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Maiden CEO acknowledges risk of downgrade

Downgrade risk: Art Raschbaum, CEO of Maiden Holdings

Maiden Holdings’ chief executive officer acknowledged there is a risk of a ratings downgrade after the Bermudian reinsurer posted its fourth net loss in the last five quarters.

But Art Raschbaum is hopeful that even if that occurred, clients would remain loyal.

The company reported a fourth-quarter 2017 net loss of $133.6 million compared to a net loss of $74.7 million in the same period of 2016.

Operating earnings per share for the quarter were negative $1.65, missing the 20 cents earnings expected by analysts tracked by Yahoo Finance. Maiden’s shares plunged 16.7 per cent to $6 yesterday after the results were released on Thursday evening.

During yesterday’s conference call with analysts, Matt Carletti, from JMP Securities asked Mr Raschbaum about the likelihood of a downgrade. Maiden has an A (excellent) financial strength rating from AM Best.

“Obviously, we’re in constant dialogue with all of our constituencies, rating agencies as well as our regulators,” Mr Raschbaum said.

“We’re not at liberty to communicate the details of our discussion. I’d say, with the kind of activity we’ve seen, certainly, there’s a risk of a downgrade.

“I think an important differentiator in our business model is — and we’ve done this since pre-Maiden days — we’ve collateralised the obligation for clients. And they’re collateralised to the full expected ultimate.

“And so repeatedly, we’ve had many customers that have remained very focused and committed to us because of that collateral. We see no change in that process.”

The company had previously been able to grow with an A- rating, he added, though he conceded that a downgrade now would bring with it “noise” and challenges.

The main driver of Maiden’s fourth-quarter loss was the performance of the AmTrust Reinsurance segment. Its combined ratio deteriorated to 131.1 per cent in the fourth quarter of 2017 from 108.1 per cent in the same period of 2016.

The segment experienced adverse loss development of $139 million due primarily to workers’ compensation and general liability lines of business.

Maiden has a multiyear quota share agreement with AmTrust Financial Services, which produced $1.8 billion of the reinsurers net premiums earned in 2016.

During the conference call, Mr Raschbaum addressed speculation that Maiden’s major shareholders may have plans to take the company private.

“As you know, AmTrust’s founding shareholders recently announced their plans to take the company private,” Mr Raschbaum told analysts.

“While there has been speculation from some that Maiden could similarly be acquired by our founding shareholders, we have no such plans currently under way.”

For the full year of 2017, Maiden reported a net loss of $199.1 million compared to a net income of $15.2 million in 2016.

“While we are disappointed with our results for the fourth quarter, we believe we have taken significant steps to strengthen our reserves for losses which will help to accelerate a return to profitability in 2018 and beyond,” Mr Raschbaum said in a statement.

“Our reserve actions in the fourth quarter reflect a more aggressive response to observed development in the quarter and throughout the year on the AmTrust Reinsurance segment as well as our Diversified segment.”