Maiden Holdings, Ltd. - Quarter Report: 2010 September (Form 10-Q)

(Exact name of registrant as specified in its charter)

Bermuda		98-0570192
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

131 Front Street, Hamilton, Bermuda		HM12
(Address of principal executive offices)		(Zip Code)

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

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

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

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

Large accelerated filer o		Accelerated filer x

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).

Yes o No x

As of November 8, 2010, the Registrant had one class of Common Shares ($.01 par value),

of which 72,105,885 shares were issued and outstanding.

INDEX

		Page
PART I - Financial Information
Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	3

	Condensed Consolidated Statement of Income and Comprehensive Income for the three and nine months ended September 30, 2010 and 2009 (unaudited)	4

	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2010 and 2009 (unaudited)	5

	Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54
PART II - Other Information
Item 6.	Exhibits	55
	Signatures	56

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

	September 30, 2010 (Unaudited)			December 31, 2009 (Audited)
ASSETS
Investments:
Fixed maturities, available for sale, at fair value (Amortized cost 2010: $1,505,431; 2009: $1,623,382)	$	1,582,372		$	1,661,692
Other investments, at fair value (Cost 2010: $5,534; 2009: $5,684)		5,531			5,549
Total investments		1,587,903			1,667,241
Cash and cash equivalents		269,486			107,396
Restricted cash and cash equivalents		218,867			144,944
Accrued investment income		11,335			11,405
Reinsurance balances receivable, net (includes $97,631 and $43,382 from related parties in 2010 and 2009, respectively)		244,353			211,338
Prepaid reinsurance		31,575			28,752
Reinsurance recoverable on unpaid losses		6,000			11,984
Loan to related party		167,975			167,975
Deferred commission and other acquisition costs (includes $114,154 and $85,979 from related parties in 2010 and 2009, respectively)		187,241			172,983
Other assets		15,290			11,818
Intangible assets, net		46,928			51,284
Goodwill		52,617			52,617
Total assets	$	2,839,570		$	2,639,737
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Reserve for loss and loss adjustment expenses (includes $244,491 and $174,046 from related parties in 2010 and 2009, respectively)	$	1,093,857		$	1,006,320
Unearned premiums (includes $347,935 and $264,751 from related parties in 2010 and 2009, respectively)		628,232			583,478
Accrued expenses and other liabilities		74,265			62,887
Securities sold under agreements to repurchase, at contract value		69,674			95,401
Junior subordinated debt		215,173			215,125
Total liabilities		2,081,201			1,963,211
Commitments and Contingencies
Shareholders’ equity
Common shares ($0.01 par value; 73,068,030 and 71,253,625 shares issued in 2010 and 2009, respectively; 72,105,694 and 70,291,289 shares outstanding in 2010 and 2009, respectively)		731			713
Additional paid-in capital		576,813			576,086
Accumulated other comprehensive income		76,938			32,747
Retained earnings		107,688			70,781
Treasury shares, at cost (2010 and 2009: 962,336 shares)		(3,801	)		(3,801	)
Total shareholders’ equity		758,369			676,526
Total liabilities and shareholders’ equity	$	2,839,570		$	2,639,737

See accompanying notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(In Thousands of United States Dollars, Except Per Share Data)

(Unaudited)

	For the Three Months Ended September 30, 2010			For the Three Months Ended September 30, 2009			For the Nine Months Ended September 30, 2010			For the Nine Months Ended September 30, 2009
Revenues:
Gross premiums written	$	289,815		$	221,400		$	951,981		$	796,304
Net premiums written	$	273,435		$	221,400		$	897,776		$	796,304
Change in unearned premiums		36,158			15,950			(40,470	)		(125,021	)
Net earned premium		309,593			237,350			857,306			671,283
Net investment income		17,500			16,778			53,956			46,150
Net realized and unrealized investment gains (losses)		1,627			(66	)		2,474			(462	)
Total revenues		328,720			254,062			913,736			716,971
Expenses:
Loss and loss adjustment expenses		200,625			165,123			546,264			462,468
Commission and other acquisition expenses		88,956			55,313			254,799			159,608
Other operating expenses		10,840			8,059			28,876			22,726
Subordinated debt interest expense		9,117			9,114			27,348			25,316
Amortization of intangible assets		1,452			1,676			4,356			4,915
Foreign exchange (gains) losses		(1,187	)		(210	)		380			(2,401	)
Total expenses		309,803			239,075			862,023			672,632
Income before income taxes		18,917			14,987			51,713			44,339
Income taxes:
Current tax expense		100			–			100			–
Deferred tax expense		291			–			881			–
Income tax expense		391			–			981			–
Net income	$	18,526		$	14,987		$	50,732		$	44,339

Comprehensive income:
Net income	$	18,526		$	14,987		$	50,732		$	44,339
Other comprehensive income
Net unrealized holdings gains arising during the period	$	23,021		$	48,148		$	51,329		$	77,154
Adjustment for reclassification of realized (gains) losses recognized in net income		(3,572	)		66			(7,138	)		462
Other comprehensive income	$	19,449		$	48,214		$	44,191		$	77,616
Comprehensive income	$	37,975		$	63,201		$	94,923		$	121,955
Basic earnings per common share	$	0.26		$	0.21		$	0.72		$	0.64
Diluted earnings per common share	$	0.26		$	0.21		$	0.72		$	0.63
Dividends declared per common share	$	0.065		$	0.06		$	0.195		$	0.18

	For the Three Months Ended September 30, 2010		For the Three Months Ended September 30, 2009			For the Nine Months Ended September 30, 2010		For the Nine Months Ended September 30, 2009
Net realized and unrealized investment gains (losses):
Total other-than-temporary impairment losses	$	–	$	–		$	–	$	–
Portion of loss recognized in other comprehensive income		–		–			–		–
Net impairment losses recognized in earnings		–		–			–		–
Other net realized and unrealized investment gains (losses)		1,627		(66	)		2,474		(462	)
Net realized and unrealized investment gains (losses)	$	1,627	$	(66	)	$	2,474	$	(462	)

See accompanying notes to the unaudited condensed consolidated financial statements.

MAIDEN HOLDINGS, LTD.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands of United States Dollars)

(Unaudited)

	For the Nine Months Ended September 30, 2010			For the Nine Months Ended September 30, 2009
Common shares
Balance – beginning of period	$	713		$	596
Exercise of options and issuance of shares, net		18			117
Balance – end of period		731			713
Additional paid-in capital
Balance – beginning of period		576,086			530,519
Exercise of options and issuance of shares, net		43			44,928
Exchange of warrants for common shares		(18	)		–
Share based compensation		702			444
Balance – end of period		576,813			575,891
Accumulated other comprehensive income (loss)
Balance – beginning of period		32,747			(44,499	)
Net unrealized gains on securities		44,191			77,616
Balance – end of period		76,938			33,117
Retained earnings
Balance – beginning of period		70,781			26,944
Net income		50,732			44,339
Dividends on common shares		(13,825	)		(12,652	)
Balance – end of period		107,688			58,631
Treasury shares
Balance – beginning of period		(3,801	)		(3,801	)
Shares repurchased		–			–
Balance – end of period		(3,801	)		(3,801	)
Total Shareholders’ Equity	$	758,369		$	664,551

See accompanying notes to the unaudited condensed consolidated financial statements.

Proceeds from sales of fixed maturities classified as available-for-sale were $113,136 and $153,991 for the nine months ended September 30, 2010 and 2009, respectively.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands of United States Dollars)

(Unaudited)

	For the Nine Months Ended September 30, 2010			For the Nine Months Ended September 30, 2009
Cash flows from operating activities:
Net income	$	50,732		$	44,339
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of intangibles		5,370			5,426
Net realized and unrealized (gain) loss on investments		(2,474	)		462
Foreign exchange losses (gains) on revaluation		380			(2,401	)
Amortization of share-based compensation expense, bond premium and discount and trust preferred securities discount		(4,313	)		(4,615	)
Changes in assets - (increase) decrease:
Reinsurance balances receivable, net		(46,938	)		(169,244	)
Prepaid reinsurance		(2,823	)		–
Accrued investment income		70			(695	)
Deferred commission and other acquisition costs		(14,258	)		(66,604	)
Other assets		(3,570	)		(1,702	)
Changes in liabilities – increase (decrease):
Reserve for loss and loss adjustment expenses, net		93,525			72,706
Unearned premiums		44,754			125,022
Accrued expenses and other liabilities		(6,238	)		(13,896	)
Net cash provided by (used in) operating activities		114,217			(11,202	)
Cash flows from investing activities:
Purchases of investments:
Purchases of fixed-maturity securities – available-for-sale		(408,765	)		(739,006	)
Purchases of fixed-maturity securities – trading		(918,476	)		–
Purchases of other investments		(136	)		(138	)
Sale of investments:
Proceeds from sales of fixed-maturity securities – available-for-sale		113,136			153,991
Proceeds from sales of fixed-maturity securities – trading and short sales		967,548			–
Proceeds from maturities and calls of fixed-maturity securities		409,061			263,832
Proceeds from redemption of other investments		38			127
(Increase) decrease in restricted cash and cash equivalents		(73,923	)		190,682
Acquisition of subsidiary (net of cash required)		–			(13,613	)
Purchase of capital assets		(916	)		(122	)
Net cash provided by (used in) in investing activities		87,567			(144,247	)
Cash flows from financing activities:
Repurchase agreements, net		(25,727	)		(126,630	)
Common share issuance		43			117
Junior subordinated debt issuance		–			260,000
Junior subordinated debt issuance cost		–			(4,342	)
Dividend paid		(13,707	)		(11,950	)
Net cash (used in) provided by financing activities		(39,391	)		117,195
Effect of exchange rate changes on foreign currency cash		(303	)		939
Net increase (decrease) in cash and cash equivalents		162,090			(37,315	)
Cash and cash equivalents, beginning of period		107,396			131,897
Cash and cash equivalents, end of period	$	269,486		$	94,582

Supplemental information on cash flows
Cash paid for interest	$	27,300		$	17,694
Reinsurance balances receivables		17,806			–
Investments - fixed maturity securities		(17,806	)		–
Supplemental information about non-cash investing and financing activities
Discount on junior subordinated debt	$	–		$	(44,928	)
Additional paid in Capital		–			44,928
Common shares issued in exchange of warrants		18			–
Additional paid in Capital		(18	)		–
Redemption of other investment		4,751			–
Purchase of other investment		(4,751	)		–

See accompanying notes to the unaudited condensed consolidated financial statements.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

1. Basis of Presentation – Summary of Significant Accounting Policies

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

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

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

There were no material changes in the application of our critical accounting estimates subsequent to that report. However, the Company is amending its disclosure with regard to Fair Value of Financial Instruments to include the following:

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in the Level 1 hierarchy. To date we have only included U.S. government fixed maturity investments as Level 1. The Company receives the quoted market prices from a third party, nationally recognized pricing service (“Pricing Service”). When quoted market prices are unavailable, the Company utilizes the Pricing Service to determine an estimate of fair value. The fair value estimates are included in the Level 2 hierarchy. The Pricing Service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and, when available, loan performance data. The Pricing Service’s evaluated pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing, to prepare evaluations. In addition, the Pricing Service uses model processes, such as the Option Adjusted Spread model to assess interest rate impact and develop prepayment scenarios. The market inputs that the Pricing Service normally seeks for evaluations of securities, listed in approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

The Company utilizes the fair values received from the Pricing Service. If quoted market prices and an estimate from the Pricing Service are unavailable, the Company produces an estimate of fair value based on dealer quotations for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. Depending on the level of observable inputs, the Company will then determine if the estimate is Level 2 or Level 3 hierarchy. Approximately 97% of the Company’s fixed maturity investments are categorized as Level 2 within the fair value hierarchy. At September 30, 2010 and December 31, 2009, we have not adjusted any prices provided by the Pricing Service.

The Company will challenge any prices for its investments that are not considered to represent fair value. If a fair value is challenged, the Company will obtain a non-binding quote from a broker-dealer; multiple quotations are not typically sought. As of September 30, 2010 and December 31, 2009, only one security was priced using the market approach at approximately $8,595 and $7,948, respectively, using a quotation from a broker as opposed to the Pricing Service. At September 30, 2010 and December 31, 2009, we have not adjusted any pricing provided by the broker-dealers based on the review performed by our investment managers.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

1. Basis of Presentation – Summary of Significant Accounting Policies (continued)

To validate prices, the Company compares the fair value estimates to its knowledge of the current market and will investigate prices that it considers not to be representative of fair value. In addition, our process to validate the market prices obtained from the Pricing Service includes, but is not limited to, periodic evaluation of model pricing methodologies and analytical reviews of certain prices. We also periodically perform testing of the market to determine trading activity, or lack of trading activity, as well as evaluating the variability of market prices. Securities sold during the quarter are also “back-tested” (i.e., the sales prices are compared to the previous month end reported market price to determine the reasonableness of the reported market price). There were no material differences between the prices from the Pricing Service and the prices obtained from our validation procedures as of September 30, 2010 and December 31, 2009.

Certain reclassifications have been made for 2009 to conform to the 2010 presentation and have no impact on net income previously reported.

2. Recent Accounting Pronouncements

Adoption of new accounting pronouncements

On June 12, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of Financial Assets,” an amendment of FASB Statement 140 and the FASB subsequently codified it as Accounting Standard Update (“ASU”) 2009-16, updating Accounting Standards Codification (“ASC”) Topic 860 “Transfers and Servicing” and it requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of financial assets accounted for as a sale. It is a revision to FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. ASU 2009-16 is effective on a prospective basis in fiscal years beginning on or after November 15, 2009 and interim periods within those fiscal years. The adoption of ASU 2009-16 did not have a material impact on the Company’s consolidated results of operations and financial condition.

On June 12, 2009, the FASB issued FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” and the FASB subsequently codified as ASU 2009-17, updating ASC Topic 810 “Consolidation” and it requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. It determines whether a reporting entity is required to consolidate another entity based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 is effective on a prospective basis in fiscal years beginning on or after November 15, 2009, and interim periods within those fiscal years. The adoption of ASU 2009-17 did not have a material impact on the Company’s consolidated results of operations and financial condition.

New accounting pronouncements issued during 2010 impacting the Company are as follows:

In February 2010, the FASB issued ASU 2010-09, which requires SEC filers to evaluate subsequent events through the date the financial statements are issued. It exempts SEC filers from disclosing the date through which subsequent events have been evaluated.

On January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), to require a number of additional disclosures regarding fair value measurements. ASU 2010-06 specifically requires the disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers, the reasons for any transfers in or out of Level 3 and the disclosure of information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlement on a gross basis. ASU 2010-06 also amends ASC 820 to clarify that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities. ASU 2010-06 also clarified the requirement for entities to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated results of operations and financial condition.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

2. Recent Accounting Pronouncements (continued)

In October 2010, the FASB issued Accounting Standards Update No. 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” (“ASU 2010-26”). ASU 2010-26 modifies the types of costs that may be deferred, allowing insurance companies to only defer costs directly related to a successful contract acquisition or renewal. These costs include incremental direct costs of successful contracts, the portion of employees’ salaries and benefits related to time spent on acquisition activities for successful contracts and other costs incurred in the acquisition of a contract. Additional disclosure of the type of acquisition costs capitalized is also required. ASU 2010-26 is effective on prospective basis for interim and annual reporting periods beginning after December 15, 2011, with early adoption permitted as of the beginning of a company’s annual period. We are currently evaluating the impact of the adoption of ASU 2010-26 on our consolidated results of operations and financial condition.

3. Investments

(a) Fixed Maturities and Other 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 September 30, 2010 and December 31, 2009 are as follows:

As at September 30, 2010	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed Maturities:
U.S. treasury bonds	$	43,620	$	1,615	$	–		$	45,235
U.S. agency bonds – mortgage and asset-backed		678,868		27,538		(34	)		706,372
U.S. agency bonds – other		67,707		2,350		–			70,057
Corporate fixed maturities		674,200		57,780		(13,770	)		718,210
Municipal bonds		41,036		1,483		(21	)		42,498
Total available-for-sale fixed maturities		1,505,431		90,766		(13,825	)		1,582,372
Other investments		5,534		–		(3	)		5,531
Total investments	$	1,510,965	$	90,766	$	(13,828	)	$	1,587,903

As at December 31, 2009	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed Maturities:
U.S. treasury bonds	$	39,297	$	224	$	(283	)	$	39,238
U.S. agency bonds – mortgage and asset-backed		779,400		17,504		(2,321	)		794,583
U.S. agency bonds – other		217,192		4,772		(447	)		221,517
Corporate fixed maturities		564,750		37,985		(20,071	)		582,664
Municipal bonds		22,743		947		–			23,690
Total available-for-sale fixed maturities		1,623,382		61,432		(23,122	)		1,661,692
Other investments		5,684		–		(135	)		5,549
Total investments	$	1,629,066	$	61,432	$	(23,257	)	$	1,667,241

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

3. Investments (continued)

The contractual maturities of our fixed maturities as of September 30, 2010 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment.

As at September 30, 2010	Amortized Cost		Fair Value		% of Total Fair Value
Maturity
Due in one year or less	$	96,058	$	97,109		6.1	%
Due after one year through five years		170,587		175,276		11.1	%
Due after five years through ten years		489,368		525,110		33.2	%
Due after ten years		70,550		78,505		5.0	%
		826,563		876,000		55.4	%
Mortgage and asset-backed securities		678,868		706,372		44.6	%
Total	$	1,505,431	$	1,582,372		100.0	%

The following tables summarize our available-for-sale securities and other investments in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

	Less than 12 Months					12 Months or More					Total
As at September 30, 2010	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale securities:
U.S. treasury bonds	$	–	$	–		$	–	$	–		$	–	$	–
U.S. agency bonds – mortgage and asset-backed		2,517		(28	)		1,869		(6	)		4,386		(34	)
U.S. agency bonds - other		–		–			–		–			–		–
Corporate fixed maturities		36,608		(896	)		153,445		(12,874	)		190,053		(13,770	)
Municipal bonds		9,168		(21	)		–		–			9,168		(21	)
		48,293		(945	)		155,314		(12,880	)		203,607		(13,825	)
Other investments		4,751		(3	)		–		–			4,751		(3	)
Total	$	53,044	$	(948	)	$	155,314	$	(12,880	)	$	208,358	$	(13,828	)

As of September 30, 2010, there were approximately 20 securities in an unrealized loss position with a fair value of $208,358 and unrealized losses of $13,828. Of these securities, there are 10 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $155,314 and unrealized losses of $12,880.

	Less than 12 Months					12 Months or More					Total
As at December 31, 2009	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale securities:
U.S. treasury bonds	$	8,632	$	(283	)	$	–	$	–		$	8,632	$	(283	)
U.S. agency bonds – mortgage and asset-backed		235,013		(2,319	)		694		(2	)		235,707		(2,321	)
U.S. agency bonds – other		59,511		(447	)		–		–			59,511		(447	)
Corporate fixed maturities		11,687		(619	)		193,676		(19,452	)		205,363		(20,071	)
		314,843		(3,668	)		194,370		(19,454	)		509,213		(23,122	)
Other investments		–		–			4,864		(135	)		4,864		(135	)
Total	$	314,843	$	(3,668	)	$	199,234	$	(19,589	)	$	514,077	$	(23,257	)

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

3. Investments (continued)

As of December 31, 2009, there were approximately 34 securities in an unrealized loss position with a fair value of $514,077 and unrealized losses of $23,257. Of these securities, there are 14 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $199,234 and unrealized losses of $19,589.

Other-Than-Temporary Impairments (“OTTI”)

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 September 30, 2010, 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 and nine month periods ended September 30, 2010 and 2009, the Company recognized no other than temporary impairment losses. Based on our qualitative and quantitative OTTI review of each asset class within our fixed maturity portfolio, the remaining unrealized losses on fixed maturities at September 30, 2010 were primarily due to widening of credit spreads relating to the market illiquidity, rather than credit events. Because it is more likely than not that we will not be required to sell these securities until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore we do not consider these fixed maturities to be other-than-temporarily impaired at September 30, 2010.

(b) Realized and unrealized gains and losses

Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method and include adjustments to the cost basis of investments for declines in value that are considered to be other-than-temporary. In 2010, the Company commenced designating upon acquisition, certain U.S. Treasury bonds as trading for the purpose of augmenting where possible investment returns. In addition, the Company maintained one open position in a U.S. Treasury bond sold but not yet purchased valued at $54,274 which resulted in an unrealized loss of $1,945 and $4,664, which is recorded in net realized and unrealized gains (losses) on the Company’s consolidated statement of income for the three and nine months ended September 30, 2010, respectively. The following provides an analysis of realized and unrealized gains and losses for the three and nine months ended September 30, 2010 and 2009:

For the Three Months Ended September 30, 2010	Gross Gains		Gross losses			Net
Available-for-sale securities	$	3,612	$	(137	)	$	3,475
Trading securities		1,127		(781	)		346
Other investments		–		(249	)		(249	)
Realized gains (losses)		4,739		(1,167	)		3,572
Unrealized loss on short sales		–		(1,945	)		(1,945	)
Net realized and unrealized gains	$	4,739	$	(3,112	)	$	1,627

For the Nine Months Ended September 30, 2010	Gross Gains		Gross losses			Net
Available-for-sale securities	$	9,412	$	(1,756	)	$	7,656
Trading securities		1,649		(1,918	)		(269	)
Other investments		–		(249	)		(249	)
Realized gains (losses)		11,061		(3,923	)		7,138
Unrealized loss on short sales		–		(4,664	)		(4,664	)
Net realized and unrealized gains	$	11,061	$	(8,587	)	$	2,474

For the Three Months Ended September 30, 2009	Gross Gains		Gross losses			Net
Available-for-sale securities	$	270	$	(228	)	$	42
Other investments		–		(108	)		(108	)
Realized gains (losses)	$	270	$	(336	)	$	(66	)

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

3. Investments (continued)

For the Nine Months Ended September 30, 2009	Gross Gains		Gross losses			Net
Available-for-sale securities	$	4,168	$	(4,507	)	$	(339	)
Other investments		–		(123	)		(123	)
Realized gains (losses)	$	4,168	$	(4,630	)	$	(462	)

Net unrealized gain (loss) on available-for-sale securities and other investments was as follows:

	September 30, 2010			September 30, 2009
Fixed maturities	$	76,941		$	35,000
Other investments		(3	)		(178	)
Total net unrealized gain (loss)		76,938			34,822
Deferred income tax expense		–			(1,705	)
Net unrealized losses, net of deferred income tax	$	76,938		$	33,117
Change in unrealized gain (loss), net of deferred income tax	$	44,191		$	77,616

We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. The assets on deposit are available to settle reinsurance liabilities. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows:

	September 30, 2010		December 31, 2009
Restricted cash – third party agreements	$	163,776	$	133,029
Restricted cash – related party agreements		54,828		11,485
Restricted cash – U.S. state regulatory authorities		263		430
Total restricted cash		218,867		144,944
Restricted investments – in Trust for third party agreements at fair value (Amortized cost: 2010 – $901,869; 2009 – $1,011,582)		948,158		1,022,337
Restricted investments – in Trust for related party agreements at fair value (Amortized cost: 2010 – $258,235; 2009 – $177,537)		287,418		195,474
Restricted investments – in Trust for U.S. state regulatory authorities (Amortized cost: 2010 – $13,305; 2009 – $13,032)		14,026		12,867
Total restricted investments		1,249,602		1,230,678
Total restricted cash and investments	$	1,468,469	$	1,375,622

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

3. Investments (continued)

(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 September 30, 2010, there were $69,674 principal amount outstanding at interest rate of 0.32%. Interest expense associated with these repurchase agreements was $463 and $818 for the three and nine months ended September 30, 2010, respectively (2009 - $117 and $900, respectively), out of which $702 was accrued as of September 30, 2010 (December 31, 2009 - $33). The Company has approximately $69,674 of collateral pledged in support of these agreements.

Securities sold but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price and, thereby, create a liability to purchase the security in the market at prevailing prices. The Company’s liability for securities to be delivered is measured at their fair value and as of September 30, 2010 were $54,274 for a U.S. Treasury bond. This amount is included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Collateral of an equivalent amount has been pledged to the clearing broker.

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 ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. 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 ASC 820, 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.

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

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of September 30, 2010.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

4. Fair Value of Financial Instruments (continued)

U.S. government and U.S. government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of the Company’s U.S. government securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are generally priced by pricing services. The pricing services may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical models which may incorporate option adjusted spreads, daily interest rate data and market/sector news. The Company generally classifies the fair values of U.S. government agencies securities in Level 2.

Corporate debt: Corporate debt securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. These securities are generally priced by pricing services. The pricing services typically use discounted cash flow models that incorporate benchmark curves for treasury, swap and high issuance credits. Credit spreads are developed from current market observations for like or similar securities. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. The Company generally classifies the fair values of its corporate securities in Level 2.

Municipals: Municipal securities comprise bonds issued by U.S. domiciled state and municipality entities. The fair values of these securities are generally priced by pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipals are observable market inputs, municipals are classified within Level 2.

Other investments: The fair values of the hedge funds are based on the net asset value of the funds as reported by the fund manager, and as such, the fair values of those hedge funds are included in the Level 3 fair value hierarchy.

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

Loan to related party: The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value.

Junior subordinated debt: The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

4. Fair Value of Financial Instruments (continued)

(a) 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 September 30, 2010 and December 31, 2009:

As at September 30, 2010	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets
Fixed maturities
U.S. treasury bonds	$	45,235		$	–		$	–		$	45,235
U.S. agency bonds – mortgage and asset-backed		–			706,372			–			706,372
U.S. agency bonds – other		–			70,057			–			70,057
Corporate fixed maturities		–			718,210			–			718,210
Municipal bonds		–			42,498			–			42,498
Other investments		–			–			5,531			5,531
Total	$	45,235		$	1,537,137		$	5,531		$	1,587,903
As a percentage of total assets		1.6	%		54.1	%		0.2	%		55.9	%
Liabilities
Securities sold under agreements to repurchase	$	–		$	69,674		$	–		$	69,674
Securities sold but not yet purchased		–			54,274			–			54,274
	$	–		$	123,948		$	–		$	123,948
As a percentage of total liabilities		–			6.0	%		–			6.0	%

As at December 31, 2009	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets
Fixed maturities
U.S. treasury bonds	$	39,238		$	–		$	–		$	39,238
U.S. agency bonds – mortgage and asset-backed		–			794,583			–			794,583
U.S. agency bonds – other		–			221,517			–			221,517
Corporate fixed maturities		–			582,664			–			582,664
Municipal bonds		–			23,690			–			23,690
Other investments		–			–			5,549			5,549
Total	$	39,238		$	1,622,454		$	5,549		$	1,667,241
As a percentage of total assets		1.5	%		61.5	%		0.2	%		63.2	%
Liabilities
Securities sold under agreements to repurchase	$	–		$	95,401		$	–		$	95,401
As a percentage of total liabilities		–			4.9	%		–			4.9	%

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

4. Fair Value of Financial Instruments (continued)

(b) Level 3 Financial Instruments

The following table presents changes in Level 3 for our financial instruments measured at fair value on a recurring basis for the three and nine months ended September 30, 2010 and 2009:

Other Investments:	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009
Balance at beginning of period	$	5,677		$	5,392
Net realized and unrealized gains – included in net income		–			–
Net realized and unrealized losses – included in net income		(249	)		(108	)
Change in net unrealized gains – included in other comprehensive income (loss)		–			–
Change in net unrealized losses – included in other comprehensive income (loss)		122			244
Purchases		4,764			1
Sales and redemptions		(4,783	)		–
Transfers into Level 3		–			–
Transfers out of Level 3		–			–
Balance at end of period	$	5,531		$	5,529
Level 3 gains (losses) included in net income attributable to the change in unrealized gains (losses) relating to assets held at the reporting date	$	−		$	−

Other Investments:	Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
Balance at beginning of period	$	5,549		$	5,291
Net realized and unrealized gains – included in net income		–			–
Net realized and unrealized losses – included in net income		(249	)		(123	)
Change in net unrealized gains – included in other comprehensive income (loss)		–			–
Change in net unrealized losses – included in other comprehensive income (loss)		133			350
Purchases		4,887			139
Sales and redemptions		(4,789	)		(128	)
Transfers into Level 3		–			–
Transfers out of Level 3		–			–
Balance at end of period	$	5,531		$	5,529
Level 3 gains (losses) included in net income attributable to the change in unrealized gains (losses) relating to assets held at the reporting date	$	–		$	–

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

5. Goodwill and Intangible Assets

Goodwill

Goodwill is calculated as the excess of purchase price over the net fair value of assets acquired. The Company performs an annual impairment analysis to identify potential goodwill impairment and measures the amount of a goodwill impairment loss to be recognized. This annual test is performed during the fourth quarter of each year or more frequently if events or circumstances change in a way that requires the Company to perform the impairment analysis on an interim basis. Goodwill impairment testing requires an evaluation of the estimated fair value of each reporting unit to its carrying value, including the goodwill. An impairment charge is recorded if the estimated fair value is less than the carrying amount of the reporting unit. No impairments have been identified to date.

Intangibles

Intangible assets consist of finite and indefinite life assets. Finite life intangible assets include customer and producer relationships and trademarks. Insurance company licenses are considered indefinite life intangible assets subject to annual impairment testing.

The following table shows an analysis of goodwill and intangible assets as of September 30, 2010 and December 31, 2009:

As at September 30, 2010	Gross		Accumulated Amortization			Net		Useful Life
Goodwill	$	52,617	$	–		$	52,617	Indefinite
State licenses		7,727		–			7,727	Indefinite
Customer relationships		51,400		(12,199	)		39,201	15 years double declining
Net balance	$	111,744	$	(12,199	)	$	99,545

As at December 31, 2009	Gross		Accumulated Amortization			Net		Useful Life
Goodwill	$	52,617	$	–		$	52,617	Indefinite
State licenses		7,727		–			7,727	Indefinite
Customer relationships		51,400		(7,843	)		43,557	15 years double declining
Net balance	$	111,744	$	(7,843	)	$	103,901

The goodwill and intangible assets were recognized in 2009 and 2008 as a result of the GMAC Acquisition and are assigned to Diversified Reinsurance segment. Goodwill and intangible assets are subject to annual impairment testing. No impairment was recorded during the three and nine months ended September 30, 2010. The estimated amortization expense for the next five years is:

	September 30, 2010
2010	$	1,452
2011		5,033
2012		4,362
2013		3,781
2014		3,276

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

6. Junior Subordinated Debt

On January 20, 2009, the Company completed a private placement of 260,000 units (the “Units” or the “TRUPS Offering”), each Unit consisting of $1,000 principal amount of capital securities (the “Trust Preferred Securities”) of Maiden Capital Financing Trust (the “Trust”), a special purpose trust established by Maiden Holdings North America, Ltd. ("Maiden NA"), and 45 common shares, $0.01 par value, of the Company for a purchase price of $1,000.45 per Unit. In the aggregate, we also issued 11,700,000 common shares to the purchasers in the TRUPS Offering. This resulted in gross proceeds to the Company of $260,117, before $4,342 of placement agent fees and expenses.

Certain trusts established by Michael Karfunkel and George Karfunkel, two of the Company’s founding shareholders, purchased an aggregate of 159,000 of the Units or 61.12%. The remaining 101,000 Units were purchased by existing institutional shareholders of the Company.

The Trust used the proceeds from the sale of the Trust Preferred Securities to purchase a subordinated debenture (the “Debenture”) in the principal amount of $260,000 issued by Maiden NA.

Under the terms of the Trust Preferred Securities, the Company can repay the principal balance in full or in part at any time. However, if the Company repays such principal within five years of the date of issuance, it is required to pay an additional amount equal to one full year of interest on the amount of Trust Preferred Securities repaid. If the full amount of the Trust Preferred Securities were repaid within five years of the date of issuance, the additional amount due would be $36,400, which would be a reduction in earnings.

Pursuant to separate Guarantee Agreements dated as of January 20, 2009 with Wilmington Trust Company, as guarantee trustee, each of the Company and Maiden NA has agreed to guarantee the payment of distributions and payments on liquidation or redemption of the Trust Preferred Securities.

As a consequence of the issuance of a majority of the Units to a related party under, ASC Topic 810 “Consolidation”, the Trust is a variable interest entity and the Company is deemed not to be the Primary beneficiary of the Trust and therefore it is not consolidated. The issuance of common shares associated with the Trust Preferred Securities resulted in an original issuance discount of $44,928 based on market price of $3.85 on January 20, 2009. The discount is amortized over 30 years based on the effective interest method. The Debentures and Trust Preferred Securities mature in 2039 and carry a stated or coupon rate of 14% with an effective interest rate of 16.95%.

As of September 30, 2010, the stated value of the Trust Preferred Securities was $215,173 which comprises the principal amount of $260,000 and unamortized discount of $44,827. Amortization expense for the three and nine months ended September 30, 2010 was $17 and $48, respectively (2009 - $14 and $38, respectively).

7. Shareholders’ Equity

In connection with the formation by Michael Karfunkel, George Karfunkel and Barry Zyskind (the “Founding Shareholders”), the Company issued to the Founding Shareholders 10-year warrants (the “Warrants”) to purchase up to an aggregate of 4,050,000 common shares of the Company at $10 per share. The warrants are effective as of June 14, 2007 and were to expire on June 14, 2017. The warrants were initially valued by an independent appraisal at an aggregate fair value of $19,521 which was recorded as an addition to additional paid-in capital with an offsetting charge to additional paid-in capital as well.

On September 20, 2010, the Company entered into Warrant Exchange Agreements, under which each of the Founding Shareholders agreed to surrender the warrants in exchange for a total of 1,800,000 of the Company’s common shares. These common shares are restricted under Lockup Agreements under which the Founding Shareholders may not sell or transfer the shares awarded without the prior written consent of the Company for a period of 36 months following the exchange. The fair value of the warrants at the time of exchange was $2.06 per warrant or $8,343 while the fair value of the 1,800,000 restricted common shares issued was $4.56 per share or $8,208. The terms of the exchange of the warrants and issuance of the common shares were negotiated and unanimously approved by the Audit and Compensation Committees of the Company’s Board of Directors. In connection with their review, the Committees were advised by independent legal counsel and obtained an independent appraisal of the fair value of the warrants and the restricted common shares. The issuance of the restricted common shares was recorded as an offset to additional paid-in-capital where the warrants were originally recorded.

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

8. Earnings Per Share

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

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2009
Net income available to common shareholders	$	18,526	$	14,987	$	50,732	$	44,339
Weighted average number of common shares outstanding – basic		70,493,545		70,287,664		70,359,688		69,430,521
Potentially dilutive securities:
Warrants		–		–		–		–
Share options		491,837		565,231		483,774		416,193
Weighted average number of common shares outstanding – diluted		70,985,382		70,852,895		70,843,462		69,846,714
Basic earnings per common share:	$	0.26	$	0.21	$	0.72	$	0.64
Diluted earnings per common share:	$	0.26	$	0.21	$	0.72	$	0.63

As of September 30, 2010, nil (2009 – 4,050,000) warrants and 1,756,961 (2009 – 638,000) share options were excluded from the calculation of diluted earnings per share as they were anti-dilutive.

9. Share Based Compensation

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 ASC Topic 718 "Compensation - Stock Compensation" fair value method has resulted in share-based expense (a component of salaries and benefits) in the amount of approximately $252 and $702 for the three and nine months ended September 30, 2010, respectively (2009 – $168 and $444, respectively).

The key assumptions used in determining the fair value of options granted in the three and nine months ended September 30, 2010 and a summary of the methodology applied to develop each assumption are as follows:

MAIDEN HOLDINGS, LTD.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

(Unaudited)

9. Share Based Compensation (continued)

Assumptions:	September 30, 2010
Volatility		29.8-46.0	%
Risk-free interest rate		2.36-3.30	%
Weighted average expected lives in years	5-6.1 years
Forfeiture rate		0	%
Dividend yield rate		1-5.39	%

Expected Price Volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The common shares of Maiden Holdings, Ltd. began trading on May 6, 2008 on NASDAQ. Since the Company does not have enough history over which to calculate an expected volatility representative of the volatility over the expected lives of the options, the Company also considered the historical and current implied volatilities of a set of comparable 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 tables show all options granted, exercised, expired and exchanged under the Plan for the three and nine months ended September 30, 2010:

Three Months Ended September 30, 2010	Number of Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, June 30, 2010		2,381,230		$	6.01	8.56 years
Granted		22,500			7.68	10.00 years
Exercised		(13,593	)		3.28		–
Cancelled		(4,251	)		3.28		–
Outstanding, September 30, 2010		2,385,886		$	6.05	8.32 years

Nine Months Ended September 30, 2010	Number of Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, December 31, 2009		2,036,542		$	5.79	8.86 years
Granted		372,500			7.28	9.46 years
Exercised		(14,405	)		3.28		–
Cancelled		(8,751	)		3.28		–
Outstanding, September 30, 2010		2,385,886		$	6.05	8.32 years

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

9. Share Based Compensation (continued)

The following tables show all options granted, exercised, expired and exchanged under the Plan for the three and nine months ended September 30, 2009:

Three Months Ended September 30, 2009	Number of Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, June 30, 2009		1,503,834		$	5.54	9.08 years
Granted		200,000			4.54	9.40 years
Exercised		–			–		–
Cancelled		(10,500	)		3.28		–
Outstanding, September 30, 2009		1,693,334		$	5.47	8.90 years

Nine Months Ended September 30, 2009	Number of Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding, December 31, 2008		1,519,834		$	10.00	9.44 years
Granted		384,000			4.51	9.40 years
Exercised		`			–		–
Cancelled		(210,500	)		8.07		–
Outstanding, September 30, 2009		1,693,334		$	5.47	8.90 years

The weighted average grant date fair value was $1.79 and $1.50 for all options outstanding at September 30, 2010 and 2009, respectively. There was approximately $2,324 and $1,466 of total unrecognized compensation cost related to non-vested share-based compensation arrangements as of September 30, 2010 and 2009, respectively.

10. Dividends Declared

On August 5, 2010, the Company’s Board of Directors approved a quarterly cash dividend of $0.065 per common share. This dividend was paid on October 15, 2010 to shareholders of record on October 1, 2010.

11. Related Party Transactions

The Founding Shareholders of Maiden, Michael Karfunkel, George Karfunkel and Barry Zyskind, are also the principal shareholders, and, respectively, the Chairman of the Board of Directors, a Director, and the President, Chief Executive Officer and Director of AmTrust Financial Services, Inc. (“AmTrust”). In January 2009, Barry Karfunkel was hired as a managing director of capital investments of Maiden Re Insurance Services, LLC. Barry Karfunkel is the son of Michael Karfunkel and the brother-in-law of Barry D. Zyskind. Barry Karfunkel’s employment ended in March 2010. The following describes transactions between the Company and AmTrust.

AmTrust Quota Share Reinsurance Agreement

Effective July 1, 2007, the Company and AmTrust entered into a master agreement, as amended (the “Master Agreement”), by which they caused AmTrust’s Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd. (“AII”) and Maiden Insurance Company Ltd. (“Maiden Insurance” or “Maiden Bermuda”) to enter into the Reinsurance Agreement by which (a) AII retrocedes to Maiden Insurance an amount equal to 40% of the premium written by subsidiaries of AmTrust, net of the cost of unaffiliated inuring reinsurance (and in the case of AmTrust’s U.K. insurance subsidiary, IGI Insurance Company Limited (“IGI”), net of commissions) and 40% of losses and (b) AII transferred to Maiden Insurance 40% of the AmTrust subsidiaries’ unearned premium reserves, effective as of July 1, 2007, with respect to the current lines of business, excluding risks for which the AmTrust subsidiaries’ net retention exceeds $5,000 (“Covered Business”). AmTrust also has agreed to cause AII, subject to regulatory requirements, to reinsure any insurance company which writes Covered Business in which AmTrust acquires a majority interest to the extent required to enable AII to cede to Maiden Insurance 40% of the premiums and losses related to such Covered Business. The Agreement further provides that AII receives a ceding commission of 31% of ceded written premiums. The Reinsurance Agreement had an initial term of three years, which has been extended for three years through June 30, 2013, and will automatically renew for successive three year terms thereafter, unless either AII or Maiden Insurance notifies the other of its election not to renew not less than nine months prior to the end of any such three year term. In addition, either party is entitled to terminate on thirty days notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden Insurance, run-off, or a reduction of 50% or more of the shareholders’ equity of Maiden Insurance or the combined shareholders’ equity of AII and the AmTrust subsidiaries.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

On June 11, 2008, the Company and AmTrust amended the Reinsurance Agreement 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 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 cedes to Maiden 40% of net premium written, effective as of June 1, 2008. Maiden will pay to AmTrust a ceding commission of 34.375% on the unearned premium cession and the Retail Commercial Package Business. The $2,000 maximum liability for a single loss provided in the Quota Share Reinsurance Agreement shall not be applicable to Retail Commercial Package Business.

On February 9, 2009, AII and Maiden Insurance amended the Reinsurance Agreement to clarify that (i) AII would offer Maiden Insurance the opportunity to reinsure Excess Retention Business, which is defined as a policy issued by an AmTrust insurance subsidiary with respect to which the insurance subsidiary’s retention is greater than $5 million and (ii) the deduction for the cost of inuring reinsurance from Affiliate Subject Premium (as defined in the Reinsurance Agreement) retroceded to Maiden Insurance is net of ceding commission.

The Company recorded approximately $37,501 and $104,085 of ceding commission expense for the three and nine months ended September 30, 2010, respectively (2009 – $28,132 and $85,005, respectively) as a result of this transaction.

Other Reinsurance Agreements

Effective January 1, 2008 the Company and AmTrust entered into an agreement to reinsure a 45% participation in the $9 million in excess of $1 million layer of AmTrust’s workers’ compensation excess of loss program. This layer provides reinsurance to AmTrust for losses per occurrence in excess of $1 million up to $10 million, subject to an annual aggregate deductible of $1.25 million. This participation was sourced through a reinsurance intermediary via open market placement in which competitive bids were solicited by an independent broker. The remaining 55% participation was placed with a single carrier.

This coverage expired on January 1, 2010; as a result, under the Master Agreement the Company therefore now reinsures 40% of the subject workers’ compensation business up to $10 million, subject to certain additional inuring reinsurance protection AmTrust has purchased.

As of January 1, 2008, the Company had a 50% participation in a $4 million in excess of $1 million specialty transportation program written by AmTrust. Starting January 1, 2009, we had a 30% participation in a $4 million in excess of $1 million specialty transportation program written by AmTrust. This program provides primarily commercial auto coverage and, to a lesser extent, general liability coverage to private non-emergency para-transit and school bus service operators. This participation was sourced through a reinsurance intermediary via open market placement in which competitive bids were solicited by an independent broker. Several other broker market reinsurers hold the other 50% and 70% participation for 2008 and 2009 policies, respectively. The agreement was not renewed as of January 1, 2010.

Effective September 1, 2010, the Company through its wholly-owned subsidiary, Maiden Specialty Insurance Company (“Maiden Specialty”), entered into a quota share reinsurance agreement with Technology Insurance Company, Inc., a subsidiary of AmTrust (“Technology”). Under the agreement, Maiden Specialty will cede 90% of its gross liability under all policies, certificates, contracts, binders and contracts of insurance, issued or renewed during the term of the agreement by or on behalf of Maiden Specialty under this program which is part of a larger program underwritten by Technology. Maiden Specialty’s involvement is limited to certain states where Technology is not fully licensed. The agreement also provides that Maiden Specialty receives a ceding commission of 5% of ceded written premiums. The reinsurance agreement has a term of three years and will remain continuously in force until terminated in accordance to the provisions set forth in the contract. To date, no business has been ceded under this quota share reinsurance agreement.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

Collateral provided to AmTrust

In order to provide AmTrust’s U.S. insurance subsidiaries with credit for reinsurance on their statutory financial statements, AII, as the direct reinsurer of the AmTrust’s insurance subsidiaries, has established trust accounts (“Trust Accounts”) for their benefit. Maiden Insurance has agreed to provide appropriate collateral to secure its proportional share under the Quota Share Agreement of AII’s obligations to the AmTrust subsidiaries to whom AII is required to provide collateral. This collateral may be in the form of (a) assets loaned by Maiden Insurance to AII, for deposit into the Trust Accounts, pursuant to a loan agreement between those parties, (b) assets transferred by Maiden Insurance, for deposit into the Trust Accounts, (c) a letter of credit obtained by Maiden Insurance and delivered to an AmTrust subsidiary on AII’s behalf (a “Letter of Credit”), or (d) premiums withheld by an AmTrust subsidiary at Maiden Insurance’s request in lieu of remitting such premiums to AII (“Withheld Funds”). Maiden Insurance may provide any or a combination of these forms of collateral, provided that the aggregate value thereof equals Maiden Insurance’s proportionate share of its obligations under the Quota Share Agreement with AII. If collateral is required to be provided to any AmTrust subsidiary under applicable law or regulatory requirements, Maiden Insurance will provide collateral to the extent required, although Maiden Insurance does not expect that such collateral will be required unless an AmTrust subsidiary is domiciled in the United States.

Maiden Insurance satisfied its collateral requirements under the Quota Share Agreement with AII as follows:

by lending funds in the amount of $167,975 as at September 30, 2010 and December 31, 2009 to AII pursuant to a loan agreement entered into between those parties. This loan is carried at cost. The amount of collateral Maiden Insurance is required to maintain, which is determined quarterly, equals its proportionate share of (a) the amount of ceded paid losses for which AII is responsible to such AmTrust subsidiaries but has not yet paid, (b) the amount of ceded loss reserves (including ceded reserves for claims reported but not resolved and losses incurred but not reported) for which AII is responsible to AmTrust subsidiaries, and (c) the amount of ceded reserves for unearned premiums ceded by AmTrust subsidiaries to AII. Pursuant to the Master Agreement, AmTrust has agreed to cause AII not to commingle Maiden Insurance’s assets with AII’s other assets and to cause the AmTrust subsidiaries not to commingle Maiden Insurance’s assets with the AmTrust subsidiaries’ other assets if an AmTrust subsidiary withdraws those assets. AII has agreed that, if an AmTrust subsidiary returns to AII excess assets withdrawn from a Trust Account, drawn on a Letter of Credit or maintained by such AmTrust subsidiary as Withheld Funds, AII will immediately return to Maiden Insurance its proportionate share of such excess assets. AII has further agreed that if the aggregate fair market value of the amount of Maiden Insurance’s assets held in the Trust Account exceeds Maiden Insurance’s proportionate share of AII’s obligations, or if an AmTrust subsidiary misapplies any such collateral, AII will immediately return to Maiden Insurance an amount equal to such excess or misapplied collateral, less any amounts AII has paid to Maiden Insurance. In addition, if an AmTrust subsidiary withdraws Maiden Insurance’s assets from a Trust Account and maintains those assets on its books as withheld funds, AII has agreed to pay to Maiden Insurance interest at the rate equivalent to the one-month London Interbank Offered Rate (“LIBOR”) plus 90 basis points per annum computed on the basis of a 360-day year on the loan (except to the extent Maiden Insurance’s proportionate share of AII’s obligations to that AmTrust subsidiary exceeds the value of the collateral Maiden Insurance has provided), and net of unpaid fees Maiden Insurance owes to AIIM and its share of fees owed to the trustee of the Trust Accounts.

effective December 1, 2008, the Company entered into a Reinsurer Trust Assets Collateral agreement to provide to AII sufficient collateral to secure its proportional share of AII’s obligations to the U.S. AmTrust subsidiaries. The amount of the collateral, as at September 30, 2010 was approximately $333,761 (December 31, 2009 – $206,960) and the accrued interest was $3,393 (December 31, 2009 – $1,956).

Reinsurance Brokerage Agreements

Effective July 1, 2007, the Company entered into a reinsurance brokerage agreement with AII Reinsurance Broker Ltd., a subsidiary of AmTrust. Pursuant to the brokerage agreement, AII Reinsurance Broker Ltd. provides brokerage services relating to the Quota Share Reinsurance Agreement for a fee equal to 1.25% of the premium reinsured from AII. The brokerage fee is payable in consideration of AII Reinsurance Broker Ltd’s brokerage services. AII Reinsurance Broker Ltd. is not the Company’s exclusive broker. AII Reinsurance Broker Ltd. may, if mutually agreed, also produce reinsurance for the Company from other ceding companies, and in such cases the Company will negotiate a mutually acceptable commission rate. The Company recorded approximately $1,509 and $4,163 of reinsurance brokerage expense for the three and nine months ended September 30, 2010, respectively (2009 – $1,118 and $3,369, respectively) and deferred reinsurance brokerage of $3,364 and $3,265 as at September 30, 2010 and December 31, 2009, respectively, as a result of this agreement.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

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 $31 and $86 of IGI fees, which is included in commission and other acquisition expenses, for the three and nine months ended September 30, 2010, respectively (2009 – $55 and $325, respectively).

Asset Management Agreement

Effective July 1, 2007 and as amended, the Company entered into an asset management agreement with AII Insurance Management Limited (“AIIM”), an AmTrust subsidiary, pursuant to which AIIM has agreed to provide investment management services to the Company. Pursuant to the asset management agreement, AIIM provides investment management services for an annual fee equal to 0.35% of average invested assets plus all costs incurred. Effective April 1, 2008, the investment management services annual fee has been reduced to 0.20% if the average value of the account is less than $1 billion and 0.15% if the average value of the account is greater than $1 billion. The Company recorded approximately $650 and $1,968 of investment management fees for the three and nine months ended September 30, 2010, respectively (2009 – $721 and $1,937, respectively), as a result of this agreement.

ACAC Quota Share Reinsurance Agreement

On March 1, 2010, the Company entered into a three year 25% quota share reinsurance agreement with American Capital Acquisition Corporation (“ACAC”).

ACAC is an insurance holding company owned by the 2005 Michael Karfunkel Grantor Retained Annuity Trust (the “Trust”), which in turn is controlled by Michael Karfunkel (“Karfunkel”), Karfunkel individually, and AmTrust. ACAC, on March 1, 2010, acquired from GMAC Insurance Holdings, Inc. and Motors Insurance Corporation (collectively, “GMAC”), GMAC’s personal lines automobile business. Karfunkel is a Founding Shareholder of the Company. In addition, Karfunkel is the chairman of the board of directors of ACAC.

The Company, effective March 1, 2010, reinsures 25% of the net premiums of the GMAC personal lines business, pursuant to a 50% quota share reinsurance agreement (“ACAC Quota Share”) with the GMAC personal lines insurance companies, as cedents, and the Company, MK Re, Ltd., a Bermuda reinsurer which is a wholly-owned indirect subsidiary of the Trust, and AmTrust, as reinsurers. The Company has a 50% participation in the ACAC Quota Share, by which it receives 25% of net premiums of the personal lines business. The ACAC Quota Share provides that the reinsurers, severally, in accordance with their participation percentages, shall receive 50% of the net premium of the GMAC personal lines insurance companies and assume 50% of the related net losses. The ACAC Quota Share has an initial term of three years and shall renew automatically for successive three year terms unless terminated by written notice not less than nine months prior to the expiration of the current term. Notwithstanding the foregoing, the Company’s participation in the Personal Lines Quota Share may be terminated by ACAC on 60 days written notice in the event the Company becomes insolvent, is placed into receivership, its financial condition is impaired by 50% of the amount of its surplus at the inception of the ACAC Quota Share or latest anniversary, whichever is greater, is subject to a change of control, or ceases writing new and renewal business. ACAC also may terminate the agreement on nine months written notice following the effective date of initial public offering or private placement of stock by ACAC or a subsidiary. The Company may terminate its participation in the ACAC Quota Share on 60 days written notice in the event ACAC is subject to a change of control, cease writing new and renewal business, effects a reduction in their net retention without the Company’s consent or fails to remit premium as required by the terms of the ACAC Quota Share. The ACAC Quota Share provides that the reinsurers pay a provisional ceding commission equal to 32.5% of ceded earned premium, net of premiums ceded by the personal lines companies for inuring reinsurance, subject to adjustment. The ceding commission is subject to adjustment to a maximum of 34.5% if the loss ratio for the reinsured business is 60.5% or less and a minimum of 30.5% if the loss ratio is 64.5% or higher. We believe that the terms, conditions and pricing of the ACAC Quota Share have been determined by arm’s length negotiations and reflect current market terms and conditions.

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

The Company recorded approximately $15,089 and $22,379 of ceding commission expense for the three and nine months ended September 30, 2010 as a result of this transaction.

Warrant Exchange

Please see Note 7 to the consolidated financial statements.

12. Segments

The Company currently operates three business segments, Diversified Reinsurance, AmTrust Quota Share and ACAC Quota Share. The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. Other operating expenses allocated to the segments are called General and Administrative expenses which 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. In determining total assets by segment the Company identifies those assets that are attributable to a particular segment such as reinsurance receivable, deferred commissions and acquisition cost, loans, goodwill and intangibles, and restricted cash and investments. All remaining assets are allocated to Corporate.

The following tables summarize the underwriting results of our operating segments:

For the Three Months Ended September 30, 2010	Diversified Reinsurance			AmTrust Quota Share			ACAC Quota Share			Total
Net premiums written	$	104,452		$	110,313		$	58,670		$	273,435
Net premiums earned		142,419			120,747			46,427			309,593
Net losses and loss expenses		(95,409	)		(76,199	)		(29,017	)		(200,625	)
Commissions and other acquisition costs		(34,228	)		(39,011	)		(15,717	)		(88,956	)
General and administrative expenses		(6,745	)		(220	)		(124	)		(7,089	)
Underwriting income	$	6,037		$	5,317		$	1,569		$	12,923

Reconciliation to net income
Net investment income and realized and unrealized investment gains (losses)											19,127
Amortization of intangible assets											(1,452	)
Foreign exchange gains											1,187
Subordinated debt interest expense											(9,117	)
Other operating expenses											(3,751	)
Income tax expense											(391	)
Net Income										$	18,526

Net loss and loss expense ratio*		67.0	%		63.1	%		62.5	%		64.8	%
Acquisition cost ratio**		24.0	%		32.3	%		33.9	%		28.7	%
General and administrative expense ratio***		4.8	%		0.2	%		0.2	%		3.5	%
Combined ratio****		95.8	%		95.6	%		96.6	%		97.0	%

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

For the Nine Months Ended September 30, 2010	Diversified Reinsurance			AmTrust Quota Share			ACAC Quota Share			Total
Net premiums written	$	409,075		$	340,992		$	147,709		$	897,776
Net premiums earned		455,378			333,070			68,858			857,306
Net losses and loss expenses		(294,044	)		(209,184	)		(43,036	)		(546,264	)
Commissions and other acquisition costs		(123,128	)		(108,249	)		(23,422	)		(254,799	)
General and administrative expenses		(18,343	)		(1,292	)		(124	)		(19,759	)
Underwriting income	$	19,863		$	14,345		$	2,276		$	36,484

Reconciliation to net income
Net investment income and realized and unrealized investment gains (losses)											56,430
Amortization of intangible assets											(4,356	)
Foreign exchange losses											(380	)
Subordinated debt interest expense											(27,348	)
Other operating expenses											(9,117	)
Income tax expense											(981	)
Net Income										$	50,732

Net loss and loss expense ratio*		64.6	%		62.8	%		62.5	%		63.7	%
Acquisition cost ratio**		27.0	%		32.5	%		34.0	%		29.7	%
General and administrative expense ratio***		4.0	%		0.4	%		0.2	%		3.4	%
Combined ratio****		95.6	%		95.7	%		96.7	%		96.8	%

For the Three Months Ended September 30, 2009	Diversified Reinsurance			AmTrust Quota Share			ACAC Quota Share			Total
Net premiums written	$	129,232		$	92,168		$	–		$	221,400
Net premiums earned		147,876			89,474			–			237,350
Net losses and loss expenses		(110,420	)		(54,703	)		–			(165,123	)
Commissions and other acquisition costs		(26,062	)		(29,251	)		–			(55,313	)
General and administrative expenses		(3,785	)		(812	)		–			(4,597	)
Underwriting income	$	7,609		$	4,708		$	–		$	12,317

Reconciliation to net income
Net investment income and realized investment gains (losses)											16,712
Amortization of intangible assets											(1,676	)
Foreign exchange and other gains											210
Subordinated debt interest expense											(9,114	)
Other operating expenses											(3,462	)
Net Income										$	14,987

Net loss and loss expense ratio*		74.7	%		61.1	%		–	%		69.6	%
Acquisition cost ratio**		17.6	%		32.7	%		–	%		23.3	%
General and administrative expense ratio***		2.6	%		0.9	%		–	%		3.4	%
Combined ratio****		94.9	%		94.7	%		–	%		96.3	%

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

For the Nine Months Ended September 30, 2009	Diversified Reinsurance			AmTrust Quota Share			ACAC Quota Share			Total
Net premiums written	$	528,963		$	267,341		$	–		$	796,304
Net premiums earned		401,761			269,522			–			671,283
Net losses and loss expenses		(294,005	)		(168,463	)		–			(462,468	)
Commissions and other acquisition costs		(71,234	)		(88,374	)		–			(159,608	)
General and administrative expenses		(13,599	)		(1,873	)		–			(15,472	)
Underwriting income	$	22,923		$	10,812		$	–		$	33,735

Reconciliation to net income
Net investment income and realized investment gains (losses)											45,688
Amortization of intangible assets											(4,915	)
Foreign exchange and other gains											2,401
Subordinated debt interest expense											(25,316	)
Other operating expenses											(7,254	)

Net Income										$	44,339

Net loss and loss expense ratio*		73.2	%		62.5	%		–	%		68.9	%
Acquisition cost ratio**		17.7	%		32.8	%		–	%		23.8	%
General and administrative expense ratio***		3.4	%		0.7	%		–	%		3.4	%
Combined ratio****		94.3	%		96.0	%		–	%		96.1	%

*	Calculated by dividing net losses and loss expenses by net earned premium.

**	Calculated by dividing commission and other acquisition expenses by net earned premium

***	Calculated by dividing general and administrative expenses by net earned premium.

****	Calculated by adding together net loss and loss expense ratio, acquisition cost ratio and general and administrative expense ratio.

	Diversified Reinsurance		AmTrust Quota Share		ACAC Quota Share		Total
As at September 30, 2010
Reinsurance balances receivable, net	$	146,270	$	31,642	$	66,441	$	244,353
Prepaid reinsurance		31,575		–		–		31,575
Reinsurance recoverable on unpaid losses		6,000		–		–		6,000
Deferred commission and other acquisition costs		73,091		87,329		26,821		187,241
Loan to related party		–		167,975		–		167,975
Goodwill		52,617		–		–		52,617
Intangible assets, net		46,928		–		–		46,928
Restricted investments and cash		1,126,223		331,957		10,289		1,468,469
Corporate and other assets		3,933		–		–		634,412
Total Assets	$	1,486,637	$	618,903	$	103,551	$	2,839,570

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

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 nine months ended September 30, 2010 and 2009:

	Diversified Reinsurance		AmTrust Quota Share		ACAC Quota Share		Total
As at December 31, 2009
Reinsurance balances receivable, net	$	171,482	$	39,856	$	–	$	211,338
Prepaid reinsurance		28,752		–		–		28,752
Reinsurance recoverable on unpaid losses		11,984		–		–		11,984
Deferred commission and other acquisition costs		88,224		84,759		–		172,983
Loan to related party		–		167,975		–		167,975
Goodwill		52,617		–		–		52,617
Intangible assets, net		51,284		–		–		51,284
Restricted investments and cash		1,168,663		206,959		–		1,375,622
Corporate and other assets		2,502		–		–		567,182
Total Assets	$	1,575,508	$	499,549	$	–	$	2,639,737

	For the Three Months Ended September 30, 2010					For the Three Months Ended September 30, 2009
	Total		% of Total			Total		% of Total
Net premiums written
Diversified Reinsurance
Property	$	37,471		13.7	%	$	28,691		13.0	%
Casualty		54,178		19.8	%		76,377		34.5	%
Accident and Health		12,803		4.7	%		24,164		10.9	%
Total Diversified Reinsurance		104,452		38.2	%		129,232		58.4	%
AmTrust Quota Share
Small Commercial Business		43,664		16.0	%		34,077		15.4	%
Specialty Program Business		20,996		7.7	%		13,052		5.9	%
Specialty Risk and Extended Warranty		45,653		16.7	%		45,039		20.3	%
Total AmTrust Quota Share		110,313		40.4	%		92,168		41.6	%
ACAC Quota Share
Automobile liability		33,565		12.2	%		–		–	%
Automobile physical damage		25,105		9.2	%		–		–	%
Total ACAC Quota share		58,670		21.4	%		–		–	%
	$	273,435		100.0	%	$	221,400		100.0	%

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)

	For the Nine Months Ended September 30, 2010					For the Nine Months Ended September 30, 2009
	Total		% of Total			Total		% of Total
Net premiums written
Diversified Reinsurance
Property	$	131,800		14.7	%	$	105,650		13.3	%
Casualty		238,194		26.5	%		331,685		41.6	%
Accident and Health		39,081		4.4	%		91,628		11.5	%
Total Diversified Reinsurance		409,075		45.6	%		528,963		66.4	%
AmTrust Quota Share
Small Commercial Business		147,494		16.4	%		132,985		16.7	%
Specialty Program Business		51,897		5.8	%		35,044		4.4	%
Specialty Risk and Extended Warranty		141,601		15.8	%		99,312		12.5	%
Total AmTrust Quota Share		340,992		38.0	%		267,341		33.6	%
ACAC Quota Share
Automobile liability		84,524		9.4	%		–		–	%
Automobile physical damage		63,185		7.0	%		–		–	%
Total ACAC Quota Share		147,709		16.4	%		–		–	%
	$	897,776		100.0	%	$	796,304		100.0	%

	For the Three Months Ended September 30, 2010					For the Three Months Ended September 30, 2009
	Total		% of Total			Total		% of Total
Net premiums earned
Diversified Reinsurance
Property	$	42,800		13.8	%	$	33,948		14.3	%
Casualty		86,028		27.8	%		87,043		36.7	%
Accident and Health		13,591		4.4	%		26,885		11.3	%
Total Diversified Reinsurance		142,419		46.0	%		147,876		62.3	%
AmTrust Quota Share
Small Commercial Business		46,744		15.1	%		50,896		21.4	%
Specialty Program Business		21,494		6.9	%		11,426		4.9	%
Specialty Risk and Extended Warranty		52,509		17.0	%		27,152		11.4	%
Total AmTrust Quota Share		120,747		39.0	%		89,474		37.7	%
ACAC Quota Share
Automobile liability		26,001		8.4	%		–		–	%
Automobile physical damage		20,426		6.6	%		–		–	%
Total ACAC Quota Share		46,427		15.0	%		–		–	%
	$	309,593		100.0	%	$	237,350		100.0	%

Notes to Unaudited Condensed Consolidated Financial Statements

(In Thousands of United States Dollars, Except Par Value and Per Share Data)