AM Best places Maiden Re ratings under review
AM Best has placed the financial strength rating (FSR) of A- (Excellent) and the long-term issuer credit ratings (Long-Term ICR) of “a-” of Maiden Reinsurance, and its affiliate, Maiden Reinsurance North America (MRNA), under review with negative implications.
The change in rating outlook follows the announcement that the renewal rights for Maiden’s US diversified business were being sold to Transatlantic Reinsurance Company. Additionally, AM Best has placed under review with negative implications the Long-Term ICRs of “bbb-” and the associated Long-Term Issue Credit Ratings (Long-Term IR) of Maiden Holdings, and its intermediate subsidiary, Maiden Holdings North America.
The rating agency said that the under review with negative implications status reflects uncertainty regarding potential future transactions and their successful completion; the as yet-unresolved, previously disclosed, renewal of the reinsurance agreement with AmTrust Financial Services and the ultimate performance of the reserves related to business assumed from AmTrust. The negative implications also reflect the potential impact that the sale of the US Diversified business will have on the group’s on-going business profile.
AM Best said that the announcement of the renewal rights transaction also indicated that Maiden Holdings is in advanced discussions to sell MRNA, in a transaction covering approximately $1.1 billion in loss and loss-adjustment expense reserves. These actions have evolved from a strategic review of Maiden’s operations announced earlier this year, which have a goal of strengthening the organisation’s capital position and improving operating performance, in part through expense reductions. On-going business at Maiden will include its AmTrust business, which accounted for the majority of the enterprise’s revenue in 2017, and its European International Insurance Services and Capital Solutions businesses.
AM Best added that it anticipates that the reduction in net premiums written resulting from the renewal rights transaction should drive improvements in risk-adjusted capitalisation, as calculated by Best’s Capital Adequacy Ratio (BCAR). A transaction under which the MRNA legal entity will be sold also should benefit BCAR, by removing $1.1 billion in reserves from the enterprise books that have been a source of some variability in loss reserve development in recent years. The group’s balance sheet strength assessment has benefited historically from its focus on high-quality investments, a strategy that is not expected to change. However, other factors that have negatively impacted the balance sheet strength assessment – including the variability in reserves associated with the AmTrust business, negative interest coverage in 2017 and expected in 2018 and substantial servicing requirements for its outstanding securities – remain offsetting considerations.
Improvements to operating performance also are expected as a result of these actions. In addition to scaling its operations to reflect the discontinuation of the US diversified business, which will have immediate , albeit modest, impact in 2018 and more meaningful benefits in 2019, the US diversified business historically produced less favourable results than the AmTrust business. There are a number of issues that will be resolved in the near term that will provide an additional perspective on the future operating profitability, such as the renegotiation of the AmTrust reinsurance treaty and the disposition of MRNA.
The rating agency said that the organisation’s business profile will contract as a result of these actions, with the majority of its current business that is not related to AmTrust being sold. The assessment of business profile reflected, in part, the niche role the company played as a provider of proportional reinsurance in the United States. While recognising the potential benefits to operating performance over the longer term from discontinuing this operation, which historically had weaker results, the diminution of the business profile is a key factor in the under review with negative implications status.
AM Best expects the ratings to remain under review while management’s strategic review and any associated actions are concluded, and AM Best completes its assessment of those actions. AM Best concluded by saying that it will monitor any interim developments and take any necessary rating action.
