AM Best critical of Maiden after US renewal rights sale to TransRe
AM Best has placed the financial strength rating and the long-term issuer credit ratings (ICRs) for Maiden Reinsurance, and its affiliate Maiden Reinsurance North America under review with negative implications following the announcement that the renewal rights for its US diversified business were being sold to Transatlantic Reinsurance Company (TransRe).
Additionally, AM Best has placed under review with negative implications the long-term ICRs and the associated long-term issue credit ratings of Maiden Holdings and its intermediate subsidiary, Maiden Holdings North America.
Maiden Re has sold the exclusive renewal rights to its US treaty reinsurance underwriting business to TransRe, the reinsurance arm of Transatlantic Holdings and a wholly owned subsidiary of Alleghany Corporation.
Maiden Re expects the completion of the sale of the renewal rights to simplify its operations, and along with anticipated restructuring and related expense reductions, to improve its business performance and profitability, and significantly reduce the amount of capital required for Maiden’s operations.
Maiden Holdings is also in advanced discussions regarding the sale of its wholly-owned subsidiary, Maiden Reinsurance North America (MRNA) to a third party, according to a company statement. The transaction would cover approximately $1.1 billion of loss and a loss adjustment expense (LAE) reserves as of June 30, 2018.
These actions have evolved from a strategic review of Maiden’s operations announced earlier this year, which have a goal of strengthening the organization’s capital position and improving operating performance, in part through expense reductions, AM Best noted.
AM Best 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, the ratings agency said.
Maiden’s business profile will contract as a result of the actions, with the majority of its current business that is not related to AmTrust being sold, AM Best noted. While recognizing the potential benefits to operating performance over the longer term from discontinuing the diversified business, which historically had weaker results, the diminution of the business profile is a key factor in the under review with negative implications status.
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.
AmTrust has continued to drag on the reinsurer’s performance in the second quarter of 2018 and both companies decided to reduce the notice period for termination of their quota share agreement from nine months to five months prior to July 1, 2019.
Maiden’s AmTrust reinsurance segment produced a combined ratio of 106.7 percent in the second quarter of 2018 after 101.5 percent in the same period a year ago, driven primarily by higher initial current year loss ratios on current year premiums earned during the period.
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