A.M. Best has downgraded the financial strength rating of Maiden Reinsurance, Ltd. and Maiden Reinsurance North America, Inc. from to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to bbb from a-, the ratings agency has announced.
At the same time, A.M. Best has downgraded the Long-Term ICR of Maiden Re’s parent Maiden Holdings, Ltd. to bb from bbb-, as well as its downstream intermediate holding company, Maiden Holdings North America, Ltd.
A.M. Best states that all Long-Term Issue Credit Ratings of Maiden Holdings and its intermediate holding company have also been downgraded.
“The Credit Ratings (ratings) reflect Maiden Re’s balance sheet strength, which A.M. Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM),” says the rating agency.
Analysts at Keefe, Bruyette & Woods (KBW) recently commented on A.M. Best’s move to downgrade the re/insurer, stating that it implies limited long-term viability for the company.
At the same time, the downgrade means that AmTrust can now terminate its quota -share arrangement with Maiden by giving the 30-day notice, which, according to analysts, would make the previously announced extension of the quota-share renewal written notice date irrelevant.
For Maiden shareholders, the key question remains economic value, and analysts warn that any further deterioration of the AmTrust Reinsurance segment’s core combined ratio could result in the need for a DAC asset write-down that could further erode common equity.
As noted by A.M. Best, Maiden’s Q3 2018 risk-adjusted capital levels declined substantially from their levels at the end of 2017, as action was taken with respect to its reserves in advance of signing a loss portfolio transfer (LPT) agreement with Enstar for the loss reserves related to its quota share reinsurance arrangement AmTrust.
“Operating performance has been assessed as marginal, as A.M. Best expects MHLD to post a third consecutive underwriting loss and a substantial net loss for the full year 2018, based on year-to-date results. While the adverse loss reserve development that has driven a significant portion of the losses will be removed from the group’s books by the transactions, future performance will be dependent on its ability to complete and successfully implement its strategic review,” says A.M. Best.
