Maiden Holdings, Ltd. - Quarter Report: 2008 June (Form 10-Q)

 

Bermuda (State or other jurisdiction of incorporation or organization)	04-3106389 (IRS Employer Identification No.)
48 Par-la-Ville Road, Suite 1141 HM11 (Address of principal executive offices)	HM11 (Zip Code)
(441) 292-7090 (Registrant’s telephone number, including area code)

 

 

 

				Page
PART I		FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements:
		Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007		3
		Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007 (Unaudited)		4
		Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (Unaudited)		5
		Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2008 and 2007 (Unaudited)		6
		Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II		OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.		Submission of Matters to a vote of Security Holders
Item 6.		Exhibits
		Signatures

 

  Item 1. Financial Statements

 

MAIDEN HOLDINGS, LTD.

CONSOLIDATED BALANCE SHEETS

(in thousands (000’s), except per share data)

 

		(Unaudited)
		June 30, 2008			December 31, 2007
Assets
Fixed maturities, available-for-sale, at fair value (amortized cost $752,990 ; $488,765)		$	721,496		$	474,789
Other investments, at fair value (cost $15,485; $15,176)			12,134			15,656
Total investments			733,630			490,445
Cash and cash equivalents			74,170			35,729
Accrued investment income			4,827			3,204
Reinsurance balances receivable, net (primarily with related parties - see note 8)			101,933			27,990
Loan to related party (see note 8)			167,975			113,542
Prepaid expenses and other assets			62			454
Deferred commission and other acquisition costs (primarily with related parties - see note 8)			91,011			44,215
Furniture and equipment, net			70			29
Total Assets		$	1,173,678		$	715,608
Liabilities and Shareholders’ Equity
Liabilities
Loss and loss adjustment expense reserves (primarily with related parties - see note 8)		$	83,340		$	38,508
Unearned premiums (primarily with related parties - see note 8)			268,206			137,166
Accrued expenses and other liabilities			4,175			2,589
Due to broker			26,660			-
Securities sold under agreements to repurchase, at contract value			254,557			-
Total Liabilities			636,938			178,263
Shareholders’ Equity:
Common shares, $0.01 par value; 100,000,000 shares authorized, 59,550,000 issued and outstanding			596			596
Additional paid-in capital			530,038			529,647
Accumulated other comprehensive loss			(34,845	)		(13,496	)
Retained earnings			40,951			20,598
Total Shareholders’ Equity			536,740			537,345
Total Liabilities and Shareholders’ Equity		$	1,173,678		$	715,608

 

See accompanying notes to the unaudited consolidated financial statements.

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In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP 03-6-1”).  FSP 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in Statement of Financial Accounting Standards No. 128 (“SFAS No. 128”), “Earnings Per Share.” This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and requires all presented prior-period earnings per share data to be adjusted retrospectively.  We are currently evaluating the impact, if any, that FSP 03-6-1 will have on our consolidated financial statements.

In May 2008, the FASB issued FASB Statement No. 163 (“SFAS 163”), “Accounting for Financial Guarantee Insurance Contracts”, an interpretation of SFAS Statement No. 60. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 163 also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. SFAS 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. We are currently evaluating the impact, if any, that SFAS 163 will have on our consolidated financial statements.

In May 2008, the FASB issued FASB Statement No. 162 (“SFAS 162”), “The hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles) in the United States. This Statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe the adoption will have a material impact on its financial condition or results of operations.

In March 2008, the FASB issued FASB Statement No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging Activities ”. SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact, if any, that SFAS 161 will have on our consolidated financial statements.

 

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which SFAS No. 160 is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. The Company does not have a noncontrolling interest in one or more subsidiaries. The Company does not believe the adoption will have a material impact on its financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, SFAS No. 141(R) will be applied by the Company to business combinations occurring on or after January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. Under SFAS 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 was effective for the Company beginning in the first quarter of fiscal 2008. We chose not elect the fair value option. Therefore, the adoption of SFAS No. 159 in the first quarter of fiscal 2008 did not impact our consolidated financial position, results of operations or cash flows.

3.	Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale fixed maturities and other investments as of June 30, 2008 and December 31, 2007, are as follows:

 

(a) Available-for-Sale Fixed Maturities and Other Investments

June 30, 2008		Original or amortized cost			Gross unrealized gains			Gross unrealized losses			Fair value
Fixed Maturities:
U.S. Agency - mortgage backed securities		$	397,730		$	479		$	(2,416	)	$	395,793
Corporate fixed maturities			355,260			428			(29,985	)		325,703
Total available for sale fixed maturities			752,990			907			(32,401	)		721,496
Other investments			15,485			-			(3,351	)		12,134
Total investments		$	768,475		$	907		$	(35,752	)	$	733,630

December 31, 2007		Original or amortized cost			Gross unrealized gains			Gross unrealized losses			Fair value
Fixed Maturities:
U.S. Agency - mortgage backed securities		$	204,363		$	660		$	-		$	205,023
Corporate fixed maturities			284,402			445			(15,081	)		269,766
Total available for sale fixed maturities			488,765			1,105			(15,081	)		474,789
Other investments			15,176			480			-			15,656
Total investments		$	503,941		$	1,585		$	(15,081	)	$	490,445

 

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(b) Investment Income

 

Net investment income was derived from the following sources:

		For the Three Months Ended June 30, 2008			Period from May 31, 2007 (inception) to June 30, 2007			For the Six Months Ended June 30, 2008			Period from May 31, 2007 (inception) to June 30, 2007
Fixed maturities		$	7,128		$	-		$	13,968		$	-
Cash and cash equivalents			1,093			59			1,384			59
Loan to related party			934			-			2,285			-
			9,155			59			17,637			59
Less:
Investment expenses			(316	)		-			(813	)		-
Interest expense on securities sold under agreements to repurchase			(1,076	)		-			(1,452	)		-
		$	7,763		$	59		$	15,372		$	59

 

(c) Other-Than-Temporary Impairment

 

We review our investment portfolio for impairment on a quarterly basis. Impairment of investments results in a charge to operations when a fair value decline below cost is deemed to be other-than-temporary. As of June 30, 2008, we reviewed our portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. During the three months and six months ended June 30, 2008, respectively there were no other-than-temporary declines in the fair values of investments held in our investment portfolio. 

 

The tables below summarize the gross unrealized losses of our available-for-sale securities and other investments as of June 30, 2008:

 

		Less than 12 months						12 months or more						Total
		Fair value			Unrealized losses			Fair value			Unrealized Losses			Fair value			Unrealized losses
Available-for-sale securities:
U.S. Agency mortgage backed securities		$	323,578			(2,416	)	$	-			-		$	323,578			(2,416	)
Corporate fixed maturities			302,093			(29,985	)		-			-			302,093			(29,985	)
			625,671			(32,401	)		-			-			625,671			(32,401	)
Other investments		$	12,134			(3,351	)	$	-			-		$	12,134			(3,351	)
Total temporarily impaired available-for-sale securities and other investments		$	637,805			(35,752	)	$	-			-		$	637,805			(35,752	)

The tables below summarize the gross unrealized losses of our available-for-sale securities and other investments as of December 31, 2007:

 

		Less than 12 months						12 months or more						Total
		Fair value			Unrealized losses			Fair value			Unrealized Losses			Fair value			Unrealized losses
Available-for-sale securities:
U.S. Agency mortgage backed securities		$	-			-		$	-			-		$	-			-
Corporate fixed maturities			249,233			(15,081	)		-			-			249,233			(15,081	)
			249,233			(15,081	)		-			-			249,233			(15,081	)
Other investments		$	-			-		$	-			-		$	-			-
Total temporarily impaired available-for-sale securities and other investments		$	249,233			(15,081	)	$	-			-		$	249,233			(15,081	)

 

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(d) Other

 

The Company enters into repurchase agreements. The agreements are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities, that it invests or holds in short term or fixed income securities. As of June 30, 2008, there were $254,557 principal amount outstanding at interest rates between 2.5% and 2.8%. Interest expense associated with these repurchase agreements was $1,076 and $1,452 for the three and six months ended June 30, 2008, respectively; out of which $115 was accrued as of June 30, 2008. The Company has approximately $254,557 of collateral pledged in support of these agreements.

 

4.	Fair Value of Financial Instruments

 

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in SFAS 157. 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 SFAS 157 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. The three levels of the hierarchy are as follows:

·

Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

·

Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar 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.

·

Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

 

In accordance with SFAS 157, the Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value, including an indication of the level within the fair value hierarchy in which each asset or liability is generally classified.

Investments available for sale. Investments available for sale are recorded at fair value on a recurring basis and include fixed maturities and securities sold under agreements to repurchase. Fair value of investments is measured based upon quoted prices in active markets, if available. If quoted prices in active markets are not available, the Company estimates the fair value of fixed maturities not traded in active markets, by referring to traded securities with similar attributes, using dealer quotations, a matrix pricing methodology, discounted cash flow analyses or internal valuation models. This methodology considers such factors as the issuer’s industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. Level 1 investments include those traded on an active exchange, such as the NASDAQ. Since fixed maturities other than U.S. treasury securities generally do not trade on a daily basis, these investments are classified as Level 2 investments and include obligations of U.S. government agencies, corporate debt securities and other mortgage backed securities.

 

Other investments. Other investments consist primarily of hedge funds where the fair value estimate is determined by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company includes other investments in the amount disclosed in Level 3.

 

Fair Value Hierarchy

The following table presents the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis as of June 30, 2008:

		Total			Level 1			Level 2			Level 3
Assets:
Available-for-sale fixed maturities		$	721,496		$	-		$	721,496		$	-
Other investments			12,134			-						12,134
		$	733,630		$	-		$	721,496		$	12,134
Liabilities:
Securities sold under agreements to repurchase, at contract value			(254,557	)		-			(254,557	)		-
		$	479,073		$	-		$	466,939		$	12,134

 

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The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of June 30, 2008:

 

		Three months ended June 30, 2008			Six months ended June 30, 2008
Beginning balance		$	12,383		$	15,656
Total net losses for the period included in:
Net income			-			-
Other comprehensive loss			(535	)		(3,831	)
Purchases, sales, issuances and settlements, net			286			309
Net transfers into (out of) Level 3			-			-
Ending balance as of June 30, 2008		$	12,134		$	12,134

5.	Earnings Per Share

The following is a summary of the elements used in calculating basic and diluted earnings per share:

 

		Three months ended June 30, 2008			Period from May 31, 2007 (inception) to June 30, 2007			Six months ended June 30, 2008			Period from May 31, 2007 (inception) to June 30, 2007
Net income available to common shareholders		$	13,792		$	(77	)	$	26,308		$	(77	)
Weighted average number of common shares outstanding - basic			59,550,000			4,026,000			59,550,000			4,026,000
Potentially dilutive securities:			-			-			-			-
Warrants
Share options			-			-			-			-
Weighted average number of common shares outstanding - diluted			59,550,000			4,026,000			59,550,000			4,026,000
Basic and diluted earnings per common share:		$	0.23		$	(0.02	)	$	0.44		$	(0.02	)

 

As of June 30, 2008, the total weighted-average of 4,050,000 warrants and 859,707 share options were excluded from diluted earnings per share as they were anti-dilutive.

 

6.	Share Based Compensation

The Company’s 2007 Share Incentive Plan (the “Plan”) provides for grants of options and restricted shares. The total number of shares currently reserved for issuance under the Plan is 2,800,000 common shares. The Plan is administered by the Compensation Committee of the Board of Directors. Exercise prices of options will be established at or above the fair market value of the Company’s common shares at the date of grant. Under the 2007 Share Incentive Plan, unless otherwise determined by the compensation committee and provided in an award agreement, 25% of the options will become exercisable on the first anniversary of the grant date, with an additional 6.25% of the options vesting each quarter thereafter based on the grantee’s continued employment over a four-year period, and will expire ten years after grant date.

 

Share Options

 

The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all share option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The adoption of SFAS No. 123R’s fair value method has resulted in share-based expense (a component of salaries and benefits) in the amount of approximately $204 and $391 for the three and six months ended June 30, 2008, respectively.

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The Company awarded options during the three months and six months ended June 30, 2008, respectively. The key assumptions used in determining the fair value of options granted in 2008 and a summary of the methodology applied to develop each assumption are as follows:

Assumptions :		2008
Volatility		29.8	%
Risk-free interest rate		3.30	%
Weighted average expected lives in years		6.1 years
Forfeiture rate		0	%
Dividend yield rate		1	%

 

Expected Price Volatility - This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. At the times the Company granted options, there was no external market for the Company’s common shares. Thus, it was not possible to use actual experience to estimate the expected volatility of the price of the common shares in estimating the value of the options granted. As a substitute for such estimate, the Company used the historical volatility of companies in the industry in which the Company operates.

 

Risk-Free Interest Rate - This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense. 

Expected Lives - This is the period of time over which the options granted are expected to remain outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns. The Company uses the simplified method outlined in SEC Staff Accounting Bulletin No. 107 to estimate expected lives for options granted during the period as historical exercise data is not available and the options meet the requirements set out in the Bulletin. Options granted have a maximum term of ten years. An increase in the expected life will increase compensation expense.

Forfeiture Rate - This is the estimated percentage of options granted that are expected to be forfeited or cancelled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.

The following schedule shows all options granted, exercised, expired and exchanged under the Plan for the three months ended June 30, 2008:

		Number of Share Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term
Outstanding, March 31, 2008			883,000		$	10.00			9.5 years
Granted			79,000			10.00			9.9 years
Exercised			-			-
Cancelled			-			-
Outstanding, June 30, 2008			962,000		$	10.00			9.3 years

 

The following schedule shows all options granted, exercised, expired and exchanged under the Plan for the six months ended June 30, 2008:

		Number of Share Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term
Outstanding, December 31, 2007			716,000		$	10.00			9.1 years
Granted			246,000			10.00			9.7 years
Exercised			-			-
Cancelled			-			-
Outstanding, June 30, 2008			962,000		$	10.00			9.3 years

The Company currently operates two business segments, Reinsurance - AmTrust Quota Share and Reinsurance - Other. The Company evaluates segment performance based on segment profit and includes an allocation of investment income based on the average investment return on the actual cash generated by the segment as the Company does not manage its investment portfolio by segment. Other expenses are allocated 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. The following tables summarize business segments as follows:   

Three months ended June 30, 2008		Reinsurance - AmTrust Quota Share			Reinsurance - Other			Corporate and other			Total
Revenues
Net premium written		$	168,068		$	3,183		$	-		$	171,251
Earned premium			76,246			1,092			-			77,338
Investment income and other revenues			1,031			-			6,771			7,802
Total revenues			77,277			1,092			6,771			85,140
Expenses
Loss and loss adjustment expenses			43,213			397			-			43,610
Commission and other acquisition expenses			25,043			455			-			25,498
Other expenses			201			480			1,559			2,240
Total expenses			68,457			1,332			1,559			71,348
Net income (loss)		$	8,820		$	(240	)	$	5,212		$	13,792

 

Six months ended June 30, 2008		Reinsurance - AmTrust Quota Share			Reinsurance - Other			Corporate and other			Total
Revenues
Net premium written		$	251,016		$	22,667		$	-		$	273,683
Earned premium			140,036			2,607			-			142,643
Investment income and other revenues			2,382			-			13,153			15,535
Total revenues			142,418			2,607			13,153			158,178
Expenses
Loss and loss adjustment expenses			80,421			1,025			-			81,446
Commission and other acquisition expenses			45,614			1,144			-			46,758
Other expenses			377			629			2,660			3,666
Total expenses			126,412			2,798			2,660			131,870
Net income (loss)		$	16,006		$	(191	)	$	10,493		$	26,308

 

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Period from May 31, 2007 (inception) to June 30, 2007		Reinsurance - AmTrust Quota Share			Reinsurance - Other			Corporate and other			Total
Revenues
Net premium written		$	-		$	-		$	-		$	-
Earned premium			-			-			-			-
Investment income and other revenues			-			-			59			59
Total revenues			-			-			59			59
Expenses
Loss and loss adjustment expenses			-			-			-			-
Commission and other acquisition expenses			-			-			-			-
Other expenses			-			-			136			136
Total expenses			-			-			136			136
Net income (loss)		$	-		$	-		$	(77	)	$	(77	)

 

		Reinsurance - AmTrust Quota Share			Reinsurance - Other			Corporate and Other			Total
As of June 30, 2008
Reinsurance balances receivable		$	89,019		$	12,914		$	-		$	101,933
Deferred commission and other acquisition costs			82,482			8,529			-			91,011
Loan to related party			167,975			-			-			167,975
Corporate and other assets			14,993			-			797,766			812,759
Total assets		$	354,469		$	21,443		$	797,766		$	1,173,678

		Reinsurance - AmTrust Quota Share			Reinsurance - Other			Corporate and Other			Total
As of December 31, 2007
Reinsurance balances receivable		$	27,990		$	-		$	-		$	27,990
Deferred commission and other acquisition costs			44,215			-			-			44,215
Loan to related party			113,542			-			-			113,542
Corporate and other assets			-			-			529,861			529,861
Total assets		$	185,747		$	-		$	529,861		$	715,608

 

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The following tables set forth financial information relating to gross and net premiums written and earned by major line of business for the three and six months ended June 30, 2008 and 2007:

		Three months ended June 30, 2008						Period from May 31, 2007 (inception) to June 30, 2007						Six months ended June 30, 2008						Period from May 31, 2007 (inception) to June 30, 2007
		Total			% of Total			Total			% of Total			Total			% of Total			Total			% of Total
Gross and net premiums written
Reinsurance - AmTrust Quota Share
Workers Compensation		$	29,399			17.16		$	-			-		$	73,056			26.69		$	-			-
Specialty Middle Market Property & Casualty			14,614			8.53			-			-			21,481			7.84			-			-
Specialty Risk and Extended Warranty			37,251			21.75			-			-			69,675			25.45			-			-
Unitrin Business Insurance (UBI)			86,804			50.70			-			-			86,804			31.72			-			-
Total Reinsurance - AmTrust Quota Share		$	168,068			98.14		$	-			-		$	251,016			91.70		$	-			-
Reinsurance - Other			3,183			1.86									22,667			8.30
		$	171,251			100.00		$	-			-		$	273,683			100.00		$	-			-
Gross and net premiums earned
Reinsurance - AmTrust Quota Share
Workers Compensation		$	32,404			41.90		$	-			-		$	64,284			45.06		$	-			-
Specialty Middle Market Property & Casualty			8,989			11.62			-			-			19,303			13.53			-			-
Specialty Risk and Extended Warranty			21,408			27.68			-			-			43,004			30.14			-			-
Unitrin Business Insurance (UBI)			13,445			17.39			-			-			13,445			9.43			-			-
Total AmTrust Quota Share		$	76,246			98.59		$	-			-		$	140,036			98.16		$	-			-
Reinsurance - Other			1,092			1.41			-			-			2,607			1.84			-			-
		$	77,338			100.00		$	-			-		$	142,643			100.00		$	-			-

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated or unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and similar expressions are references to Maiden Holdings and its consolidated subsidiary.

The following is a discussion and analysis of our results of operations for the three and six month periods ended June 30, 2008 and our financial condition as of June 30, 2008. This discussion and analysis should be read in conjunction with the attached unaudited interim consolidated financial statements and related notes and the audited consolidated financial statements and related notes contained in our Annual Report to Security Holders for the year ended December 31, 2007, previously filed with the Securities and Exchange Commission (“SEC”) on May 15, 2008.

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). We intend that the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 apply to these forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These forward looking statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated by reference herein and in other documents filed by us with the SEC) include, but are not limited to:

 

•

claims development;

•

general economic conditions and conditions specific to the reinsurance markets in which we operate;

•

pricing competition;

•

rating agency policies and practices;

•

catastrophic events;

•

material fluctuations in interest rates;

•

tax and regulatory changes and conditions; and

•

loss of key executives.

 

Other factors, such as changes in U.S. and global debt markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations and changes in credit spreads, may adversely impact our investments or impede our access to, or increase the cost of, financing our operations. We caution that the foregoing list of important factors is not intended to be, and is not, exhaustive. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements in this Form 10-Q reflect our current view with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph.

Our policy is to communicate events that we believe may have a material adverse impact on the Company’s operations or financial position, in a timely manner through a public announcement. It is also our policy not to make public announcements regarding events that we believe have a non-material impact to the Company’s operations or financial position based on management’s estimates and current information, other than through regularly scheduled calls, press releases or filings.

Overview

We are a Bermuda holding company organized to provide reinsurance business solutions to the property and casualty industry through Maiden Insurance, our reinsurance company subsidiary incorporated and licensed as a Class 3 insurer in Bermuda. Our solutions include quota share reinsurance as well as excess of loss reinsurance.

We offer our products to small specialty property and casualty insurance companies located in the United States and Europe that are seeking to efficiently manage their capital. We may also reinsure other reinsurers of U.S. and European specialty property and casualty insurance business that have similar objectives. We also conduct business with managing general agents in the United States and Europe that manage programs that fit our expertise in specialty insurance as well as Lloyd’s syndicates and program administrators. We may on occasion, make strategic investments in some of our clients in order to enable those clients to expand their business and therefore the amount of business they do with us. We do not currently hold any such investments.

We manage our business through two operating segments; Reinsurance - Amtrust Quota Share and Reinsurance - Other.

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Reinsurance - AmTrust Quota Share

We entered into a quota share reinsurance agreement with AmTrust’s Bermuda reinsurance subsidiary, AII, which provides quota share reinsurance to AmTrust’s insurance company subsidiaries. We also entered into a master agreement with AmTrust pursuant to which we will cause Maiden Insurance, and AmTrust will cause its insurance company subsidiaries, through AII, to reinsure 40% of all business (net of reinsurance with unaffiliated reinsurers) of the types written, as of the effective date of the master agreement, by the insurance subsidiaries and Maiden Insurance will have an option to reinsure any new types of business that they may write. Effective as of July 1, 2007, we reinsure 40% of all business (net of reinsurance with unaffiliated reinsurers) written by AmTrust’s insurance company subsidiaries that is subject to the reinsurance agreement. In addition, we also assumed through AII, effective as of July 1, 2007, 40% of the unearned premium reserve of AmTrust’s insurance subsidiaries (and the corresponding loss exposure). Maiden Insurance pays AII a ceding commission of 31% based on ceded written premiums. The reinsurance agreement has an initial term of three years and will be extended for further terms of three years unless either party elects not to renew.

On June 11, 2008, the Company and AmTrust amended the quota share to add Retail Commercial Package Business to the Covered Business as a consequence of AmTrust’s acquisition of Unitrin Business Insurance (UBI). Under the amendment, AmTrust's subsidiaries cede, upon collection, to Maiden Insurance 100% of $82.2 million of unearned premium (net of inuring reinsurance) from the acquisition of UBI's in-force book of business. Additionally, AmTrust agreed to cede to Maiden 40% of net premium written, effective as of June 1, 2008. Maiden Insurance will pay AmTrust a ceding commission of 34.375% on the unearned premium cession and the Retail Commercial Package Business.

We also entered into an asset management agreement with AIIM, a subsidiary of AmTrust, having an initial term of one year which will extend for further terms of one year unless either party elects not to renew. The Company recorded approximately $0.26 million and $0.72 million of investment management fees in the three and six months ended June 30, 2008, respectively.

We also entered into a reinsurance brokerage agreement with a subsidiary of AmTrust pursuant to which we receive reinsurance brokerage services in exchange for a fee of 1.25% of all premiums we reinsure from AmTrust. The Company recorded approximately $0.95 million and $1.75 million of reinsurance brokerage expense for the three month and six month period ended June 30, 2008, respectively.

Reinsurance - Other

We continue to see increased flow of submission of reinsurance opportunities. Reinsurance intermediaries are the primary source of these opportunities. We have adopted a disciplined underwriting posture and thoroughly review all reinsurance opportunities before determining whether to participate. Between November 6, 2007 and July 23, 2008, we have received 267 reinsurance submissions. We have entered into seven reinsurance agreements for business other than the Quota Share Agreement with AmTrust with a gross premium written of $22.7 million. These contracts are, by gross premium written, 65% quota share and 35% excess of loss. By line of risk the split is 40% workers’ compensation, 15% auto liability and 45% is specialty risk and general liability.

Effective April 1, 2008, the Company entered into brokerage services agreements with IGI Intermediaries Limited and IGI Inc (IGI), both subsidiaries of AmTrust. Pursuant to the brokerage services agreements, IGI provides marketing services to us which includes providing marketing material to potential policyholders, providing us with market information on new trends and business opportunities and referring new brokers and potential policyholders to us. A fee equal to IGI‘s costs in providing such services plus 8% is payable in consideration of IGI’s marketing services. The Company recorded approximately $410 expense, which is included in other operating expenses, for the three and six months ended June 30, 2008.

Principal Revenue and Expense Items

Revenues

We derive our revenue primarily from premiums assumed on reinsurance contracts net of any inuring reinsurance. Reinsurance premiums assumed are estimated based on reports and other information provided by brokers and ceding companies, supplemented by the Company's own estimates of premiums where reports have not been received or in cases where the amounts reported by brokers and ceding companies are adjusted to reflect management's best judgments and expectations. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned on a basis consistent with the terms of the underlying related insurance contracts. In addition, our revenues include income from our investment portfolio, comprising net investment income and net realized gains and losses. Investment income is principally derived from interest earned on investments, partially offset by investment management fees and fees paid to our custodian bank. Net realized gains or losses include net realized investment gains or losses from the sale of investments.

Expenses

In our consolidated results, expenses consist of loss and loss adjustment expenses, commission and other acquisition expenses, salaries and benefits and operating expenses. Depending on the terms of the reinsurance agreements that we negotiate, our expenses may also include excise taxes, which are calculated as a percentage (1% for purposes of United States federal excise tax (“FET”)) of premiums ceded to us. Under our quota share reinsurance agreement with AmTrust, all payments of FET are the responsibility of AmTrust.

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Loss and Loss Adjustment Expenses. We establish loss and loss adjustment expense reserves in an amount equal to our estimate of the ultimate liability for claims under our reinsurance policies and the cost of adjusting and settling those claims. Our provision for loss and loss adjustment expense reserves in any period will include estimates for losses incurred (that is, the total sustained by us under policies, whether paid or unpaid) during such period and changes in estimates for prior periods.

Commission and Other Acquisition Expenses. These expenses include ceding commissions and other acquisition costs. Acquisition costs consist of ceding commission and, reinsurance broking expense. These costs are expected to be capitalized and amortized as an expense as the premiums are earned on the treaties to which they pertain.

Maiden Insurance pays ceding commissions to other insurance companies, including AmTrust, for the reinsurance premiums that we assume. Ceding commissions are intended to compensate the ceding company for the costs incurred to acquire the ceded business. Ceding commissions are typically paid on traditional quota share reinsurance agreements, but not on excess of loss reinsurance agreements.

Under our quota share reinsurance agreement with AII, except for the Retail Commercial Package Business, we pay a ceding commission of 31% calculated as a percentage of ceded premiums. On the Retail Commercial Package Business, we pay to AmTrust a ceding commission of 34.375%.

Reinsurance brokerage expense includes the 1.25% reinsurance brokerage fee that we pay to an AmTrust subsidiary on all reinsurance ceded by AmTrust as well as other reinsurance brokerage fees and commission expense we may incur to other intermediaries.

Salaries and benefits. These payments comprise officers and employees salaries and related costs.

Other Operating Expenses. Other operating expenses consist of other expenses related to our operations. Other operating expenses consist of general & administrative expenses such as fees payable to IGI under the brokerage services agreement, professional fees, rent, office supplies, depreciation and all other operating expenses not otherwise classified separately.

Ratios

    

Management measures results for each segment on the basis of the “net loss ratio,” “net expense ratio,” and the “net combined ratio”.

Net Loss Ratio. The net loss ratio is a measure of the underwriting profitability of an insurance company's business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.

Net Expense Ratio. The net expense ratio is a measure of an insurance company's operational efficiency in administering its business. Expressed as a percentage, this is the ratio of the sum of ceding commissions, policy acquisition expenses, salaries and benefits, and other insurance general and administrative expenses to net premiums earned.

 

Net Combined Ratio. The net combined ratio is a measure of an insurance company's overall underwriting profit. This is the sum of the net loss and net expense ratios. If the net combined ratio is at or above 100%, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.

We also use the following ratios:

Net Leverage Ratio. Net leverage ratio is measured by dividing annualized net premiums written by shareholders’ equity.

Annualized Return on Equity. Return on equity is calculated by dividing net income by the average of shareholders’ equity.

Measurement of Results; Outlook

We use various measures to analyze the growth and profitability of our business operations. We measure growth in terms of gross and net premiums written and we measure underwriting profitability by examining our loss, underwriting expense and combined ratios. We also measure our gross and net written premiums to surplus ratios to measure the adequacy of capital in relation to premiums written. We analyze profitability by evaluating, net income and return on average equity.

Premiums Written and Net Leverage Ratio. We use gross premiums written to measure our sales of reinsurance products. Gross premiums written also correlates to our ability to generate net premiums earned. We target a net leverage ratio, of between approximately 1.2 to 1 and approximately 1.5 to 1 after a start-up period. Our annualized net leverage ratio was 1.28 to 1 and 1.02 to 1 for the three and six months period ended June 30, 2008, respectively.

Net Loss Ratio. The loss ratio measures the underwriting profitability of our reinsurance business. We target the pricing of our products to achieve a loss ratio of approximately 55.0% to 65.0% over time. Our loss ratio was 56.4% and 57.1% for the three and six months ended of June 30, 2008, respectively.

Net Expense Ratio. We calculate our underwriting expense ratio on a gross basis (before the effect of ceded reinsurance) to measure our operational efficiency and on a net basis (after the effect of ceded reinsurance and related ceding commission income) to measure the effects on our consolidated net income. Our underwriting expense ratio on a gross basis was 35.9% and 35.3% for the three and six months ended June 30, 2008, respectively. As we have not retroceded any amounts as of June 30, 2008 the expense ratio on a net basis was also 35.9% and 35.3% for the three and six months ended June 30, 2008, respectively.

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Net Combined Ratio. We use the combined ratio to measure our underwriting performance. We analyze the combined ratio on a gross (before the effect of reinsurance) and net basis (after the effect of reinsurance). If the combined ratio is at or above 100%, we are not underwriting profitably and will not be profitable unless investment income is sufficient to offset underwriting losses. Our combined ratio was 92.3% and 92.4% for the three and six months ended June 30, 2008, respectively. We plan to write additional premiums without a proportional increase in expenses and further reduce the expenses component of our net combined ratio.

Net Income and Return on Average Equity. We use net income to measure our profits and return on average equity to measure our effectiveness in utilizing our shareholders’ equity to generate net income on a consolidated basis. Our target for return on average equity is 15% or better. Our annualized return on equity was 10.4% and 9.8% for the three and six months ended June 30, 2008, respectively.

Critical Accounting Policies

The Company’s discussion and analysis of its results of operations, financial condition and liquidity are based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. The Company has not made any changes in estimates or judgments that have had a significant effect on the reported amounts as previously disclosed in the Company’s Form ARS filed with the SEC for the fiscal period ended December 31, 2007.

Results of Operations

The Company was incorporated on May 31, 2007 and the Company’s subsidiary Maiden Insurance was incorporated on June 29, 2007 and commenced insurance operations effective July 1, 2007, therefore there are no insurance activities for the three and six month periods ended June 30, 2007. 

		For the Three Months Ended June 30, 2008			Period from May 31 (inception) to June 30, 2007			For the Six Months Ended June 30, 2008			Period from May 31 (inception) to June 30, 2007
Revenues:
Premium income:
Net premiums written (primarily with related parties - see note 8)		$	171,251		$	-		$	273,683		$	-
Change in unearned premiums			(93,913	)		-			(131,040	)		-
Net earned premium			77,338			-			142,643			-
Net investment income			7,763			59			15,372			59
Net realized investment gains			39			-			163			-
Total revenues			85,140			59			158,178			59
Expenses:
Loss and loss adjustment expenses (primarily with related parties - see note 8)			43,610			-			81,446			-
Commission and other acquisition expenses (primarily with related parties - see note 8)			25,498			-			46,758			-
Salaries and benefits			615			-			1,147			-
Other operating expenses			1,625			136			2,519			136
Total expenses			71,348			136			131,870			136
Net income (loss)		$	13,792		$	(77	)	$	26,308		$	(77	)
Basic and diluted earnings per common share		$	0.23		$	(0.02	)	$	0.44		$	(0.02	)
Dividends declared per common share		$	0.05		$	-		$	0.10		$	-
Key measures:
Net loss ratio			56.4	%		N/A			57.1	%		N/A
Net expense ratio			35.9	%		N/A			35.3	%		N/A
Net combined ratio			92.3	%		N/A			92.4	%		N/A

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Consolidated Result of Operations for the three and six months ended June 30, 2008.

Net Premium Written. Net premium written was $171.3 million and $273.7 million for the three and six months ended June 30, 2008, respectively. 98.14% and 91.72 % of those premiums for the three and six months ended June 30, 2008, respectively were assumed under the reinsurance agreement with AII. Included in the net premium written for the quarter is a $82.2 million unearned premium (net of inuring reinsurance) transfer from AII relating to the acquisition of UBI's in-force book of business which is non-recurring.

Net Premium Earned. Net premium earned was $77.3 million and $142.6 million for the three and six months ended June 30, 2008, respectively. 98.59% and 98.17 % of those premiums for the three and six months ended June 30, 2008, respectively were assumed under the reinsurance agreement with AII. Included in net premium earned for the quarter is $13.4 million in premium earned on the UBI unearned premium transaction.

Net Investment Income. Net investment income was approximately $7.8 million and $15.3 million for the three and six months ended June 30, 2008, respectively. Average invested assets for the period were approximately $660 million and $667 million for the three and six months ended June 30, 2008, respectively. The yields were approximately 4.7% and 4.6% for the three and six months ended June 30, 2008, respectively. We expect investment income to increase over time as more assets are invested.

Net Realized Gain on Investments. Net realized gains on investments was $0.039 million and $0.163 million for the three and six months ended June 30, 2008, respectively.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses were $43.6 million and $81.4 million for the three and six months ended June 30, 2008, respectively. We establish loss and loss adjustment expense reserves in an amount equal to our estimate of the ultimate liability for claims under our reinsurance policies and the cost of adjusting and settling those claims.

Commission and Other Acquisition Expenses. Commission and other acquisition expenses were $25.4 million and $46.8 million for the three and six months ended June 30, 2008, respectively. The expense resulted primarily from commission and brokerage expenses of $25.1 million and $45.9 million for the three and six months ended June 30, 2008, respectively associated with entering into the reinsurance agreement with AII.

The Company currently operates two business segments, Reinsurance - AmTrust Quota Share and Reinsurance - Other. The Company evaluates segment performance based on segment profit, which excludes realized gains and losses, general corporate expenses and any other non-core business income or expenses. The following tables summarize business segments as follows:   

 

Three months ended June 30, 2008		Reinsurance - Amtrust Quota Share			Reinsurance - Other			Total Reinsurance			Corporate and other			Total
Revenues
Net premium written		$	168,068			3,183			171,251			-		$	171,251
Earned premium			76,246			1,092			77,338						77,338
Investment income and other revenues			1,031			-			1,031			6,771			7,802
Total revenues		$	77,277			1,092			78,369			6,771		$	85,140
Expenses
Loss and loss adjustment expenses			43,213			397			43,610			-			43,610
Commission and other acquisition expenses			25,043			455			25,498			-			25,498
Other expenses			201			480			681			1,559			2,240
Total expenses		$	68,457			1,331			69,789			1,559		$	71,348
Net income (loss)		$	8,820			(239	)		8,581			5,212		$	13,792
Loss Ratio			56.7	%		36.3	%		56.4	%		-			56.4	%
Expense Ratio			33.1	%		85.5	%		33.8	%		2.1	%		35.9	%
Combined Ratio			89.8	%		121.9	%		90.2	%		2.1	%		92.3	%

 

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Six months ended June 30, 2008		Reinsurance - Amtrust Quota Share			Reinsurance - Other			Total Reinsurance			Corporate and other			Total
Revenues
Net premium written		$	251,016			22,667			273,683			-		$	273,683
Earned premium			140,036			2,607			142,643						142,643
Investment income and other revenues			2,382			-			2,382			13,153			15,535
Total revenues		$	142,418			2,607			145,025			13,153		$	158,178
Expenses
Loss and loss adjustment expenses			80,421			1,025			81,446			-			81,446
Commission and other acquisition expenses			45,614			1,144			46,758			-			46,758
Other expenses			377			629			1,006			2,660			3,666
Total expenses		$	126,412			2,798			129,210			2,660		$	131,870
Net income (loss)		$	16,006			(191	)		15,815			10,493		$	26,308
Loss Ratio			57.4	%		39.3	%		57.1	%		-			57.1	%
Expense Ratio			32.8	%		68.0	%		33.5	%		1.8	%		35.3	%
Combined Ratio			90.3	%		107.3	%		90.6	%		1.8	%		92.4	%

Period from May 31, 2007 (inception) to June 30, 2007		Reinsurance - Amtrust Quota Share			Reinsurance - Other			Total Reinsurance			Corporate and other			Total
Revenues
Net premium written		$	-			-			-			-		$	-
Earned premium			-			-			-						-
Investment income and other revenues			-			-			-			59			59
Total revenues		$	-			-			-			59		$	59
Expenses
Loss and loss adjustment expenses			-			-			-			-			-
Commission and other acquisition expenses			-			-			-			-			-
Other expenses			-			-			-			136			136
Total expenses		$	-			-			-			136		$	136
Net income (loss)		$	-			-			-			(77	)	$	(77	)
Loss Ratio			n/m			n/m			n/m			n/m			n/m
Expense Ratio			n/m			n/m			n/m			n/m			n/m
Combined Ratio			n/m			n/m			n/m			n/m			n/m

n/m - not meaningful

Since the Company’s insurance operations did not commence until June 29, 2007, a detailed segment discussion has not been included. Any significant change has already been discussed in the consolidated results of operations.

Liquidity and Capital Resources

Maiden Holdings is a holding company, and as such, has no direct operations of its own. Substantially all of our operations are conducted by Maiden Insurance. Accordingly, we will have continuing cash needs for administrative expenses, dividends and the payment of principal and interest on any future borrowings. Funds to meet these obligations will come primarily from dividend payments from Maiden Insurance, however, there are restrictions on the payment of dividends by our insurance subsidiary. These restrictions, as well as our liquidity, principal capital requirements and related matters are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Annual Report to Security Holders for the year ended December 31, 2007, previously filed with the Securities and Exchange Commission (“SEC”) on May 15, 2008.

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Our Liquidity Requirements

Our principal consolidated cash requirements are net cash settlements under our reinsurance agreements, payment of losses and loss adjustment expenses, ceding commissions to insurance companies including AmTrust, operating expenses and dividends to our shareholders. On June 4, 2008, the Company’s Board of Directors has approved an increase in the regular quarter dividend from $0.025 per common share to $0.05 per share. This dividend is payable July 15 to shareholders of record July 1. Any determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, regulatory, rating agency and any contractual restrictions on the payment of dividends and any other factors our Board of Directors deems relevant, including Bermuda legal and regulatory constraints.

Sources of Cash

Our sources of cash principally consist of the net proceeds from reinsurance premiums collected, net cash settlements under our reinsurance agreement, investment income and proceeds from sales and redemptions of investments.

The following table is a summary of our statement of cash flows:

 

		Six months ended June 30, 2008 (in thousands)			Period from May 31, 2007 (inception) to June 30, 2007 (in thousands)
Cash and cash equivalents provided by (used in):
Operating activities		$	78,271			(162	)
Investing activities			(291,409	)		-
Financing activities			251,579			50,000
Change in cash and cash equivalents		$	38,411			49,838

Net cash provided by operating activities was positive for the six months ended June 30, 2008.

 

Cash used in investing activities during the period represents, primarily, the net purchases (purchases less sales) of investments. For the six months ended June 30, 2008, the Company’s purchases and sales of fixed-maturity securities totaled $310 million and $73.4 million, respectively and the loan to related party increased by $54.4 million

Cash used in financing activities for the six months ended June 30, 2008 consisted of net acquisition of $254.6 million of securities sold under agreements to repurchase and dividend payments of $3 million. In the period ended June 30, 2007, cash received for share subscriptions totaled $50 million.

Securities Sold Under Agreements to Repurchase, at Contract Value 

The Company enters into repurchase agreements. The agreements are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities, that it invests or hold in short term or fixed income securities. As of June 30, 2008, there were $254.6 million principal amount outstanding at interest rates between 2.5% and 2.8%. Interest expense associated with these repurchase agreements was $1.1 million and $1.5 million for the three and six months ended June 30, 2008. Out of which $0.1 million was accrued as of June 30, 2008. The Company has approximately $254.6 million of collateral pledged in support of these agreements.

Restrictions on Dividend Payments from Maiden Insurance

Bermuda legislation imposes limitations on the dividends that Maiden Insurance may pay. As a regulated insurance company in Bermuda, Maiden Insurance is required under the Insurance Act to maintain a specified solvency margin and a minimum liquidity ratio and is prohibited from declaring or paying any dividends if doing so would cause Maiden Insurance to fail to meet its solvency margin and its minimum liquidity ratio. Under the Insurance Act, Maiden Insurance may not declare or pay dividends without the approval of the Bermuda Monetary Authority (“BMA”) if Maiden Insurance fails to meet its solvency margin and minimum liquidity ratio on the last day of the previous fiscal year. Under the Insurance Act, Maiden Insurance is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital as set forth on its financial statements for the previous year. In addition, under the Companies Act, Maiden Insurance may not declare or pay a dividend, or make a distribution from contributed surplus, if there are reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or the realizable value of its assets would be less than the aggregate of its liabilities and its issued share capital and share premium accounts. As of June 30, 2008, we were in compliance with all solvency margin and minimum liquidity ratio requirements.

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Loan to AII and Other Collateral Arrangements

Generally, under U.S. state insurance laws, a ceding company is not permitted to take credit for reinsurance in its statutory financial statements (meaning that it is not permitted to reduce its liabilities in such financial statements by the amount of losses ceded to a reinsurer) unless the reinsurer is accredited, licensed or otherwise approved by the insurance regulator in the ceding company’s state of domicile or provides collateral to secure its obligations to the ceding company under the reinsurance agreement. Acceptable collateral for these purposes can take a number of forms, including a ‘‘funds withheld’’ account (in which the ceding company retains control of the funds representing premiums transferred to the reinsurer and deducts ceded losses from such funds), letters of credit or a trust account established for the benefit of the ceding company (often called a ‘‘Regulation 114 trust’’). Maiden Insurance is not an accredited, licensed or otherwise approved reinsurer in any U.S. state and we expect that it may establish Regulation 114 trusts or may cause its bankers to issue letters of credit for the benefit of its ceding companies domiciled in the United States. A Regulation 114 trust must be funded with cash or high-quality instruments in an amount equal to at least 102% of the reinsurer’s obligations to the ceding company in order to receive credit on its statutory financial statements. Letters of credit issued by the Company’s bankers will also need to be collateralized with cash or high quality instruments in amount equal to at least 100% of the letters of credit issued.

Further, Maiden Insurance has agreed to collateralize its obligations under its reinsurance agreement with AII by one or more of the following methods, at the election of Maiden Insurance:

•

by lending assets to AII pursuant to a loan agreement between Maiden Insurance and AII, with such assets being deposited by AII into the Regulation 114 trusts established or to be established by AII for the sole benefit of AmTrust’s U.S. insurance subsidiaries pursuant to the reinsurance agreements between AII and those AmTrust subsidiaries;

•	by transferring to AII assets for deposit into those Regulation 114 trusts;

•	by delivering letters of credit to the applicable AmTrust U.S. insurance subsidiaries on behalf of AII; Or

•	by requesting that AII cause such AmTrust U.S. insurance subsidiaries to withhold premiums otherwise payable to Maiden Insurance through AII.

 

In 2007, Maiden Insurance elected to satisfy its collateral obligations under the Quota Share Agreement by lending funds (which may include cash or investments) on an unsecured basis to AII. As of June 30, 2008, cash and assets totaling $168 million, an increase of $54.4 million from December 31, 2007, were loaned to AII. As a result of the loan and the possible use of Regulation 114 trusts in the future, a substantial portion of our assets, including a disproportionate share of our higher-quality fixed-income investments, will not be available to us for other uses, which will reduce our financial flexibility.

 

Investment Portfolio

Our investment portfolio, including cash and cash equivalents, increased $281.6 million, or 53.5% to $807.8 million at June 30, 2008 from $526.2 million as of December 31, 2007. Our fixed maturities are classified as available for sale as of June 30, 2008, as defined by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” As such, the reported value of those securities is equal to their fair value. Our fixed maturity securities, gross, as of this date had a fair value of $721.5 million and an amortized cost of $753 million. Sales of securities under repurchase agreements are accounted for as collateralized borrowing transactions and are recorded at their contracted amounts. Our investment portfolio is summarized in the table below by type of investment:

 

		June 30, 2008						December 31, 2007
		Carrying value			Percentage of portfolio			Carrying value			Percentage of portfolio
Cash and cash equivalents			74,170			9	%		35,729			7	%
U.S. Agency - mortgage backed securities			395,793			49	%		205,023			39	%
Corporate fixed maturities			325,702			40	%		269,766			51	%
Other investments			12,134			2	%		15,656			3	%
Total			807,800			100	%		526,174			100	%

 

Over 91% of our fixed maturities are A- rated or better. All of the U.S. Agency - mortgage backed securities we own are AAA rated.

Quarterly, the Company evaluates for other-than-temporary-impairment, whereby it evaluates each security which has an unrealized loss as of the end of the subject reporting period. We use a set of quantitative and qualitative criteria to review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our investments.

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Some of the criteria we consider include:

·	how long and by how much the fair value of the security has been below its amortized cost;

·	the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings;

·	our intent and ability to keep the security for a sufficient time period for it to recover its value;

·	any nonpayment of scheduled interest payments; and

·	the occurrence of discrete credit event resulting in (i) the issuer defaulting on material outstanding obligation (ii) the issuer seeking protection under bankruptcy law.

During the three months and six months ended June 30, 2008, respectively, based on the criteria above, we determined that no securities were other-than-temporarily-impaired.

Item 3. Exposures to Market Risk

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk that we will incur losses in 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 two types of market risk: changes in interest rates and changes in credit quality of issuers of investment securities and reinsurers.

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 fixed maturity securities. Fluctuations in interest rates have a direct impact on the market valuation of these securities. At June 30, 2008, we had fixed maturity securities with a fair value of $721.5 million that are subject to interest rate risk.

The table below summarizes the interest rate risk associated with our fixed maturity securities by illustrating the sensitivity of the fair value and carrying value of our fixed maturity securities as of June 30, 2008 to selected hypothetical changes in interest rates, and the associated impact on our stockholders’ equity. Temporary changes in the fair value of our fixed maturity securities that are held as available-for-sale 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 in the table below 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, as of June 30, 2008. 

 

Hypothetical Change in Interest Rates		Fair Value			Estimated Change in Fair Value			Hypothetical Percentage (Increase) Decrease in Shareholders’ Equity
200 basis point increase		$	676,851		$	(44,645	)		-8%
100 basis point increase			698,537			(22,959	)		-4%
No change			721,496			-			0%
100 basis point decrease			746,750			25,254			5%
200 basis point decrease		$	773,578		$	52,082			10%

 

The interest rate sensitivity on the $167,975 loan to related party which carries an interest rate of one month LIBOR plus 90 basis points, a fluctuation of 100 and 200 basis points in LIBOR would affect 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.

 

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Credit Risk

In providing reinsurance, we will have premiums receivable subject to credit risk of the ceding company. Our credit risk results from our insureds’ potential inability to meet their premium obligations. We also are exposed to credit risk on our investment portfolio. Our credit risk is the potential loss in market value resulting from adverse change in the borrower’s ability to repay its obligations. Our investment objectives are to preserve capital, generate investment income and maintain adequate liquidity for the payment of claims and debt service, if any. We seek to achieve these goals by investing in a diversified portfolio of securities. We manage credit risk through regular review and analysis of the creditworthiness of all investments and potential investments. If we retrocede business to other reinsurers, we will have reinsurance recoverables subject to credit risk. To mitigate the risk of these counterparties’ nonpayment of amounts due, we will establish business and financial standards for reinsurer approval, incorporating ratings and outlook by major rating agencies and considering then-current market information. Further, we are 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 AII pursuant to its loan agreement with Maiden Insurance, and to reimburse Maiden Insurance for any assets or other collateral of Maiden that AmTrust’s U.S. insurance company subsidiaries apply or retain, and income on those assets.

Off-Balance Sheet Transactions

We have no off-balance sheet arrangements or transactions with unconsolidated, special purpose entities.

Risks Associated with Forward-Looking Statements Included in this Form 10-Q

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of the Company’s business activities and availability of funds. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, regulatory framework, weather-related events and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

Item 4.  Submission of matters to a vote of security holders

 

The 2008 Annual General Meeting of Shareholders of Maiden Holdings, Ltd was held on June 19, 2008. Proxies with regard to the matters voted upon at the Annual General Meeting were solicited under Regulation 14A of the Securities Exchange Act of 1934, as amended. Set forth below is a brief description of each matter voted upon at the Annual General Meeting and the results of voting on each such matter.

 

(a)	Election of six directors to serve until the 2009 Annual General Meeting of the shareholders.

 

		Votes
Nominee		For		Withhold all nominees		Withhold authority to vote for any individual authority
Barry D. Zyskind*		44,368,714		2,406,500		6,497,850
Max G. Caviet*		44,368,714		2,406,500		6,497,850
Raymond M. Neff*		50,868,564		2,406,500		-
Simcha Lyons*		50,868,564		2,406,500		-
Yehuda L. Neuberger*		44,368,714		2,406,500		6,497,850
Stephen H. Nigro*		50,868,564		2,406,500		-
Max G. Caviet**		44,368,714		2,406,500		-
Ben Turin**		50,868,564		2,406,500		-

 

* Directors of Maiden Holdings, Ltd.

** Directors of Maiden Insurance Company, Ltd.

 

(b)	Removal of Pricewaterhousecoopers as independent registered public accounting firm of the Company.

Votes
For		Against		Abstain
50,868,564		7,500		-

 

(c)	Appointment of BDO Seidman, LLP, to act as our independent registered public accounting firm for the fiscal year ending December 31, 2008.

 

Votes
For		Against		Abstain
50,868,564		7,500		-

 

(d)	Authorization of the removal of Pricewaterhousecoopers as Maiden Insurance’s independent auditor.

 

Votes
For		Against		Abstain
50,868,564		7,500		-

 

(e)	Authorization of the appointment of Arthur Morris & Company as Maiden Insurance’s independent auditor for the fiscal year ending December 31, 2008.

 

Votes
For		Against		Abstain
50,868,564		7,500		-

 

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Item 6.  Exhibits

 

Exhibit Number		Description
31.1		Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2008.
31.2		Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2008.
32.1		Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2008.
32.2		Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2008.

 

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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.
	(Registrant)
Date: August 13, 2008	/s/  Max G. Caviet
	Max G. Caviet President and Chief Executive Officer
	/s/  Michael J. Tait
	Michael J. Tait Chief Financial Officer

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