 
$
1,507.4

 
$
1,423.1

Net premiums earned
 
$
523.1

 
$
465.3

 
$
1,413.7

 
$
1,274.5

Net loss and LAE
 
(334.3
)
 
(297.8
)
 
(898.7
)
 
(811.0
)
Commission and other acquisition expenses
 
(166.8
)
 
(146.0
)
 
(447.6
)
 
(399.2
)
General and administrative expenses
 
(0.8
)
 
(0.7
)
 
(2.3
)
 
(2.2
)
Underwriting income
 
$
21.2

 
$
20.8

 
$
65.1

 
$
62.1

Ratios
 
 
 
 
 
 
 
 
Net loss and LAE ratio
 
63.9
%
 
63.9
%
 
63.5
%
 
63.6
%
Commission and other acquisition expense ratio
 
31.9
%
 
31.4
%
 
31.7
%
 
31.3
%
General and administrative expense ratio
 
0.1
%
 
0.1
%
 
0.2
%
 
0.2
%
Expense ratio
 
32.0
%
 
31.5
%
 
31.9
%
 
31.5
%
Combined ratio
 
95.9
%
 
95.4
%
 
95.4
%
 
95.1
%

Premiums - Gross premiums written increased by $65.9 million, or 14.5% and $86.3 million or 5.7% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. Growth in our AmTrust Reinsurance segment is due to additional 2016 premium relating to acquisitions made by AmTrust ceded for the first time and ongoing organic growth and also reflects the removal of certain classes of business which we commuted with AmTrust in the fourth quarter of 2015. These items significantly impacted the comparisons between the respective periods reported herein for 2016 and 2015.

The following tables details net premiums written by line of business in this segment:
For the Three Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Written
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Small Commercial Business
 
$
314.7

 
61.5
%
 
$
231.5

 
53.1
%
 
$
83.2

 
36.0
 %
Specialty Program
 
98.9

 
19.3
%
 
86.6

 
19.9
%
 
12.3

 
14.2
 %
Specialty Risk and Extended Warranty
 
98.0

 
19.2
%
 
117.4

 
27.0
%
 
(19.4
)
 
(16.5
)%
Total AmTrust Reinsurance
 
$
511.6

 
100.0
%
 
$
435.5

 
100.0
%
 
$
76.1

 
17.5
 %
For the Nine Months Ended September 30,
 
2016

2015

Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Written
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Small Commercial Business
 
$
983.6

 
65.3
%
 
$
857.6

 
60.3
%
 
$
126.0

 
14.7
 %
Specialty Program
 
268.2

 
17.8
%
 
262.1

 
18.4
%
 
6.1

 
2.3
 %
Specialty Risk and Extended Warranty
 
255.6

 
16.9
%
 
303.4

 
21.3
%
 
(47.8
)
 
(15.7
)%
Total AmTrust Reinsurance
 
$
1,507.4

 
100.0
%
 
$
1,423.1

 
100.0
%
 
$
84.3

 
5.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned increased by $57.8 million or 12.4% and $139.2 million or 10.9%, for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The increase is primarily due to AmTrust's prior year written premium growth.


 
The following tables detail net premiums earned by line of business:


43

For the Three Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Earned
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Small Commercial Business
 
$
320.6

 
61.3
%
 
$
257.3

 
55.3
%
 
$
63.3

 
24.6
 %
Specialty Program
 
89.8

 
17.2
%
 
80.3

 
17.3
%
 
9.5

 
11.9
 %
Specialty Risk and Extended Warranty
 
112.7

 
21.5
%
 
127.7

 
27.4
%
 
(15.0
)
 
(11.8
)%
Total AmTrust Reinsurance
 
$
523.1

 
100.0
%
 
$
465.3

 
100.0
%
 
$
57.8

 
12.4
 %
For the Nine Months Ended September 30,
 
2016
 
2015
 
Change in
 
 
Total
 
% of Total
 
Total
 
% of Total
 
$
 
%
Net Premiums Earned
 
($ in Millions)
 
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Small Commercial Business
 
$
864.7

 
61.2
%
 
$
734.7

 
57.7
%
 
$
130.0

 
17.7
 %
Specialty Program
 
251.5

 
17.8
%
 
210.7

 
16.5
%
 
40.8

 
19.4
 %
Specialty Risk and Extended Warranty
 
297.5

 
21.0
%
 
329.1

 
25.8
%
 
(31.6
)
 
(9.6
)%
Total AmTrust Reinsurance
 
$
1,413.7

 
100.0
%
 
$
1,274.5

 
100.0
%
 
$
139.2

 
10.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss and Loss Adjustment Expense - Net loss and LAE increased by $36.5 million or 12.3% and $87.7 million or 10.8% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. Net loss and LAE ratios were 63.9% and 63.5% for the three and nine months ended September 30, 2016, compared to 63.9% and 63.6% in the same periods in 2015, respectively. The loss ratio for the nine months ended September 30, 2016 has improved primarily due to continued change in the segment's mix of business.

Commission and Other Acquisition Expenses - Commission and other acquisition expenses increased by $20.8 million or 14.3% and $48.4 million or 12.1% for the three and nine months ended September 30, 2016, compared to the same periods in 2015, respectively. The commission and other acquisition expense ratios were 31.9% and 31.7% for the three and nine months ended September 30, 2016 compared to 31.4% and 31.3% for the same periods in 2015, respectively. The increase in the ratio during the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively, reflects the higher proportion of net premiums earned from the Reinsurance Agreement, which has a higher commission rate than the European Hospital Liability Quota Share.

General and Administrative Expenses - General and administrative expenses increased by $0.1 million or 15.7% and $0.1 million or 4.9% for the three and nine months ended September 30, 2016 compared to the same periods in 2015, respectively. The general and administrative expense ratios remained flat at 0.1% and 0.2% for the three and nine months ended September 30, 2016 and 2015, respectively.

Liquidity and Capital Resources

Liquidity

Maiden Holdings is a holding company and transacts no business of its own. We therefore rely on cash flows in the form of dividends, advances and loans and other permitted distributions from our subsidiary companies to make dividend payments on our common and preference shares.

The jurisdictions in which our operating subsidiaries are licensed to write business impose regulations requiring companies to maintain or meet statutory solvency and liquidity requirements. Some jurisdictions also place restrictions on the declaration and payment of dividends and other distributions.

The regulatory and liquidity requirements of the Company's operating segments are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 1, 2016.

Our sources of funds primarily consist of premiums received (net of commissions), investment income, net proceeds from capital raising activities, which may include the issuance of debt, common and preference shares, and proceeds from sales and redemption of investments. Cash is used primarily to pay loss and LAE, general and administrative expenses, interest expense and dividends, with the remainder in excess of our operating requirements, made available to our investment managers for investment in accordance with our investment policy. The following table summarizes the cash flows provided by (used in) operating, investing and financing activities:

44

For the Nine Months Ended September 30,
 
2016
 
2015
 
 
($ in Millions)
Operating activities
 
$
326.2

 
$
526.0

Investing activities
 
(291.4
)
 
(470.7
)
Financing activities
 
(59.7
)
 
(44.4
)
Effect of exchange rate changes on foreign currency cash
 
2.7

 
(1.5
)
Total (decrease) increase in cash and cash equivalents
 
$
(22.2
)
 
$
9.4


Cash Flows - Operating Activities

Cash flows from operations for the nine months ended September 30, 2016 were $326.2 million compared to $526.0 million for the same period in 2015, a 38.0% decrease. This decrease in cash flows from operating activities arises primarily due to the settlement of the $107.0 million commutation with AmTrust during the first quarter of 2016. Operating cash flows in 2015 were also favorably impacted by AmTrust's integration of Tower Group which now has been completed. The increase in reserve for loss and LAE during the nine months ended September 30, 2016 compared to the same period in 2015 was lower by $17.5 million while the increase in unearned premiums during the nine months ended September 30, 2016 was lower by $15.0 million compared to the nine months ended September 30, 2015.

Cash Flows - Investing Activities

Cash flows from investing activities consist primarily of proceeds from sales and maturities of investments and payments for investments acquired. Net cash used in investing activities was $291.4 million for the nine months ended September 30, 2016 compared to $470.7 million for the same period in 2015. Purchases of fixed maturity investments exceeded the proceeds from the sales, maturities and calls by $187.6 million for the nine months ended September 30, 2016. In addition there was an increase in restricted cash and cash equivalents of $103.7 million and a net outflow in other items of $0.1 million for the nine months ended September 30, 2016.

Cash Flows - Financing Activities

Cash flows used in financing activities were $59.7 million for the nine months ended September 30, 2016, compared to $44.4 million for the same period in 2015. The increase in net cash outflow for the nine months ended September 30, 2016 compared to the same period in 2015 was due to the increase in the dividends paid to both common and preference shareholders of $2.4 million and $9.5 million, respectively, representing the increase in the dividend per common share from $0.13 to $0.14 and the dividend on the Preference shares - Series C of $9.5 million following issuance on November 25, 2015. Furthermore, on June 15, 2016, Maiden NA fully redeemed all of its 2011 Senior Notes using the net proceeds from the 6.625% 2016 Senior Notes issuance of $106.5 million on June 14, 2016. The 2011 Senior Notes were redeemed at a redemption price equal to 100% of the principal amount of $107.5 million. Also, during the nine months ended September 30, 2016, the proceeds from the issuance of common shares were lower by $2.4 million compared to the same period last year.
 
Restrictions, Collateral and Specific Requirements

The Company's restrictions, collateral and specific requirements are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 1, 2016.

At September 30, 2016 and December 31, 2015, cash and cash equivalents and fixed maturity investments used as collateral were $4.4 billion and $3.7 billion, respectively. This collateral represents 89.1% and 82.6% of the fair value of our total fixed maturity investments and cash and cash equivalents (including restricted cash and and cash equivalents) at September 30, 2016 and December 31, 2015, respectively. The increase was primarily attributable to the increase in assets provided as collateral for the AmTrust Reinsurance segment reflecting continued growth.

Investments

The investment of our funds is designed to ensure safety of principal while generating current income. Accordingly, our funds are invested in liquid, investment-grade fixed income securities and are designated as either available-for-sale ("AFS") or held-to-maturity ("HTM").

The value of the Company's fixed maturity investments increased by $392.4 million or 9.5% at September 30, 2016 compared to December 31, 2015. The net increase is a combination of: 1) purchases of $786.6 million, comprising of primarily investment grade corporate bonds; and 2) net unrealized gains and amortization of $146.2 million; offset by 3) maturities and calls totaling $540.4 million.

During the nine months ended September 30, 2016, the yield on the 10-year U.S. treasury bond decreased by 67 basis points to 1.60%. The 10-year U.S. treasury is the key risk-free determinant in the fair value of many of the securities in our AFS portfolio. The decrease in interest rates for the nine months ended September 30, 2016 reflects slower than expected global economic growth, various conflicting economic indicators, combined with equity market volatility and increased global geopolitical uncertainties.

45


The increase in unrealized gain in our AFS fixed maturity portfolio was $142.2 million, primarily due to the decrease in interest rates and the recovery of market values of corporate bonds. This gain also includes unrealized foreign exchange gains of $8.1 million arising on our non-U.S. dollar denominated investment portfolio, primarily on our euro-denominated investments, following the strengthening of the euro at September 30, 2016, relative to the U.S. dollar. The increase was substantially offset by increases in our non-U.S. dollar net liabilities which are reflected in the movement of cumulative translation adjustment, which is also a component of AOCI, in our shareholders' equity. See "Liquidity and Capital Resources - Capital Resources" on page 51 for further information.

At September 30, 2016, we consider the levels of cash and cash equivalents we are holding to be above our targeted ranges. However, this is consistent with our practice during prior periods when interest rates and fixed income markets have experienced elevated levels of volatility. We continue to assess current market conditions and are seeking opportunities, within our defined risk appetite to deploy available cash.
 
In order to limit our exposure to unexpected interest rate increases which would reduce the value of our fixed income securities and reduce our shareholders' equity, we attempt to maintain the duration of our fixed maturity investment portfolio combined with our cash and cash equivalents, both restricted and unrestricted, within a reasonable range of the duration of our loss reserves.

At September 30, 2016 and December 31, 2015, these respective durations in years were as follows:
 
 
September 30, 2016
 
December 31, 2015
Fixed maturities and cash and cash equivalents
 
4.1
 
4.7
Reserve for loss and LAE
 
4.2
 
4.4

The decrease of 0.6 years in the weighted average duration of our fixed maturity investment portfolio arises predominantly due to decrease in the duration of our U.S. agency bonds – mortgage-backed securities ("MBS") portfolio reflecting the impact of the volatility in interest rates on paydowns combined with the purchase of corporate bonds during the period with a lower duration than the fixed maturity investment portfolio at December 31, 2015 and a more elevated cash level compared to December 31, 2015.

The differential in duration between these assets and liabilities may fluctuate over time and in the case of fixed maturities, is affected by factors such as market conditions, changes in asset mix and prepayment speeds in the case of both our Agency MBS and commercial mortgage-backed securities ("CMBS").
 
The average yield and average duration of our fixed maturities, by asset class, and our cash and cash equivalents (restricted and unrestricted) are as follows:
September 30, 2016
 
Original or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Average yield*
 
Average duration
 
 
($ in Millions)
 
 
 
 
AFS fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5.2

 
$
0.3

 
$
—

 
$
5.5

 
3.0
%
 
2.6 years
U.S. agency bonds – mortgage-backed
 
1,572.4

 
34.1

 
(0.7
)
 
1,605.8

 
2.7
%
 
3.6 years
U.S. agency bonds – other
 
4.2

 
0.4

 
—

 
4.6

 
5.8
%
 
9.0 years
Non-U.S. government and supranational bonds
 
35.6

 
0.3

 
(3.2
)
 
32.7

 
2.5
%
 
3.6 years
Asset-backed securities
 
205.6

 
7.3

 
(0.1
)
 
212.8

 
3.8
%
 
2.3 years
Corporate bonds
 
1,775.7

 
75.2

 
(31.7
)
 
1,819.2

 
3.4
%
 
5.1 years
Municipal bonds
 
62.2

 
5.5

 
—

 
67.7

 
4.2
%
 
6.7 years
Total AFS fixed maturities
 
3,660.9

 
123.1

 
(35.7
)
 
3,748.3

 
3.1
%
 
4.3 years
HTM fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
760.0

 
38.9

 
(0.8
)
 
798.1

 
3.6
%
 
5.3 years
Total HTM fixed maturities
 
760.0

 
38.9

 
(0.8
)
 
798.1

 
 
 
 
Cash and cash equivalents
 
434.0

 
—

 
—

 
434.0

 
0.2
%
 
0.0 years
Total
 
$
4,854.9

 
$
162.0

 
$
(36.5
)
 
$
4,980.4

 
2.9
%
 
4.1 years

46

December 31, 2015
 
Original or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Average yield*
 
Average duration
 
 
($ in Millions)
 
 
 
 
AFS fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5.7

 
$
0.3

 
$
—

 
$
6.0

 
2.9
%
 
2.5 years
U.S. agency bonds – mortgage-backed
 
1,471.8

 
15.4

 
(10.2
)
 
1,477.0

 
2.8
%
 
4.5 years
U.S. agency bonds – other
 
23.8

 
0.5

 
—

 
24.3

 
3.6
%
 
8.5 years
Non-U.S. government and supranational bonds
 
35.1

 
—

 
(4.6
)
 
30.5

 
2.6
%
 
4.0 years
Asset-backed securities
 
165.7

 
1.2

 
(1.1
)
 
165.8

 
4.1
%
 
4.6 years
Corporate bonds
 
1,798.6

 
38.1

 
(97.0
)
 
1,739.7

 
3.8
%
 
5.0 years
Municipal bonds
 
62.2

 
2.6

 
—

 
64.8

 
4.2
%
 
6.3 years
Total AFS fixed maturities
 
3,562.9

 
58.1

 
(112.9
)
 
3,508.1

 
3.4
%
 
4.8 years
HTM fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
607.8

 
3.5

 
(12.3
)
 
599.0

 
3.9
%
 
6.4 years
Total HTM fixed maturities
 
607.8

 
3.5

 
(12.3
)
 
599.0

 
 
 
 
Cash and cash equivalents
 
332.5

 
—

 
—

 
332.5

 
0.2
%
 
0.0 years
Total
 
$
4,503.2

 
$
61.6

 
$
(125.2
)
 
$
4,439.6

 
3.2
%
 
4.7 years
*Average yield is calculated by dividing annualized investment income for each sub-component of AFS securities and cash and cash equivalents (including amortization of premium or discount) by amortized cost.
 
The following summarizes the Company's fixed maturity investment portfolio holdings by contractual maturity:
 
 
September 30, 2016
 
December 31, 2015
 
 
AFS fixed maturities
 
HTM fixed maturities
 
AFS fixed maturities
 
HTM fixed maturities
Maturity
 
Fair value
 
Amortized cost
 
Fair value
 
Amortized cost
 
 
($ in Millions)
 
($ in Millions)
Due in one year or less
 
$
120.3

 
$
—

 
$
180.4

 
$
—

Due after one year through five years
 
486.5

 
223.3

 
475.1

 
67.3

Due after five years through ten years
 
1,308.2

 
531.6

 
1,180.2

 
540.5

Due after ten years
 
14.7

 
5.1

 
29.6

 
—

 
 
1,929.7

 
760.0

 
1,865.3

 
607.8

U.S. agency bonds – mortgage-backed
 
1,605.8

 
—

 
1,477.0

 
—

Asset-backed securities
 
212.8

 
—

 
165.8

 
—

Total fixed maturities
 
$
3,748.3

 
$
760.0

 
$
3,508.1

 
$
607.8


Substantially all of the Company’s U.S. agency bond holdings are mortgage-backed. Additional details on the MBS component of our U.S. agency bonds portfolio are as follows:

47

 
 
September 30, 2016
 
December 31, 2015
 
 
Fair Value
 
% of Total
 
Fair Value
 
% of Total
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
U.S. agency bonds - mortgage-backed:
 
 
 
 
 
 
 
 
Residential mortgage-backed (RMBS)
 
 
 
 
 
 
 
 
GNMA – fixed rate
 
$
340.1

 
21.1
%
 
$
139.5

 
9.3
%
FNMA – fixed rate
 
711.4

 
44.2
%
 
791.7

 
52.7
%
FNMA – variable rate
 
18.7

 
1.2
%
 
22.1

 
1.5
%
FHLMC – fixed rate
 
530.1

 
32.9
%
 
517.3

 
34.5
%
FHLMC – variable rate
 
5.5

 
0.3
%
 
6.4

 
0.4
%
Total U.S. agency bonds - mortgage-backed
 
1,605.8

 
99.7
%
 
1,477.0

 
98.4
%
Non-MBS fixed rate U.S. agency bonds
 
4.6

 
0.3
%
 
24.3

 
1.6
%
Total U.S. agency bonds
 
$
1,610.4

 
100.0
%
 
$
1,501.3

 
100.0
%

The following summarizes changes in fair value associated with our U.S. agency bonds - mortgage-backed portfolio:    
For the Three Months Ended September 30,
 
2016

2015
 
 
($ in Millions)
U.S. agency bonds - mortgage-backed:
 
 
 
 
Beginning balance
 
$
1,451.8

 
$
1,388.3

Purchases
 
267.0

 
—

Sales and paydowns
 
(104.1
)
 
(78.2
)
Net realized gains on sales – included in net income
 
—

 
—

Change in net unrealized gains – included in other comprehensive income
 
(7.1
)
 
15.0

Amortization of bond premium and discount
 
(1.8
)
 
(1.6
)
Ending balance
 
$
1,605.8

 
$
1,323.5


For the Nine Months Ended September 30,
 
2016

2015
 
 
($ in Millions)
U.S. agency bonds - mortgage-backed:
 
 
 
 
Beginning balance
 
$
1,477.0

 
$
1,322.4

Purchases
 
366.4

 
356.6

Sales and paydowns
 
(261.2
)
 
(363.5
)
Net realized gains on sales – included in net income
 
0.2

 
0.1

Change in net unrealized gains – included in other comprehensive income
 
28.2

 
12.1

Amortization of bond premium and discount
 
(4.8
)
 
(4.2
)
Ending balance
 
$
1,605.8

 
$
1,323.5

 
 
 
 
 
Our total Agency MBS portfolio represents 35.6% of our fixed maturity investments at September 30, 2016. Given the relative size of this portfolio to our total investments, if faster prepayment patterns were to occur over an extended period of time, this could potentially limit the growth in our investment income in certain circumstances, or even potentially reducing the total amount of investment income we earn.

At September 30, 2016 and December 31, 2015, 96.4% and 97.5%, respectively, of our fixed maturity investments consisted of investment grade securities. We define a security as being below investment grade if it has an Standard & Poor's ("S&P") credit rating of BB+, or equivalent, or less. See "Part I, Item I - Notes to Condensed Consolidated Financial Statements (unaudited) Note 4. Investments" for additional information on the credit rating of our fixed income portfolio.

The security holdings by sector and financial strength rating by S&P of our corporate bond holdings (AFS and HTM) are as follows:    

48

 
 
Ratings*
 
 
 
 
September 30, 2016
 
AAA
 
AA+, AA, AA-
 
A+, A, A-
 
BBB+, BBB, BBB-
 
BB+ or lower
 
Fair Value
 
% of Corporate bonds portfolio
 
 
 
 
 
 
 
 
 
 
 
 
($ in Millions)
 
 
Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic Materials
 
—
%
 
—
%
 
1.6
%
 
4.4
%
 
2.4
%
 
$
218.9

 
8.4
%
Communications
 
—
%
 
0.5
%
 
1.0
%
 
7.1
%
 
—
%
 
224.0

 
8.6
%
Consumer
 
—
%
 
0.9
%
 
14.3
%
 
8.0
%
 
0.3
%
 
615.2

 
23.5
%
Energy
 
—
%
 
0.8
%
 
3.7
%
 
2.8
%
 
2.1
%
 
246.7

 
9.4
%
Financial Institutions
 
1.6
%
 
2.5
%
 
23.0
%
 
11.5
%
 
0.2
%
 
1,015.1

 
38.8
%
Industrials
 
—
%
 
1.0
%
 
2.0
%
 
2.9
%
 
0.7
%
 
172.5

 
6.6
%
Technology
 
—
%
 
2.4
%
 
1.2
%
 
0.4
%
 
0.7
%
 
124.9

 
4.7
%
Total Corporate bonds
 
1.6
%
 
8.1
%
 
46.8
%
 
37.1
%
 
6.4
%
 
$
2,617.3

 
100.0
%
 
 
Ratings*
 
 
 
 
December 31, 2015
 
AAA
 
AA+, AA, AA-
 
A+, A, A-
 
BBB+, BBB, BBB-
 
BB+ or lower
 
Fair Value
 
% of Corporate bonds portfolio
 
 
 
 
 
 
 
 
 
 
 
 
($ in Millions)
 
 
Corporate bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic Materials
 
—
%
 
—
%
 
1.1
%
 
5.4
%
 
1.3
%
 
$
182.5

 
7.8
%
Communications
 
—
%
 
0.6
%
 
0.8
%
 
7.7
%
 
—
%
 
212.0

 
9.1
%
Consumer
 
—
%
 
1.0
%
 
12.3
%
 
9.3
%
 
0.3
%
 
535.2

 
22.9
%
Energy
 
—
%
 
1.3
%
 
1.7
%
 
3.2
%
 
1.9
%
 
189.8

 
8.1
%
Financial Institutions
 
1.7
%
 
1.6
%
 
23.5
%
 
14.3
%
 
0.1
%
 
963.1

 
41.2
%
Industrials
 
—
%
 
0.5
%
 
1.7
%
 
3.7
%
 
0.5
%
 
149.9

 
6.4
%
Technology
 
—
%
 
2.3
%
 
1.6
%
 
0.4
%
 
0.2
%
 
106.2

 
4.5
%
Total Corporate bonds
 
1.7
%
 
7.3
%
 
42.7
%
 
44.0
%
 
4.3
%
 
$
2,338.7

 
100.0
%
*Based on Standard & Poor’s ("S&P"), or equivalent, ratings

During the nine months ended September 30, 2016, the Company decreased its exposure to securities rated BBB (including those with a + or - modifier) from 23.3% as at December 31, 2015 to 19.8% of the total fair value of investments and cash and cash equivalents.

The Company’s 10 largest corporate holdings, 64.5% of which are in the Financial Institutions sector, are as follows:

49

September 30, 2016
 
Fair Value/Amortized cost
 
% Based on Carrying Value
Investments
 
Rating*
 
 
($ in Millions)
 
 
 
 
Morgan Stanley FLT, Due 10/18/2016 (1)
 
$
40.0

 
0.9
%
 
BBB+
Australia and New Zealand Banking Group, 3.7% Due 11/16/2025
 
27.4

 
0.6
%
 
AA-
Schlumberger Holdings Corporation, 4.0% Due 12/21/2025
 
21.8

 
0.5
%
 
AA-
JP Morgan Chase & Co, 3.9% Due 7/15/2025
 
21.6

 
0.5
%
 
A-
BNP Paribas, 5.0% Due 1/15/2021
 
21.4

 
0.5
%
 
A
IBM Corporation, 7.0% Due 10/30/2025
 
20.9

 
0.5
%
 
AA-
Rabobank, 3.9% Due 2/08/2022
 
20.9

 
0.5
%
 
A+
Mondelez International, 4.0% Due 2/1/2024
 
20.5

 
0.4
%
 
BBB
Brookfield Asset Management Inc, 4.0%, Due 1/15/2025
 
20.5

 
0.4
%
 
A-
AT&T Inc, 2.6%, Due 12/1/2022
 
20.3

 
0.4
%
 
BBB+
Total
 
$
235.3

 
5.2
%
 
 
*Based on S&P, or equivalent, ratings
(1) Securities with the notation FLT are floating rate securities.

We own the following securities not denominated in U.S. dollars:
 
 
September 30, 2016
 
December 31, 2015
 
 
Fair Value
 
% of Total
 
Fair Value
 
% of Total
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Non-U.S. dollar denominated corporate bonds
 
$
389.4

 
92.5
%
 
$
323.3

 
91.6
%
Non-U.S. government and supranational bonds
 
31.7

 
7.5
%
 
30.5

 
8.4
%
Total non-U.S. dollar AFS fixed maturities
 
$
421.1

 
100.0
%
 
$
353.8

 
100.0
%

These non-U.S. dollar fixed maturities were invested in the following currencies:
 
 
September 30, 2016
 
December 31, 2015
 
 
Fair Value
 
% of Total
 
Fair Value
 
% of Total
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
Euro
 
$
357.4

 
84.9
%
 
$
299.3

 
84.8
%
British pound
 
41.8

 
9.9
%
 
41.4

 
11.7
%
Australian dollar
 
11.1

 
2.6
%
 
4.0

 
1.1
%
Swedish krona
 
5.7

 
1.4
%
 
5.8

 
1.7
%
All other
 
5.1

 
1.2
%
 
3.3

 
0.7
%
Total non-U.S. dollar AFS fixed maturities
 
$
421.1

 
100.0
%
 
$
353.8

 
100.0
%

The net increase in non-U.S. denominated fixed maturities is primarily due to the investment of net premiums received and the increase in unrealized gains related to euro denominated investments. We do not have any government and government related obligations of Greece, Ireland, Italy, Portugal and Spain at September 30, 2016 and December 31, 2015. At both September 30, 2016 and December 31, 2015, 100.0% of the Company's non-U.S. government and supranational issuers were rated A+ or higher by S&P, respectively.

For our non-U.S. dollar denominated corporate bonds, the following summarizes the composition of the fair value of our fixed maturity investments at the dates indicated by ratings:

50

 
 
September 30, 2016

December 31, 2015
Ratings*
 
Fair Value
 
% of Total
 
Fair Value
 
% of Total
 
 
($ in Millions)
 
 
 
($ in Millions)
 
 
AAA
 
$
34.6

 
8.9
%
 
$
32.8

 
10.1
%
AA+, AA, AA-
 
33.0

 
8.5
%
 
17.3

 
5.4
%
A+, A, A-
 
180.0

 
46.2
%
 
149.3

 
46.2
%
BBB+, BBB, BBB-
 
133.5

 
34.3
%
 
117.9

 
36.5
%
BB+ or lower
 
8.3

 
2.1
%
 
6.0

 
1.8
%
Total non-U.S. dollar denominated corporate bonds
 
$
389.4

 
100.0
%
 
$
323.3

 
100.0
%
*Based on S&P, or equivalent, ratings

The Company does not employ any credit default protection against any of the fixed maturities held in non-U.S. denominated currencies.

Other Changes in Financial Position

The following summarizes other changes in our financial position:
 
 
September 30, 2016
 
December 31, 2015
 
Change
 
Change
 
 
($ in Millions)
 
%
Reinsurance balances receivable, net
 
$
535.0

 
$
377.3

 
$
157.7

 
41.8
%
Reserve for loss and LAE
 
2,759.5

 
2,510.1

 
249.4

 
9.9
%
Unearned premiums
 
1,571.4

 
1,354.6

 
216.8

 
16.0
%

The reinsurance balances receivable, net increased by $157.7 million, or 41.8%, primarily due to the continued growth of our AmTrust Reinsurance segment during the first nine months of 2016 compared to December 31, 2015 which was lowered by the commutation agreement with AmTrust of $107.0 million. The reserve for net loss and LAE increased following the continued growth in our AmTrust Reinsurance segment and, to a lesser extent, adverse loss development experienced in our Diversified Reinsurance segment and our divested U.S. E&S business. The unearned premiums also increased following the continued growth in our AmTrust Reinsurance segment combined with the impact of greater number of renewals in the first quarter relative to renewals in the fourth quarter.

Capital Resources

Refer to the "Liquidity and Capital Resources" section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a general discussion of our shareholders' equity and capital resources.

Capital resources consist of funds deployed or available to be deployed in support of our business operations. Our total capital resources were $1,917.8 million at September 30, 2016, a net increase of $210.0 million, or 12.3%, from December 31, 2015.

The movement in total capital resources is as follows:
 
 
September 30, 2016
 
December 31, 2015
 
Change
 
Change
 
 
($ in Millions)
 
%
Preference shares
 
$
315.0

 
$
480.0

 
$
(165.0
)
 
(34.4
)%
Common shareholders' equity
 
1,240.3

 
867.8

 
372.5

 
42.9
 %
Total Maiden shareholders' equity
 
1,555.3

 
1,347.8

 
207.5

 
15.4
 %
Senior notes
 
362.5

 
360.0

 
2.5

 
0.7
 %
Total capital resources
 
$
1,917.8

 
$
1,707.8

 
$
210.0

 
12.3
 %

The major factors contributing to the net increase in capital resources were as follows:

Maiden shareholders' equity

Maiden shareholders' equity at September 30, 2016 increased by $207.5 million, or 15.4%, compared to December 31, 2015 primarily due to:


51

•
increase in AOCI of $147.6 million. This increase arose due to: 1) increase of $155.6 million which arose from the net increase in our U.S. dollar denominated investment portfolio of $130.6 million relating to market price movements and the increase in our non-U.S. dollar denominated investment portfolio of $25.0 million. The increase in our non-U.S. dollar denominated investment portfolio was $8.1 million primarily as a result of the strengthening of the euro, relative to U.S. dollar at September 30, 2016 compared to December 31, 2015, and $16.9 million as a result of market price movements during the nine months ended September 30, 2016. See "Liquidity and Capital Resources - Investments" on page 45 for further information; offset by 2) decrease in the cumulative translation adjustment of $8.0 million due to the effect of the depreciation of the U.S. dollar relative to the original currencies on our non-U.S. dollar net liabilities (excluding non- U.S. dollar denominated AFS fixed maturities);

•
net income attributable to Maiden shareholders of $117.7 million. See "Results of Operations - Net Income" on page 37 for a discussion of the Company’s net income for the nine months ended September 30, 2016;

•
increase in additional paid in capital of $2.6 million resulting from share-based transactions; and

•
increase in common shares and additional paid in capital of $165.6 million as result of the conversion of the Company's Preference Shares - Series B into common shares on September 15, 2016 and exercise of options.

These increases were offset by the following:

•
dividends declared of $60.5 million on the Company’s common and preference shares during the nine months ended September 30, 2016;

•
increase in shares repurchased for treasury of $0.5 million which represents withholdings from employees surrendered in respect of tax obligations on the vesting of restricted shares and performance based shares; and

•
decrease in Preference Shares - Series B of $165.0 million as result of the conversion into common shares on September 15, 2016.

On July 24, 2014, the Company's Board of Directors has approved the repurchase of up to $75.0 million of the Company's common shares from time to time at market prices. No share repurchases have taken place to date under this plan.

Senior Notes

On June 14, 2016, Maiden Holdings issued $110.0 million 6.625% 2016 Senior Notes for cash to be used for the repayment of outstanding, higher coupon indebtedness. Refer to "Notes to Condensed Consolidated Financial Statements Note 6. Long-Term Debt" for further information regarding the new issuance.

Following the issuance of 2016 Senior Notes, on June 15, 2016, Maiden NA fully redeemed all of its 8.25% 2011 Senior Notes due 2041. The Notes were redeemed at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest on the principal amount of the Notes being redeemed to, but not including, the redemption date. As a result, the Company accelerated the amortization of the remaining debt issuance cost of $2.3 million.

Except as discussed above, there were no further changes in the Company’s Senior Notes at September 30, 2016 compared to December 31, 2015 and the Company did not enter into any short-term borrowing arrangements during the nine months ended ended September 30, 2016. Refer to "Notes to Consolidated Financial Statements Note 7. Long Term Debt" included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the Company’s Senior Notes.

We have, and expect to continue, to fund a portion of our capital requirements through issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common or preference shares. For flexibility, we have a current universal shelf registration statement that allows for the public offering and sale of our debt securities, common shares, preference shares and warrants to purchase such securities. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.

Financial Strength Ratings

Our principal operating subsidiaries are rated "BBB+" (Good) with a stable outlook by Standard & Poor's ("S&P"), which is the eighth highest of twenty-two rating levels. On September 1, 2016, A.M. Best Company ("A.M. Best") upgraded our principal operating subsidiaries' financial strength rating to A (Excellent) with a stable outlook, which rating is the third highest of sixteen rating levels, from A- (Excellent) with a positive outlook, as previously disclosed in the "Financial Strength Ratings" of the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Aggregate Contractual Obligations

In the normal course of its business, the Company is a party to a variety of contractual obligations as summarized in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. These contractual obligations are considered by the Company when assessing its liquidity requirements and the Company is confident in its ability to meet all of its obligations. At September 30, 2016, there are no material changes in the Company’s contractual obligations as disclosed in the Company’s table of contractual obligations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Currency and Foreign Exchange

We conduct business in a variety of foreign (non-U.S.) currencies, the principal exposures being the euro, the British pound, the Australian dollar, the Swedish krona and the Canadian dollar. Assets and liabilities denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations relative to the U.S. dollar may materially impact our results and financial position. Our principal exposure to foreign currency risk is our obligation to settle claims in foreign currencies. In addition, in order to minimize this risk we maintain and expect to continue to maintain a portion of our investment portfolio in investments denominated in currencies other than the U.S. dollar. We may employ various strategies (including hedging) to manage our exposure to foreign currency exchange risk. To the extent that these exposures are not fully hedged or the hedges are ineffective, our results of operations or equity may be reduced by fluctuations in foreign currency exchange rates which could materially adversely affect our financial condition and results of operations. At September 30, 2016, no such hedges or hedging strategies were in force or had been entered into.

Assets and liabilities of subsidiaries and divisions whose functional currency is not the U.S. dollar are translated at the prevailing exchange rates at each balance sheet date. Revenues and expenses are translated at average exchange rates during the period. The net effect of the translation adjustments is included in AOCI, net of applicable deferred income tax. Monetary assets and liabilities, such as premiums receivable and the reserve for losses and LAE, denominated in foreign currencies are revalued at the exchange rate in effect at the balance sheet date with the resulting foreign exchange gains and losses included in net income. Accounts that are classified as non-monetary, such as deferred acquisition costs and the unearned premium reserves, are not revalued. In the case of foreign currency denominated fixed maturity securities which are classified as AFS, the change in exchange rates between the local currency in which the investments are denominated and the Company’s functional currency at each balance sheet date is included in unrealized appreciation or decline in value of securities, a component of AOCI, net of applicable deferred income tax.
 
We recorded net foreign exchange gains of $0.7 million and $1.5 million for the three months ended September 30, 2016 and 2015, respectively, as a result of the strengthening of the U.S. dollar versus the British pound partially offset by the weakening of the U.S. dollar against the euro. For the nine months ended September 30, 2016 and 2015, we recorded net foreign exchange gains of $6.4 million and $4.1 million, respectively, as a result of the strengthening of the U.S. dollar, in particular versus the euro and British pound.

Effects of Inflation
 
The effects of inflation are considered implicitly in pricing and estimating reserves for loss and LAE. The effects of inflation could cause the severity of claims to rise in the future. To the extent inflation is greater than anticipated in the pricing of our business and to the extent unanticipated inflation causes these costs, particularly medical treatments and litigation costs, to increase above reserves established for these claims, the Company will be required to increase the reserve for loss and LAE with a corresponding reduction in its earnings and shareholders' equity in the period in which the deficiency is identified. The actual effects of inflation on the results of operations of the Company cannot be accurately known until claims are ultimately settled.
 
Off-Balance Sheet Arrangements
 
At September 30, 2016, we did not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
 
Recent Accounting Pronouncements
 

52

See "Part I, Item 1 - Notes to Condensed Consolidated Financial Statements (unaudited) Note 2. Significant Accounting Policies" for a discussion on recently issued accounting pronouncements not yet adopted.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk that we will incur losses on our investments due to adverse changes in market rates and prices. Market risk is directly influenced by the volatility and liquidity in the market in which the related underlying assets are invested. We believe that we are principally exposed to three types of market risk: changes in interest rates; changes in credit quality of issuers of investment securities and reinsurers; and foreign currency risk.

Interest Rate Risk

Interest rate risk is the risk that we may incur economic losses due to adverse changes in interest rates. The primary market risk to the investment portfolio is interest rate risk associated with investments in AFS fixed maturity securities. Fluctuations in interest rates have a direct impact on the market valuation of these securities. At September 30, 2016, we had AFS fixed maturity securities with a fair value of $3.7 billion that are subject to interest rate risk.

The following table summarizes the interest rate risk associated with our AFS fixed maturity securities by illustrating the sensitivity of the fair value and carrying value of our fixed maturity securities at September 30, 2016 to selected hypothetical changes in interest rates, and the associated impact on our shareholders’ equity. Temporary changes in the fair value of our fixed maturity securities that are held as AFS do impact the carrying value of these securities and are reported in our shareholders’ equity as a component of other comprehensive income. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such events may have on the fair value and carrying value of our fixed maturity securities and on our shareholders’ equity at September 30, 2016:
Hypothetical Change in Interest Rates
 
Fair Value
 
Estimated
Change in
Fair Value
 
Hypothetical %
(Decrease)
Increase in
Shareholders’
Equity
 
 
($ in Millions)
 
 
200 basis point increase
 
$
3,429.5

 
$
(318.8
)
 
(20.5
)%
100 basis point increase
 
3,583.8

 
(164.5
)
 
(10.6
)%
No change
 
3,748.3

 
—

 
—
 %
100 basis point decrease
 
3,913.7

 
165.4

 
10.6
 %
200 basis point decrease
 
4,076.6

 
328.3

 
21.1
 %

The interest rate sensitivity on the $168.0 million loan to related party, which carries an interest rate of one month LIBOR plus 90 basis points, is that increases of 100 and 200 basis points in LIBOR would increase our earnings and cash flows by $1.7 million and $3.4 million, respectively, on an annual basis, but would not affect the carrying value of the loan.

Counterparty Credit Risk

The concentrations of the Company’s counterparty credit risk exposures at September 30, 2016 have not changed materially compared to December 31, 2015. The Company has exposure to credit risk primarily as a holder of fixed maturity securities. The Company controls this exposure by emphasizing investment grade credit quality in our security purchases. The Company believes this high quality concentration reduces its exposure to credit risk on fixed income securities to an acceptable level. The following table summarizes the Company's fixed maturity investments by major rating category:
 
 
September 30, 2016
 
December 31, 2015
Ratings*
 
 
AA+ or better
 
40.6
%
 
42.3
%
AA, AA-, A+, A, A-
 
34.1
%
 
29.9
%
BBB+, BBB, BBB-
 
21.7
%
 
25.4
%
BB+ or lower
 
3.6
%
 
2.4
%
 
 
100.0
%
 
100.0
%
* Based on S&P, or equivalent, ratings

At September 30, 2016, the Company is not exposed to any significant credit concentration risk on its investments, excluding securities issued by the U.S. government which are rated AA+ by S&P (see "Liquidity and Capital Resources - Investments" on

53

page 45), with the single largest corporate issuer and the top 10 corporate issuers accounting for only 0.9% and 5.2% of the Company’s total fixed income securities fair value, respectively.

The Company is exposed to credit risk for business written through brokers if any of the Company’s brokers are unable to fulfill their contractual obligations with respect to payments to the Company. In addition, in some jurisdictions, if the broker fails to make payments to the insured under the Company’s policy, the Company might remain liable to the insured for the deficiency. The Company’s exposure to such credit risk is somewhat mitigated in certain jurisdictions by contractual terms. See "Business and Risk Factors" in Item 1 and 1A of Part I of the Annual Report on Form 10-K filed on March 1, 2016, respectively, for detailed information on three brokers that accounted for approximately 36.9% of the Company’s gross premiums written in the Diversified Reinsurance segment for the year ended December 31, 2015.

The Company is also exposed to credit risk on reinsurance balances receivable and reinsurance recoverable on paid and unpaid losses. We are also subject to the credit risk that AII and/or AmTrust will fail to perform their obligations to pay interest on and repay principal of amounts loaned to AmTrust. Reinsurance balances receivable from the Company’s clients at September 30, 2016 were $535.0 million, including balances both currently due and accrued. The Company believes that credit risk related to these balances is mitigated by several factors, including but not limited to, credit checks performed as part of the underwriting process and monitoring of aged receivable balances. In addition, as the vast majority of its reinsurance agreements give the Company the contractual right to offset reinsurance balances receivable from clients, and the loan to related party in the case of AmTrust, against losses payable to them, the Company believes that the credit risk in this area is substantially reduced. Provisions are made for amounts considered potentially uncollectible. There was no allowance for uncollectible reinsurance balances receivable at September 30, 2016.

The Company requires its reinsurers to have adequate financial strength. The Company evaluates the financial condition of its reinsurers and monitors its concentration of credit risk on an ongoing basis. Provisions are made for amounts considered potentially uncollectible. The balance of reinsurance recoverable on unpaid losses was $97.1 million at September 30, 2016 compared to $71.2 million at the end of December 31, 2015. Of these reinsurance recoverables, at September 30, 2016, $17.0 million or 17.5%, compared to $35.0 million or 49.2%, at December 31, 2015 relates to reinsurance claims from Superstorm Sandy.

The following table summarizes the credit ratings by A.M. Best of the Company's exposure to reinsurance counterparties:
 
 
September 30, 2016
 
December 31, 2015
A or better
 
97.1
%
 
99.1
%
B++ or lower
 
2.9
%
 
0.9
%
 
 
100.0
%
 
100.0
%

At September 30, 2016, 98.4% (December 31, 2015 - 69.4%) of reinsurance recoverables were collateralized.

Foreign Currency Risk

The Company is generally able to match foreign currency denominated assets against its net reinsurance liabilities both by currency and duration to protect the Company against foreign exchange and interest rate risks. However, a natural offset does not exist for all currencies. For the nine months ended and as at September 30, 2016, $140.9 million or 6.6%, of our net premiums written and $280.9 million or 10.2%, of our reserve for loss and LAE were transacted in euro, respectively.

Refer to the "Quantitative and Qualitative Disclosures about Market Risk" section included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015 for a general overview on the uncertain economic issues relating to the euro that may impact our ability to conduct normal business operations in its participating countries.
 
We may employ various strategies to manage our exposure to foreign currency exchange risk. To the extent that these exposures are not fully hedged or the hedges are ineffective, our results of operations or equity may be reduced by fluctuations in foreign currency exchange rates and could materially adversely affect our financial condition and results of operations. At September 30, 2016, no hedging instruments have been entered into.
 
Our principal foreign currency exposure is to the euro and British pound, however, assuming all other variables remain constant and disregarding any tax effects, a strengthening (weakening) of the U.S. dollar exchange rate of 10% or 20% relative to the non-U.S. currencies held by the Company would result in a decrease (increase) in the Company's net assets of $7.8 million and $15.6 million, respectively.

Item 4. Controls and Procedures
 
Our management, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, have evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and that such information is accumulated and communicated

54

to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide an absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

During the most recent fiscal quarter, there were no changes in the Company's internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

55



PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no material changes from the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 1A. Risk Factors

Our business is subject to a number of risks, including those identified in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2015, that could have a material adverse effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. The risks described in our 2015 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

There are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report 10-Q for the period ended June 30, 2016.

Item 2. Unregistered Sales of Equity and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Executive Ownership and Sales. From time to time, some of the Company’s executives may determine that it is advisable to diversify their investments for personal financial planning reasons, or may seek liquidity for other reasons, and may sell common shares of the Company in the open market, in private transactions or to the Company. To effect such sales, some of the Company’s executives have entered into, and may in the future enter into, trading plans designed to comply with the Company’s Insider Trading and Outside Investments Policy and the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934. The trading plans will not reduce any of the executives’ ownership of the Company’s shares below the applicable executive stock ownership guidelines. The Company does not undertake any obligation to report Rule 10b5-1 plans that may be adopted by any employee or director of the Company in the future, or to report any modifications or termination of any publicly announced plan.

On November 1, 2016, the Board of Directors elected Steven H. Nigro to the newly-created position of Lead Independent Director, effective immediately. In this new role, Mr. Nigro will, among other things, preside at Board meetings when the Chairman is not present, serve as liaison between the Chairman and the independent directors, assist with Board meetings schedules and agendas, and be authorized to call meetings of the independent directors.



56


Item 6. Exhibits.
Exhibit
No.
 
Description
10.1
 
Endorsement No. 4 to the Amended and Restated Quota Share Reinsurance Contract by and between Maiden Reinsurance Ltd. and AmTrust Europe Limited and/or AmTrust International Underwriters Limited incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed with the SEC on August 8, 2011 (No. 001-34042)
31.1
 
Section 302 Certification of CEO
31.2
 
Section 302 Certification of CFO
32.1
 
Section 906 Certification of CEO
32.2
 
Section 906 Certification of CFO
101.1
 
The following materials from Maiden Holdings, Ltd. Quarterly Report on Form 10-Q, formatted in XBRL (eXtensive Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Income, (iii) the unaudited Condensed Consolidated Statements of Comprehensive Income, (iv) the unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) the unaudited Condensed Consolidated Statements of Cash Flows, and (vi) Notes to unaudited Condensed Consolidated Financial Statements.

57


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
MAIDEN HOLDINGS, LTD.
 
By:
 
November 8, 2016
 
/s/ Arturo M. Raschbaum
 
 
Arturo M. Raschbaum
President and Chief Executive Officer
 
 
 
 
 
/s/ Karen L. Schmitt
 
 
Karen L. Schmitt
Chief Financial Officer
 
 
 
 
 
/s/ Michael J. Tait
 
 
Michael J. Tait
Chief Accounting Officer


58
Exhibit


ENDORSEMENT NO. 4
 
to the
 
Quota Share Reinsurance Contract
(hereinafter referred to as the “Contract”)
 
between
 
AmTrust Europe Limited, Nottingham, England
and/or
AmTrust International Underwriters Limited, Eire
(hereinafter collectively referred to as the “Reinsured”)
 
and
 
Maiden Reinsurance Ltd.
(hereinafter referred to as the “Reinsurer”)
 
IT IS HEREBY AGREED, effective [July 1, 2016], that:

1.
The section of the Contract entitled “Treaty Detail,” as previously amended by Endorsement 2 and Endorsement 3 to the Contract, shall be deleted and the following substituted therefor:

“The Reinsured shall cede and the Reinsurer shall accept by way of reinsurance a Quota
Share percentage of the business stated in 'Class and Period of Business.'

The percentage Quota Share Cession to the Reinsurer shall be:
(a)
in respect of AmTrust International Underwriters Limited, Eire, forty percent (40%) of all business written or renewed with effect from the inception of the Contract until such time as otherwise agreed in writing between the parties;
(b)
in respect of AmTrust Europe Limited, forty percent (40%) of all business written or renewed with effect from the inception of the Contract until 30 June 2016, thirty-two and a half percent (32.5%) of all business written or renewed on or after 1 July 2016 until 30 June 2017, and twenty percent (20%) of all business written or renewed on or after 1 July 2017 until such time as otherwise agreed in writing between the parties.
Cessions to AmTrust International Insurance Ltd. shall be deemed retained by the Reinsured.

The maximum limit of liability attaching hereunder shall be: EUR 10,000,000 (Ten Million Euros) or currency equivalent (on a One Hundred Percent (100%) basis) per original claim any one original policy.


1

The Reinsured may submit risks that are not otherwise subject to this Contract, including but not limited to risks with limits greater than EUR 10,000,000, or risks outside the territorial scope of the Contract to the Reinsurer for Special Acceptance ("Acceptance"). For any such risks, the Reinsurer shall confirm its acceptance in writing with any modifications of the Contract terms for such Acceptance.

The Reinsurer's written confirmation of the Acceptance will become part of the Contract.

The Reinsurer hereby confirms Acceptance of the risks set forth on Schedule A hereto, which will be updated from time to time to cover additional risks added to this Contact under Special Acceptance.”

All other terms and conditions of the Contract shall remain unchanged except to the degree necessary to give effect to the changes made herein.

IN WITNESS WHEREOF, the Parties hereto, by their respective duly authorized representatives have executed this Endorsement as of the dates specified below:


AmTrust Europe Limited

By: ____________________________________

Name/Title: _____________________________

Date: __________________________________

AmTrust International Underwriters Limited

By: ____________________________________

Name/Title: _____________________________

Date: __________________________________

Maiden Reinsurance Ltd.
(Formerly known as “Maiden Insurance Company Ltd.”)

By: ____________________________________

Name/Title: _____________________________

Date: __________________________________

2
Exhibit


EXHIBIT 31.1
 
CERTIFICATION
 
I, Arturo M. Raschbaum, certify that:

1. 
I have reviewed this quarterly report on Form 10-Q of Maiden Holdings, Ltd.;
 
2. 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. 
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. 
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 8, 2016
 
/s/ ARTURO M. RASCHBAUM
 
 
 
Arturo M. Raschbaum
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 



Exhibit


EXHIBIT 31.2
 
CERTIFICATION
 
I, Karen L. Schmitt, certify that:

1. 
I have reviewed this quarterly report on Form 10-Q of Maiden Holdings, Ltd.;
 
2. 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. 
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5. 
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
November 8, 2016
 
/s/ KAREN L. SCHMITT
 
 
 
Karen L. Schmitt
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)
 
 



Exhibit


Exhibit 32.1
 
CERTIFICATION
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Maiden Holdings, Ltd. (the “Company”), hereby certifies, to such officer's knowledge, that:
 
The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 8, 2016
By:  
/s/ ARTURO M. RASCHBAUM
 
 
 
Arturo M. Raschbaum
 
 
 
President and Chief Executive Officer
 
 
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.
 





Exhibit


Exhibit 32.2
 
CERTIFICATION
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Maiden Holdings, Ltd. (the “Company”), hereby certifies, to such officer's knowledge, that:
 
The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 8, 2016
By:  
/s/ KAREN L. SCHMITT
 
 
 
Karen L. Schmitt
 
 
 
Chief Financial Officer
 
 
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.