AM Best has put Maiden’s “A-” financial strength rating at risk after the Bermudian announced plans to offload its $1.1bn North American business and sell a significant renewal book to TransRe.
As a result, AM Best put the carrier’s rating under review “with negative implications” citing uncertainty over future transactions and whether Maiden will get them over the line.
It also pointed to questions over Maiden’s relationship with sister company AmTrust, which is responsible for the vast majority of Maiden’s book.
Earlier this month, the US insurer revealed that it had negotiated extra time to cancel its $2bn reinsurance quota share with Maiden, which accounts for around two thirds of the Bermudian’s premiums.
The rating review reflects “the as yet-unresolved, previously disclosed, renewal of the reinsurance agreement with AmTrust” and the performance of reserves related to that book, AM Best said.
In the second quarter, Maiden’s relationship with AmTrust sent it to an unexpected $10.7mn operating loss as it booked a $28.4mn reserve charge against the book written for its sister company. It has boosted reserves by more than a quarter of a billion dollars on the book in the last 18 months alone.
AM Best said its negative view of Maiden also reflected the reinsurer’s decision to sell renewal rights for its $823mn diversified reinsurance segment to TransRe. The book includes all the premiums not written for its sister company.
“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 favorable results than the AmTrust business,” AM Best said.
It noted: “AM Best anticipates that the reduction in net premiums written resulting from the renewal rights transaction should drive improvements in risk-adjusted capitalisation.”
It added that the sale of the group’s North American business which holds reserved of around $1.1bn was also expected to boost the group’s capital adequacy ratio.
“Improvements to operating performance also are expected as a result of these actions,” AM Best said.
“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 rating agency went on.
“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.”