A Hidden Gem? Maiden Holdings


Weak performance warrants discount in target price

Stock: AGNC Investment Corp (NASDAQ:AGNC) 

Maiden Holdings, a $662.6 million Bermuda-based holding company, primarily focused on serving the needs of regional and specialty insurers, currently trades 40% off its book value and just 0.2 times its sales compared to 1.3 times its industry average.

The holding company also has an attractive 7.7% dividend yield.

Meanwhile, the company has a couple of unattractive figures as well. In the recent twelve months, Maiden had generated losses of $45 million while having provided a total of $75 million in dividend payouts thus explaining that it has no trailing price-earnings multiple and dividend was actually not supported by company profits in the period.

Having no capital expenditures and mostly reliant on ‘Reserve for loss and loss adjustment expenses**’ for the bulk of its cash flow, dividend payouts actually represented just about 14% of its free cash flow in the recent 12 months.

**Maiden on its Reserve for Loss and Loss Adjustment Expenses (10-K)

“We are required by applicable insurance laws and regulations in Bermuda, the U.S., Sweden and by U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) to establish loss reserves to cover our estimated liability for the payment of all loss and loss and loss adjustment expense (LAE) incurred with respect to premiums earned on the policies and treaties that we write. These reserves are balance sheet liabilities representing estimates of loss and LAE which we are ultimately required to pay for insured or reinsured claims that have occurred as of or before the balance sheet date. The loss and LAE reserves on our balance sheet represent management’s best estimate of the outstanding liabilities associated with our premium earned. In developing this estimate, management considers the results of internal and external actuarial analyses, trends in those analyses as well as industry trends. Our opining independent actuary certifies that the reserves established by management make a reasonable provision for our unpaid loss and LAE obligations.”

For further details, turn to page 14 of Maiden’s recent annual filing.

Quarterly performance

In the first half that ended in June, Maiden registered 13.3% year over year growth in its revenue to $1.51 billion and a contrasting $1.9 million loss compared to $58 million a year earlier.

In the period, the company recorded 19% higher in expenses and minus its preferred dividends led to losses for the common shareholders.

Maiden Holdings

(10-K) Maiden was founded in 2007. The company specializes in reinsurance solutions that optimize financing and risk management 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 catastrophe claims.

Maiden’s tailored solutions include a variety of value-added services focused on helping its clients grow and prosper.

In addition, Maiden’s principal operating subsidiaries are rated “BBB+” (Good) with a stable outlook by S&P Global Ratings (“S&P”), which is the eighth highest of twenty-two rating levels.

On September 1, 2016, A.M. Best Company (“A.M. Best”) upgraded Maiden’s 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.

The company provides reinsurance in the U.S. and Europe through its wholly owned subsidiaries, Maiden Reinsurance Ltd. (“Maiden Bermuda”) and Maiden Reinsurance North America, Inc. (“Maiden US”).

Internationally, Maiden provides insurance sales and distribution services through Maiden Global Holdings, Ltd. (“Maiden Global”) and its subsidiaries. Maiden Global primarily focuses on providing branded auto and credit life insurance products through insurer partners to retail clients in the European Union (“EU”) and other global markets. These products also produce reinsurance programs which are underwritten by Maiden Bermuda.

In 2016, Maiden generated 86.3% of its gross premiums written in North America and the rest in other countries.

Maiden has two reportable segments: Diversified Reinsurance and AmTrust Reinsurance.

Diversified Reinsurance

Diversified Reinsurance segment consists of a portfolio of predominantly property and casualty reinsurance business focusing on regional and specialty property and casualty insurance companies located, primarily in the U.S. and Europe.

In the first half, gross premium written in the diversified business fell 1.6% year over year to $472.9 million (29% of unadjusted total premiums) and lost $26.3 million compared to losses of $11.7 million losses a year earlier.

As could be expected, Maiden’s diversified recorded far worse combined ratio** of 106.4% compared to 103.2% a year earlier.

**(10-Q): Calculated by adding together net loss and LAE ratio and the expense ratio.

AmTrust Reinsurance

AmTrust Reinsurance segment includes all business ceded by AmTrust to Maiden Bermuda, primarily the AmTrust Quota Share and the European Hospital Liability Quota Share.

Gross written premium for AmTrust grew 7.8% to $1.16 billion (71% of unadjusted total premiums) and lost $6.3 million in the first half compared to an underwriting income of $43.9 million (4.1% margin).

The combined ratio for the AmTrust business was 100.6% in the period compared to 95.1% a year earlier.

Sales and profits                    

In the past three years, Maiden registered a three-year revenue growth average of 9%, and a contrasting 21.9% profit average decline, and profit margin average of 2.56% (Morningstar).

Cash, debt and book value (equity)

As of June, Maiden had $246.8 million in cash and cash equivalents and $254.4 million in notes with debt-equity ratio of 0.17 times compared to 0.23 times a year earlier.

Senior notes decreased by $97 million year over year while book value declined by $30 million to $1.5 billion.

The cash flow summary

In the past three years, Maiden generated an accumulative $1.76 billion in cash flow from operations, reduced its debt by $154 million, raised $6 million in common share issuances and $160 million in preferred share issuances, and provided $197 million in dividends and share repurchases ($1 mil) at an average payout ratio of 11%.


Looking at Maiden’s recent performance would not please any prospecting investors. Certainly, the company has carried a strong balance sheet that makes Maiden as creditworthy as it stated in its filings.

Nonetheless, Maiden’s business (especially its ‘Diversified Reinsurance’) has failed to generate any underwriting profits at all in the recent couple of years including the recent six months.

Analysts have an average overweight recommendation with a target price of $10.25 a share vs. $7.75 at the time of writing. Asking 50% discount from Maiden’s book value indicated a per share figure of $8.66.

In summary, Maiden is a speculative buy with target price of $9.


Art Raschbaum, Chief Executive Officer of Maiden (second quarter)

“The emergence of adverse loss development in both of our key operating segments has impacted our second quarter 2017 results. We do not believe that the development observed in the quarter is analogous to the trend observed across our portfolio over recent quarters which specifically emanated from elevated commercial auto liability frequency and severity from the 2011-2014 underwriting years, a phenomenon which has plagued many in the industry. While the AmTrust Reinsurance segment adverse development is relatively modest in the context of the overall historical portfolio assumed, as we have committed to in the past, it is our practice to respond to confirmed adverse development promptly. In response to observed elevated claims activity which we noted in our first quarter earnings call, Maiden’s audit activity has confirmed claims operational changes in AmTrust’s U.S. small commercial lines business which are believed to have contributed to a portion of the increased emergence in related casualty lines. We have however increased our reserves in these lines in the quarter in response to elevated severity in specific jurisdictions.

“In the Diversified Reinsurance segment, adverse development was observed in the segment’s casualty facultative business and from a small number of treaty accounts. Despite the adverse development in the quarter, year-to-date treaty commercial auto which has been the source of significant development over many recent quarters, has been benign, giving us increasing comfort that we have addressed this issue. In the quarter, Maiden also experienced elevated non-cat property loss activity in its Diversified Reinsurance segment. As we have observed in prior quarters, the most recent underwriting years continue to perform within expectations. Despite the underwriting results, we did benefit from strong investment income, up 14.7% from the prior year period driven by increased investable assets. Absent adverse development, this will improve both return on equity and operating results in future quarters.”

Disclosure: I do not have shares in any of the companies mentioned.

Seeking Reinsurer Bargains Post-Hurricane Hit/s


Stocks: Validus Holdings (ticker VR)

Validus Holdings could have been an appealing investment

Tumbling 15.45% to its lowest point in the past week during Hurricane hit/s, Bermuda-based reinsurer Validus Holdings recovered outstandingly having generated 16.31% share price gains in just four business days.

Trading at its book value with a 3% trailing dividend yield with 40% payout ratio, Validus does reflect a very appealing investment.

In its recent six months operations, the reinsurer registered 2.2% year over year growth in its revenue to $1.33 billion and a contrasting 25% profit drop to $195.7 million (15% margin compared to 20% a year earlier).

Validus recorded 6% higher total expenses and another $8.6 million allocations to its AlphaCat investors resulting in lower profits in the period.


Despite the recent runup, Validus has actually provided 9.43% total losses to its shareholders so far this year compared to S&P 500’s 13.19%.

 Validus Holdings

According to filings, Validus Holdings, Ltd. was incorporated under the laws of Bermuda on October 19, 2005.

The Company and its subsidiaries conduct its operations worldwide through four operating segments: Validus Re, Talbot, Western World, and AlphaCat.

Validus seeks to establish itself as a leader in the global insurance and reinsurance markets.

Further, the company’s principal operating objective is to use its capital efficiently by underwriting primarily short-tail insurance and reinsurance contracts with superior risk and return characteristics.

Validus’ primary underwriting objective is to construct a portfolio of short-tail insurance and reinsurance contracts that maximize the company’s return on equity subject to prudent risk constraints on the amount of capital we expose to any single event.

The company manages its risks through a variety of means, including contract terms, portfolio selection, diversification, including geographic diversification, and proprietary and commercially available third-party vendor catastrophe models.

As of 2016, Validus had 40% of its gross written premiums in the United States.

Validus Re

Validus Re is a global reinsurance segment focused primarily on treaty reinsurance.

In the first half, total underwriting revenue in the Validus Re business declined 6% year over year to $459 million (42% of gross unadjusted revenue) and generated an underwriting margin of 30% compared to 31% a year earlier.

Validus noted that the decline in its gross premiums were results of the decline in agriculture premiums and reductions in participation and the non-renewal of various catastrophe programs due to market condition.


Talbot is a specialty insurance segment, primarily operating within Lloyd’s insurance market through Syndicate 1183.

In the first half, revenue in Talbot business fell 5% year over year to $387.8 million (36% of gross unadjusted revenue) and underwriting margin of 5% compared to 7% a year earlier.

Gross premium written for Talbot actually declined more at 9% brought by the decrease in the marine and other treaty account, reductions in participation and non-renewals on various programs associated with property lines, and decreases in the contingency and accident and health classes due to adjustments on existing business and the non-renewal associated with specialty lines.

Western World

Western World is a U.S. based specialty excess and surplus lines insurance segment operating within the U.S. commercial market.

In the first half, revenue in the Western World business jumped 79% year over year to $228.9 million (21% of gross unadjusted revenue) and an underwriting loss of $12.9 million compared to $10.5 in losses a year earlier.

Higher gross written premium at 100% year over year growth resulted in higher revenue for Western World. This growth resulted from increased premiums written in association with new agriculture business, property and liability lines.

Losses, meanwhile, also more than doubled brought by the aforementioned increase in specialty lines due to new agriculture business is written through and in relation to the company’s Crop Risk Services and lower favorable development on prior accident years.


AlphaCat is a Bermuda based investment adviser, managing capital for third parties and the Company in insurance linked securities (“ILS”) and other property catastrophe and specialty reinsurance investments.

Revenue in the AlphaCat segment rose 27% year over year to $11.47 million and generated Income before investment income from AlphaCat Funds and Sidecars margin of 32% compared to 40% a year earlier.

Sales and profits

In the past three years, Validus’ revenue growth averaged 4.2%, profit decline average 11.9%, and profit margin average of 17.9% (Morningstar).

Cash, debt and book value (equity)

As of June, Validus had $800 million in cash and cash equivalents and $1.85 billion in long-term debt with debt-equity ratio 0.44 times vs. 0.30 times a year earlier. Overall debt increased by $696 million while equity rose $345 million to $4.2 billion.

Cash flow

Validus’ cash flow from operations declined by 23% year over year in its recent six months operations to $53 million mostly because of lower profits in the period. The reinsurer did not have any capital expenditures while it raised $626 million in debt issuance (net repayments and other financing activities) and provided $93 million or 175% of its cash flow in dividends and share repurchases.

The cash flow summary

In the past three years, Validus raised $1.37 billion in debt (net repayments and other financing activities), generated $987 million in free cash flow, and provided $1.33 billion in dividends and share repurchases at a free cash flow payout ratio of 151%.


If not for the company’s growing Western World business, Validus may have delivered far more unappealing results based on its recent first half performance, thus supports its underappreciated shares. In addition, this growing segment also delivered wider losses in its recent operations.

The company’s return on assets and equity figures as of its fiscal 2016 also were several percentages lower from its prior year figures indicating lesser overall profitability. Nonetheless, Validus does provide hefty payouts to its shareholders despite this difficulty in generating more profits.

Average analysts estimates have an overweight recommendation on Validus with a target price of $57.88 a share compared to $47.23 at the time of writing. On the other hand, applying a 10% discount from its book value indicated a conservative per share figure of $47.7 a share.

In summary, Validus is a pass.


Validus’ Chairman and CEO Ed Noonan stated in its second quarter report:

“I’m very pleased to report another very solid quarter for Validus. Despite soft trading conditions across the global market and elevated industry event frequency we were able to deliver an 82.5% combined ratio in the quarter and grew our book value per diluted share including dividends by 2.1%. We continue to position the Company well to weather the soft market while building the foundation to benefit from better market conditions down the road.”

Disclosure: I do not have shares in any of the companies mentioned.

Hurricane Bargain? Aspen Insurance Holdings

Recent operations did not bring any attractiveness despite high discount to book value
Stock: Aspen Insurance Holdings (ticker: AHL)

Reinsurers are recently hit brought by their exposure to such calamities that have occurred in Florida.

A Bermuda-based $2.3 billion insurance company with 51% of its gross written premiums based in the United States, Aspen Insurance is worth a look.
The company’s shares dropped 6.3% in the days that Hurricane Irma’s landfall in Florida while having jumped a whopping 9.44% after lost estimates were reduced.

Meanwhile, the insurer’s cheap 0.6 times PB ratio accompanied by a decent 2.4% trailing dividend yield with 36% payout ratio could trigger an easy decision that it is a great value and a worthy buy even today even without waiting for the accumulative after effects of Hurricane Irma and Harvey in the coming quarters.

Aspen, nonetheless, exhibited an already weak 13% decline in revenue and 4% drop in profits as per its recent six months operations compared to its year ago period.
This decline in profits was observed despite that Aspen was able to reduce its total expenses by 14%. Net earned premiums (85% of revenue) declined by 14.9%.

Further, Aspen management brought up that Aspen was operating in a challenging environment during the press release.

The company has provided 22.82% total losses to its shareholders so far this year compared to the S&P500’s 11.51% total gains.

Aspen Insurance Holdings Limited (“Aspen Holdings”) was incorporated on May 23, 2002, as a holding company headquartered in Bermuda.

Aspen underwrites specialty insurance and reinsurance on a global basis through its Operating Subsidiaries based in Bermuda, the United States, and the United Kingdom: Aspen U.K. and AUL, corporate member of Syndicate 4711 at Lloyd’s of London and managed by AMAL (United Kingdom), Aspen Bermuda (Bermuda) and Aspen Specialty and AAIC (United States). The company also has branches in Australia, Canada, France, Germany, Ireland, Singapore, Switzerland and the United Arab Emirates.

Aspen has two distinct business segments, Aspen Insurance and Aspen Reinsurance (“Aspen Re”).

Aspen Insurance
Aspen Insurance consists of (i) property and casualty insurance, (ii) marine, aviation and energy insurance, (iii) and financial and professional lines insurance.

Gross written premium for the insurance business grew 6% in the first half to $900.9 million (49% of written premiums) and an underwriting income margin of 6.3% compared to 8.3% a year earlier.

Aspen Re

Aspen Re consists of (i) property catastrophe reinsurance (including the business written through Aspen Capital Markets), (ii) other property reinsurance, (iii) casualty reinsurance, and (iv) specialty insurance and reinsurance.

Aspen Re gross written premiums decreased by 0.9% year over year to $919.2 (51% of total written premiums) and underwriting losses of $10.3 million vs. profits of $17.6 million a year earlier.

Sales and profits
In the past three years, Aspen registered revenue growth average of 6.6%, profit decline average of 14.9%, and profit margin average 9.75% (Morningstar).

Cash, debt and book value
As of June, Aspen had $1.23 billion in cash and cash equivalents and $7 million in long-term debt with debt-equity ratio 0.18 times–at par in the same period last year. Equity rose by $4 million to $3.62 billion from a year earlier period.

Cash flow
Aspen’s had $104 million in cash outflow from operations brought by lower payables and other assets in its first half of operations. The company also had a free cash outflow of $122 million compared to $223 million a year earlier. Aspen also allocated $114 million in long-term debt repayments and spent $133 million in preferred stock redemptions.

The cash flow summary
In the past three years, Aspen allocated $64 million in capital expenditures, raised $118 million in debt net repayments and $12 million in share issuances, generated $1.57 billion in free cash flow, and provided $611 million in dividends and repurchases at an average free cash flow payout ratio of 39%.

Aspen’s recent sharp rise in share price brought some relief from several hurricane episodes should be taken as a caution. This is because the company has performed weakly in its recent months of operations absent such recent events. Further, both metrics ROE and ROA has fallen in recent years too.

Aspen’s reinsurance business, in particular, has experienced weak premium growth accompanied even by losses in the recent first half period.

Nonetheless, the company has a strong balance sheet accompanied by a healthy free cash flow generation and prudent payout ratios.

Analysts have an average hold recommendation on Aspen with a target price of $51 a share vs. $41.75 at the time of writing. Asking a 25% discount from Aspen’s book value would still indicate an 8.6% upside from today’s share price to $45.36.

In summary, Aspen is a pass.

Chris O’Kane, Chief Executive Officer

“We continue to make progress in both Reinsurance and Insurance to enhance further our competitive position and profitability.
“With a strong regional network and deep local relationships, the Aspen Re team has been able to capture new opportunities and again deliver strong results in an operating environment that remains challenging. The Aspen Insurance team remains focused on lines that provide the best opportunities for long-term profitable growth such as Professional Liability, with its excellent track record of growth and strong underwriting performance.
“While our second quarter underwriting results reflected elevated loss levels in certain areas of the business, our investment performance contributed positively to diluted book value per share growth.”