Maiden Holdings Q4 Revenue and Earnings Fall, Underwriting Remains Profitable

By Markets Fool.com

Maiden Holdingsreported its fourth-quarter and full-year 2015 earnings after the market closed on Monday. The Bermuda-based reinsurance company's written premiums, earned premiums, and net income fell from the year-ago period, while its combined ratio ticked up due to an increase in the loss ratio. Positively, the combined ratio remains under 100%, reflecting an underwriting profit, and investment income increased from the year-ago period.

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Shares of Maiden closed down 10.4% on Tuesday. Notably for income investors, the stock's annualized dividend yield is 4.2% at the current share price.

Maiden Holding's key Q4 numbers

Metric Q4 2015 Q4 2014 Growth (YOY)
Net premiums written $488.4 million $601.9 million (18.9)%
Net premiums earned $583.8 million $608.2 million (4.0)%
Net operating earnings per share $0.34 $0.44 (22.7)%
Operating return on common equity (annualized) 11.8% 15.1% (21.9)%
Net investment income $34.8 million $31.7 million 9.8%
GAAP Net income $24.7 million $27.5 million (10.2)%
GAAP EPS $0.32 $0.36 (11.1)%
Loss ratio 67.8% 64.8% (4.6)%
Combined ratio 99.9% 98.6% (1.3)%

Data source: Maiden Holdings.

Net premiums written in the quarter decreased due to the initial purchase of a retrocessional contract in 2015, and the effect of a commutation agreement with AmTrust in the quarter.Written and earned premiums were lower by $65.4 million and $23.9 million, respectively, as a result of this commutation.

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(Acommutation is an agreement between a reinsured and a reinsurer that terminates the reinsurance obligation, and involves the reinsurer paying funds at present value that are not yet due under the reinsurance agreement. Basically, it's like a buyout of the reinsurance policy, which means that Maiden won't be on the hook for paying claims in the future for the involved policies.)

For the full-year 2015, Maiden's net premiums written increased 2.3% year over year, to $2.5 billion, while its net premiums earned rose 7.9%, to $2.4 billion. Its net income increased to $100.1 million, or $1.31 per share, from $77.1 million, or $1.04 per share in 2014. The combined ratio for 2015 increased to 99.3% from 98% in 2014.

Long-term investors shouldn't give too much weight to analysts' estimates, as Wall Street is short-term oriented. That said, analysts' expectations can help explain market reactions. It's worth noting that analysts were looking for fourth-quarter EPS of $0.45 on premiums earned of $617 million. Maiden fell short on both counts.

Results by segment
Maiden has two business segments. The largest is AmTrust, which consists of reinsurance it provides toAmTrust Financial Services. AmTrust was founded by the same team that started Maiden, and accounted for nearly 71% of Maiden's net written premium, and just over 69% of its earned premium in 2015. The company's diversified segment includes reinsurance that it provides to all other insurance companies.

AmTrust's key Q4 numbers

Metric

Q4 2015

Q4 2014

Growth (YOY)

Net premiums written

$356.3 million

$433.5 million

(17.8)%

Net premiums earned

$409.6 million

$389.4 million

5.2%

Combined ratio

95.8%

94.9%

(0.9)%

Data source: Maiden Holdings.

  • Written and earned premiums were lower by $65.4 million and $23.9 million, respectively, as a result of the commutation previously mentioned.
  • While the combined ratio ticked down, 95.8% is still a strong result.

Diversified's key Q4 numbers

Metric

Q4 2015

Q4 2014

Growth (YOY)

Net premiums written

$132.1 million

$168.3 million

(21.5)%

Net premiums earned

$174.2 million

$218.8 million

(20.4)%

Combined ratio

103.9%

99.2%

(4.7)%

Data source: Maiden Holdings.

  • Premiums written continued to be negatively affected due to Maiden's loss of a large account in the U.S. when the parent company was acquired.
  • The combined ratio increased primarily due to a higher booking ratio in Maiden's U.S. underwriting portfolio. Positively, there was a significantly lower level of commercial auto adverse loss-reserve development than in prior quarters.

What management had to say
CEO Art Raschbaum said:

Maiden generated an operating return on common equity of 11.8% and 12% in the fourth quarter and full year 2015, respectively. We believe that 2015 further validates the strength of our unique low volatility strategy as we absorbed adverse commercial auto results in our Diversified Reinsurance segment but continued to generate overall profitable underwriting results along with relatively strong operating returns and income.

While we experienced revenue headwinds in our Diversified Reinsurance segment, we have set the stage for profitable expansion of this business in 2016 and beyond with our Solvency II capital solutions business in Europe, our growing customer base in the U.S., and the expansion of our IIS OEM branded insurance business.Significantly, AmTrust continues to perform well, with continued growth and profitable underwriting.We remain focused on disciplined underwriting while leveraging our unique competitive advantages.

Wrap-up
Maiden Holding's key quarterly numbers were not as strong as what many investors were probably expecting. Nonetheless, the company's underwriting performance remains solid, with the combined ratio coming in at just under 100%. Additionally, the company's investment portfolio continues to grow, with investment income increasing 9.8% in the quarter.

While AmTrust's premium growth was hurt in the quarter due to the commutation, the segment was a solid performer in the year.The diversified segment pulled down the company's results throughout 2015 from both premium growth and underwriting profitability standpoints. Maiden's 2016 challenge is to improve performance in this segment.

The article Maiden Holdings Q4 Revenue and Earnings Fall, Underwriting Remains Profitable originally appeared on Fool.com.

Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of AmTrust Financial Services. The Motley Fool recommends Maiden Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.