UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT OF
1934




For the
quarterly period ended September 30, 2010




o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT
OF 1934




For the
transition period from __________ to __________




Commission
File No. 001-34042




MAIDEN
HOLDINGS, LTD.


(Exact
name of registrant as specified in its charter)





Bermuda
            
            98-0570192(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer Identification No.)131 Front Street,
      Hamilton, Bermuda
            
            HM12(Address
      of principal executive offices)
            
            (Zip
      Code)(441)
      298-4900(Registrant’s
      telephone number, including area
code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes  o No  o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer 
      o
            
            Accelerated filer 
      xNon-accelerated filer 
      o
       (Do not check if a smaller reportingcompany)
            
            Smaller reporting company 
      o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).


Yes
o No x




As of
November 8, 2010, the Registrant had one class of Common Shares ($.01 par
value),


of which
72,105,885 shares were issued and outstanding.










INDEX




PagePART
      I - Financial InformationItem
      1.
            
            Financial
      StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2010 (unaudited) and
      December 31, 2009
            
            3Condensed
      Consolidated Statement of Income and Comprehensive Income for the three
      and nine months ended September 30, 2010 and 2009
    (unaudited)
            
            4Condensed
      Consolidated Statement of Changes in Shareholders’ Equity for the nine
      months ended September 30, 2010 and 2009 (unaudited)
            
            5Condensed
      Consolidated Statement of Cash Flows for the nine months ended September
      30, 2010 and 2009 (unaudited)
            
            6Notes
      to Unaudited Condensed Consolidated Financial Statements
            
            7Item
      2.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            31Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            53Item
      4.
            
            Controls
      and Procedures
            
            54PART
      II - Other InformationItem
      6.
            
            Exhibits
            
            55Signatures
            
            56




2




PART
I - FINANCIAL INFORMATION




Item
1.  Financial Statements




MAIDEN HOLDINGS, LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)




September 30,
              2010
              (Unaudited)
            
            
            December 31,
              2009
              (Audited)ASSETSInvestments:Fixed
      maturities, available for sale, at fair value (Amortized cost 2010:
      $1,505,431; 2009: $1,623,382)
            
            $
            1,582,372
            
            
            $
            1,661,692Other
      investments, at fair value (Cost 2010: $5,534; 2009:
    $5,684)
            
            
            5,531
            
            
            
            5,549Total
      investments
            
            
            1,587,903
            
            
            
            1,667,241Cash
      and cash equivalents
            
            
            269,486
            
            
            
            107,396Restricted
      cash and cash equivalents
            
            
            218,867
            
            
            
            144,944Accrued
      investment income
            
            
            11,335
            
            
            
            11,405Reinsurance
      balances receivable, net (includes $97,631 and $43,382 from related
      parties in 2010 and 2009, respectively)
            
            
            244,353
            
            
            
            211,338Prepaid
      reinsurance
            
            
            31,575
            
            
            
            28,752Reinsurance
      recoverable on unpaid losses
            
            
            6,000
            
            
            
            11,984Loan
      to related party
            
            
            167,975
            
            
            
            167,975Deferred
      commission and other acquisition costs (includes $114,154 and $85,979 from
      related parties in 2010 and 2009, respectively)
            
            
            187,241
            
            
            
            172,983Other
      assets
            
            
            15,290
            
            
            
            11,818Intangible
      assets, net
            
            
            46,928
            
            
            
            51,284Goodwill
            
            
            52,617
            
            
            
            52,617Total assets
            
            $
            2,839,570
            
            
            $
            2,639,737LIABILITIES
      AND SHAREHOLDERS’ EQUITYLiabilitiesReserve
      for loss and loss adjustment expenses (includes $244,491 and $174,046 from
      related parties in 2010 and 2009, respectively)
            
            $
            1,093,857
            
            
            $
            1,006,320Unearned
      premiums (includes $347,935 and $264,751 from related parties in 2010 and
      2009, respectively)
            
            
            628,232
            
            
            
            583,478Accrued
      expenses and other liabilities
            
            
            74,265
            
            
            
            62,887Securities
      sold under agreements to repurchase, at contract value
            
            
            69,674
            
            
            
            95,401Junior
      subordinated debt
            
            
            215,173
            
            
            
            215,125Total liabilities
            
            
            2,081,201
            
            
            
            1,963,211Commitments
      and ContingenciesShareholders’
      equityCommon
      shares ($0.01 par value; 73,068,030 and 71,253,625 shares issued in 2010
      and 2009, respectively; 72,105,694 and 70,291,289 shares outstanding in
      2010 and 2009, respectively)
            
            
            731
            
            
            
            713Additional
      paid-in capital
            
            
            576,813
            
            
            
            576,086Accumulated
      other comprehensive income
            
            
            76,938
            
            
            
            32,747Retained
      earnings
            
            
            107,688
            
            
            
            70,781Treasury
      shares, at cost (2010 and 2009: 962,336 shares)
            
            
            (3,801
            )
            
            
            (3,801
            )Total shareholders’
      equity
            
            
            758,369
            
            
            
            676,526Total liabilities and
      shareholders’ equity
            
            $
            2,839,570
            
            
            $
            2,639,737





See
accompanying notes to the unaudited condensed consolidated financial
statements.




3




MAIDEN HOLDINGS, LTD.


CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME


(In
Thousands of United States Dollars, Except Per Share Data)


(Unaudited)




For the Three
                    Months Ended
                    September 30,
                    2010
                  
                  
                  For the Three
                    Months Ended
                    September 30,
                    2009
                  
                  
                  For the Nine
                    Months Ended
                    September 30,
                    2010
                  
                  
                  For the Nine
                    Months Ended
                    September 30,
                    2009Revenues:Gross
      premiums written
                  
                  $
                  289,815
                  
                  
                  $
                  221,400
                  
                  
                  $
                  951,981
                  
                  
                  $
                  796,304Net
      premiums written
                  
                  $
                  273,435
                  
                  
                  $
                  221,400
                  
                  
                  $
                  897,776
                  
                  
                  $
                  796,304Change
      in unearned premiums
                  
                  
                  36,158
                  
                  
                  
                  15,950
                  
                  
                  
                  (40,470
                  )
                  
                  
                  (125,021
                  )Net
      earned premium
                  
                  
                  309,593
                  
                  
                  
                  237,350
                  
                  
                  
                  857,306
                  
                  
                  
                  671,283Net
      investment income
                  
                  
                  17,500
                  
                  
                  
                  16,778
                  
                  
                  
                  53,956
                  
                  
                  
                  46,150Net
      realized and unrealized investment gains (losses)
                  
                  
                  1,627
                  
                  
                  
                  (66
                  )
                  
                  
                  2,474
                  
                  
                  
                  (462
                  )Total
      revenues
                  
                  
                  328,720
                  
                  
                  
                  254,062
                  
                  
                  
                  913,736
                  
                  
                  
                  716,971Expenses:Loss
      and loss adjustment expenses
                  
                  
                  200,625
                  
                  
                  
                  165,123
                  
                  
                  
                  546,264
                  
                  
                  
                  462,468Commission
      and other acquisition expenses
                  
                  
                  88,956
                  
                  
                  
                  55,313
                  
                  
                  
                  254,799
                  
                  
                  
                  159,608Other
      operating expenses
                  
                  
                  10,840
                  
                  
                  
                  8,059
                  
                  
                  
                  28,876
                  
                  
                  
                  22,726Subordinated
      debt interest expense
                  
                  
                  9,117
                  
                  
                  
                  9,114
                  
                  
                  
                  27,348
                  
                  
                  
                  25,316Amortization
      of intangible assets
                  
                  
                  1,452
                  
                  
                  
                  1,676
                  
                  
                  
                  4,356
                  
                  
                  
                  4,915Foreign
      exchange (gains) losses
                  
                  
                  (1,187
                  )
                  
                  
                  (210
                  )
                  
                  
                  380
                  
                  
                  
                  (2,401
                  )Total
      expenses
                  
                  
                  309,803
                  
                  
                  
                  239,075
                  
                  
                  
                  862,023
                  
                  
                  
                  672,632Income
      before income taxes
                  
                  
                  18,917
                  
                  
                  
                  14,987
                  
                  
                  
                  51,713
                  
                  
                  
                  44,339Income
      taxes:Current
      tax expense
                  
                  
                  100
                  
                  
                  
                  –
                  
                  
                  
                  100
                  
                  
                  
                  –Deferred
      tax expense
                  
                  
                  291
                  
                  
                  
                  –
                  
                  
                  
                  881
                  
                  
                  
                  –Income
      tax expense
                  
                  
                  391
                  
                  
                  
                  –
                  
                  
                  
                  981
                  
                  
                  
                  –Net
      income
                  
                  $
                  18,526
                  
                  
                  $
                  14,987
                  
                  
                  $
                  50,732
                  
                  
                  $
                  44,339Comprehensive
      income:Net
      income
                  
                  $
                  18,526
                  
                  
                  $
                  14,987
                  
                  
                  $
                  50,732
                  
                  
                  $
                  44,339Other
      comprehensive incomeNet
      unrealized holdings gains arising during the period
                  
                  $
                  23,021
                  
                  
                  $
                  48,148
                  
                  
                  $
                  51,329
                  
                  
                  $
                  77,154Adjustment
      for reclassification of realized (gains) losses recognized in net
      income
                  
                  
                  (3,572
                  )
                  
                  
                  66
                  
                  
                  
                  (7,138
                  )
                  
                  
                  462Other
      comprehensive income
                  
                  $
                  19,449
                  
                  
                  $
                  48,214
                  
                  
                  $
                  44,191
                  
                  
                  $
                  77,616Comprehensive
      income
                  
                  $
                  37,975
                  
                  
                  $
                  63,201
                  
                  
                  $
                  94,923
                  
                  
                  $
                  121,955Basic
      earnings per common share
                  
                  $
                  0.26
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.72
                  
                  
                  $
                  0.64Diluted
      earnings per common share
                  
                  $
                  0.26
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.72
                  
                  
                  $
                  0.63Dividends
      declared per common share
                  
                  $
                  0.065
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.195
                  
                  
                  $
                  0.18




For the Three
              Months Ended
              September 30,
              2010
            
            
            For the Three
              Months Ended
              September 30,
              2009
            
            
            For the Nine
              Months Ended
              September 30,
              2010
            
            
            For the Nine
              Months Ended
              September 30,
              2009Net
      realized and unrealized investment gains (losses):Total
      other-than-temporary impairment losses
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –Portion
      of loss recognized in other comprehensive income
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Net
      impairment losses recognized in earnings
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Other
      net realized and unrealized investment gains (losses)
            
            
            1,627
            
            
            
            (66
            )
            
            
            2,474
            
            
            
            (462
            )Net realized and unrealized
      investment gains (losses)
            
            $
            1,627
            
            
            $
            (66
            )
            
            $
            2,474
            
            
            $
            (462
            )




See accompanying notes to the
unaudited condensed consolidated financial statements.




4




MAIDEN
HOLDINGS, LTD.


CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY


(In
Thousands of United States Dollars)


(Unaudited)




For the Nine
              Months Ended
              September 30,
              2010
            
            
            For the Nine
              Months Ended
              September 30,
              2009Common
      sharesBalance
      – beginning of period
            
            $
            713
            
            
            $
            596Exercise
      of options and issuance of shares, net
            
            
            18
            
            
            
            117Balance
      – end of period
            
            
            731
            
            
            
            713Additional
      paid-in capitalBalance
      – beginning of period
            
            
            576,086
            
            
            
            530,519Exercise
      of options and issuance of shares, net
            
            
            43
            
            
            
            44,928Exchange
      of warrants for common shares
            
            
            (18
            )
            
            
            –Share
      based compensation
            
            
            702
            
            
            
            444Balance
      – end of period
            
            
            576,813
            
            
            
            575,891Accumulated
      other comprehensive income (loss)Balance
      – beginning of period
            
            
            32,747
            
            
            
            (44,499
            )Net
      unrealized gains on securities
            
            
            44,191
            
            
            
            77,616Balance
      – end of period
            
            
            76,938
            
            
            
            33,117Retained
      earningsBalance
      – beginning of period
            
            
            70,781
            
            
            
            26,944Net
      income
            
            
            50,732
            
            
            
            44,339Dividends
      on common shares
            
            
            (13,825
            )
            
            
            (12,652
            )Balance
      – end of period
            
            
            107,688
            
            
            
            58,631Treasury
      sharesBalance
      – beginning of period
            
            
            (3,801
            )
            
            
            (3,801
            )Shares
      repurchased
            
            
            –
            
            
            
            –Balance
      – end of period
            
            
            (3,801
            )
            
            
            (3,801
            )Total
      Shareholders’ Equity
            
            $
            758,369
            
            
            $
            664,551





See
accompanying notes to the unaudited condensed consolidated financial
statements.




5




MAIDEN HOLDINGS, LTD.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(In
Thousands of United States Dollars)


(Unaudited)




For the Nine
                                      Months Ended
                                      September 30,
                                      2010
                                    
                                    
                                    For the Nine
                                      Months Ended
                                      September 30,
                                      2009Cash
      flows from operating activities:Net
      income
                                    
                                    $
                                    50,732
                                    
                                    
                                    $
                                    44,339Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of intangibles
                                    
                                    
                                    5,370
                                    
                                    
                                    
                                    5,426Net
      realized and unrealized (gain) loss on investments
                                    
                                    
                                    (2,474
                                    )
                                    
                                    
                                    462Foreign
      exchange losses (gains) on revaluation
                                    
                                    
                                    380
                                    
                                    
                                    
                                    (2,401
                                    )Amortization
      of share-based compensation expense, bond premium and discount and trust
      preferred securities discount
                                    
                                    
                                    (4,313
                                    )
                                    
                                    
                                    (4,615
                                    )Changes
      in assets - (increase) decrease:Reinsurance
      balances receivable, net
                                    
                                    
                                    (46,938
                                    )
                                    
                                    
                                    (169,244
                                    )Prepaid
      reinsurance
                                    
                                    
                                    (2,823
                                    )
                                    
                                    
                                    –Accrued
      investment income
                                    
                                    
                                    70
                                    
                                    
                                    
                                    (695
                                    )Deferred
      commission and other acquisition costs
                                    
                                    
                                    (14,258
                                    )
                                    
                                    
                                    (66,604
                                    )Other
      assets
                                    
                                    
                                    (3,570
                                    )
                                    
                                    
                                    (1,702
                                    )Changes
      in liabilities – increase (decrease):Reserve
      for loss and loss adjustment expenses, net
                                    
                                    
                                    93,525
                                    
                                    
                                    
                                    72,706Unearned
      premiums
                                    
                                    
                                    44,754
                                    
                                    
                                    
                                    125,022Accrued
      expenses and other liabilities
                                    
                                    
                                    (6,238
                                    )
                                    
                                    
                                    (13,896
                                    )Net
      cash provided by (used in) operating activities
                                    
                                    
                                    114,217
                                    
                                    
                                    
                                    (11,202
                                    )Cash
      flows from investing activities:Purchases
      of investments:Purchases
      of fixed-maturity securities – available-for-sale
                                    
                                    
                                    (408,765
                                    )
                                    
                                    
                                    (739,006
                                    )Purchases
      of fixed-maturity securities – trading
                                    
                                    
                                    (918,476
                                    )
                                    
                                    
                                    –Purchases
      of other investments
                                    
                                    
                                    (136
                                    )
                                    
                                    
                                    (138
                                    )Sale
      of investments:Proceeds
      from sales of fixed-maturity securities –
    available-for-sale
                                    
                                    
                                    113,136
                                    
                                    
                                    
                                    153,991Proceeds
      from sales of fixed-maturity securities – trading and short
      sales
                                    
                                    
                                    967,548
                                    
                                    
                                    
                                    –Proceeds
      from maturities and calls of fixed-maturity securities
                                    
                                    
                                    409,061
                                    
                                    
                                    
                                    263,832Proceeds
      from redemption of other investments
                                    
                                    
                                    38
                                    
                                    
                                    
                                    127(Increase)
      decrease in restricted cash and cash equivalents
                                    
                                    
                                    (73,923
                                    )
                                    
                                    
                                    190,682Acquisition
      of subsidiary (net of cash required)
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (13,613
                                    )Purchase
      of capital assets
                                    
                                    
                                    (916
                                    )
                                    
                                    
                                    (122
                                    )Net
      cash provided by (used in) in investing activities
                                    
                                    
                                    87,567
                                    
                                    
                                    
                                    (144,247
                                    )Cash
      flows from financing activities:Repurchase
      agreements, net
                                    
                                    
                                    (25,727
                                    )
                                    
                                    
                                    (126,630
                                    )Common
      share issuance
                                    
                                    
                                    43
                                    
                                    
                                    
                                    117Junior
      subordinated debt issuance
                                    
                                    
                                    –
                                    
                                    
                                    
                                    260,000Junior
      subordinated debt issuance cost
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (4,342
                                    )Dividend
      paid
                                    
                                    
                                    (13,707
                                    )
                                    
                                    
                                    (11,950
                                    )Net
      cash (used in) provided by financing activities
                                    
                                    
                                    (39,391
                                    )
                                    
                                    
                                    117,195Effect
      of exchange rate changes on foreign currency cash
                                    
                                    
                                    (303
                                    )
                                    
                                    
                                    939Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    162,090
                                    
                                    
                                    
                                    (37,315
                                    )Cash
      and cash equivalents, beginning of period
                                    
                                    
                                    107,396
                                    
                                    
                                    
                                    131,897Cash
      and cash equivalents, end of period
                                    
                                    $
                                    269,486
                                    
                                    
                                    $
                                    94,582Supplemental
      information on cash flowsCash
      paid for interest
                                    
                                    $
                                    27,300
                                    
                                    
                                    $
                                    17,694Reinsurance
      balances receivables
                                    
                                    
                                    17,806
                                    
                                    
                                    
                                    –Investments
      - fixed maturity securities
                                    
                                    
                                    (17,806
                                    )
                                    
                                    
                                    –Supplemental information about
      non-cash investing and financing activitiesDiscount
      on junior subordinated debt
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    (44,928
                                    )Additional
      paid in Capital
                                    
                                    
                                    –
                                    
                                    
                                    
                                    44,928Common
      shares issued in exchange of warrants
                                    
                                    
                                    18
                                    
                                    
                                    
                                    –Additional
      paid in Capital
                                    
                                    
                                    (18
                                    )
                                    
                                    
                                    –Redemption
      of other investment
                                    
                                    
                                    4,751
                                    
                                    
                                    
                                    –Purchase
      of other investment
                                    
                                    
                                    (4,751
                                    )
                                    
                                    
                                    –




See
accompanying notes to the unaudited condensed consolidated financial
statements.





6




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




1. Basis of Presentation – Summary of
Significant Accounting Policies




The
accompanying unaudited condensed consolidated financial statements include the
accounts of Maiden Holdings, Ltd. and its subsidiaries and have been prepared in
accordance with generally accepted accounting principles in the United States
(“GAAP”) for interim financial statements and with the instructions to Form 10-Q
and Article 10 of Regulation S-X as promulgated by the U.S. Securities and
Exchange Commission (“SEC”). Accordingly they do not include all of the
information and footnotes required by GAAP for complete financial statements.
All significant inter-company transactions and accounts have been eliminated in
the consolidated financial statements.




These
interim consolidated financial statements reflect all adjustments that are, in
the opinion of management, necessary for a fair presentation of the results for
the interim period and all such adjustments are of a normal recurring nature.
The results of operations for the interim period are not necessarily indicative,
if annualized, of those to be expected for the full year. The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.




These
unaudited condensed consolidated financial statements, including these notes,
should be read in conjunction with the Company’s audited consolidated financial
statements, and related notes thereto, included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.




There
were no material changes in the application of our critical accounting estimates
subsequent to that report. However, the Company is amending its disclosure with
regard to Fair Value of Financial Instruments to include the
following:




·
            For investments that have quoted
      market prices in active markets, the Company uses the quoted market prices
      as fair value and includes these prices in the amounts disclosed in the
      Level 1 hierarchy. To date we have only included U.S. government fixed
      maturity investments as Level 1. The Company receives the quoted market
      prices from a third party, nationally recognized pricing service (“Pricing
      Service”). When quoted market prices are unavailable, the Company utilizes
      the Pricing Service to determine an estimate of fair value. The fair value
      estimates are included in the Level 2 hierarchy. The Pricing Service
      utilizes evaluated pricing models that vary by asset class and incorporate
      available trade, bid and other market information and for structured
      securities, cash flow and, when available, loan performance data. The
      Pricing Service’s evaluated pricing applications apply available
      information as applicable through processes such as benchmark curves,
      benchmarking of like securities, sector groupings and matrix pricing, to
      prepare evaluations. In addition, the Pricing Service uses model
      processes, such as the Option Adjusted Spread model to assess interest
      rate impact and develop prepayment scenarios. The market inputs that the
      Pricing Service normally seeks for evaluations of securities, listed in
      approximate order of priority, include: benchmark yields, reported trades,
      broker/dealer quotes, issuer spreads, two-sided markets, benchmark
      securities, bids, offers and reference data including market research
      publications.




·
            The Company utilizes the fair
      values received from the Pricing Service. If quoted market prices and an
      estimate from the Pricing Service are unavailable, the Company produces an
      estimate of fair value based on dealer quotations for recent activity in
      positions with the same or similar characteristics to that being valued or
      through consensus pricing of a pricing service. Depending on the level of
      observable inputs, the Company will then determine if the estimate is
      Level 2 or Level 3 hierarchy. Approximately 97% of the Company’s fixed
      maturity investments are categorized as Level 2 within the fair value
      hierarchy. At September 30, 2010 and December 31, 2009, we have not
      adjusted any prices provided by the Pricing
  Service.




·
            The Company will challenge any
      prices for its investments that are not considered to represent fair
      value. If a fair value is challenged, the Company will obtain a
      non-binding quote from a broker-dealer; multiple quotations are not
      typically sought. As of September 30, 2010 and December 31, 2009, only one
      security was priced using the market approach at approximately $8,595 and
      $7,948, respectively, using a quotation from a broker as opposed to the
      Pricing Service. At September 30, 2010 and December 31, 2009, we have not
      adjusted any pricing provided by the broker-dealers based on the review
      performed by our investment
managers.




7




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





1. Basis of Presentation – Summary of
Significant Accounting Policies(continued)




·
            To validate prices, the Company
      compares the fair value estimates to its knowledge of the current market
      and will investigate prices that it considers not to be representative of
      fair value. In addition, our process to validate the market prices
      obtained from the Pricing Service includes, but is not limited to,
      periodic evaluation of model pricing methodologies and analytical reviews
      of certain prices. We also periodically perform testing of the market to
      determine trading activity, or lack of trading activity, as well as
      evaluating the variability of market prices. Securities sold during the
      quarter are also “back-tested” (i.e., the sales prices are compared to the
      previous month end reported market price to determine the reasonableness
      of the reported market price). There were no material differences between
      the prices from the Pricing Service and the prices obtained from our
      validation procedures as of September 30, 2010 and December 31,
      2009.




Certain
reclassifications have been made for 2009 to conform to the 2010
presentation and have no impact on net income previously reported.




2. Recent Accounting
Pronouncements





Adoption
of new accounting pronouncements




On June
12, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets,” an amendment of FASB Statement 140 and the FASB subsequently
codified it as Accounting Standard Update (“ASU”) 2009-16, updating Accounting
Standards Codification (“ASC”) Topic 860 “Transfers and Servicing” and it
requires that a transferor recognize and initially measure at fair value all
assets obtained (including a transferor’s beneficial interest) and liabilities
incurred as a result of financial assets accounted for as a sale. It is a
revision to FASB Statement No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” and requires more
information about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related
to transferred financial assets.  ASU 2009-16 is effective on a
prospective basis in fiscal years beginning on or after November 15, 2009 and
interim periods within those fiscal years. The adoption of ASU 2009-16 did not
have a material impact on the Company’s consolidated results of operations and
financial condition.




On June
12, 2009, the FASB issued FASB Statement No. 167, “Amendments to FASB
Interpretation No. 46(R)” and the FASB subsequently codified as ASU 2009-17,
updating ASC Topic 810 “Consolidation” and it requires an enterprise to perform
an analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. It
determines whether a reporting entity is required to consolidate another entity
based on, among other things, the other entity’s purpose and design and the
reporting entity’s ability to direct the activities of the other entity that
most significantly impact the other entity’s economic performance. ASU 2009-17
is effective on a prospective basis in fiscal years beginning on or after
November 15, 2009, and interim periods within those fiscal years. The adoption
of ASU 2009-17 did not have a material impact on the Company’s consolidated
results of operations and financial condition.




New
accounting pronouncements issued during 2010 impacting the Company are as
follows:





In
February 2010, the FASB issued ASU 2010-09, which requires SEC filers to
evaluate subsequent events through the date the financial statements are issued.
It exempts SEC filers from disclosing the date through which subsequent events
have been evaluated.




On
January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements (“ASU 2010-06”).  ASU 2010-06 amends ASC 820, Fair
Value Measurements and Disclosures (“ASC 820”), to require a number of
additional disclosures regarding fair value measurements.  ASU 2010-06
specifically requires the disclosure of the amounts of significant transfers
between Level 1 and Level 2 of the fair value hierarchy and the reasons for the
transfers, the reasons for any transfers in or out of Level 3 and the disclosure
of information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlement on a gross basis.  ASU
2010-06 also amends ASC 820 to clarify that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities.  ASU 2010-06 also clarified the requirement for entities
to disclose information about the valuation techniques and inputs used in
estimating Level 2 and Level 3 fair value measurements. ASU 2010-06 is effective
for interim and annual reporting periods beginning after December 15,
2009.  The adoption of ASU 2010-06 did not have a material impact on
the Company’s consolidated results of operations and financial
condition.




8





MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





2. Recent Accounting Pronouncements(continued)




In
October 2010, the FASB issued Accounting Standards Update No. 2010-26,
“Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts”
(“ASU 2010-26”). ASU 2010-26 modifies the types of costs that may be deferred,
allowing insurance companies to only defer costs directly related to a
successful contract acquisition or renewal. These costs include incremental
direct costs of successful contracts, the portion of employees’ salaries and
benefits related to time spent on acquisition activities for successful
contracts and other costs incurred in the acquisition of a contract. Additional
disclosure of the type of acquisition costs capitalized is also required. ASU
2010-26 is effective on prospective basis for interim and annual reporting
periods beginning after December 15, 2011, with early adoption permitted as of
the beginning of a company’s annual period. We are currently evaluating the
impact of the adoption of ASU 2010-26 on our consolidated results of operations
and financial condition.





3. Investments




(a)Fixed Maturities and Other
Investments




The
original or amortized cost, estimated fair value and gross unrealized gains and
losses of available-for-sale fixed maturities and other investments as of
September 30, 2010 and December 31, 2009 are as follows:




As at September 30, 2010
            
            Original or
              Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Fair
              ValueFixed
      Maturities:U.S.
      treasury bonds
            
            $
            43,620
            
            
            $
            1,615
            
            
            $
            –
            
            
            $
            45,235U.S.
      agency bonds – mortgage and asset-backed
            
            
            678,868
            
            
            
            27,538
            
            
            
            (34
            )
            
            
            706,372U.S.
      agency bonds – other
            
            
            67,707
            
            
            
            2,350
            
            
            
            –
            
            
            
            70,057Corporate
      fixed maturities
            
            
            674,200
            
            
            
            57,780
            
            
            
            (13,770
            )
            
            
            718,210Municipal
      bonds
            
            
            41,036
            
            
            
            1,483
            
            
            
            (21
            )
            
            
            42,498Total
      available-for-sale fixed maturities
            
            
            1,505,431
            
            
            
            90,766
            
            
            
            (13,825
            )
            
            
            1,582,372Other
      investments
            
            
            5,534
            
            
            
            –
            
            
            
            (3
            )
            
            
            5,531Total
      investments
            
            $
            1,510,965
            
            
            $
            90,766
            
            
            $
            (13,828
            )
            
            $
            1,587,903





As at December 31, 2009
            
            Original or
              Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Fair
              ValueFixed
      Maturities:U.S.
      treasury bonds
            
            $
            39,297
            
            
            $
            224
            
            
            $
            (283
            )
            
            $
            39,238U.S.
      agency bonds – mortgage and asset-backed
            
            
            779,400
            
            
            
            17,504
            
            
            
            (2,321
            )
            
            
            794,583U.S.
      agency bonds – other
            
            
            217,192
            
            
            
            4,772
            
            
            
            (447
            )
            
            
            221,517Corporate
      fixed maturities
            
            
            564,750
            
            
            
            37,985
            
            
            
            (20,071
            )
            
            
            582,664Municipal
      bonds
            
            
            22,743
            
            
            
            947
            
            
            
            –
            
            
            
            23,690Total
      available-for-sale fixed maturities
            
            
            1,623,382
            
            
            
            61,432
            
            
            
            (23,122
            )
            
            
            1,661,692Other
      investments
            
            
            5,684
            
            
            
            –
            
            
            
            (135
            )
            
            
            5,549Total
      investments
            
            $
            1,629,066
            
            
            $
            61,432
            
            
            $
            (23,257
            )
            
            $
            1,667,241




9




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




3. Investments(continued)




The
contractual maturities of our fixed maturities as of September 30, 2010 are
shown below.  Actual maturities may differ from contractual maturities
because borrowers may have the right to call or repay obligations with or
without call or prepayment.




As at September 30, 2010
            
            Amortized Cost
            
            
            Fair
              Value
            
            
            % of Total
              Fair ValueMaturityDue
      in one year or less
            
            $
            96,058
            
            
            $
            97,109
            
            
            
            6.1
            %Due
      after one year through five years
            
            
            170,587
            
            
            
            175,276
            
            
            
            11.1
            %Due
      after five years through ten years
            
            
            489,368
            
            
            
            525,110
            
            
            
            33.2
            %Due
      after ten years
            
            
            70,550
            
            
            
            78,505
            
            
            
            5.0
            %826,563
            
            
            
            876,000
            
            
            
            55.4
            %Mortgage
      and asset-backed securities
            
            
            678,868
            
            
            
            706,372
            
            
            
            44.6
            %Total
            
            $
            1,505,431
            
            
            $
            1,582,372
            
            
            
            100.0
            %




The
following tables summarize our available-for-sale securities and other
investments in an unrealized loss position and the aggregate fair value and
gross unrealized loss by length of time the security has continuously been in an
unrealized loss position:




Less than 12 Months
            
            
            12 Months or More
            
            
            TotalAs at September 30, 2010
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              LossesAvailable-for-sale
      securities:U.S.
      treasury bonds
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –U.S.
      agency bonds – mortgage and asset-backed
            
            
            2,517
            
            
            
            (28
            )
            
            
            1,869
            
            
            
            (6
            )
            
            
            4,386
            
            
            
            (34
            )U.S.
      agency bonds - other
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Corporate
      fixed maturities
            
            
            36,608
            
            
            
            (896
            )
            
            
            153,445
            
            
            
            (12,874
            )
            
            
            190,053
            
            
            
            (13,770
            )Municipal
      bonds
            
            
            9,168
            
            
            
            (21
            )
            
            
            –
            
            
            
            –
            
            
            
            9,168
            
            
            
            (21
            )48,293
            
            
            
            (945
            )
            
            
            155,314
            
            
            
            (12,880
            )
            
            
            203,607
            
            
            
            (13,825
            )Other
      investments
            
            
            4,751
            
            
            
            (3
            )
            
            
            –
            
            
            
            –
            
            
            
            4,751
            
            
            
            (3
            )Total
            
            $
            53,044
            
            
            $
            (948
            )
            
            $
            155,314
            
            
            $
            (12,880
            )
            
            $
            208,358
            
            
            $
            (13,828
            )




As of
September 30, 2010, there were approximately 20 securities in an unrealized loss
position with a fair value of $208,358 and unrealized losses of $13,828. Of
these securities, there are 10 securities that have been in an unrealized loss
position for 12 months or greater with a fair value of $155,314 and unrealized
losses of $12,880.





Less than 12 Months
            
            
            12 Months or More
            
            
            TotalAs at December 31, 2009
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              LossesAvailable-for-sale
      securities:U.S.
      treasury bonds
            
            $
            8,632
            
            
            $
            (283
            )
            
            $
            –
            
            
            $
            –
            
            
            $
            8,632
            
            
            $
            (283
            )U.S.
      agency bonds – mortgage and asset-backed
            
            
            235,013
            
            
            
            (2,319
            )
            
            
            694
            
            
            
            (2
            )
            
            
            235,707
            
            
            
            (2,321
            )U.S.
      agency bonds – other
            
            
            59,511
            
            
            
            (447
            )
            
            
            –
            
            
            
            –
            
            
            
            59,511
            
            
            
            (447
            )Corporate
      fixed maturities
            
            
            11,687
            
            
            
            (619
            )
            
            
            193,676
            
            
            
            (19,452
            )
            
            
            205,363
            
            
            
            (20,071
            )314,843
            
            
            
            (3,668
            )
            
            
            194,370
            
            
            
            (19,454
            )
            
            
            509,213
            
            
            
            (23,122
            )Other
      investments
            
            
            –
            
            
            
            –
            
            
            
            4,864
            
            
            
            (135
            )
            
            
            4,864
            
            
            
            (135
            )Total
            
            $
            314,843
            
            
            $
            (3,668
            )
            
            $
            199,234
            
            
            $
            (19,589
            )
            
            $
            514,077
            
            
            $
            (23,257
            )




10


MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





3. Investments(continued)





As of
December 31, 2009, there were approximately 34 securities in an unrealized loss
position with a fair value of $514,077 and unrealized losses of $23,257. Of
these securities, there are 14 securities that have been in an unrealized loss
position for 12 months or greater with a fair value of $199,234 and unrealized
losses of $19,589.





Other-Than-Temporary Impairments
(“OTTI”)




We review
our investment portfolio for impairment on a quarterly basis. Impairment of
investments results in a charge to operations when a fair value decline below
cost is deemed to be other-than-temporary. As of September 30, 2010, we reviewed
our portfolio to evaluate the necessity of recording impairment losses for
other-than-temporary declines in the fair value of investments. During the three
and nine month periods ended September 30, 2010 and 2009, the Company recognized
no other than temporary impairment losses.  Based on our qualitative
and quantitative OTTI review of each asset class within our fixed maturity
portfolio, the remaining unrealized losses on fixed maturities at September 30,
2010 were primarily due to widening of credit spreads relating to the market
illiquidity, rather than credit events. Because it is more likely than not that
we will not be required to sell these securities until a recovery of fair value
to amortized cost, we currently believe it is probable that we will collect all
amounts due according to their respective contractual terms. Therefore we do not
consider these fixed maturities to be other-than-temporarily impaired at
September 30, 2010.




(b)Realized and unrealized gains and
losses




Realized
gains or losses on the sale of investments are determined on the basis of the
first in first out cost method and include adjustments to the cost basis of
investments for declines in value that are considered to be
other-than-temporary.  In 2010, the Company commenced designating upon
acquisition, certain U.S. Treasury bonds as trading for the purpose of
augmenting where possible investment returns. In addition, the Company
maintained one open position in a U.S. Treasury bond sold but not yet purchased
valued at $54,274 which resulted in an unrealized loss of $1,945 and
$4,664, which is recorded in net realized and unrealized gains (losses) on
the Company’s consolidated statement of income for the three and nine months
ended September 30, 2010, respectively. The following provides an analysis of
realized and unrealized gains and losses for the three and nine months ended
September 30, 2010 and 2009:




For the Three Months Ended September 30, 2010
            
            Gross Gains
            
            
            Gross losses
            
            
            NetAvailable-for-sale
      securities
            
            $
            3,612
            
            
            $
            (137
            )
            
            $
            3,475Trading
      securities
            
            
            1,127
            
            
            
            (781
            )
            
            
            346Other
      investments
            
            
            –
            
            
            
            (249
            )
            
            
            (249
            )Realized
      gains (losses)
            
            
            4,739
            
            
            
            (1,167
            )
            
            
            3,572Unrealized
      loss on short sales
            
            
            –
            
            
            
            (1,945
            )
            
            
            (1,945
            )Net
      realized and unrealized gains
            
            $
            4,739
            
            
            $
            (3,112
            )
            
            $
            1,627





For the Nine Months Ended September 30, 2010
            
            Gross Gains
            
            
            Gross losses
            
            
            NetAvailable-for-sale
      securities
            
            $
            9,412
            
            
            $
            (1,756
            )
            
            $
            7,656Trading
      securities
            
            
            1,649
            
            
            
            (1,918
            )
            
            
            (269
            )Other
      investments
            
            
            –
            
            
            
            (249
            )
            
            
            (249
            )Realized
      gains (losses)
            
            
            11,061
            
            
            
            (3,923
            )
            
            
            7,138Unrealized
      loss on short sales
            
            
            –
            
            
            
            (4,664
            )
            
            
            (4,664
            )Net
      realized and unrealized gains
            
            $
            11,061
            
            
            $
            (8,587
            )
            
            $
            2,474





For the Three Months Ended September 30, 2009
            
            Gross Gains
            
            
            Gross losses
            
            
            NetAvailable-for-sale
      securities
            
            $
            270
            
            
            $
            (228
            )
            
            $
            42Other
      investments
            
            
            –
            
            
            
            (108
            )
            
            
            (108
            )Realized
      gains (losses)
            
            $
            270
            
            
            $
            (336
            )
            
            $
            (66
            )




11





MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





3. Investments(continued)





For the Nine Months Ended September 30, 2009
            
            Gross Gains
            
            
            Gross losses
            
            
            NetAvailable-for-sale
      securities
            
            $
            4,168
            
            
            $
            (4,507
            )
            
            $
            (339
            )Other
      investments
            
            
            –
            
            
            
            (123
            )
            
            
            (123
            )Realized
      gains (losses)
            
            $
            4,168
            
            
            $
            (4,630
            )
            
            $
            (462
            )





Proceeds from sales of fixed maturities classified as
available-for-sale were $113,136 and $153,991 for the nine months ended
September 30, 2010 and 2009, respectively.




Net
unrealized gain (loss) on available-for-sale securities and other investments
was as follows:




September 30,
              2010
            
            
            September 30,
              2009Fixed
      maturities
            
            $
            76,941
            
            
            $
            35,000Other
      investments
            
            
            (3
            )
            
            
            (178
            )Total
      net unrealized gain (loss)
            
            
            76,938
            
            
            
            34,822Deferred
      income tax expense
            
            
            –
            
            
            
            (1,705
            )Net
      unrealized losses, net of deferred income tax
            
            $
            76,938
            
            
            $
            33,117Change
      in unrealized gain (loss), net of deferred income tax
            
            $
            44,191
            
            
            $
            77,616




(c)Restricted Cash and
Investments




We are
required to maintain assets on deposit to support our reinsurance operations and
to serve as collateral for our reinsurance liabilities under various reinsurance
agreements. The assets on deposit are available to settle reinsurance
liabilities. We also utilize trust accounts to collateralize business with our
reinsurance counterparties. These trust accounts generally take the place of
letter of credit requirements. The assets in trust as collateral are primarily
cash and highly rated fixed maturity securities. The fair value of our
restricted assets was as follows:




September 30,
              2010
            
            
            December 31,
              2009Restricted
      cash – third party agreements
            
            $
            163,776
            
            
            $
            133,029Restricted
      cash – related party agreements
            
            
            54,828
            
            
            
            11,485Restricted
      cash – U.S. state regulatory authorities
            
            
            263
            
            
            
            430Total
      restricted cash
            
            
            218,867
            
            
            
            144,944Restricted
      investments – in Trust for third party agreements at fair value (Amortized
      cost: 2010 – $901,869; 2009 – $1,011,582)
            
            
            948,158
            
            
            
            1,022,337Restricted
      investments – in Trust for related party agreements at fair value
      (Amortized cost: 2010 – $258,235; 2009 – $177,537)
            
            
            287,418
            
            
            
            195,474Restricted
      investments – in Trust for U.S. state regulatory authorities (Amortized
      cost: 2010 – $13,305; 2009 – $13,032)
            
            
            14,026
            
            
            
            12,867Total
      restricted investments
            
            
            1,249,602
            
            
            
            1,230,678Total
      restricted cash and investments
            
            $
            1,468,469
            
            
            $
            1,375,622




12




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





3. Investments(continued)





(d)Other




The
Company enters into repurchase agreements. The agreements are accounted for as
collateralized borrowing transactions and are recorded at contract amounts. The
Company receives cash or securities, that it invests or holds in short term or
fixed income securities. As of September 30, 2010, there were $69,674 principal
amount outstanding at interest rate of 0.32%. Interest expense associated with
these repurchase agreements was $463 and $818 for the three and nine months
ended September 30, 2010, respectively (2009 - $117 and $900, respectively), out
of which $702 was accrued as of September 30, 2010 (December 31, 2009 - $33).
The Company has approximately $69,674 of collateral pledged in support of these
agreements.




Securities
sold but not yet purchased represent obligations of the Company to deliver the
specified security at the contracted price and, thereby, create a liability to
purchase the security in the market at prevailing prices.  The
Company’s liability for securities to be delivered is measured at their fair
value and as of September 30, 2010 were $54,274 for a U.S. Treasury
bond.  This amount is included in accrued expenses and other
liabilities in the condensed consolidated balance sheets.  Collateral
of an equivalent amount has been pledged to the clearing broker.





4. Fair Value of Financial
Instruments




The
Company’s estimates of fair value for financial assets and financial liabilities
are based on the framework established in ASC 820. The framework is based on the
inputs used in valuation and gives the highest priority to quoted prices in
active markets and requires that observable inputs be used in the valuations
when available. The disclosure of fair value estimates in the ASC 820 hierarchy
is based on whether the significant inputs into the valuation are observable. In
determining the level of the hierarchy in which the estimate is disclosed, the
highest priority is given to unadjusted quoted prices in active markets and the
lowest priority to unobservable inputs that reflect the Company’s significant
market assumptions. The three levels of the hierarchy are as
follows:




·
            Level 1 - Unadjusted quoted
      market prices for identical assets or liabilities in active markets that
      the Company has the ability to
access.




·
            Level 2 - Quoted prices for
      similar assets or liabilities in active markets; quoted prices for
      identical or similar assets or liabilities in inactive markets; or
      valuations based on models where the significant inputs are observable
      (e.g., interest rates, yield curves, prepayment speeds, default rates,
      loss severities, etc.) or can be corroborated by observable market
      data.




·
            Level 3 - Valuations based on
      models where significant inputs are not observable. The unobservable
      inputs reflect the Company’s own assumptions about the assumptions that
      market participants would
use.




In
accordance with ASC 820, the Company determines fair value based on the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.




ASC 825,
“Disclosure about Fair Value of Financial Instruments,” requires all entities to
disclose the fair value of their financial instruments, both assets and
liabilities recognized and not recognized in the balance sheet, for which it is
practicable to estimate fair value.




The
following describes the valuation techniques used by the Company to determine
the fair value of financial instruments held as of September 30,
2010.




13





MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





4.Fair Value of Financial Instruments(continued)





U.S. government and U.S. government
agencies: Comprised primarily of bonds issued by the U.S. Treasury, the
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association. The fair values of the Company’s U.S.
government securities are based on quoted market prices in active markets and
are included in the Level 1 fair value hierarchy. The Company believes the
market for U.S. Treasury securities is an actively traded market given the high
level of daily trading volume. The fair values of U.S. government agency
securities are generally priced by pricing services. The pricing services may
use current market trades for securities with similar quality, maturity and
coupon. If no such trades are available, the pricing service typically uses
analytical models which may incorporate option adjusted spreads, daily interest
rate data and market/sector news. The Company generally classifies the fair
values of U.S. government agencies securities in Level 2.




Corporate debt:  Corporate debt
securities consist primarily of investment-grade debt of a wide variety of
corporate issuers and industries. These securities are generally priced by
pricing services. The pricing services typically use discounted cash flow models
that incorporate benchmark curves for treasury, swap and high issuance credits.
Credit spreads are developed from current market observations for like or
similar securities. Where pricing is unavailable from pricing services, we
obtain non-binding quotes from broker-dealers. The Company generally classifies
the fair values of its corporate securities in Level 2.




Municipals:  Municipal securities
comprise bonds issued by U.S. domiciled state and municipality entities. The
fair values of these securities are generally priced by pricing services. The
pricing services typically use spreads obtained from broker-dealers, trade
prices and the new issue market. As the significant inputs used to price the
municipals are observable market inputs, municipals are classified within Level
2.




Other investments: The fair
values of the hedge funds are based on the net asset value of the funds as
reported by the fund manager, and as such, the fair values of those hedge funds
are included in the Level 3 fair value hierarchy.




Reinsurance balance
receivable: The carrying values reported in the accompanying balance
sheets for these financial instruments approximate their fair value due to short
term nature of the assets.




Loan to related party: The
carrying values reported in the accompanying balance sheets for these financial
instruments approximate their fair value.




Junior subordinated debt: The
carrying values reported in the accompanying balance sheets for these financial
instruments approximate their fair value.


14




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




4. Fair Value of Financial Instruments(continued)


(a)Fair Value
Hierarchy
  The
following table presents the level within the fair value hierarchy at which the
Company’s financial assets and financial liabilities are measured on a recurring
basis as of September 30, 2010 and December 31, 2009:




As at September 30, 2010
            
            Quoted Prices
              in Active
              Markets for
              Identical Assets
              (Level 1)
            
            
            Significant
              Other
              Observable
              Inputs
              (Level 2)
            
            
            Significant
              Unobservable
              Inputs
              (Level 3)
            
            
            Total Fair
              ValueAssetsFixed
      maturitiesU.S.
      treasury bonds
            
            $
            45,235
            
            
            $
            –
            
            
            $
            –
            
            
            $
            45,235U.S.
      agency bonds – mortgage and asset-backed
            
            
            –
            
            
            
            706,372
            
            
            
            –
            
            
            
            706,372U.S.
      agency bonds – other
            
            
            –
            
            
            
            70,057
            
            
            
            –
            
            
            
            70,057Corporate
      fixed maturities
            
            
            –
            
            
            
            718,210
            
            
            
            –
            
            
            
            718,210Municipal
      bonds
            
            
            –
            
            
            
            42,498
            
            
            
            –
            
            
            
            42,498Other
      investments
            
            
            –
            
            
            
            –
            
            
            
            5,531
            
            
            
            5,531Total
            
            $
            45,235
            
            
            $
            1,537,137
            
            
            $
            5,531
            
            
            $
            1,587,903As
      a percentage of total assets
            
            
            1.6
            %
            
            
            54.1
            %
            
            
            0.2
            %
            
            
            55.9
            %LiabilitiesSecurities
      sold under agreements to repurchase
            
            $
            –
            
            
            $
            69,674
            
            
            $
            –
            
            
            $
            69,674Securities
      sold but not yet purchased
            
            
            –
            
            
            
            54,274
            
            
            
            –
            
            
            
            54,274$
            –
            
            
            $
            123,948
            
            
            $
            –
            
            
            $
            123,948As
      a percentage of total liabilities
            
            
            –
            
            
            
            6.0
            %
            
            
            –
            
            
            
            6.0
            %




As at December 31, 2009
            
            Quoted Prices
              in Active
              Markets for
              Identical Assets
              (Level 1)
            
            
            Significant
              Other
              Observable
              Inputs
              (Level 2)
            
            
            Significant
              Unobservable
              Inputs
              (Level 3)
            
            
            Total Fair
              ValueAssetsFixed
      maturitiesU.S.
      treasury bonds
            
            $
            39,238
            
            
            $
            –
            
            
            $
            –
            
            
            $
            39,238U.S.
      agency bonds – mortgage and asset-backed
            
            
            –
            
            
            
            794,583
            
            
            
            –
            
            
            
            794,583U.S.
      agency bonds – other
            
            
            –
            
            
            
            221,517
            
            
            
            –
            
            
            
            221,517Corporate
      fixed maturities
            
            
            –
            
            
            
            582,664
            
            
            
            –
            
            
            
            582,664Municipal
      bonds
            
            
            –
            
            
            
            23,690
            
            
            
            –
            
            
            
            23,690Other
      investments
            
            
            –
            
            
            
            –
            
            
            
            5,549
            
            
            
            5,549Total
            
            $
            39,238
            
            
            $
            1,622,454
            
            
            $
            5,549
            
            
            $
            1,667,241As
      a percentage of total assets
            
            
            1.5
            %
            
            
            61.5
            %
            
            
            0.2
            %
            
            
            63.2
            %LiabilitiesSecurities
      sold under agreements to repurchase
            
            $
            –
            
            
            $
            95,401
            
            
            $
            –
            
            
            $
            95,401As
      a percentage of total liabilities
            
            
            –
            
            
            
            4.9
            %
            
            
            –
            
            
            
            4.9
            %




15




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




4.Fair Value of Financial Instruments(continued)




(b)Level 3 Financial
Instruments




The
following table presents changes in Level 3 for our financial instruments
measured at fair value on a recurring basis for the three and nine months ended
September 30, 2010 and 2009:




Other Investments:
            
            Three Months
              Ended
              September 30,
              2010
            
            
            Three Months
              Ended
              September 30,
              2009Balance
      at beginning of period
            
            $
            5,677
            
            
            $
            5,392Net
      realized and unrealized gains – included in net income
            
            
            –
            
            
            
            –Net
      realized and unrealized losses – included in net income
            
            
            (249
            )
            
            
            (108
            )Change
      in net unrealized gains – included in other comprehensive income
      (loss)
            
            
            –
            
            
            
            –Change
      in net unrealized losses – included in other comprehensive income
      (loss)
            
            
            122
            
            
            
            244Purchases
            
            
            4,764
            
            
            
            1Sales
      and redemptions
            
            
            (4,783
            )
            
            
            –Transfers
      into Level 3
            
            
            –
            
            
            
            –Transfers
      out of Level 3
            
            
            –
            
            
            
            –Balance
      at end of period
            
            $
            5,531
            
            
            $
            5,529Level
      3 gains (losses) included in net income attributable to the change in
      unrealized gains (losses) relating to assets held at the reporting
      date
            
            $
            −
            
            
            $
            −




Other Investments:
            
            Nine Months
              Ended
              September 30,
              2010
            
            
            Nine Months
              Ended
              September 30,
              2009Balance
      at beginning of period
            
            $
            5,549
            
            
            $
            5,291Net
      realized and unrealized gains – included in net income
            
            
            –
            
            
            
            –Net
      realized and unrealized losses – included in net income
            
            
            (249
            )
            
            
            (123
            )Change
      in net unrealized gains – included in other comprehensive income
      (loss)
            
            
            –
            
            
            
            –Change
      in net unrealized losses – included in other comprehensive income
      (loss)
            
            
            133
            
            
            
            350Purchases
            
            
            4,887
            
            
            
            139Sales
      and redemptions
            
            
            (4,789
            )
            
            
            (128
            )Transfers
      into Level 3
            
            
            –
            
            
            
            –Transfers
      out of Level 3
            
            
            –
            
            
            
            –Balance
      at end of period
            
            $
            5,531
            
            
            $
            5,529Level
      3 gains (losses) included in net income attributable to the change in
      unrealized gains (losses) relating to assets held at the reporting
      date
            
            $
            –
            
            
            $
            –




16




MAIDEN
HOLDINGS, LTD.




Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




5. Goodwill and Intangible
Assets




Goodwill




Goodwill
is calculated as the excess of purchase price over the net fair value of assets
acquired. The Company performs an annual impairment analysis to identify
potential goodwill impairment and measures the amount of a goodwill impairment
loss to be recognized. This annual test is performed during the fourth quarter
of each year or more frequently if events or circumstances change in a way that
requires the Company to perform the impairment analysis on an interim basis.
Goodwill impairment testing requires an evaluation of the estimated fair value
of each reporting unit to its carrying value, including the goodwill. An
impairment charge is recorded if the estimated fair value is less than the
carrying amount of the reporting unit. No impairments have been identified to
date.




Intangibles




Intangible
assets consist of finite and indefinite life assets. Finite life intangible
assets include customer and producer relationships and trademarks. Insurance
company licenses are considered indefinite life intangible assets subject to
annual impairment testing.




The
following table shows an analysis of goodwill and intangible assets as of
September 30, 2010 and December 31, 2009:




As
      at September 30, 2010
            
            Gross
            
            
            Accumulated
              Amortization
            
            
            Net
            
            Useful
      LifeGoodwill
            
            $
            52,617
            
            
            $
            –
            
            
            $
            52,617
            
            IndefiniteState
      licenses
            
            
            7,727
            
            
            
            –
            
            
            
            7,727
            
            IndefiniteCustomer
      relationships
            
            
            51,400
            
            
            
            (12,199
            )
            
            
            39,201
            
            15 years double decliningNet
      balance
            
            $
            111,744
            
            
            $
            (12,199
            )
            
            $
            99,545




As
      at December 31, 2009
            
            Gross
            
            
            Accumulated
              Amortization
            
            
            Net
            
            Useful
      LifeGoodwill
            
            $
            52,617
            
            
            $
            –
            
            
            $
            52,617
            
            IndefiniteState
      licenses
            
            
            7,727
            
            
            
            –
            
            
            
            7,727
            
            IndefiniteCustomer
      relationships
            
            
            51,400
            
            
            
            (7,843
            )
            
            
            43,557
            
            15 years double decliningNet
      balance
            
            $
            111,744
            
            
            $
            (7,843
            )
            
            $
            103,901




The
goodwill and intangible assets were recognized in 2009 and 2008 as a result of
the GMAC Acquisition and are assigned to Diversified Reinsurance segment.
Goodwill and intangible assets are subject to annual impairment testing. No
impairment was recorded during the three and nine months ended September 30,
2010. The estimated amortization expense for the next five years
is:




September
      30,
              20102010
            
            $
            1,4522011
            
            
            5,0332012
            
            
            4,3622013
            
            
            3,7812014
            
            
            3,276




17





MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





6. Junior Subordinated
Debt




On
January 20, 2009, the Company completed a private placement of 260,000 units
(the “Units” or the “TRUPS Offering”), each Unit consisting of $1,000 principal
amount of capital securities (the “Trust Preferred Securities”) of Maiden
Capital Financing Trust (the “Trust”), a special purpose trust established by
Maiden Holdings North America, Ltd. ("Maiden NA"), and 45 common shares, $0.01
par value, of the Company  for a purchase price of $1,000.45 per
Unit.  In the aggregate, we also issued 11,700,000 common shares to
the purchasers in the TRUPS Offering. This resulted in gross proceeds to the
Company of $260,117, before $4,342 of placement agent fees and
expenses.





Certain
trusts established by Michael Karfunkel and George Karfunkel, two of the
Company’s founding shareholders, purchased an aggregate of 159,000 of the Units
or 61.12%. The remaining 101,000 Units were purchased by existing institutional
shareholders of the Company.




The Trust
used the proceeds from the sale of the Trust Preferred Securities to purchase a
subordinated debenture (the “Debenture”) in the principal amount of $260,000
issued by Maiden NA.





Under the
terms of the Trust Preferred Securities, the Company can repay the principal
balance in full or in part at any time. However, if the Company repays such
principal within five years of the date of issuance, it is required to pay an
additional amount equal to one full year of interest on the amount of Trust
Preferred Securities repaid. If the full amount of the Trust Preferred
Securities were repaid within five years of the date of issuance, the additional
amount due would be $36,400, which would be a reduction in
earnings.





Pursuant
to separate Guarantee Agreements dated as of January 20, 2009 with Wilmington
Trust Company, as guarantee trustee, each of the Company and Maiden NA has
agreed to guarantee the payment of distributions and payments on liquidation or
redemption of the Trust Preferred Securities.




As a
consequence of the issuance of a majority of the Units to a related party under,
ASC Topic 810 “Consolidation”, the Trust is a variable interest entity and the
Company is deemed not to be the Primary beneficiary of the Trust and therefore
it is not consolidated. The issuance of common shares associated with the Trust
Preferred Securities resulted in an original issuance discount of $44,928 based
on market price of $3.85 on January 20, 2009. The discount is amortized over 30
years based on the effective interest method. The Debentures and Trust Preferred
Securities mature in 2039 and carry a stated or coupon rate of 14% with an
effective interest rate of 16.95%.




As of
September 30, 2010, the stated value of the Trust Preferred Securities was
$215,173 which comprises the principal amount of $260,000 and unamortized
discount of $44,827. Amortization expense for the three and nine months ended
September 30, 2010 was $17 and $48, respectively (2009 - $14 and $38,
respectively).




7.Shareholders’
Equity





In
connection with the formation by Michael Karfunkel, George Karfunkel and Barry
Zyskind (the “Founding Shareholders”), the Company issued to the Founding
Shareholders 10-year warrants (the “Warrants”) to purchase up to an aggregate of
4,050,000 common shares of the Company at $10 per share. The warrants are
effective as of June 14, 2007 and were to expire on June 14, 2017. The warrants
were initially valued by an independent appraisal at an aggregate fair value of
$19,521 which was recorded as an addition to additional paid-in capital with an
offsetting charge to additional paid-in capital as well.





On
September 20, 2010, the Company entered into Warrant Exchange Agreements, under
which each of the Founding Shareholders agreed to surrender the warrants in
exchange for a total of 1,800,000 of the Company’s common
shares.  These common shares are restricted under Lockup Agreements
under which the Founding Shareholders may not sell or transfer the shares
awarded without the prior written consent of the Company for a period of 36
months following the exchange. The fair value of the warrants at the time of
exchange was $2.06 per warrant or $8,343 while the fair value of the 1,800,000
restricted common shares issued was $4.56 per share or $8,208.  The
terms of the exchange of the warrants and issuance of the common shares were
negotiated and unanimously approved by the Audit and Compensation Committees of
the Company’s Board of Directors.  In connection with their review,
the Committees were advised by independent legal counsel and obtained an
independent appraisal of the fair value of the warrants and the restricted
common shares.  The issuance of the restricted common shares was
recorded as an offset to additional paid-in-capital where the warrants were
originally recorded.


18


MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




8. Earnings Per Share




The
following is a summary of the elements used in calculating basic and diluted
earnings per share:




Three Months
              Ended
              September 30,
              2010
            
            
            Three Months
              Ended
              September 30,
              2009
            
            
            Nine Months
              Ended
              September 30,
              2010
            
            
            Nine Months
              Ended
              September 30,
              2009Net
      income available to common shareholders
            
            $
            18,526
            
            
            $
            14,987
            
            
            $
            50,732
            
            
            $
            44,339Weighted
      average number of common sharesoutstanding
      – basic
            
            
            70,493,545
            
            
            
            70,287,664
            
            
            
            70,359,688
            
            
            
            69,430,521Potentially
      dilutive securities:Warrants
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Share
      options
            
            
            491,837
            
            
            
            565,231
            
            
            
            483,774
            
            
            
            416,193Weighted
      average number of common sharesoutstanding
      – diluted
            
            
            70,985,382
            
            
            
            70,852,895
            
            
            
            70,843,462
            
            
            
            69,846,714Basic
      earnings per common share:
            
            $
            0.26
            
            
            $
            0.21
            
            
            $
            0.72
            
            
            $
            0.64Diluted
      earnings per common share:
            
            $
            0.26
            
            
            $
            0.21
            
            
            $
            0.72
            
            
            $
            0.63




As of
September 30, 2010, nil (2009 – 4,050,000) warrants and 1,756,961 (2009 –
638,000) share options were excluded from the calculation of diluted earnings
per share as they were anti-dilutive.




9. Share Based
Compensation




Share
Options




The fair
value of each option grant is separately estimated for each vesting date. The
fair value of each option is amortized into compensation expense on a
straight-line basis between the grant date for the award and each vesting date.
The Company has estimated the fair value of all share option awards as of the
date of the grant by applying the Black-Scholes-Merton multiple-option pricing
valuation model. The application of this valuation model involves assumptions
that are judgmental and highly sensitive in the determination of compensation
expense. The adoption of ASC Topic 718 "Compensation - Stock
Compensation" fair value method has resulted in share-based expense (a
component of salaries and benefits) in the amount of approximately $252 and $702
for the three and nine months ended September 30, 2010, respectively (2009 –
$168 and $444, respectively).




The key
assumptions used in determining the fair value of options granted in the three
and nine months ended September 30, 2010 and a summary of the methodology
applied to develop each assumption are as follows:




19


MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




9. Share Based Compensation(continued)




Assumptions:
            
            September
      30,
              2010Volatility
            
            
            29.8-46.0
            %Risk-free
      interest rate
            
            
            2.36-3.30
            %Weighted
      average expected lives in years
            
            5-6.1
      yearsForfeiture
      rate
            
            
            0
            %Dividend
      yield rate
            
            
            1-5.39
            %





Expected Price Volatility –
This is a measure of the amount by which a price has fluctuated or is expected
to fluctuate. The common shares of Maiden Holdings, Ltd. began trading on May 6,
2008 on NASDAQ.  Since the Company does not have enough history over
which to calculate an expected volatility representative of the volatility over
the expected lives of the options, the Company also considered the historical
and current implied volatilities of a set of comparable companies in the
industry in which the Company operates.





Risk-Free Interest Rate –
This is the U.S. treasury rate for the week of the grant having a term equal to
the expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.




Expected Lives – This is the
period of time over which the options granted are expected to remain outstanding
giving consideration to vesting schedules, historical exercise and forfeiture
patterns. The Company uses the simplified method outlined in SEC Staff
Accounting Bulletin No. 107 to estimate expected lives for options granted
during the period as historical exercise data is not available and the options
meet the requirements set out in the Bulletin. Options granted have a maximum
term of ten years. An increase in the expected life will increase compensation
expense.




Forfeiture Rate – This is the
estimated percentage of options granted that are expected to be forfeited or
cancelled before becoming fully vested. An increase in the forfeiture rate will
decrease compensation expense.




The
following tables show all options granted, exercised, expired and exchanged
under the Plan for the three and nine months ended September 30,
2010:




Three Months Ended
              September 30, 2010
            
            Number of
              Share Options
            
            
            WeightedAverage
              Exercise Price
            
            
            Weighted Average
              Remaining
              Contractual TermOutstanding,
      June 30, 2010
            
            
            2,381,230
            
            
            $
            6.01
            
            
            8.56
      yearsGranted
            
            
            22,500
            
            
            
            7.68
            
            
            10.00
      yearsExercised
            
            
            (13,593
            )
            
            
            3.28
            
            
            
            –Cancelled
            
            
            (4,251
            )
            
            
            3.28
            
            
            
            –Outstanding,
      September 30, 2010
            
            
            2,385,886
            
            
            $
            6.05
            
            
            8.32
      years





Nine Months Ended
              September 30, 2010
            
            Number of
              Share Options
            
            
            WeightedAverage
              Exercise Price
            
            
            Weighted Average
              Remaining
              Contractual TermOutstanding,
      December 31, 2009
            
            
            2,036,542
            
            
            $
            5.79
            
            
            8.86
      yearsGranted
            
            
            372,500
            
            
            
            7.28
            
            
            9.46
      yearsExercised
            
            
            (14,405
            )
            
            
            3.28
            
            
            
            –Cancelled
            
            
            (8,751
            )
            
            
            3.28
            
            
            
            –Outstanding,
      September 30, 2010
            
            
            2,385,886
            
            
            $
            6.05
            
            
            8.32
      years




20





MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




9. Share Based Compensation(continued)




The
following tables show all options granted, exercised, expired and exchanged
under the Plan for the three and nine months ended September 30,
2009:





Three Months Ended
              September 30, 2009
            
            Number of
              Share Options
            
            
            WeightedAverage
              Exercise Price
            
            
            Weighted Average
              Remaining
              Contractual TermOutstanding,
      June 30, 2009
            
            
            1,503,834
            
            
            $
            5.54
            
            
            9.08
      yearsGranted
            
            
            200,000
            
            
            
            4.54
            
            
            9.40
      yearsExercised
            
            
            –
            
            
            
            –
            
            
            
            –Cancelled
            
            
            (10,500
            )
            
            
            3.28
            
            
            
            –Outstanding,
      September 30, 2009
            
            
            1,693,334
            
            
            $
            5.47
            
            
            8.90
      years





Nine Months Ended
              September 30, 2009
            
            Number of
              Share Options
            
            
            WeightedAverage
              Exercise Price
            
            
            Weighted Average
              Remaining
              Contractual TermOutstanding,
      December 31, 2008
            
            
            1,519,834
            
            
            $
            10.00
            
            
            9.44
      yearsGranted
            
            
            384,000
            
            
            
            4.51
            
            
            9.40
      yearsExercised
            
            
            `
            
            
            
            –
            
            
            
            –Cancelled
            
            
            (210,500
            )
            
            
            8.07
            
            
            
            –Outstanding,
      September 30, 2009
            
            
            1,693,334
            
            
            $
            5.47
            
            
            8.90
      years




The
weighted average grant date fair value was $1.79 and $1.50 for all options
outstanding at September 30, 2010 and 2009, respectively. There was
approximately $2,324 and $1,466 of total unrecognized compensation cost related
to non-vested share-based compensation arrangements as of September 30, 2010 and
2009, respectively.




10.Dividends Declared




On August
5, 2010, the Company’s Board of Directors approved a quarterly cash dividend of
$0.065 per common share. This dividend was paid on October 15, 2010 to
shareholders of record on October 1, 2010.




11.Related Party
Transactions




The
Founding Shareholders of Maiden, Michael Karfunkel, George Karfunkel and Barry
Zyskind, are also the principal shareholders, and, respectively, the Chairman of
the Board of Directors, a Director, and the President, Chief Executive Officer
and Director of AmTrust Financial Services, Inc. (“AmTrust”).  In
January 2009, Barry Karfunkel was hired as a managing director of capital
investments of Maiden Re Insurance Services, LLC. Barry Karfunkel is the son of
Michael Karfunkel and the brother-in-law of Barry D. Zyskind. Barry Karfunkel’s
employment ended in March 2010. The following describes transactions between the
Company and AmTrust.




AmTrust
Quota Share Reinsurance Agreement




Effective
July 1, 2007, the Company and AmTrust entered into a master agreement, as
amended (the “Master Agreement”), by which they caused AmTrust’s Bermuda
reinsurance subsidiary, AmTrust International Insurance, Ltd. (“AII”) and Maiden
Insurance Company Ltd. (“Maiden Insurance” or “Maiden Bermuda”) to enter into
the Reinsurance Agreement by which (a) AII retrocedes to Maiden Insurance an
amount equal to 40% of the premium written by subsidiaries of AmTrust, net of
the cost of unaffiliated inuring reinsurance (and in the case of AmTrust’s U.K.
insurance subsidiary, IGI Insurance Company Limited (“IGI”), net of commissions)
and 40% of losses and (b) AII transferred to Maiden Insurance 40% of the AmTrust
subsidiaries’ unearned premium reserves, effective as of July 1, 2007, with
respect to the current lines of business, excluding risks for which the AmTrust
subsidiaries’ net retention exceeds $5,000 (“Covered Business”). AmTrust also
has agreed to cause AII, subject to regulatory requirements, to reinsure any
insurance company which writes Covered Business in which AmTrust acquires a
majority interest to the extent required to enable AII to cede to Maiden
Insurance 40% of the premiums and losses related to such Covered Business. The
Agreement further provides that AII receives a ceding commission of 31% of ceded
written premiums. The Reinsurance Agreement had an initial term of three years,
which has been extended for three years through June 30, 2013, and will
automatically renew for successive three year terms thereafter, unless either
AII or Maiden Insurance notifies the other of its election not to renew not less
than nine months prior to the end of any such three year term. In addition,
either party is entitled to terminate on thirty days notice or less upon the
occurrence of certain early termination events, which include a default in
payment, insolvency, change in control of AII or Maiden Insurance, run-off, or a
reduction of 50% or more of the shareholders’ equity of Maiden Insurance or the
combined shareholders’ equity of AII and the AmTrust
subsidiaries.


21


MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





11.Related Party Transactions(continued)




On June 11, 2008, the
Company and AmTrust amended the Reinsurance Agreement to add Retail Commercial
Package Business to the Covered Business as a consequence of AmTrust’s
acquisition of Unitrin Business Insurance (“UBI”). Under the amendment,
AmTrust’s subsidiaries cede, upon collection, to Maiden 100% of $82.2 million of
unearned premium (net of inuring reinsurance) from the acquisition of UBI’s
in-force book of business. Additionally, AmTrust cedes to Maiden 40% of net
premium written, effective as of June 1, 2008. Maiden will pay to AmTrust a
ceding commission of 34.375% on the unearned premium cession and the Retail
Commercial Package Business. The $2,000 maximum liability for a single loss
provided in the Quota Share Reinsurance Agreement shall not be applicable to
Retail Commercial Package Business.




On
February 9, 2009, AII and Maiden Insurance amended the Reinsurance Agreement to
clarify that (i) AII would offer Maiden Insurance the opportunity to reinsure
Excess Retention Business, which is defined as a policy issued by an AmTrust
insurance subsidiary with respect to which the insurance subsidiary’s retention
is greater than $5 million and (ii) the deduction for the cost of inuring
reinsurance from Affiliate Subject Premium (as defined in the Reinsurance
Agreement) retroceded to Maiden Insurance is net of ceding
commission.




The
Company recorded approximately $37,501 and $104,085 of ceding commission expense
for the three and nine months ended September 30, 2010, respectively (2009 –
$28,132 and $85,005, respectively) as a result of this transaction.




Other
Reinsurance Agreements




Effective
January 1, 2008 the Company and AmTrust entered into an agreement to reinsure a
45% participation in the $9 million in excess of $1 million layer of AmTrust’s
workers’ compensation excess of loss program. This layer provides reinsurance to
AmTrust for losses per occurrence in excess of $1 million up to $10 million,
subject to an annual aggregate deductible of $1.25 million. This participation
was sourced through a reinsurance intermediary via open market placement in
which competitive bids were solicited by an independent broker. The remaining
55% participation was placed with a single carrier.




This
coverage expired on January 1, 2010; as a result, under the Master Agreement the
Company therefore now reinsures 40% of the subject workers’ compensation
business up to $10 million, subject to certain additional inuring reinsurance
protection AmTrust has purchased.




As of
January 1, 2008, the Company had a 50% participation in a $4 million in excess
of $1 million specialty transportation program written by AmTrust. Starting
January 1, 2009, we had a 30% participation in a $4 million in excess of $1
million specialty transportation program written by AmTrust. This program
provides primarily commercial auto coverage and, to a lesser extent, general
liability coverage to private non-emergency para-transit and school bus service
operators. This participation was sourced through a reinsurance intermediary via
open market placement in which competitive bids were solicited by an independent
broker. Several other broker market reinsurers hold the other 50% and 70%
participation for 2008 and 2009 policies, respectively. The agreement was not
renewed as of January 1, 2010.





Effective
September 1, 2010, the Company through its wholly-owned subsidiary, Maiden
Specialty Insurance Company (“Maiden Specialty”), entered into a quota share
reinsurance agreement with Technology Insurance Company, Inc., a subsidiary of
AmTrust (“Technology”).  Under the agreement, Maiden Specialty will
cede 90% of its gross liability under all policies, certificates, contracts,
binders and contracts of insurance, issued or renewed during the term of the
agreement by or on behalf of Maiden Specialty under this program which is part
of a larger program underwritten by Technology.  Maiden Specialty’s
involvement is limited to certain states where Technology is not fully
licensed.  The agreement also provides that Maiden Specialty receives
a ceding commission of 5% of ceded written premiums.  The reinsurance
agreement has a term of three years and will remain continuously in force until
terminated in accordance to the provisions set forth in the
contract.  To date, no business has been ceded under this quota share
reinsurance agreement.




22




MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





11.Related Party Transactions(continued)





Collateral
provided to AmTrust




In order
to provide AmTrust’s U.S. insurance subsidiaries with credit for reinsurance on
their statutory financial statements, AII, as the direct reinsurer of the
AmTrust’s insurance subsidiaries, has established trust accounts (“Trust
Accounts”) for their benefit. Maiden Insurance has agreed to provide appropriate
collateral to secure its proportional share under the Quota Share Agreement of
AII’s obligations to the AmTrust subsidiaries to whom AII is required to provide
collateral. This collateral may be in the form of (a) assets loaned by Maiden
Insurance to AII, for deposit into the Trust Accounts, pursuant to a loan
agreement between those parties, (b) assets transferred by Maiden Insurance, for
deposit into the Trust Accounts, (c) a letter of credit obtained by Maiden
Insurance and delivered to an AmTrust subsidiary on AII’s behalf (a “Letter of
Credit”), or (d) premiums withheld by an AmTrust subsidiary at Maiden
Insurance’s request in lieu of remitting such premiums to AII (“Withheld
Funds”). Maiden Insurance may provide any or a combination of these forms of
collateral, provided that the aggregate value thereof equals Maiden Insurance’s
proportionate share of its obligations under the Quota Share Agreement with AII.
If collateral is required to be provided to any AmTrust subsidiary under
applicable law or regulatory requirements, Maiden Insurance will provide
collateral to the extent required, although Maiden Insurance does not expect
that such collateral will be required unless an AmTrust subsidiary is domiciled
in the United States.




Maiden
Insurance satisfied its collateral requirements under the Quota Share Agreement
with AII as follows:




·
            by lending funds in the amount of
      $167,975 as at September 30, 2010 and December 31, 2009 to AII pursuant to
      a loan agreement entered into between those parties. This loan is carried
      at cost. The amount of collateral Maiden Insurance is required to
      maintain, which is determined quarterly, equals its proportionate share of
      (a) the amount of ceded paid losses for which AII is responsible to such
      AmTrust subsidiaries but has not yet paid, (b) the amount of ceded loss
      reserves (including ceded reserves for claims reported but not resolved
      and losses incurred but not reported) for which AII is responsible to
      AmTrust subsidiaries, and (c) the amount of ceded reserves for unearned
      premiums ceded by AmTrust subsidiaries to AII. Pursuant to the Master
      Agreement, AmTrust has agreed to cause AII not to commingle Maiden
      Insurance’s assets with AII’s other assets and to cause the AmTrust
      subsidiaries not to commingle Maiden Insurance’s assets with the AmTrust
      subsidiaries’ other assets if an AmTrust subsidiary withdraws those
      assets. AII has agreed that, if an AmTrust subsidiary returns to AII
      excess assets withdrawn from a Trust Account, drawn on a Letter of Credit
      or maintained by such AmTrust subsidiary as Withheld Funds, AII will
      immediately return to Maiden Insurance its proportionate share of such
      excess assets. AII has further agreed that if the aggregate fair market
      value of the amount of Maiden Insurance’s assets held in the Trust Account
      exceeds Maiden Insurance’s proportionate share of AII’s obligations, or if
      an AmTrust subsidiary misapplies any such collateral, AII will immediately
      return to Maiden Insurance an amount equal to such excess or misapplied
      collateral, less any amounts AII has paid to Maiden Insurance. In
      addition, if an AmTrust subsidiary withdraws Maiden Insurance’s assets
      from a Trust Account and maintains those assets on its books as withheld
      funds, AII has agreed to pay to Maiden Insurance interest at the rate
      equivalent to the one-month London Interbank Offered Rate (“LIBOR”) plus
      90 basis points per annum computed on the basis of a 360-day year on the
      loan (except to the extent Maiden Insurance’s proportionate share of AII’s
      obligations to that AmTrust subsidiary exceeds the value of the collateral
      Maiden Insurance has provided), and net of unpaid fees Maiden Insurance
      owes to AIIM and its share of fees owed to the trustee of the Trust
      Accounts.




·
            effective December 1, 2008, the
      Company entered into a Reinsurer Trust Assets Collateral agreement to
      provide to AII sufficient collateral to secure its proportional share of
      AII’s obligations to the U.S. AmTrust subsidiaries. The amount of the
      collateral, as at September 30, 2010 was approximately $333,761 (December
      31, 2009 – $206,960) and the accrued interest was $3,393
      (December 31,
2009 – $1,956).




Reinsurance
Brokerage Agreements




Effective
July 1, 2007, the Company entered into a reinsurance brokerage agreement with
AII Reinsurance Broker Ltd., a subsidiary of AmTrust. Pursuant to the brokerage
agreement, AII Reinsurance Broker Ltd. provides brokerage services relating to
the Quota Share Reinsurance Agreement for a fee equal to 1.25% of the premium
reinsured from AII. The brokerage fee is payable in consideration of AII
Reinsurance Broker Ltd’s brokerage services. AII Reinsurance Broker Ltd. is not
the Company’s exclusive broker.  AII Reinsurance Broker Ltd. may, if
mutually agreed, also produce reinsurance for the Company from other ceding
companies, and in such cases the Company will negotiate a mutually acceptable
commission rate. The Company recorded approximately $1,509 and $4,163 of
reinsurance brokerage expense for the three and nine months ended September 30,
2010, respectively (2009 – $1,118 and $3,369, respectively) and deferred
reinsurance brokerage of $3,364 and $3,265 as at September 30, 2010 and December
31, 2009, respectively, as a result of this agreement.


23




MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)





11.Related Party Transactions(continued)




Effective
April 1, 2008, the Company entered into brokerage services agreements with IGI
Intermediaries Limited and IGI Inc. (“IGI”), both subsidiaries of AmTrust.
Pursuant to the brokerage services agreements, IGI provides marketing services
to us which includes providing marketing material to potential policyholders,
providing us with market information on new trends and business opportunities
and referring new brokers and potential policyholders to us. A fee equal to
IGI’s costs in providing such services plus 8% is payable in consideration of
IGI’s marketing services. The Company recorded approximately $31 and $86 of IGI
fees, which is included in commission and other acquisition expenses, for the
three and nine months ended September 30, 2010, respectively (2009 – $55 and
$325, respectively).




Asset
Management Agreement




Effective
July 1, 2007 and as amended, the Company entered into an asset management
agreement with AII Insurance Management Limited (“AIIM”), an AmTrust subsidiary,
pursuant to which AIIM has agreed to provide investment management services to
the Company.  Pursuant to the asset management agreement, AIIM
provides investment management services for an annual fee equal to 0.35% of
average invested assets plus all costs incurred.  Effective April 1,
2008, the investment management services annual fee has been reduced to 0.20% if
the average value of the account is less than $1 billion and 0.15% if the
average value of the account is greater than $1 billion.  The Company
recorded approximately $650 and $1,968 of investment management fees for the
three and nine months ended September 30, 2010, respectively (2009 – $721 and
$1,937, respectively), as a result of this agreement.




ACAC
Quota Share Reinsurance Agreement




On March
1, 2010, the Company entered into a three year 25% quota share reinsurance
agreement with American Capital Acquisition Corporation (“ACAC”).




ACAC is
an insurance holding company owned by the 2005 Michael Karfunkel Grantor
Retained Annuity Trust (the “Trust”), which in turn is controlled by Michael
Karfunkel (“Karfunkel”), Karfunkel individually, and AmTrust.  ACAC,
on March 1, 2010, acquired from GMAC Insurance Holdings, Inc. and Motors
Insurance Corporation (collectively, “GMAC”), GMAC’s personal lines automobile
business. Karfunkel is a Founding Shareholder of the Company. In addition,
Karfunkel is the chairman of the board of directors of ACAC.




The
Company, effective March 1, 2010, reinsures 25% of the net premiums of the GMAC
personal lines business, pursuant to a 50% quota share reinsurance agreement
(“ACAC Quota Share”) with the GMAC personal lines insurance companies, as
cedents, and the Company, MK Re, Ltd., a Bermuda reinsurer which is a
wholly-owned indirect subsidiary of the Trust, and AmTrust, as reinsurers. The
Company has a 50% participation in the ACAC Quota Share, by which it receives
25% of net premiums of the personal lines business. The ACAC Quota Share
provides that the reinsurers, severally, in accordance with their participation
percentages, shall receive 50% of the net premium of the GMAC personal lines
insurance companies and assume 50% of the related net losses. The ACAC Quota
Share has an initial term of three years and shall renew automatically for
successive three year terms unless terminated by written notice not less than
nine months prior to the expiration of the current term. Notwithstanding the
foregoing, the Company’s participation in the Personal Lines Quota Share may be
terminated by ACAC on 60 days written notice in the event the Company becomes
insolvent, is placed into receivership, its financial condition is impaired by
50% of the amount of its surplus at the inception of the ACAC Quota Share or
latest anniversary, whichever is greater, is subject to a change of control, or
ceases writing new and renewal business. ACAC also may terminate the agreement
on nine months written notice following the effective date of initial public
offering or private placement of stock by ACAC or a subsidiary. The Company may
terminate its participation in the ACAC Quota Share on 60 days written notice in
the event ACAC is subject to a change of control, cease writing new and renewal
business, effects a reduction in their net retention without the Company’s
consent or fails to remit premium as required by the terms of the ACAC Quota
Share. The ACAC Quota Share provides that the reinsurers pay a provisional
ceding commission equal to 32.5% of ceded earned premium, net of premiums ceded
by the personal lines companies for inuring reinsurance, subject to adjustment.
The ceding commission is subject to adjustment to a maximum of 34.5% if the loss
ratio for the reinsured business is 60.5% or less and a minimum of 30.5% if the
loss ratio is 64.5% or higher. We believe that the terms, conditions and pricing
of the ACAC Quota Share have been determined by arm’s length negotiations and
reflect current market terms and conditions.


24





MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)


11.Related Party Transactions(continued)


The
Company recorded approximately $15,089 and $22,379 of ceding commission expense
for the three and nine months ended September 30, 2010 as a result of this
transaction.





Warrant
Exchange





Please
see Note 7 to the consolidated financial statements.




12.Segments




The
Company currently operates three business segments, Diversified Reinsurance,
AmTrust Quota Share and ACAC Quota Share. The Company evaluates segment
performance based on segment profit separately from the results of our
investment portfolio. Other operating expenses allocated to the segments are
called General and Administrative expenses which are allocated on an actual
basis except salaries and benefits where management’s judgment is applied; the
Company does not allocate general corporate expenses to the segments. In
determining total assets by segment the Company identifies those assets that are
attributable to a particular segment such as reinsurance receivable, deferred
commissions and acquisition cost, loans, goodwill and intangibles, and
restricted cash and investments. All remaining assets are allocated to
Corporate.




The
following tables summarize the underwriting results of our operating
segments:




For the Three Months Ended September 30, 2010
            
            Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            
            ACAC
              Quota Share
            
            
            TotalNet
      premiums written
            
            $
            104,452
            
            
            $
            110,313
            
            
            $
            58,670
            
            
            $
            273,435Net
      premiums earned
            
            
            142,419
            
            
            
            120,747
            
            
            
            46,427
            
            
            
            309,593Net
      losses and loss expenses
            
            
            (95,409
            )
            
            
            (76,199
            )
            
            
            (29,017
            )
            
            
            (200,625
            )Commissions
      and other acquisition costs
            
            
            (34,228
            )
            
            
            (39,011
            )
            
            
            (15,717
            )
            
            
            (88,956
            )General
      and administrative expenses
            
            
            (6,745
            )
            
            
            (220
            )
            
            
            (124
            )
            
            
            (7,089
            )Underwriting
      income
            
            $
            6,037
            
            
            $
            5,317
            
            
            $
            1,569
            
            
            $
            12,923Reconciliation
      to net incomeNet
      investment income and realized and unrealized investment gains
      (losses)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,127Amortization
      of intangible assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,452
            )Foreign
      exchange gains
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,187Subordinated
      debt interest expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,117
            )Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,751
            )Income
      tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (391
            )Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            18,526Net
      loss and loss expense ratio*
            
            
            67.0
            %
            
            
            63.1
            %
            
            
            62.5
            %
            
            
            64.8
            %Acquisition
      cost ratio**
            
            
            24.0
            %
            
            
            32.3
            %
            
            
            33.9
            %
            
            
            28.7
            %General
      and administrative expense ratio***
            
            
            4.8
            %
            
            
            0.2
            %
            
            
            0.2
            %
            
            
            3.5
            %Combined
      ratio****
            
            
            95.8
            %
            
            
            95.6
            %
            
            
            96.6
            %
            
            
            97.0
            %




25





MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




12.Segments(continued)




For the Nine Months Ended September 30, 2010
            
            Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            
            ACAC
              Quota Share
            
            
            TotalNet
      premiums written
            
            $
            409,075
            
            
            $
            340,992
            
            
            $
            147,709
            
            
            $
            897,776Net
      premiums earned
            
            
            455,378
            
            
            
            333,070
            
            
            
            68,858
            
            
            
            857,306Net
      losses and loss expenses
            
            
            (294,044
            )
            
            
            (209,184
            )
            
            
            (43,036
            )
            
            
            (546,264
            )Commissions
      and other acquisition costs
            
            
            (123,128
            )
            
            
            (108,249
            )
            
            
            (23,422
            )
            
            
            (254,799
            )General
      and administrative expenses
            
            
            (18,343
            )
            
            
            (1,292
            )
            
            
            (124
            )
            
            
            (19,759
            )Underwriting
      income
            
            $
            19,863
            
            
            $
            14,345
            
            
            $
            2,276
            
            
            $
            36,484Reconciliation
      to net incomeNet
      investment income and realized and unrealized investment gains
      (losses)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            56,430Amortization
      of intangible assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,356
            )Foreign
      exchange losses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (380
            )Subordinated
      debt interest expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (27,348
            )Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,117
            )Income
      tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (981
            )Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            50,732Net
      loss and loss expense ratio*
            
            
            64.6
            %
            
            
            62.8
            %
            
            
            62.5
            %
            
            
            63.7
            %Acquisition
      cost ratio**
            
            
            27.0
            %
            
            
            32.5
            %
            
            
            34.0
            %
            
            
            29.7
            %General
      and administrative expense ratio***
            
            
            4.0
            %
            
            
            0.4
            %
            
            
            0.2
            %
            
            
            3.4
            %Combined
      ratio****
            
            
            95.6
            %
            
            
            95.7
            %
            
            
            96.7
            %
            
            
            96.8
            %




For the Three Months Ended September 30, 2009
            
            Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            
            ACAC
              Quota Share
            
            
            TotalNet
      premiums written
            
            $
            129,232
            
            
            $
            92,168
            
            
            $
            –
            
            
            $
            221,400Net
      premiums earned
            
            
            147,876
            
            
            
            89,474
            
            
            
            –
            
            
            
            237,350Net
      losses and loss expenses
            
            
            (110,420
            )
            
            
            (54,703
            )
            
            
            –
            
            
            
            (165,123
            )Commissions
      and other acquisition costs
            
            
            (26,062
            )
            
            
            (29,251
            )
            
            
            –
            
            
            
            (55,313
            )General
      and administrative expenses
            
            
            (3,785
            )
            
            
            (812
            )
            
            
            –
            
            
            
            (4,597
            )Underwriting
      income
            
            $
            7,609
            
            
            $
            4,708
            
            
            $
            –
            
            
            $
            12,317Reconciliation
      to net incomeNet
      investment income and realized investment gains (losses)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            16,712Amortization
      of intangible assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,676
            )Foreign
      exchange and other gains
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            210Subordinated
      debt interest expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,114
            )Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,462
            )Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            14,987Net
      loss and loss expense ratio*
            
            
            74.7
            %
            
            
            61.1
            %
            
            
            –
            %
            
            
            69.6
            %Acquisition
      cost ratio**
            
            
            17.6
            %
            
            
            32.7
            %
            
            
            –
            %
            
            
            23.3
            %General
      and administrative expense ratio***
            
            
            2.6
            %
            
            
            0.9
            %
            
            
            –
            %
            
            
            3.4
            %Combined
      ratio****
            
            
            94.9
            %
            
            
            94.7
            %
            
            
            –
            %
            
            
            96.3
            %




26




MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




12.Segments(continued)




For the Nine Months Ended September 30, 2009
            
            Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            
            ACAC
              Quota Share
            
            
            TotalNet
      premiums written
            
            $
            528,963
            
            
            $
            267,341
            
            
            $
            –
            
            
            $
            796,304Net
      premiums earned
            
            
            401,761
            
            
            
            269,522
            
            
            
            –
            
            
            
            671,283Net
      losses and loss expenses
            
            
            (294,005
            )
            
            
            (168,463
            )
            
            
            –
            
            
            
            (462,468
            )Commissions
      and other acquisition costs
            
            
            (71,234
            )
            
            
            (88,374
            )
            
            
            –
            
            
            
            (159,608
            )General
      and administrative expenses
            
            
            (13,599
            )
            
            
            (1,873
            )
            
            
            –
            
            
            
            (15,472
            )Underwriting
      income
            
            $
            22,923
            
            
            $
            10,812
            
            
            $
            –
            
            
            $
            33,735Reconciliation
      to net incomeNet
      investment income and realized investment gains (losses)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            45,688Amortization
      of intangible assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,915
            )Foreign
      exchange and other gains
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,401Subordinated
      debt interest expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (25,316
            )Other
      operating expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,254
            )Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            44,339Net
      loss and loss expense ratio*
            
            
            73.2
            %
            
            
            62.5
            %
            
            
            –
            %
            
            
            68.9
            %Acquisition
      cost ratio**
            
            
            17.7
            %
            
            
            32.8
            %
            
            
            –
            %
            
            
            23.8
            %General
      and administrative expense ratio***
            
            
            3.4
            %
            
            
            0.7
            %
            
            
            –
            %
            
            
            3.4
            %Combined
      ratio****
            
            
            94.3
            %
            
            
            96.0
            %
            
            
            –
            %
            
            
            96.1
            %





*
            Calculated
      by dividing net losses and loss expenses by net earned
      premium.


**
            Calculated
      by dividing commission and other acquisition expenses by net earned
      premium


***
            Calculated
      by dividing general and administrative expenses by net earned
      premium.


****
            Calculated
      by adding together net loss and loss expense ratio, acquisition cost ratio
      and general and administrative expense
ratio.




Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            
            ACAC
              Quota Share
            
            
            TotalAs
      at September 30, 2010Reinsurance
      balances receivable, net
            
            $
            146,270
            
            
            $
            31,642
            
            
            $
            66,441
            
            
            $
            244,353Prepaid
      reinsurance
            
            
            31,575
            
            
            
            –
            
            
            
            –
            
            
            
            31,575Reinsurance
      recoverable on unpaid losses
            
            
            6,000
            
            
            
            –
            
            
            
            –
            
            
            
            6,000Deferred
      commission and other acquisition costs
            
            
            73,091
            
            
            
            87,329
            
            
            
            26,821
            
            
            
            187,241Loan
      to related party
            
            
            –
            
            
            
            167,975
            
            
            
            –
            
            
            
            167,975Goodwill
            
            
            52,617
            
            
            
            –
            
            
            
            –
            
            
            
            52,617Intangible
      assets, net
            
            
            46,928
            
            
            
            –
            
            
            
            –
            
            
            
            46,928Restricted
      investments and cash
            
            
            1,126,223
            
            
            
            331,957
            
            
            
            10,289
            
            
            
            1,468,469Corporate
      and other assets
            
            
            3,933
            
            
            
            –
            
            
            
            –
            
            
            
            634,412Total
      Assets
            
            $
            1,486,637
            
            
            $
            618,903
            
            
            $
            103,551
            
            
            $
            2,839,570




27


MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




12.Segments(continued)





Diversified
              Reinsurance
            
            
            AmTrust
              Quota Share
            
            ACAC
              Quota Share
            
            
            TotalAs
      at December 31, 2009Reinsurance
      balances receivable, net
            
            $
            171,482
            
            
            $
            39,856
            
            
            $
            –
            
            
            $
            211,338Prepaid
      reinsurance
            
            
            28,752
            
            
            
            –
            
            
            
            –
            
            
            
            28,752Reinsurance
      recoverable on unpaid losses
            
            
            11,984
            
            
            
            –
            
            
            
            –
            
            
            
            11,984Deferred
      commission and other acquisition costs
            
            
            88,224
            
            
            
            84,759
            
            
            
            –
            
            
            
            172,983Loan
      to related party
            
            
            –
            
            
            
            167,975
            
            
            
            –
            
            
            
            167,975Goodwill
            
            
            52,617
            
            
            
            –
            
            
            
            –
            
            
            
            52,617Intangible
      assets, net
            
            
            51,284
            
            
            
            –
            
            
            
            –
            
            
            
            51,284Restricted
      investments and cash
            
            
            1,168,663
            
            
            
            206,959
            
            
            
            –
            
            
            
            1,375,622Corporate
      and other assets
            
            
            2,502
            
            
            
            –
            
            
            
            –
            
            
            
            567,182Total
      Assets
            
            $
            1,575,508
            
            
            $
            499,549
            
            
            $
            –
            
            
            $
            2,639,737




The
following tables set forth financial information relating to gross and net
premiums written and earned by major line of business for the three and nine
months ended September 30, 2010 and 2009:




For the Three Months Ended
              September 30,
              2010
            
            
            For the Three Months Ended
              September 30,
              2009Total
            
            
            %
      of Total
            
            
            Total
            
            
            %
      of TotalNet
      premiums writtenDiversified
      ReinsuranceProperty
            
            $
            37,471
            
            
            
            13.7
            %
            
            $
            28,691
            
            
            
            13.0
            %Casualty
            
            
            54,178
            
            
            
            19.8
            %
            
            
            76,377
            
            
            
            34.5
            %Accident
      and Health
            
            
            12,803
            
            
            
            4.7
            %
            
            
            24,164
            
            
            
            10.9
            %Total
      Diversified Reinsurance
            
            
            104,452
            
            
            
            38.2
            %
            
            
            129,232
            
            
            
            58.4
            %AmTrust
      Quota ShareSmall
      Commercial Business
            
            
            43,664
            
            
            
            16.0
            %
            
            
            34,077
            
            
            
            15.4
            %Specialty
      Program Business
            
            
            20,996
            
            
            
            7.7
            %
            
            
            13,052
            
            
            
            5.9
            %Specialty
      Risk and Extended Warranty
            
            
            45,653
            
            
            
            16.7
            %
            
            
            45,039
            
            
            
            20.3
            %Total
      AmTrust Quota Share
            
            
            110,313
            
            
            
            40.4
            %
            
            
            92,168
            
            
            
            41.6
            %ACAC
      Quota ShareAutomobile
      liability
            
            
            33,565
            
            
            
            12.2
            %
            
            
            –
            
            
            
            –
            %Automobile
      physical damage
            
            
            25,105
            
            
            
            9.2
            %
            
            
            –
            
            
            
            –
            %Total
      ACAC Quota share
            
            
            58,670
            
            
            
            21.4
            %
            
            
            –
            
            
            
            –
            %$
            273,435
            
            
            
            100.0
            %
            
            $
            221,400
            
            
            
            100.0
            %




28





MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




12.Segments(continued)





For the Nine Months Ended
              September 30,
              2010
            
            
            For the Nine Months Ended
              September 30,
              2009Total
            
            
            %
      of Total
            
            
            Total
            
            
            %
      of TotalNet
      premiums writtenDiversified
      ReinsuranceProperty
            
            $
            131,800
            
            
            
            14.7
            %
            
            $
            105,650
            
            
            
            13.3
            %Casualty
            
            
            238,194
            
            
            
            26.5
            %
            
            
            331,685
            
            
            
            41.6
            %Accident
      and Health
            
            
            39,081
            
            
            
            4.4
            %
            
            
            91,628
            
            
            
            11.5
            %Total
      Diversified Reinsurance
            
            
            409,075
            
            
            
            45.6
            %
            
            
            528,963
            
            
            
            66.4
            %AmTrust
      Quota ShareSmall
      Commercial Business
            
            
            147,494
            
            
            
            16.4
            %
            
            
            132,985
            
            
            
            16.7
            %Specialty
      Program Business
            
            
            51,897
            
            
            
            5.8
            %
            
            
            35,044
            
            
            
            4.4
            %Specialty
      Risk and Extended Warranty
            
            
            141,601
            
            
            
            15.8
            %
            
            
            99,312
            
            
            
            12.5
            %Total
      AmTrust Quota Share
            
            
            340,992
            
            
            
            38.0
            %
            
            
            267,341
            
            
            
            33.6
            %ACAC
      Quota ShareAutomobile
      liability
            
            
            84,524
            
            
            
            9.4
            %
            
            
            –
            
            
            
            –
            %Automobile
      physical damage
            
            
            63,185
            
            
            
            7.0
            %
            
            
            –
            
            
            
            –
            %Total
      ACAC Quota Share
            
            
            147,709
            
            
            
            16.4
            %
            
            
            –
            
            
            
            –
            %$
            897,776
            
            
            
            100.0
            %
            
            $
            796,304
            
            
            
            100.0
            %




For the Three Months Ended
              September 30,
              2010
            
            
            For the Three Months Ended
              September 30,
              2009Total
            
            
            % of Total
            
            
            Total
            
            
            % of TotalNet
      premiums earnedDiversified
      ReinsuranceProperty
            
            $
            42,800
            
            
            
            13.8
            %
            
            $
            33,948
            
            
            
            14.3
            %Casualty
            
            
            86,028
            
            
            
            27.8
            %
            
            
            87,043
            
            
            
            36.7
            %Accident
      and Health
            
            
            13,591
            
            
            
            4.4
            %
            
            
            26,885
            
            
            
            11.3
            %Total
      Diversified Reinsurance
            
            
            142,419
            
            
            
            46.0
            %
            
            
            147,876
            
            
            
            62.3
            %AmTrust
      Quota ShareSmall
      Commercial Business
            
            
            46,744
            
            
            
            15.1
            %
            
            
            50,896
            
            
            
            21.4
            %Specialty
      Program Business
            
            
            21,494
            
            
            
            6.9
            %
            
            
            11,426
            
            
            
            4.9
            %Specialty
      Risk and Extended Warranty
            
            
            52,509
            
            
            
            17.0
            %
            
            
            27,152
            
            
            
            11.4
            %Total
      AmTrust Quota Share
            
            
            120,747
            
            
            
            39.0
            %
            
            
            89,474
            
            
            
            37.7
            %ACAC
      Quota ShareAutomobile
      liability
            
            
            26,001
            
            
            
            8.4
            %
            
            
            –
            
            
            
            –
            %Automobile
      physical damage
            
            
            20,426
            
            
            
            6.6
            %
            
            
            –
            
            
            
            –
            %Total
      ACAC Quota Share
            
            
            46,427
            
            
            
            15.0
            %
            
            
            –
            
            
            
            –
            %$
            309,593
            
            
            
            100.0
            %
            
            $
            237,350
            
            
            
            100.0
            %




29


MAIDEN
HOLDINGS, LTD.





Notes
to Unaudited Condensed Consolidated Financial Statements


(In
Thousands of United States Dollars, Except Par Value and Per Share
Data)


(Unaudited)




12. Segments(continued)





For the Nine Months Ended
              September 30,
              2010
            
            
            For the Nine Months Ended
              September 30,
              2009Total
            
            
            % of Total
            
            
            Total
            
            
            % of TotalNet
      premiums earnedDiversified
      ReinsuranceProperty
            
            $
            132,138
            
            
            
            15.4
            %
            
            $
            99,525
            
            
            
            14.8
            %Casualty
            
            
            270,103
            
            
            
            31.5
            %
            
            
            224,737
            
            
            
            33.5
            %Accident
      and Health
            
            
            53,137
            
            
            
            6.2
            %
            
            
            77,499
            
            
            
            11.5
            %Total
      Diversified Reinsurance
            
            
            455,378
            
            
            
            53.1
            %
            
            
            401,761
            
            
            
            59.8
            %AmTrust
      Quota ShareSmall
      Commercial Business
            
            
            154,884
            
            
            
            18.1
            %
            
            
            157,645
            
            
            
            23.5
            %Specialty
      Program Business
            
            
            52,948
            
            
            
            6.2
            %
            
            
            37,844
            
            
            
            5.7
            %Specialty
      Risk and Extended Warranty
            
            
            125,238
            
            
            
            14.6
            %
            
            
            74,033
            
            
            
            11.0
            %Total
      AmTrust Quota Share
            
            
            333,070
            
            
            
            38.9
            %
            
            
            269,522
            
            
            
            40.2
            %ACAC
      Quota ShareAutomobile
      liability
            
            
            38,595
            
            
            
            4.5
            %
            
            
            –
            
            
            
            –
            %Automobile
      physical damage
            
            
            30,263
            
            
            
            3.5
            %
            
            
            –
            
            
            
            –
            %Total
      ACAC Quota Share
            
            
            68,858
            
            
            
            8.0
            %
            
            
            –
            
            
            
            –
            %$
            857,306
            
            
            
            100.0
            %
            
            $
            671,283
            
            
            
            100.0
            %




13.Subsequent Events




Dividends




On
November 4, 2010, the Company declared a quarterly dividend of $0.07 per
common share, payable on January 18, 2011 to shareholders of record on January
3, 2011.




30




Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Form 10-Q.
References in this Form 10-Q to the terms “we,” “us,” “our,” “the Company” or
other similar terms mean the consolidated operations of Maiden Holdings, Ltd.
and its subsidiaries, unless the context requires otherwise. References in this
Form 10-Q to the term “Holdings” means Maiden Holdings, Ltd. only.




Note
on Forward-Looking Statements




This
Quarterly Report on Form 10-Q and other publicly available documents may
include, and our officers and representatives may from time to time make,
projections concerning financial information and statements concerning future
economic performance and events, plans and objectives relating to management,
operations, products and services, and assumptions underlying these projections
and statements. These projections and statements are forward-looking statements
within the meaning of The Private Securities Litigation Reform Act of 1995 and
are not historical facts but instead represent only our belief regarding future
events, many of which, by their nature, are inherently uncertain and outside our
control. These projections and statements may address, among other things, our
strategy for growth, product development, financial results and reserves. Actual
results and financial condition may differ, possibly materially, from these
projections and statements and therefore you should not place undue reliance on
them. Factors that could cause our actual results to differ, possibly
materially, from those in the specific projections and statements are discussed
throughout this Management’s Discussion and Analysis of Financial Condition and
Results of Operations and in “Risk Factors” in Item 1A of Part I of
our Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (“SEC”) on March 16, 2010.  Since the Company commenced
operations in 2007, the Company has engaged in a number of significant
transactions, including entering into the AmTrust Quota Share in 2007, the GMAC
Acquisition in 2008, the TRUPS Offering in 2009 and the ACAC Transaction and
pending GMAC International Insurance Services, Ltd. Reinsurance acquisition in
2010, each discussed below that significantly affect the comparability of
results of operations from year to year.  The projections and
statements in this Report speak only as of the date of this Report and those in
other publicly available documents or made by our officers and representatives
from time to time speak only as of their respective dates and we undertake no
obligation to update or revise any forward-looking statement that may be made
from time to time, whether as a result of new information, future developments
or otherwise, except as required by law.




Overview




We are a
Bermuda-based holding company formed in June 2007 primarily focused on serving
the needs of regional and specialty insurers in the United States and Europe by
providing innovative reinsurance solutions designed to support their capital
needs. We specialize in reinsurance solutions that optimize financing by
providing coverage within the more predictable and actuarially credible lower
layers of coverage and/or reinsuring risks that are believed to be lower hazard,
more predictable and generally not susceptible to catastrophe claims. Our
tailored solutions include a variety of value added services focused on helping
our clients grow and prosper.




We
provide reinsurance through our wholly owned subsidiaries, Maiden Reinsurance
Company ("Maiden US") and Maiden Bermuda and have operations in the United
States and Bermuda. On a more limited basis, Maiden Specialty, a wholly owned
subsidiary of Maiden US, provides primary insurance on a surplus lines basis
focusing on non-catastrophe inland marine and property coverage. Maiden Bermuda
does not underwrite any primary insurance business.




We
historically have managed our business through two operating
segments:  Diversified Reinsurance and the AmTrust Quota
Share.  In the first quarter of 2010, we added a third segment, ACAC
Quota Share, as a result of the ACAC Transaction discussed below.  As
of September 30, 2010, we had approximately $758.4 million of total
shareholders’ equity and $973.5 million in total capital, which includes
shareholders’ equity and junior subordinated debt.




The
market conditions in which we operate have historically been cyclical,
experiencing cycles of price erosion followed by rate strengthening as a result
of catastrophes or other significant losses that affect the overall capacity of
the industry to provide coverage. During the period covered by this discussion,
the reinsurance market has been characterized by significant competition in most
lines of business.





During 2009 and 2010, there were a number of events that impacted
the property and casualty industry generally. While natural and man-made
catastrophes occur each year affecting reinsurance industry results, 2009
generally featured fewer such events, favorably impacting industry performance.
Further, despite the ongoing global economic recession, industry investments in
risk assets performed significantly better in 2009, increasing both statutory
and generally accepted accounting principles in the United States ("GAAP")
capital at the individual market participant level and in the aggregate across
the reinsurance industry more generally. In the first nine months of 2010, a
series of significant natural and man-made catastrophes occurred, including a
major earthquake in Chile, damaging windstorms in Europe (Xynthia), a series of
severe winter storms in the northeastern United States and the Deepwater Horizon
explosion and oil spill in the Gulf of Mexico.  Consistent with its
business model, the Company experienced no losses from the Chilean earthquake,
Deepwater Horizon explosion or European windstorms, while losses from the United
States winter storms, if any, are expected to be immaterial.




31




In
addition, the property and casualty industry invest significant portions of its
premiums and retained underwriting profits in fixed income maturities, the
yields on which continue to perform at historically low levels. Continued
existence of these conditions, including the possibility of even lower yields in
the near-term will increasingly adversely impact the results of the property and
casualty industry generally, placing additional pressure on companies
underwriting results at a time that market conditions are not supportive of
additional pricing measures which would stabilize underwriting trends.
Nonetheless, capital positions across the industry remain sufficiently strong
that despite the unfavorable pricing and investment environment, competitive
conditions appear unlikely to change in the immediately foreseeable future,
although the ultimate impact remains unclear.  As market conditions
continue to develop and competition further increases, we continue to maintain
our adherence to underwriting standards by declining business when pricing,
terms and conditions do not meet our underwriting standards.




Recent
Developments




GMAC
International Insurance Services, Ltd. Reinsurance Acquisition (“IIS
Acquisition”)




On July
6, 2010, the Company announced that it entered into a definitive agreement to
acquire the majority of the reinsurance-related infrastructure, assets and
liabilities of U.K.-based GMAC International Insurance Services, Ltd. (“IIS”),
including renewal rights on nearly $100 million of predominantly personal auto
quota share reinsurance, as well as the supporting business development
subsidiaries. The transaction includes the assumption of more than $100 million
of loss reserves and net unearned premiums which will be funded by a transfer of
cash and investments. IIS primarily focuses on providing branded auto and
auto-related insurance products through its insurer partners to retail customers
in the European Union and other global markets.




The
Company presently expects the proposed transaction to close by the end of
November 2010.   The Company also expects the transaction to be
accretive to 2011 earnings, and to generally perform within its overall stated
targets of a 96% combined ratio and medium-term ROE target of 15%.




ACAC
Transaction




In
November 2009, we announced an agreement in principal with American Capital
Acquisition Corporation ("ACAC") regarding a multi-year 25% quota share
agreement expected to generate over $200 million in annual revenue. The contract
commenced on March 1, 2010 after final regulatory approval and the closing of
ACAC's acquisition of the GMACI Holdings, LLC (“GMACI”) U.S. consumer property
and casualty insurance business, as well as a small amount of commercial auto
business. This business generated over $1.0 billion in net written premium in
each of 2008 and 2009. ACAC is owned by one of our Founding Shareholders,
Michael Karfunkel, and the Michael Karfunkel 2005 Grantor Retained Annuity Trust
(the “Trust"), which is controlled by Michael Karfunkel. The Trust currently
owns 72.4% of ACAC's issued and outstanding common stock, Michael Karfunkel
currently owns 27.6% of ACAC's issued and outstanding common stock, and AmTrust
owns preferred shares convertible into 21.25% of the issued and outstanding
common stock of ACAC.




Management
of this business is treated as a separate segment captioned ACAC Quota
Share.




GMAC
Acquisition




On
October 31, 2008, we acquired the reinsurance operations of GMACI which included
the following components, and the sum of which are referred to as the "GMAC
Acquisition":




·
            GMAC RE LLC ("GMAC RE"), a
      reinsurance managing general agent writing business on behalf of Motors
      Insurance Corporation ("Motors") and the renewal rights for the business
      written through GMAC RE (which was subsequently renamed Maiden Re
      Insurance Services, LLC ("Maiden
Re"));




·
            GMAC Direct Insurance Company
      ("GMAC Direct") (which was subsequently renamed Maiden Reinsurance
      Company); and




·
            Integon Specialty Insurance
      Company ("Integon") (which was subsequently renamed Maiden Specialty
      Insurance Company).




In
conjunction with the acquisition of GMAC RE, on October 31, 2008, the Company
and Motors entered into a Portfolio Transfer and Quota Share Reinsurance
Agreement ("Motors Agreement") under which the Company reinsures (i) all of the
existing contracts written by GMAC RE pursuant to a loss portfolio transfer and
(ii) contracts written pursuant to a fronting arrangement with Motors. According
to the loss portfolio transfer provisions of the Motors Agreement, the Company
assumed the loss reserves of $755.6 million associated with the GMAC RE business
as of October 31, 2008. The Company also assumed unearned premium of
approximately $169.9 million. As a result of assumption of these liabilities,
the Company initially received cash and investments of approximately $956.3
million from Motors. The Company now assumes one hundred percent (100%) of all
premiums and losses for which Motors is otherwise entitled to or liable in
respect of the reinsurance contracts.




32


To
support the businesses acquired in the GMAC Acquisition and Maiden Holdings
North America, Ltd. (“Maiden NA”), on January 20, 2009, we completed an offering
of approximately $260.1 million in the form of junior subordinated debentures
(the "Debentures") issued by Maiden Capital Financing Trust, a trust established
by Maiden NA, and also issued 11,700,000 common shares to the purchasers (“TRUPS
Offering”). The Debentures mature in 2039 and carry an interest rate of 14%.
Approximately 61% of these securities were placed privately with two of our
Founding Shareholders (Michael Karfunkel and George Karfunkel), and the
remainder with existing institutional investors.
  2010
Financial Highlights
  2010
Consolidated Results of Operations
  ·
              Net
      income available to common shareholders of $18.5 million and $50.7
      million, or $0.26 and $0.72 basic and diluted  for the three and
      nine months ended September 30, 2010 as compared to $15.0 million and
      $44.3 million, or $0.21 basic and diluted and $0.64 basic and $0.63
      diluted earnings per share, for the same periods in 2009,
      respectively.
  ·
              Operating
      earnings (1)
      of $18.1 million and $55.5 million, or $0.26 and $0.79 basic and
      diluted operating earnings per share, for the three and nine months ended
      September 30, 2010 compared to $16.5 million and $47.3 million, or $0.24
      basic and $0.23 diluted and $0.68 basic and diluted operating earnings per
      share, in the same periods in 2009, respectively. (1)
  ·
              Gross
      premiums written of $952.0 million in 2010 as compared to $796.3 million
      in 2009.
  ·
              Net
      premiums earned of $857.3 million in 2010 as compared to $671.3 million in
      2009.
  ·
              Underwriting
      income of $12.9 million and $36.5 million and combined ratios of 97.0% and
      96.8%  for the three and nine months ended September 30, 2010
      compared to $12.3 million and $33.7 million and combined ratios of
      96.3% and 96.1%, respectively for the same periods in 2009 (1)
  ·
              Net
      investment income of $54.0 million as compared to $46.2 million in
      2009.
  2010
Consolidated Financial Condition
  ·
              Annualized
      operating return on equity of 10.3% for the nine months ended September
      30, 2010 as compared to 10.8% for the same period in 2009. (1)
  ·
              Common
      shareholders' equity of $758.4 million; book value per common share
      of $10.52.
  ·
              Total
      investments of $1.6 billion; fixed maturities and short-term securities
      comprising 99.7% of total investments, of which 55.9% have a credit rating
      of AAA and an overall average credit rating of
  AA.
  ·
              Total
      assets of $2.8 billion.
  ·
              Reserve
      for losses and loss expenses of
  $1.1 billion.
  ·
              Total
      debt of $215.2 million and a debt to total capitalization ratio of
      22.1%.
  (1)
              Operating
      earnings, operating earnings per share, underwriting income, combined
      ratio and book value per share are non-GAAP financial measures. See
      "Non-GAAP Financial Measures" for additional information and a
      reconciliation to the nearest GAAP financial measure (net
      income).
  33
  Non-GAAP
Financial Measures
  In
presenting the Company's results, management has included and discussed certain
non-GAAP financial measures. Management believes that these non-GAAP measures,
which may be defined differently by other companies, better explain the
Company's results of operations in a manner that allows for a more complete
understanding of the underlying trends in the Company's business. However these
measures should not be viewed as a substitute for those determined in accordance
with GAAP. These non-GAAP measures are:
  Operating Earnings and Operating
Earnings per Share:   In addition to presenting net income
determined in accordance with GAAP, we believe that showing operating earnings
enables investors, analysts, rating agencies and other users of our financial
information to more easily analyze our results of operations in a manner similar
to how management analyzes our underlying business
performance.  Operating earnings should not be viewed as a substitute
for GAAP net income. Operating earnings are an internal performance measure used
in the management of our operations and represents operating results excluding,
as applicable, realized investment gains or losses, foreign exchange gain or
loss, the amortization of intangible assets, deferred tax expenses and in 2010,
transaction expenses related to the IIS Acquisition.  We exclude net
realized investment gains or losses and foreign exchange gain or loss as we
believe that both are heavily influenced in part by market opportunities and
other factors. We do not believe amortizations of intangible assets are
representative of our ongoing business. We believe all of these amounts are
largely independent of our business and underwriting process and including them
distorts the analysis of trends in our operations. The following is a
reconciliation of operating earnings to its most closely related GAAP measure,
net income.
  For the Three Months
                Ended September 30,
              
              
              For the Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($
      in Millions)Net
      income
              
              $
              18.5
              
              
              $
              15.0
              
              
              $
              50.7
              
              
              $
              44.3Add
      (subtract):Net
      realized and unrealized investment (gains) losses
              
              
              (1.6
              )
              
              
              0.1
              
              
              
              (2.5
              )
              
              
              0.5Amortization
      of intangible assets
              
              
              1.4
              
              
              
              1.6
              
              
              
              4.4
              
              
              
              4.9IIS
      transaction expenses
              
              
              0.6
              
              
              
              –
              
              
              
              1.5
              
              
              
              –Foreign
      exchange and other (gains) losses
              
              
              (1.2
              )
              
              
              (0.2
              )
              
              
              0.4
              
              
              
              (2.4
              )Income
      tax expense
              
              
              0.4
              
              
              
              –
              
              
              
              1.0
              
              
              
              –Operating
      earnings
              
              $
              18.1
              
              
              $
              16.5
              
              
              $
              55.5
              
              
              $
              47.3Operating
      earnings per common share:Basic
      operating earnings per share
              
              $
              0.26
              
              
              $
              0.24
              
              
              $
              0.79
              
              
              $
              0.68Diluted
      operating earnings per share
              
              $
              0.26
              
              
              $
              0.23
              
              
              $
              0.79
              
              
              $
              0.68
  Underwriting Income and Combined
Ratio: The combined ratio is used in the insurance and reinsurance
industry as a measure of underwriting profitability. The combined ratio is the
sum of the loss and loss expense ratio and the expense ratio. A combined ratio
under 100% indicates underwriting profitability, as the total losses and loss
expenses, acquisition costs and general and administrative expenses are less
than the premiums earned on that business. We have generated underwriting income
in each year since our inception. Underwriting income is calculated by
subtracting losses and loss adjustment expenses, commissions and other
acquisition expenses and applicable general and administrative expenses from the
net earned premium and is the monetized counterpart of the combined ratio. While
an important metric of success, underwriting income and combined ratio do not
reflect all components of profitability, as it does not recognize the impact of
investment income earned on premiums between the time premiums are received and
the time loss payments are ultimately paid to clients. Please refer to Relevant
Factors for further information on the components and computation of combined
ratio.
  34
  Operating Return on Equity
("Operating ROE"): Management uses operating return on average
shareholders' equity as a measure of profitability that focuses on the return to
common shareholders. It is calculated using operating earnings available to
common shareholders (realized gains or losses on investments, foreign exchange
gain and other (gains) losses, amortization of intangibles, and amortization of
intangible assets) divided by average common shareholders' equity. Management
has set as a target a long-term average of 15% Operating ROE, which management
believes provides an attractive return to shareholders for the risk assumed.
Given the current interest rate environment this target may take somewhat longer
to achieve. Operating ROE for the three and nine months ended September 30, 2010
and 2009 is computed as follows:
  For the Three Months
                Ended September 30,
              
              
              For the Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($
      in Millions)Operating
      earnings
              
              $
              18.1
              
              
              $
              16.5
              
              
              $
              55.5
              
              
              $
              47.3Opening
      shareholders’ equity
              
              $
              724.8
              
              
              $
              605.4
              
              
              $
              676.5
              
              
              $
              509.8Ending
      shareholders’ equity
              
              $
              758.4
              
              
              $
              664.6
              
              
              $
              758.4
              
              
              $
              664.6Average
      shareholders’ equity
              
              $
              741.6
              
              
              $
              635.0
              
              
              $
              717.5
              
              
              $
              587.2Operating
      return on equity
              
              
              2.4
              %
              
              
              2.6
              %
              
              
              7.7
              %
              
              
              8.1
              %Annualized
      operating return on equity
              
              
              9.7
              %
              
              
              10.3
              %
              
              
              10.3
              %
              
              
              10.8
              %
  Book Value per Share:
Management uses growth in book value per share as a prime measure of the value
the Company is generating for its common shareholders, as management believes
that growth in the Company's book value per share ultimately translates into
growth in the Company's stock price. Book value per share is calculated using
common shareholders' equity divided by the number of common shares outstanding.
Book value per share is impacted by the Company's net income and external
factors such as interest rates, which can drive changes in unrealized gains or
losses on its investment portfolio.  Book value per share as of
September 30, 2010 and December 31, 2009 is computed as follows:
  September 30,
                2010
              
              
              December 31,
                2009($ in Millions)Ending
      shareholders’ equity
              
              $
              758.4
              
              
              $
              676.5Common
      shares outstanding
              
              
              72,105,694
              
              
              
              70,291,289Book
      value per share
              
              $
              10.52
              
              
              $
              9.62
  Relevant
Factors
  Revenues
  We derive
our revenues primarily from premiums on our insurance policies and reinsurance
contracts, net of any reinsurance or retrocessional coverage purchased.
Insurance and reinsurance premiums are a function of the amounts and types of
policies and contracts we write, as well as prevailing market prices. Our prices
are determined before our ultimate costs, which may extend far into the future,
are known.
  The
Company's revenues also include income generated from its investment portfolio.
The Company's investment portfolio is comprised of fixed maturity investments,
short term investments and other investments that are held as available for
sale. In accordance with GAAP, these investments are carried at fair market
value and unrealized gains and losses on the Company's investments are generally
excluded from earnings. These unrealized gains and losses are included on the
Company's balance sheet in accumulated other comprehensive (loss) income as a
separate component of shareholders' equity. If unrealized losses are considered
to be other-than-temporarily impaired, such losses are included in earnings as a
realized loss.
  Expenses
  Our
expenses consist largely of net losses and loss expenses, commissions and other
acquisition costs, general and administrative expenses, amortization of
intangible assets and foreign exchange gains or losses. Net losses and loss
expenses incurred are comprised of three main components;
  ·
              losses
      paid, which are actual cash payments to insureds, net of recoveries from
      reinsurers;
  ·
              change
      in outstanding loss or case reserves, which represent management's best
      estimate of the likely settlement amount for known claims, less the
      portion that can be recovered from reinsurers;
  and
  35
  ·
              change
      in Incurred but Not Reported (“IBNR”) reserves, which are reserves
      established by us for changes in the values of claims that have been
      reported to us but are not yet settled, as well as claims that have
      occurred but have not yet been reported. The portion recoverable from
      reinsurers is deducted from the gross estimated
  loss.
  Acquisition
costs are comprised of commissions, brokerage fees and insurance taxes.
Commissions and brokerage fees are usually calculated as a percentage of
premiums and depend on the market and line of business and can, in certain
instances, vary based on loss sensitive features of reinsurance contracts.
Acquisition costs are reported after (1) deducting commissions received on ceded
reinsurance, (2) deducting the part of acquisition costs relating to unearned
premiums and (3) including the amortization of previously deferred acquisition
costs.
  General
and administrative expenses include personnel expenses including share-based
compensation charges, rent expense, professional fees, information technology
costs and other general operating expenses. We are experiencing increases in
general and administrative expenses resulting from additional staff, increased
share-based compensation expense, increased rent expense for our offices and
increased professional fees. As the Company continues to expand and diversify in
2010, particularly through the ACAC Transaction, the pending IIS Acquisition and
other initiatives across both its US and Bermuda platforms, we expect this trend
to continue.
  Combined
Ratio Components
  Management
measures underwriting results on an overall basis and for each segment on the
basis of the "combined ratio." The "combined ratio" is the sum of the loss and
loss expense ratio and expense ratio. The individual components of the combined
ratio include the "loss and loss expense ratio," "acquisition cost ratio," and
the "general and administrative expense ratio." Because we do not manage our
assets by segment, investment income, interest expense and total assets are not
allocated to individual reportable segments. General and administrative expenses
are allocated to segments based on various factors, including staff count and
each segment's proportional share of gross premiums written. The "loss and loss
expense ratio" is derived by dividing net losses and loss expenses by net
premiums earned. The "acquisition cost ratio" is derived by dividing acquisition
costs by net premiums earned. The "general and administrative expense ratio" is
derived by dividing general and administrative expenses by net premiums earned.
The "expense ratio" is the sum of the acquisition cost ratio and the general and
administrative expense ratio.
  Critical
Accounting Policies
  It is
important to understand our accounting policies in order to understand our
financial position and results of operations. The Company's Consolidated
Financial Statements have been prepared in accordance with GAAP. The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The following presents a
discussion of those accounting policies and estimates that Management believes
are the most critical to its operations and require the most difficult,
subjective and complex judgment. If actual events differ significantly from the
underlying assumptions and estimates used by Management, there could be material
adjustments to prior estimates that could potentially adversely affect the
Company's results of operations, financial condition and liquidity. These
critical accounting policies and estimates should be read in conjunction with
the Company's Notes to Consolidated Financial Statements, including Note 2,
Significant Accounting Policies, for a full understanding of the Company's
accounting policies.  For a detailed discussion of our critical
accounting policies, please refer to our Annual Report on Form 10-K for the year
ended December 31, 2009 filed with the SEC.  There were no material
changes in the application of our critical accounting estimates subsequent to
that report. However, the Company is amending its disclosure with regard to Fair
Value of Financial Instruments to include the following:
  ·
              For
      investments that have quoted market prices in active markets, the Company
      uses the quoted market prices as fair value and includes these prices in
      the amounts disclosed in the Level 1 hierarchy. To date we have only
      included U.S. government fixed maturity investments as Level 1. The
      Company receives the quoted market prices from a third party, nationally
      recognized pricing service (“Pricing Service”). When quoted market prices
      are unavailable, the Company utilizes the Pricing Service to determine an
      estimate of fair value. The fair value estimates are included in the Level
      2 hierarchy. The Pricing Service utilizes evaluated pricing models that
      vary by asset class and incorporate available trade, bid and other market
      information and for structured securities, cash flow and, when available,
      loan performance data. The Pricing Service’s evaluated pricing
      applications apply available information as applicable through processes
      such as benchmark curves, benchmarking of like securities, sector
      groupings and matrix pricing, to prepare evaluations. In addition, the
      Pricing Service uses model processes, such as the Option Adjusted Spread
      model to assess interest rate impact and develop prepayment scenarios. The
      market inputs that the Pricing Service normally seeks for evaluations of
      securities, listed in approximate order of priority, include: benchmark
      yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
      markets, benchmark securities, bids, offers and reference data including
      market research publications.
 
 36
  ·
              The
      Company utilizes the fair values received from the Pricing Service. If
      quoted market prices and an estimate from the Pricing Service are
      unavailable, the Company produces an estimate of fair value based on
      dealer quotations for recent activity in positions with the same or
      similar characteristics to that being valued or through consensus pricing
      of a pricing service. Depending on the level of observable inputs, the
      Company will then determine if the estimate is Level 2 or Level 3
      hierarchy. Approximately 96.8% of the Company’s fixed maturity investments
      are categorized as Level 2 within the fair value hierarchy. As of
      September 30, 2010 and December 31, 2009, we have not adjusted any prices
      provided by the Pricing Service.
  ·
              The
      Company will challenge any prices for its investments that are not
      considered to represent fair value. If a fair value is challenged, the
      Company will obtain a non-binding quote from a broker-dealer; multiple
      quotations are not typically sought. As of September 30, 2010 and December
      31, 2009, only one security valued using the market approach at
      approximately $8.6 million and $7.9 million, respectively, was
      priced using a quotation from a broker as opposed to the Pricing
      Service.  As of September 30, 2010, we have not adjusted any
      pricing provided by the broker-dealers based on the review performed by
      our investment managers.
  ·
              To
      validate prices, the Company compares the fair value estimates to its
      knowledge of the current market and will investigate prices that it
      considers not to be representative of fair value. In addition, our process
      to validate the market prices obtained from the Pricing Service includes,
      but is not limited to, periodic evaluation of model pricing methodologies
      and analytical reviews of certain prices. We also periodically perform
      testing of the market to determine trading activity, or lack of trading
      activity, as well as evaluating the variability of market prices.
      Securities sold during the quarter are also “back-tested” (i.e., the sales
      prices are compared to the previous month end reported market price to
      determine the reasonableness of the reported market price). There were no
      material differences between the prices from the Pricing Service and the
      prices obtained from our validation procedures as of September 30, 2010
      and December 31, 2009.
  Results
of Operations
  Net
Income
  Net
income for the three months ended September 30, 2010 was $18.5 million compared
to net income of $15.0 million for the same period in 2009.  Net
income for the nine months ended September 30, 2010 was $50.7 million compared
to net income of $44.3 million for the same period in 2009.
  The
improvement in net income for the three months ended September 30, 2010 as
compared to the same period in 2009 was principally the result of increased
investment income and net realized investment gains as the Company's invested
asset base continued to increase in 2010 compared to 2009. In addition,
underwriting income improved as a result of the Company's continuing growth
despite a marginally higher combined ratio.  Certain non-recurring
expenses totaling $0.6 million related to the IIS Transaction offset these
improvements.
  The
improvement in net income for the nine months ended September 30, 2010 as
compared to the same period in 2009 was principally the result of increased
investment income and net realized investment gains as the Company's invested
asset base continued to increase in 2010 compared to 2009. In addition,
underwriting income improved as a result of the Company's continuing growth
despite a marginally higher combined ratio. These improvements were partially
offset by higher operating expenses, particularly as a result of the
non-recurring expenses associated with the IIS Transaction, higher interest
expense from the TRUPS Offering (which commenced in 2009), a foreign exchange
loss, and deferred tax expenses.
  37
  The
following table sets forth our selected consolidated statement of operations
data for each of the periods indicated:
  Three Months
                Ended September 30,
              
              
              Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($ in Millions)Gross
      premiums written
              
              $
              289.8
              
              
              $
              221.4
              
              
              $
              952.0
              
              
              $
              796.3Net
      premiums written
              
              $
              273.4
              
              
              $
              221.4
              
              
              $
              897.8
              
              
              $
              796.3Net
      earned premium
              
              $
              309.6
              
              
              $
              237.3
              
              
              $
              857.3
              
              
              $
              671.3Loss
      and loss adjustment expenses
              
              
              (200.6
              )
              
              
              (165.1
              )
              
              
              (546.3
              )
              
              
              (462.5
              )Commissions
      and other acquisition expenses
              
              
              (89.0
              )
              
              
              (55.3
              )
              
              
              (254.8
              )
              
              
              (159.6
              )General
      and administrative expenses
              
              
              (7.1
              )
              
              
              (4.6
              )
              
              
              (19.7
              )
              
              
              (15.5
              )Total
      underwriting income
              
              
              12.9
              
              
              
              12.3
              
              
              
              36.5
              
              
              
              33.7Other
      operating expenses
              
              
              (3.7
              )
              
              
              (3.4
              )
              
              
              (9.1
              )
              
              
              (7.3
              )Net
      investment income
              
              
              17.5
              
              
              
              16.8
              
              
              
              54.0
              
              
              
              46.2Net
      realized and unrealized investment gains (losses)
              
              
              1.6
              
              
              
              (0.1
              )
              
              
              2.4
              
              
              
              (0.5
              )Amortization
      of intangible assets
              
              
              (1.5
              )
              
              
              (1.7
              )
              
              
              (4.4
              )
              
              
              (4.9
              )Foreign
      exchange and other (loss) gains
              
              
              1.2
              
              
              
              0.2
              
              
              
              (0.4
              )
              
              
              2.4Junior
      subordinated debt interest expense
              
              
              (9.1
              )
              
              
              (9.1
              )
              
              
              (27.3
              )
              
              
              (25.3
              )Deferred
      tax expense
              
              
              (0.4
              )
              
              
              −
              
              
              
              (1.0
              )
              
              
              −Net
      income
              
              $
              18.5
              
              
              $
              15.0
              
              
              $
              50.7
              
              
              $
              44.3
  Three Months
                Ended September 30,
              
              
              Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009Selected
      Consolidated Ratios:Loss
      and loss expense ratio
              
              
              64.8
              %
              
              
              69.6
              %
              
              
              63.7
              %
              
              
              68.9
              %Acquisition
      cost ratio
              
              
              28.7
              %
              
              
              23.3
              %
              
              
              29.7
              %
              
              
              23.8
              %General
      and administrative expense ratio
              
              
              3.5
              %
              
              
              3.4
              %
              
              
              3.4
              %
              
              
              3.4
              %Expense
      ratio
              
              
              32.2
              %
              
              
              26.7
              %
              
              
              33.1
              %
              
              
              27.2
              %Combined
      ratio
              
              
              97.0
              %
              
              
              96.3
              %
              
              
              96.8
              %
              
              
              96.1
              %
  Comparison
of Three and Nine Months Ended September 30, 2010 and 2009
  Premiums.  We evaluate
our business by segment.  The ACAC Quota Share segment commenced in
March 2010.  As premiums associated with the ACAC Quota Share continue
to increase during 2010, the mix of business among the segments will continue to
shift and become more diverse, reducing the percentage of premiums and losses
from the Diversified Reinsurance and AmTrust Quota Share
segments.  The following tables detail the mix of our business on both
a net premiums written and net premiums earned basis for the three and nine
months ended September 30, 2010 and 2009:
  Net Premiums Written
                Three Months Ended September 30,
              
              
              Net Premiums Earned
                Three Months Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009Diversified
      Reinsurance
              
              
              38.2
              %
              
              
              58.4
              %
              
              
              46.0
              %
              
              
              62.3
              %AmTrust
      Quota Share
              
              
              40.4
              %
              
              
              41.6
              %
              
              
              39.0
              %
              
              
              37.7
              %ACAC
      Quota Share
              
              
              21.4
              %
              
              
              −
              %
              
              
              15.0
              %
              
              
              −
              %Total
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
 
 38
  Net Premiums Written
                Nine Months Ended September 30,
              
              
              Net Premiums Earned
                Nine Months Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009Diversified
      Reinsurance
              
              
              45.6
              %
              
              
              66.4
              %
              
              
              53.1
              %
              
              
              59.8
              %AmTrust
      Quota Share
              
              
              38.0
              %
              
              
              33.6
              %
              
              
              38.9
              %
              
              
              40.2
              %ACAC
      Quota Share
              
              
              16.4
              %
              
              
              −
              %
              
              
              8.0
              %
              
              
              −
              %Total
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
  Net Premiums
Written.  Net premiums written increased by $52.0 million or
23.5% for the three months ended September 30, 2010 as compared to the same
period in 2009 and increased $101.5 million or 12.7% for the nine months ended
September 30, 2010 as compared to the same period in 2009. The increase in net
premiums written in the respective periods was primarily the result of the
following:
  ·
              Commencement of the ACAC Quota
      Share on March 1, 2010. Premiums associated with this segment
      totaled $58.7 million and $147.7 million for the three and nine months
      ended September 30, 2010, accounting for the majority of the net increase
      in premiums.
  ·
              Continuing
      strong growth in our AmTrust Quota Share segment.The AmTrust Quota Share segment
      increased by $18.1 million or 19.7% in the three months ended September
      30, 2010 as compared to the same period in 2009, and $73.7 million or
      27.5% in the nine months ended September 30, 2010 as compared to the same
      period in 2009.For the three months ended
      September 30, the increase is the result of significant growth in the
      Specialty Program and Small Commercial lines of business, with slower
      growth experienced in the Specialty Risk and Extended Warranty
      line.  For the nine months ended September 30, the increase was
      primarily due to a substantial increase in the Specialty Risk and Extended
      Warranty line of business, where AmTrust continues to expand, particularly
      internationally.
  ·
              A decrease in premium written
      in the Diversified Reinsurance Agreement.   The Company
      did not renew certain large accounts as part of its disciplined
      underwriting practice and also some clients chose to retain more risk and
      did not renew accounts, as a result, premiums written decreased by $24.8
      million or 19.2% and $119.9 million or 22.7% for the three and nine
      months ended September 30, 2010 as compared to the same periods in 2009,
      respectively.
  Net Premiums
Earned.   Net premiums increased by $72.2 million or 30.4% for
the three months ended September 30, 2010 as compared to the same period in 2009
and increased $186.0 million or 27.7% for the nine months ended September 30,
2010 as compared to the same period in 2009.
 
 The
increases were primarily attributable to the commencement of the ACAC Quota
Share segment in 2010 along with continuing growth in the AmTrust Quota Share.
In the Diversified Reinsurance segments, the impact of the unearned premium
assumed from the GMAC Acquisition which was acquired net of acquisition costs,
still represented a significant portion of the premium earned in 2009, which
resulted in lower earned premium in that period and thus also affects
comparability from period to period.
  Net Investment
Income.  Net investment income increased by $0.7 million or
4.3% and $7.8 million or 16.9% for the three and nine months ended September 30,
2010 compared to the same periods in 2009, respectively. Average invested assets
for the periods were approximately $2.1 billion and $2.0 billion for the three
and nine months ended September 30, 2010, as compared to $1.9 billion and
$1.8 billion for the same periods in 2009.  The average yields
were approximately 3.4% and 3.5% as compared to 3.6% and
3.4%.  Continued growth in the overall book of business combined with
positive cash flow from operations over the last twelve months contributed to
the growth in invested assets. Further, the Company has continued to deploy the
cash obtained through the GMAC Acquisition and also from the proceeds from the
TRUPS Offering.  Despite the Company’s premium growth and the increase
in average invested assets, investment income grew at a slower rate in the three
months ended September 30, 2010 as compared to recent quarters. This slower
growth reflects the significant accumulation of cash and cash equivalents, which
are yielding historically low levels. Please refer to Liquidity and Capital
Resources for a more detailed discussion of the Company’s investing position
relative to the continuing accumulation of cash and cash equivalents, along with
the Company’s operating and investing cash flow results.
  Net Realized Investment Gains
(Losses).  Net realized gains on investments were $1.6 million
and $2.5 million for the three and nine months ended September 30, 2010,
compared to net realized losses of ($0.1) million and ($0.5) million for
the three and nine months ended September 30, 2009, respectively.  For
additional information on the Company’s investments and realized gains and
losses, please refer to Liquidity and Capital Resources.
  Loss and Loss Adjustment
Expenses.  Loss and loss adjustment expenses increased by
$35.5 million or 21.5% and $83.8 million or 18.1% for the three and
nine months ended September 30, 2010 compared to the same periods in 2009,
respectively.  The Company’s loss ratio decreased to 64.8% and 63.7%
for the three and nine months ended September 30, 2010 compared to 69.6% and
68.9% for the same periods in 2009.  As of September 30, 2009, the
Company’s earned premium in the Diversified Reinsurance segment from the GMAC
Acquisition had not yet completed its first full year and was still increasing
and thus comparability is affected.  Accordingly, the 2010 ratios more
accurately reflect recurring loss ratios as the transition from the GMAC
Acquisition was completed near the end of 2009.
  39
  Commission and Other
Acquisition Expenses.  Commission
and other acquisition expenses increased by $33.7 million or 60.8% and $95.2
million or 59.6% for the three and nine months ended September 30, 2010 compared
to the same periods in 2009, respectively. This increase was primarily due to
the increase in Commission and Other Acquisition Expenses associated with the
Diversified Reinsurance segment, which was driven by the following: 1) 2009
reflects only a partial year of earned premiums in this segment as the first
full year of operations from the GMAC Acquisition had not yet been completed; 2)
the unearned premium portfolio assumed as part of the GMAC Acquisition was
acquired net of acquisition costs; 3) the Diversified Reinsurance segment's mix
of business continues to shift from excess of loss to pro rata business which
has a higher acquisition cost ratio; and 4) increased commissions accruals on
the 2009 and 2010 underwriting years due to lower loss ratios. In addition,
growth in the AmTrust Quota Share segment and the commencement of the ACAC Quota
Share segment contributed to the increases as well. As a result, the acquisition
cost ratio increased to 28.7% and 29.7% for the three and nine months ended
September 30, 2010 as compared to 23.3% and 23.8% for the same periods in 2009,
respectively. The 2010 ratios more accurately reflect recurring acquisition
ratios as the transition from the GMAC Acquisition was completed near the end of
2009.
  General and Administrative
Expenses. 
Other operating expenses include general and administrative expenses which are
segregated for analytical purposes as a component of underwriting
income.  Other operating expenses consist of:
  Three Months
                Ended September 30,
              
              
              Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($
      in Millions)General
      and administrative  expenses – segments
              
              $
              7.1
              
              
              $
              4.6
              
              
              $
              19.7
              
              
              $
              15.5Other
      operating expenses – corporate
              
              
              3.7
              
              
              
              3.4
              
              
              
              9.1
              
              
              
              7.3Total
              
              $
              10.8
              
              
              $
              8.0
              
              
              $
              28.8
              
              
              $
              22.8General
      and administrative expense ratio
              
              
              3.5
              %
              
              
              3.4
              %
              
              
              3.4
              %
              
              
              3.4
              %
  The
increase in other operating expenses reflects the overall growth of the Company
over the last twelve months, including increases in headcount, professional
services, information technology and other related infrastructure
costs.  In 2010, other operating expenses for the three and nine
months ended September 30, 2010, include $0.6 million and $1.5 million of
non-recurring expenses incurred to date as a result of the IIS Transaction,
respectively.  Excluding these non-recurring expenses, the Company's
general and administrative expense ratio, which is a measure of its efficiency,
decreased to 3.3% and 3.2% for the three and nine months ended September 30,
2010 compared to 3.4% in both of the same periods in 2009,
respectively.
  Junior Subordinated Debt Interest
Expense.  The TRUPS Offering was completed in January 2009 and
the interest expense was $9.1 million in the three months ended September
30, 2010 and 2009, and $27.3 million and $25.3 million in the nine
months ended September 30, 2010 and 2009, respectively.
  Underwriting
Results by Segment
  The
results of operations for our three business segments, Diversified Reinsurance,
AmTrust Quota Share and ACAC Quota Share are discussed below.  As
noted previously, the Company added a third business segment in the first
quarter of 2010, ACAC Quota Share.  Please refer to the section within
Recent Developments captioned ACAC Transaction for further details on this new
segment.
  Diversified
Reinsurance Segment
  Underwriting
income decreased slightly in the three and nine months ended September 30, 2010
as compared to the same period in 2009. This was primarily due to a slightly
higher combined ratio in both periods, which increased to 95.8% in the three
months ended September 30, 2010 as compared to 94.9% for the same period in
2009, and 95.6% in the nine months ended September 30, 2010 as compared to 94.3%
for the same period in 2009.
  40
  The
following table summarizes the underwriting results and associated ratios for
the Diversified Reinsurance segment:
  Three Months
                Ended September 30,
              
              
              Nine Months
                Ended September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($ in Millions)Net
      premiums written
              
              $
              104.5
              
              
              $
              129.2
              
              
              $
              409.1
              
              
              $
              529.0Net
      premiums earned
              
              
              142.4
              
              
              
              147.9
              
              
              
              455.4
              
              
              
              401.7Net
      losses and loss expenses
              
              
              (95.4
              )
              
              
              (110.4
              )
              
              
              (294.1
              )
              
              
              (294.0
              )Commissions
      and other acquisition expenses
              
              
              (34.2
              )
              
              
              (26.1
              )
              
              
              (123.1
              )
              
              
              (71.2
              )General
      and administrative expenses
              
              
              (6.8
              )
              
              
              (3.8
              )
              
              
              (18.3
              )
              
              
              (13.6
              )Underwriting
      income
              
              $
              6.0
              
              
              $
              7.6
              
              
              $
              19.9
              
              
              $
              22.9Loss
      and loss expense ratio
              
              
              67.0
              %
              
              
              74.7
              %
              
              
              64.6
              %
              
              
              73.2
              %Acquisition
      cost ratio
              
              
              24.0
              %
              
              
              17.6
              %
              
              
              27.0
              %
              
              
              17.7
              %General
      and administrative expense ratio
              
              
              4.8
              %
              
              
              2.6
              %
              
              
              4.0
              %
              
              
              3.4
              %Expense
      ratio
              
              
              28.8
              %
              
              
              20.2
              %
              
              
              31.0
              %
              
              
              21.1
              %Combined
      ratio
              
              
              95.8
              %
              
              
              94.9
              %
              
              
              95.6
              %
              
              
              94.3
              %
  Premiums.  Net
premiums written decreased by $24.7 million, or 19.2% for the three months
ended September 30, 2010 compared to the three months ended September 30,
2009.  The table below details net premiums written by line of
business in this segment for the three months ended September 30, 2010 and
2009:
  Three Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($ in Millions)Property
              
              $
              37.5
              
              
              $
              28.7
              
              
              $
              8.8
              
              
              
              30.6
              %Casualty
              
              
              54.2
              
              
              
              76.4
              
              
              
              (22.2
              )
              
              
              (29.1
              )%Accident
      and Health
              
              
              12.8
              
              
              
              24.1
              
              
              
              (11.3
              )
              
              
              (47.0
              )%Total
      Diversified Reinsurance
              
              $
              104.5
              
              
              $
              129.2
              
              
              $
              (24.7
              )
              
              
              (19.2
              )%
  The
Company continued to maintain its disciplined underwriting approach in the face
of continuing competitive market conditions during the three months ended
September 30, 2010. In addition, the Company did not renew certain Casualty and
Accident and Health accounts that were either underperforming or did not meet
the Company’s pricing requirements relative to the exposures
reinsured.  In addition, some clients chose to retain more risk and
did not renew accounts.  These factors contributed to the decrease in
net premium written in the three months ended September 30, 2010 as compared to
the same period in 2009.
 
 Net
premiums written decreased by $119.9 million, or 22.7% for the nine months
ended September 30, 2010 compared to the nine months ended September 30,
2009.  The table below details net premiums written by line of
business in this segment for the nine months ended September 30, 2010 and
2009:
  Nine Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Property
              
              $
              131.8
              
              
              $
              105.7
              
              
              $
              26.1
              
              
              
              24.8
              %Casualty
              
              
              238.2
              
              
              
              331.7
              
              
              
              (93.5
              )
              
              
              (28.2
              )%Accident
      and Health
              
              
              39.1
              
              
              
              91.6
              
              
              
              (52.5
              )
              
              
              (57.3
              )%Total
      Diversified Reinsurance
              
              $
              409.1
              
              
              $
              529.0
              
              
              $
              (119.9
              )
              
              
              (22.7
              )%
  Consistent
with its disciplined underwriting approach, the Company did not renew certain
large Casualty accounts that did not meet its pricing requirements. Due to the
nature of certain of these non-renewals, the Company does not anticipate similar
non-renewals during the remainder of 2010. In addition, the Company did renew
more than 85% of its accounts at its January 1 renewal in this segment. Finally,
the Company did not renew certain underperforming Accident and Health accounts
as well. These factors contributed to the decrease in net premium written in the
nine months ended September 30, 2010 as compared to the same period in
2009.
  41
  Net
premium earned decreased by $5.5 million, or 3.7% for the three months
ended September 30, 2010 compared to the three months ended September 30,
2009.  The table below details net premiums earned by line of business
in this segment for the three months ended September 30, 2010 and
2009:
  Three Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Property
              
              $
              42.8
              
              
              $
              34.0
              
              
              $
              8.8
              
              
              
              26.1
              %Casualty
              
              
              86.0
              
              
              
              87.0
              
              
              
              (1.0
              )
              
              
              (1.2
              )%Accident
      and Health
              
              
              13.6
              
              
              
              26.9
              
              
              
              (13.3
              )
              
              
              (49.4
              )%Total
      Diversified Reinsurance
              
              $
              142.4
              
              
              $
              147.9
              
              
              $
              (5.5
              )
              
              
              (3.7
              )%
 
 The
decrease in Accident and Health written premiums caused the decline in earned
premiums, which were partially offset by increases in Property earned premiums
due to increases in writings and the ongoing implementation of the GMAC
Acquisition in 2009, which were assumed net of acquisition costs and which had
not yet completed its first full year of operations.  These premiums
represented a significant portion of the premium earned in 2009, which resulted
in lower earned premium in that period and thus also affects comparability from
period to period with 2010.
  Net
premium earned increased by $53.7 million, or 13.3% for the nine months
ended September 30, 2010 compared to the nine months ended September 30,
2009.  The table below details net premiums earned by line of business
in this segment for the nine months ended September 30, 2010 and
2009:
  Nine Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Property
              
              $
              132.2
              
              
              $
              99.5
              
              
              $
              32.7
              
              
              
              32.8
              %Casualty
              
              
              270.1
              
              
              
              224.7
              
              
              
              45.4
              
              
              
              20.2
              %Accident
      and Health
              
              
              53.1
              
              
              
              77.5
              
              
              
              (24.4
              )
              
              
              (31.4
              )%Total
      Diversified Reinsurance
              
              $
              455.4
              
              
              $
              401.7
              
              
              $
              53.7
              
              
              
              13.3
              %
  Despite
the decrease in net premiums written, earned premiums increased in 2010 as
compared to 2009 due to the ongoing implementation of the GMAC Acquisition in
2009, which were assumed net of acquisition costs and which had not yet
completed its first full year of operations.  These premiums
represented a significant portion of the premium earned in 2009, which resulted
in lower earned premium in that period and thus also affects comparability from
period to period with 2010.
  Loss and Loss Adjustment
Expenses.   Loss and loss adjustment expenses
decreased by $15.0 million or 13.6% and increased by $0.04 million or less than
1% for the three and nine months ended September 30, 2010 compared to the same
periods in 2009, respectively. The segments loss ratio decreased to 67.0% and
64.6% for the three and nine months ended September 30, 2010 compared to 74.7%
and 73.2% for the same periods in 2009. The decrease in loss and loss adjustment
expenses reflects the decrease in the segments premiums in 2010 as compared to
2009.  Earned premiums increased in 2010 as compared to 2009 due to
the ongoing implementation of the GMAC Acquisition in 2009, as the unearned
premiums associated with that transaction were assumed net of acquisition costs
and which had not yet completed its first full year of
operations.  These premiums represented the majority of the premium
earned in 2009, which resulted in lower earned premium in that period and thus
produced higher loss ratios during 2009. The 2010 ratios more accurately reflect
recurring loss ratios as the transition from the GMAC Acquisition was completed
near the end of 2009.
  In
connection with the GMAC Acquisition, Maiden Bermuda entered in a loss portfolio
transfer agreement with Motors whereby it assumed the outstanding loss reserves,
including a provision for IBNR reserves associated with the GMAC RE business
($755.6 million at October 31, 2008). The loss reserves assumed by Maiden
Bermuda from Motors represented the estimate of the unpaid losses to be paid on
all of the reinsurance contracts produced by GMAC RE from 1983 until October 31,
2008.  These losses are treated as retroactive reinsurance under
applicable GAAP. Accordingly, any subsequent change in the estimate of the
subject losses since the date of transfer are amortized into the Company’s
results of operations based upon the cumulative payment of actual claims in
relation to the subject losses transferred.
  The
Company amortized gains in this segment as a reduction of losses incurred of
$8.8 million and $20.4 million for the three and nine months ended September 30,
2010 as compared to $1.8 million and $7.6 million, in the same periods in 2009,
respectively.  The total favorable development relating to the loss
portfolio transfer since the closing of the GMAC Acquisition has been $43.2
million through September 30, 2010 as compared to $18.2 million through December
31, 2009. The remaining unamortized deferred gain recorded as an addition to the
Company’s loss reserves are $10.5 million as of September 30, 2010 as compared
to $5.7 million as of December 31, 2009.
  42
  Commission and Other Acquisition
Expenses.      Commission and other acquisition
expenses increased by $8.2 million or 31.3% and  $51.9 million or
72.9% for the three and nine months ended September 30, 2010 compared to the
same periods in 2009, respectively.  This increase was primarily due
to the increase in Commission and Other Acquisition Expenses associated with the
Diversified Reinsurance segment, which was driven by the following: 1) 2009
reflects only a partial year of earned premiums in this segment as the first
full year of operations from the GMAC Acquisition had not yet been completed; 2)
the unearned premium portfolio assumed as part of the GMAC Acquisition was
acquired net of acquisition costs and thus acquisition costs in 2009 were
reduced; and 3) the segments mix of business continues to shift from excess of
loss to pro rata business which has a higher acquisition cost
ratio.  As a result, the acquisition cost ratio increased to 24.0% and
27.0% for the three and nine months ended September 30, 2010 as compared to
17.6% and 17.7% for the same periods in 2009, respectively. The 2010 ratios more
accurately reflect recurring acquisition ratios as the transition from the GMAC
Acquisition was completed near the end of 2009.
  General and Administrative
Expenses.    General and administrative expenses
increased by $3.0 million or 78.2% and $4.7 million or 34.9%, for the three
and nine months ended September 30, 2010 compared to same period in 2009,
respectively. The general and administrative expense ratio was 4.8% and 4.0% for
the three and nine months ended September 30, 2010 compared to 2.6% and 3.4% in
the same periods in 2009, respectively. The overall expense ratio (including
acquisition costs) was 28.8% and 31.0% for the three and nine months ended
September 30, 2010 compared to 20.2% and 21.1% in the same periods in 2009,
respectively.  The increase in the ratio is due to the factors cited
under Commissions and Other Acquisition Expenses.
  AmTrust
Quota Share Segment
  Underwriting
income improved significantly in the three and nine months ended September 30,
2010, as compared to the same period in 2009, due to ongoing premium growth in
the segment combined with generally stable combined ratios. The combined ratio
for the segment was 95.6% in the three months ended September 30, 2010 as
compared to 94.7% for the same period in 2009, and 95.7% in the nine months
ended September 30, 2010 as compared to 96.0% for the same period in
2009.  The following table summarizes the underwriting results and
associated ratios for the AmTrust Quota Share segment for the three and nine
months ended September 30, 2010 and 2009:
 
 For the Three Months
                Ended September 30,
              
              
              For the period
                March 1, to September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($
      in Millions)Net
      premiums written
              
              $
              110.3
              
              
              $
              92.2
              
              
              $
              341.0
              
              
              $
              267.3Net
      premiums earned
              
              $
              120.7
              
              
              $
              89.5
              
              
              $
              333.1
              
              
              $
              269.5Net
      losses and loss expenses
              
              
              (76.2
              )
              
              
              (54.7
              )
              
              
              (209.2
              )
              
              
              (168.4
              )Commissions
      and other acquisition expenses
              
              
              (39.0
              )
              
              
              (29.3
              )
              
              
              (108.3
              )
              
              
              (88.4
              )General
      and administrative expenses
              
              
              (0.2
              )
              
              
              (0.8
              )
              
              
              (1.3
              )
              
              
              (1.9
              )Underwriting
      income
              
              $
              5.3
              
              
              $
              4.7
              
              
              $
              14.3
              
              
              $
              10.8Net
      loss and loss expense ratio
              
              
              63.1
              %
              
              
              61.1
              %
              
              
              62.8
              %
              
              
              62.5
              %Acquisition
      cost ratio
              
              
              32.3
              %
              
              
              32.7
              %
              
              
              32.5
              %
              
              
              32.8
              %General
      and administrative expense ratio
              
              
              0.2
              %
              
              
              0.9
              %
              
              
              0.4
              %
              
              
              0.7
              %Expense
      ratio
              
              
              32.5
              %
              
              
              33.6
              %
              
              
              32.9
              %
              
              
              33.5
              %Combined
      ratio
              
              
              95.6
              %
              
              
              94.7
              %
              
              
              95.7
              %
              
              
              96.0
              %
  43
  Premiums
Written.  Net premiums written increased by $18.1 million
or 19.7% for the nine months ended September 30, 2010 as compared to the same
period in 2009.    The increase in net premiums written in
the three months ended September 30, 2010 compared to the same period in 2009 is
primarily the result of significant growth in the Specialty Program and Small
Commercial lines of business, with slower growth experienced in the Specialty
Risk and Extended Warranty line. The table below details components of net
premiums written for the three months ended September 30, 2010 as compared to
the same period in 2009:
 
 Three Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Small
      Commercial Business
              
              $
              43.7
              
              
              $
              34.1
              
              
              $
              9.6
              
              
              
              28.1
              %Specialty
      Program Business
              
              
              21.0
              
              
              
              13.1
              
              
              
              7.9
              
              
              
              60.9
              %Specialty
      Risk and Extended Warranty
              
              
              45.6
              
              
              
              45.0
              
              
              
              0.6
              
              
              
              1.4
              %Total
      AmTrust Quota Share
              
              $
              110.3
              
              
              $
              92.2
              
              
              $
              18.1
              
              
              
              19.7
              %
 
 Net
premiums written increased by $73.7 million or 27.5% for the nine months ended
September 30, 2010 as compared to the same period in 2009.  For the
nine months ended September 30, 2010 compared to the same period in 2009, the
increase was primarily due to a substantial increase in the Specialty Risk and
Extended Warranty line of business, where AmTrust continues expand, particularly
internationally, along with growth in its Specialty Program
business.  The table below details components of net premiums written
for the nine months ended September 30, 2010 as compared to the same period in
2009:
  Nine Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Small
      Commercial Business
              
              $
              147.5
              
              
              $
              133.0
              
              
              $
              14.5
              
              
              
              10.9
              %Specialty
      Program Business
              
              
              51.9
              
              
              
              35.0
              
              
              
              16.9
              
              
              
              48.1
              %Specialty
      Risk and Extended Warranty
              
              
              141.6
              
              
              
              99.3
              
              
              
              42.3
              
              
              
              42.6
              %Total
      AmTrust Quota Share
              
              $
              341.0
              
              
              $
              267.3
              
              
              $
              73.7
              
              
              
              27.5
              %
  Premiums
Earned.  Net premiums earned increased by $31.2 million or
35.0% for the three months ended September 30, 2010 as compared to the same
period in 2009.  The increase in net premiums earned in the three months
ended September 30, 2010 compared to the same period in 2009 is primarily the
result of significant growth in the Specialty Program and Small Commercial lines
of business, with slower growth experienced in the Specialty Risk and Extended
Warranty line. For the nine months ended September 30, 2010 compared to the same
period in 2009, the increase was primarily due to a substantial increase in the
Specialty Risk and Extended Warranty line of business, where AmTrust continues
expand, particularly internationally, along with growth in its Specialty Program
business. The table below details components of net premiums earned for the
three months ended September 30, 2010 as compared to the same period in
2009:
 
 Three Months Ended September 30,2010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Small
      Commercial Business
              
              $
              46.7
              
              
              $
              50.9
              
              
              $
              (4.2
              )
              
              
              (8.2
              )%Specialty
      Program Business
              
              
              21.5
              
              
              
              11.4
              
              
              
              10.1
              
              
              
              88.1
              %Specialty
      Risk and Extended Warranty
              
              
              52.5
              
              
              
              27.2
              
              
              
              25.3
              
              
              
              93.4
              %Total
      AmTrust Quota Share
              
              $
              120.7
              
              
              $
              89.5
              
              
              $
              31.2
              
              
              
              35.0
              %
  Net
premiums earned increased by $63.6 million or 23.6% for the nine months ended
September 30, 2010 as compared to the same period in 2009.  The table
below details components of net premiums earned for the nine months ended
September 30, 2010 as compared to the same period in 2009:
  Nine Months Ended September 302010
              
              
              2009
              
              
              $ Change
              
              
              % Change($
      in Millions)Small
      Commercial Business
              
              $
              154.9
              
              
              $
              157.6
              
              
              $
              (2.7
              )
              
              
              (1.8
              )%Specialty
      Program Business
              
              
              53.0
              
              
              
              37.9
              
              
              
              15.1
              
              
              
              39.9
              %Specialty
      Risk and Extended Warranty
              
              
              125.2
              
              
              
              74.0
              
              
              
              51.2
              
              
              
              69.2
              %Total
      AmTrust Quota Share
              
              $
              333.1
              
              
              $
              269.5
              
              
              $
              63.6
              
              
              
              23.6
              %
  Loss and Loss Adjustment
Expenses.  Net losses and loss expenses increased by
$21.5 million or 39.3% and $40.7 million or 24.2% for the three and nine
months ended September 30, 2010 as compared to the same periods in 2009,
respectively.  The segments loss ratio increased to 63.1% and 62.8%
for the three and nine months ended September 30, 2010 compared to 61.1% and
62.5% for the same periods in 2009.
  44
  Commission and Other Acquisition
Expenses. Commission and other acquisition expenses increased
by  $9.8 million or 33.4%  and $19.9 million or 22.5% for
the three and nine months ended September 30, 2010 compared to the same periods
in 2009, respectively. The increase in commissions and other acquisition
expenses is consistent with the increase in earned premiums.
  General and Administrative
Expenses.  General and administrative expenses decreased by
$0.6 million for the three and nine months ended September 30, 2010
compared to the same period in 2009.    The decrease
reflects the continued diversification of the Company’s overall book of business
among different segments and the resulting decreased allocation of overhead
expenses to this segment in 2010 as compared to 2009.
  ACAC
Quota Share Segment
  This
segment commenced on March 1, 2010. Please refer to the above discussion of the
ACAC Transaction.  For the three months ended September 30, 2010, the
combined ratio was 96.6% and for the period from March 1 to September 30, 2010,
the combined ratio was 96.7%, consisting of a loss ratio of 62.5% and an expense
ratio of 34.2%.
 
 For the Three Months
                Ended September 30,
              
              
              For the period
                March 1, to September 30,2010
              
              
              2009
              
              
              2010
              
              
              2009($
      in Millions)Net
      premiums written
              
              $
              58.7
              
              
              $
              —
              
              
              $
              147.7
              
              
              $
              —Net
      premiums earned
              
              $
              46.4
              
              
              $
              —
              
              
              $
              68.8
              
              
              $
              —Net
      losses and loss expenses
              
              
              (29.0
              )
              
              
              —
              
              
              
              (43.0
              )
              
              
              —Commissions
      and other acquisition expenses
              
              
              (15.7
              )
              
              
              —
              
              
              
              (23.4
              )
              
              
              —General
      and administrative expenses
              
              
              (0.1
              )
              
              $
              —
              
              
              
              (0.1
              )
              
              
              —Underwriting
      income
              
              $
              1.6
              
              
              $
              —
              
              
              $
              2.3
              
              
              $
              —Net
      loss and loss expense ratio
              
              
              62.5
              %
              
              
              —
              %
              
              
              62.5
              %
              
              
              —
              %Acquisition
      cost ratio
              
              
              33.9
              %
              
              
              —
              %
              
              
              34.0
              %
              
              
              —
              %General
      and administrative expense ratio
              
              
              0.2
              %
              
              
              —
              %
              
              
              0.2
              %
              
              
              —
              %Expense
      ratio
              
              
              34.1
              %
              
              
              —
              %
              
              
              34.2
              %
              
              
              —
              %Combined
      ratio
              
              
              96.6
              %
              
              
              —
              %
              
              
              96.7
              %
              
              
              —
              %
 
 Premiums.  The
table below details components of net premiums written and earned for the three
months ended September 30, 2010 and for the period from March 1 to
September 30, 2010:
  For the Three Months
                    Ended September 30,
                  
                  
                  For the period
                    March 1, to September 30,Written
                    Premium
                  
                  
                  Earned
                    Premium
                  
                  
                  Written
                    Premium
                  
                  
                  EarnedPremium2010
                  
                  
                  2010
                  
                  
                  2010
                  
                  
                  2010($
      in Millions)Automobile
      liability
                  
                  $
                  33.6
                  
                  
                  $
                  26.0
                  
                  
                  $
                  84.5
                  
                  
                  $
                  38.6Automobile
      physical damage
                  
                  
                  25.1
                  
                  
                  
                  20.4
                  
                  
                  
                  63.2
                  
                  
                  
                  30.2Total
      ACAC Quota Share
                  
                  $
                  58.7
                  
                  
                  $
                  46.4
                  
                  
                  $
                  147.7
                  
                  
                  $
                  68.8
 
 Liquidity
and Capital Resources
  Liquidity
  Maiden
Holdings is a holding company and transacts no business of its own. We therefore
rely on cash flows to Maiden Holdings in the form of dividends, advances and
loans and other permitted distributions from its subsidiary companies to make
dividend payments on its common shares.
  The
jurisdictions in which our operating subsidiaries are licensed to write business
impose regulations requiring companies to maintain or meet various defined
statutory ratios, including solvency and liquidity requirements. Some
jurisdictions also place restrictions on the declaration and payment of
dividends and other distributions.
  The
payment of dividends from Maiden Holdings’ Bermuda-domiciled operating
subsidiary Maiden Bermuda is, under certain circumstances, limited under Bermuda
law, which requires our Bermuda operating subsidiary to maintain certain
measures of solvency and liquidity. In addition, Bermuda regulations require
prior approval from the Bermuda Monetary Authority for any reduction of capital
in excess of 15% of statutory capital, as defined in the Bermuda Insurance Act
of 1978 and related regulations. At September 30, 2010, the statutory capital
and surplus of Maiden Bermuda was $655.9 million, and the amount of capital
and surplus required to be maintained was $484.7 million. During 2010 and
2009, Maiden Bermuda paid no dividends to Holdings.
  45
  Maiden
Holdings’ U.S. domiciled operating subsidiaries, Maiden US and Maiden Specialty,
are subject to significant regulatory restrictions limiting their ability to
declare and pay dividends by their states of domicile, which are Missouri and
North Carolina, respectively.  In addition, there are restrictions
based on risk-based capital tests which are the threshold that constitutes the
authorized control level. If Maiden US or Maiden Specialty’s statutory capital
and surplus falls below the authorized control level, their respective
domiciliary insurance regulators are authorized to take whatever regulatory
actions are considered necessary to protect policyholders and creditors. The
inability of the subsidiaries of Maiden Holdings to pay dividends and other
permitted distributions could have a material adverse effect on Maiden Holdings’
cash requirements and ability to make principal, interest and dividend payments
on its senior notes and common shares. During 2010 and 2009, Maiden US and
Maiden Specialty paid no dividends.
  Our
sources of funds primarily consist of premium receipts net of commissions,
investment income, net proceeds from capital raising activities, which may
include the issuance of common shares, and proceeds from sales and redemption of
investments. Cash is used primarily to pay losses and loss expenses, general and
administrative expenses and dividends, with the remainder made available to our
investment managers for investment in accordance with our investment policy. A
summary of cash flows from and (used) in operating, investing and financing
activities for the nine months ended September 30, 2010 and 2009 is as
follows:
  September 30,2010
              
              
              2009($
      in Millions)Operating
      activities
              
              $
              114.2
              
              
              $
              (11.2
              )Investing
      activities
              
              
              87.6
              
              
              
              (144.2
              )Financing
      activities
              
              
              (39.4
              )
              
              
              117.2Effect
      of foreign exchange on cash
              
              
              (0.3
              )
              
              
              0.9Total
      increase in cash and cash equivalents
              
              $
              162.1
              
              
              $
              (37.3
              )
  Cash
flows provided by operations for the nine months ended September 30, 2010 were
$114.2 million compared to cash flow used in operations of
$11.2 million for the nine months ended September 30, 2009. The increase in
net premiums written offset by a slightly higher combined ratio accounted for
the change in operating cash flow.
 
 Investing
cash flows consist primarily of proceeds on the sale of investments and payments
for investments acquired. We generated $87.6 million in net cash from
investing activities during the nine months ended September 30, 2010 compared to
using $144.2 million for the nine months ended September 30,
2009.  This reflects the sales of certain securities which had not
been reinvested by quarter-end due to the decline in interest rates which
limited our reinvestment opportunities along with increased prepayments of
certain mortgage-backed securities, also brought about by the decline in
interest rates.
  Cash
flows used by financing activities were $39.4 million for the nine months
ended September 30, 2010 compared to $117.2 million provided by financing
activities for the nine months ended September 30, 2009. In 2010, cash flow
used consisted of dividends paid of $13.7 million and the repayment of
$25.7 million of the proceeds from the securities sold under agreements to
repurchase, at contract value. Cash flows provided by financing activities for
the nine months ended September 30, 2009 were the TRUPS Offering (net of
expenses) of $255.7 million, reduced by dividends paid of $12.0 million and
the repayment of $126.6 million of the proceeds from the securities sold
under agreements to repurchase, at contract value.
  At
September 30, 2010, the Company has cash and cash equivalents (including
restricted cash and cash equivalents) totaling $488.4 million, which was an
increase from $347.5 million at June 30, 2010 and $252.3 million at
December 31, 2009. The increase was due to a significant increase in cash flow
from operations and investing activities in the three and nine months ended
September 30, 2010.   The continuing increase in cash and cash
equivalents reflects a challenging fixed income security market place, where
significant price appreciation has reduced yields to historically low levels.
The continuing sharp decline in interest rates, the combined result of slower
than anticipated economic growth particularly in the United States and
aggressive monetary policy by central banks worldwide, both of which are
expected to continue for the foreseeable future, has limited the amount and type
of fixed income investments the Company has made and believes are consistent
with its investment philosophy. Further, the Company believes the current
interest rate environment presents significant interest rate risk over the
intermediate term, making longer duration fixed income investments potentially
more volatile than both historical and recent experience would
indicate.
 
 As a
result, the Company has been deploying its accumulated cash and cash equivalents
in a measured and deliberate manner, as to date it continues to believe that its
investment philosophy and the portfolio’s duration are appropriate. As a result,
despite the continuing increase in the Company’s investable assets, now totaling
$2.2 billion as of September 30, 2010 as compared to $2.1 billion as of December
31, 2009, the Company’s investment income declined in the third quarter 2010
compared to the second quarter 2010 and prospectively may not grow at a pace
commensurate with the increase in investable assets over the coming quarters.
The Company will continue to deploy its cash as quickly and as prudently as
investment opportunities consistent with its investment philosophy present
themselves.
  46
  Restrictions,
Collateral and Specific Requirements
  Maiden
Bermuda is neither licensed nor admitted as an insurer, nor is it accredited as
a reinsurer, in any jurisdiction in the United States. As a result, it is
generally required to post collateral security with respect to any reinsurance
liabilities it assumes from ceding insurers domiciled in the United States in
order for U.S. ceding companies to obtain credit on their U.S. statutory
financial statements with respect to insurance liabilities ceded to them. Under
applicable statutory provisions, the security arrangements may be in the form of
letters of credit, reinsurance trusts maintained by trustees or funds-withheld
arrangements where assets are held by the ceding company.
  At this
time, Maiden Bermuda uses trust accounts primarily to meet collateral
requirements – cash equivalents and investments pledged in favor of
ceding companies in order to comply with relevant insurance
regulations.
  Maiden US
also offers to its clients, on a voluntary basis, the ability to collateralize
certain liabilities related to the reinsurance contracts it issues. Under these
arrangements, Maiden U.S. retains broad investment discretion in order to
achieve its business objectives while offering clients the additional security a
collateralized arrangement offers. We believe this offers the Company a
significant competitive advantage and improves the Company’s retention of
high-quality clients. As a result of the transition of relationships as a result
of the GMAC Acquisition, as of September 30, 2010, certain of these liabilities
and collateralized arrangements are recorded in Maiden Bermuda while the
remaining are recorded in Maiden US.
  As of
September 30, 2010, total trust account deposits were $1,468.5 million
compared to $1,375.6 million as of December 31, 2009. The following table
details additional information on the trust account deposits by segment and by
underlying asset as of September 30, 2010 and December 31, 2009:
  September 30, 2010
              
              
              December 31, 2009Cash &
                Equivalents
              
              
              Fixed
                Maturities
              
              
              Total
              
              
              Cash &
                Equivalents
              
              
              Fixed
                Maturities
              
              
              Total($
      in Millions)Maiden
      US
              
              $
              79.0
              
              
              $
              483.7
              
              
              $
              562.7
              
              
              $
              38.6
              
              
              $
              258.9
              
              
              $
              297.5Maiden
      Bermuda
              
              
              85.1
              
              
              
              478.5
              
              
              
              563.6
              
              
              
              94.8
              
              
              
              776.3
              
              
              
              871.1Total
      Diversified Reinsurance Segment
              
              
              164.1
              
              
              
              962.2
              
              
              
              1,126.3
              
              
              
              133.4
              
              
              
              1,035.2
              
              
              
              1,168.6Maiden
      Bermuda
              
              
              54.8
              
              
              
              287.4
              
              
              
              342.2
              
              
              
              11.5
              
              
              
              195.5
              
              
              
              207.0Total
      AmTrust Quota Share Segment
              
              
              54.8
              
              
              
              287.4
              
              
              
              342.2
              
              
              
              11.5
              
              
              
              195.5
              
              
              
              207.0Total
              
              $
              218.9
              
              
              $
              1,249.6
              
              
              $
              1,468.5
              
              
              $
              144.9
              
              
              $
              1,230.7
              
              
              $
              1,375.6
  As part
of the AmTrust Quota Share, Maiden Bermuda has also loaned funds totaling $168.0
million as of September 30, 2010 and December 31, 2009, respectively, to AII to
satisfy collateral requirements. In addition, Maiden Bermuda has outstanding
letters of credit totaling $23.2 million and $19.6 million as of
September 30, 2010 and December 31, 2009, respectively.
  Collateral
arrangements with ceding insurers may subject our assets to security interests
or require that a portion of our assets be pledged to, or otherwise held by,
third parties. Both our trust accounts and letter of credit are fully
collateralized by assets held in custodial accounts. Although the investment
income derived from our assets while held in trust accrues to our benefit, the
investment of these assets is governed by the terms of the letter of credit
facilities or the investment regulations of the state or territory of domicile
of the ceding insurer, which may be more restrictive than the investment
regulations applicable to us under Bermuda law. The restrictions may result in
lower investment yields on these assets, which may adversely affect our
profitability.
  We do not
currently anticipate that the restrictions on liquidity resulting from
restrictions on the payments of dividends by our subsidiary companies or from
assets committed in trust accounts or to collateralize the letter of credit
facilities will have a material impact on our ability to carry out our normal
business activities, including, our ability to make dividend payments on our
common shares.
  47
  Investments
  Our funds
are primarily invested in liquid, high-grade fixed income securities. The table
below shows the aggregate amounts of our invested assets at fair value at
September 30, 2010 and December 31, 2009:
  September 30, 2010
              
              Original or
                Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Losses
              
              
              Fair
                Value($
      in Millions)Fixed
      Maturities:U.S. Treasury
      bonds
              
              $
              43.6
              
              
              $
              1.6
              
              
              $
              —
              
              
              $
              45.2U.S.
      Agency bonds – mortgage and asset-backed
              
              
              678.9
              
              
              
              27.5
              
              
              
              —
              
              
              
              706.4U.S.
      Agency bonds – other
              
              
              67.7
              
              
              
              2.4
              
              
              
              —
              
              
              
              70.1Corporate
      fixed maturities
              
              
              674.2
              
              
              
              57.8
              
              
              
              (13.8
              )
              
              
              718.2Municipal
      bonds
              
              
              41.0
              
              
              
              1.5
              
              
              
              —
              
              
              
              42.5Total
      available-for-sale fixed maturities
              
              
              1,505.4
              
              
              
              90.8
              
              
              
              (13.8
              )
              
              
              1,582.4Other
      investments
              
              
              5.5
              
              
              
              —
              
              
              
              —
              
              
              
              5.5Total
      investments
              
              $
              1,510.9
              
              
              $
              90.8
              
              
              $
              (13.8
              )
              
              $
              1,587.9
  December 31, 2009
              
              Original or
                Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Gains
              
              
              Fair
                Value($
      in Millions)Fixed
      Maturities:U.S. Treasury
      bonds
              
              $
              39.3
              
              
              $
              0.2
              
              
              $
              (0.3
              )
              
              $
              39.2U.S.
      Agency bonds – mortgage and asset-backed
              
              
              779.4
              
              
              
              17.5
              
              
              
              (2.3
              )
              
              
              794.6U.S.
      Agency bonds – other
              
              
              217.2
              
              
              
              4.8
              
              
              
              (0.5
              )
              
              
              221.5Corporate
      fixed maturities
              
              
              564.8
              
              
              
              38.0
              
              
              
              (20.1
              )
              
              
              582.7Municipal
      bonds
              
              
              22.7
              
              
              
              1.0
              
              
              
              —
              
              
              
              23.7Total
      available-for-sale fixed maturities
              
              
              1,623.4
              
              
              
              61.5
              
              
              
              (23.2
              )
              
              
              1,661.7Other
      investments
              
              
              5.7
              
              
              
              —
              
              
              
              (0.1
              )
              
              
              5.6Total
      investments
              
              $
              1,629.1
              
              
              $
              61.5
              
              
              $
              (23.3
              )
              
              $
              1,667.3
 
 Despite
the growth in premium and significant improvement in cash flow from operations
in 2010 as compared to 2009, total investments in fixed maturities were
relatively unchanged at September 30, 2010 as compared to 2009. As noted in the
section on Liquidity and Cash Flow, the Company experienced a significant
increase in cash flow from operations and investing activities in the three and
nine months ended September 30, 2010 as compared to the same periods in 2009,
respectively, but had not as yet fully invested this cash flow in fixed maturity
investments. This increase in cash and cash and equivalents may limit the
continuing increases in investment income until these elevated levels of cash
and cash equivalents are fully invested.
  The
Company may, from time to time, engage in investment activity that will be
considered trading activity, in amounts generally less than $100 million. This
trading activity is generally focused on taking long or short positions in
United States Treasury securities. These activities, which commenced in the
second quarter of 2010 are classified as trading for the purpose of augmenting
where possible investment returns. As of September 30, 2010, the Company
maintained one open position in a U.S. treasury bond sold but not yet purchased
valued at $54.3 million which resulted in an unrealized loss of $2.0 million and
$4.7 million for the three and nine months ended September 30, 2010, which is
recorded in net realized and unrealized gains (losses) on the Company’s
consolidated statements of income.
 
 As noted
in the section in Liquidity and Cash Flow, the company has sold certain
securities with shorter durations and embedded gains while also trading certain
U.S. Treasury securities in both long and short positions, which has resulted in
increased trades with gain and loss activity.  These gains and losses
can be further analyzed as follows:
  For
      the Three Months Ended
              
              
              For
      the Nine Months EndedSeptember 30,
                2010
              
              
              September 30,
                2009
              
              
              September 30,
                2010
              
              
              September 30,
                2009Realized
      gains (losses) on available-for-sale securities
              
              $
              3.5
              
              
              $
              —
              
              
              $
              7.7
              
              
              $
              (0.3
              )Realized
      gains (losses) from trading securities
              
              
              0.3
              
              
              
              —
              
              
              
              (0.3
              )
              
              
              —Other
      investments
              
              
              (0.3
              )
              
              
              (0.1
              )
              
              
              (0.2
              )
              
              
              (0.1
              )Unrealized
      loss from investment sold but not yet purchased
              
              
              (1.9
              )
              
              
              —
              
              
              
              (4.7
              )
              
              
              —Total
              
              $
              1.6
              
              
              $
              (0.1
              )
              
              $
              2.5
              
              
              $
              (0.4
              )
  48
  The
following table presents information regarding our invested assets that were in
an unrealized loss position at September 30, 2010 and December 31, 2009 by the
amount of time in a continuous unrealized loss position:
  Less than 12 Months
              
              
              12 Months or More
              
              
              TotalSeptember
      30, 2010
              
              Fair Value
              
              
              Unrealized
                Losses
              
              
              Fair Value
              
              
              Unrealized
                Losses
              
              
              Fair Value
              
              
              Unrealized
                Losses($
      in Millions)Available-for-sale
      securities:U.S. treasury
      bonds
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –U.S.
      agency bonds – mortgage and asset - backed
              
              
              2.5
              
              
              
              –
              
              
              
              1.9
              
              
              
              –
              
              
              
              4.4
              
              
              
              –U.S.
      agency bonds – other
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Corporate
      fixed maturities
              
              
              36.6
              
              
              
              (0.9
              )
              
              
              153.4
              
              
              
              (12.9
              )
              
              
              190.0
              
              
              
              (13.8
              )Municipal
      bonds
              
              
              9.2
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              9.2
              
              
              
              –Total
      available-for-sale fixed maturities
              
              $
              48.3
              
              
              $
              (0.9
              )
              
              $
              155.3
              
              
              $
              (12.9
              )
              
              $
              203.6
              
              
              $
              (13.8
              )Other
      investments
              
              $
              4.7
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              4.7
              
              
              $
              –Total
              
              $
              53.0
              
              
              $
              (0.9
              )
              
              $
              155.3
              
              
              $
              (12.9
              )
              
              $
              208.3
              
              
              $
              (13.8
              )
 
 As of
September 30, 2010, there were approximately 20 securities in an unrealized loss
position with a fair value of $208.3 million and unrealized losses of
$13.8 million. Of these securities, there are 10 securities that have been
in an unrealized loss position for 12 months or greater with a fair value
of $155.3 million and unrealized losses of $12.9 million.
  Less than 12 Months
                
                
                12 Months or More
                
                
                TotalDecember
      31, 2009
                
                Fair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  Losses
                
                
                Fair Value
                
                
                Unrealized
                  Losses($
      in Millions)Available-for-sale
      securities:U.S. treasury
      bonds
                
                $
                8.6
                
                
                $
                (0.3
                )
                
                $
                –
                
                
                $
                –
                
                
                $
                8.6
                
                
                $
                (0.3
                )U.S.
      agency bonds – mortgage and asset - backed
                
                
                235.0
                
                
                
                (2.3
                )
                
                
                0.7
                
                
                
                –
                
                
                
                235.7
                
                
                
                (2.3
                )U.S.
      agency bonds – other
                
                
                59.5
                
                
                
                (0.5
                )
                
                
                –
                
                
                
                –
                
                
                
                59.5
                
                
                
                (0.5
                )Corporate
      fixed maturities
                
                
                11.7
                
                
                
                (0.6
                )
                
                
                193.7
                
                
                
                (19.5
                )
                
                
                205.4
                
                
                
                (20.1
                )Total
      available-for-sale fixed maturities
                
                $
                314.8
                
                
                $
                (3.7
                )
                
                $
                194.4
                
                
                $
                (19.5
                )
                
                $
                509.2
                
                
                $
                (23.2
                )Other
      investments
                
                $
                –
                
                
                $
                –
                
                
                $
                4.9
                
                
                $
                (0.1
                )
                
                $
                4.9
                
                
                $
                (0.1
                )Total
                
                $
                314.8
                
                
                $
                (3.7
                )
                
                $
                199.3
                
                
                $
                (19.6
                )
                
                $
                514.1
                
                
                $
                (23.3
                )
 
 As
of December 31, 2009, there were approximately 34 securities in an unrealized
loss position with a fair value of $514.1 million and unrealized losses of
$23.3 million. Of these securities, there are 14 securities that have been
in an unrealized loss position for 12 months or greater with a fair value
of $199.3 million and unrealized losses of $19.6 million.
 
 The following table summarizes the fair value by contractual
maturity of our fixed maturity investment maturity distribution of our fixed
income portfolio (on a fair value basis) as of September 30, 2010 and December
31, 2009 was as follows:
  September 30,
                2010
              
              
              December 31,
                2009($ in Millions)
              
              
              % of Total
              
              
              ($ in Millions)
              
              
              % of TotalDue
      in one year or less
              
              $
              97.1
              
              
              
              6.1
              %
              
              $
              159.4
              
              
              
              9.6
              %Due
      after one year through five years
              
              
              175.3
              
              
              
              11.1
              %
              
              
              222.4
              
              
              
              13.4
              %Due
      after five years through ten years
              
              
              525.1
              
              
              
              33.2
              %
              
              
              366.7
              
              
              
              22.1
              %Due
      after ten years
              
              
              78.5
              
              
              
              5.0
              %
              
              
              118.6
              
              
              
              7.1
              %U.S.
      agency bonds - mortgage-backed securities
              
              
              706.4
              
              
              
              44.6
              %
              
              
              794.6
              
              
              
              47.8
              %Total
              
              $
              1,582.4
              
              
              
              100.0
              %
              
              $
              1,661.7
              
              
              
              100.0
              %
  49
  As of
September 30, 2010 and December 31, 2009, more than 99% of our fixed income
portfolio consisted of investment grade securities. We define a security as
being below-investment grade if it has an S&P credit rating of BB or less.
The following table summarizes the composition of the fair value of our fixed
maturity investments at the dates indicated by ratings as assigned by Standard
& Poor’s (“S&P”) and/or other rating agencies when S&P ratings were
not available:
  Ratings as of September 30, 2010
              
              Amortized
                Cost
              
              
              Fair
                Market Value
              
              
              % of Total
                Fair Market
                Value($ in Millions)U.S.
      treasury bonds
              
              $
              43.6
              
              
              $
              45.2
              
              
              
              2.9
              %AAA
      U.S. agency  bonds – mortgage backed securities
              
              
              678.9
              
              
              
              706.4
              
              
              
              44.6
              %AAA
              
              
              129.2
              
              
              
              136.1
              
              
              
              8.6
              %AA+,
      AA, AA-
              
              
              72.7
              
              
              
              79.0
              
              
              
              5.0
              %A+,
      A, A-
              
              
              326.6
              
              
              
              333.5
              
              
              
              21.1
              %BBB+,
      BBB, BBB-
              
              
              248.3
              
              
              
              275.6
              
              
              
              17.4
              %B
      or lower
              
              
              6.1
              
              
              
              6.6
              
              
              
              0.4
              %Total
              
              $
              1,505.4
              
              
              $
              1,582.4
              
              
              
              100.0
              %
  Ratings as of December 31, 2009
                  
                  Amortized
                    Cost
                  
                  
                  Fair
                    Market Value
                  
                  
                  % of Total
                    Fair Market
                    Value($ in Millions)U.S.
      treasury bonds
                  
                  $
                  39.3
                  
                  
                  $
                  39.2
                  
                  
                  
                  2.4
                  %AAA
      U.S. agency  bonds – mortgage backed securities
                  
                  
                  779.4
                  
                  
                  
                  796.6
                  
                  
                  
                  47.9
                  %AAA
                  
                  
                  265.6
                  
                  
                  
                  272.2
                  
                  
                  
                  16.4
                  %AA+,
      AA, AA-
                  
                  
                  51.6
                  
                  
                  
                  57.4
                  
                  
                  
                  3.4
                  %A+,
      A, A-
                  
                  
                  290.0
                  
                  
                  
                  285.4
                  
                  
                  
                  17.2
                  %BBB+,
      BBB, BBB-
                  
                  
                  187.6
                  
                  
                  
                  201.4
                  
                  
                  
                  12.1
                  %B
      or lower
                  
                  
                  9.9
                  
                  
                  
                  9.5
                  
                  
                  
                  0.6
                  %Total
                  
                  $
                  1,623.4
                  
                  
                  $
                  1,661.7
                  
                  
                  
                  100.0
                  %
  The
Company holds no asset-backed securities or sovereign securities of foreign
governments. The majority of the Company’s U.S. government agency-based
securities holdings are mortgage-backed securities. Additional details on the
mortgage-backed securities component of our U.S. government agency-based
investment portfolio at September 30, 2010 and December 31, 2009 are provided
below:
  September 30, 2010
                    
                    
                    December 31, 2009Fair Value
                    
                    
                    % of Total
                    
                    
                    Fair Value
                    
                    
                    % of Total($ in Millions)Mortgage-backed
      securitiesResidential
      mortgage-backed (RMBS)GNMA – Fixed
      Rate
                    
                    $
                    302.9
                    
                    
                    
                    39.0
                    %
                    
                    $
                    333.1
                    
                    
                    
                    32.8
                    %FNMA – Fixed
      Rate
                    
                    
                    151.9
                    
                    
                    
                    19.6
                    %
                    
                    
                    125.5
                    
                    
                    
                    12.3
                    %FNMA – Variable
      Rate
                    
                    
                    87.7
                    
                    
                    
                    11.3
                    %
                    
                    
                    135.7
                    
                    
                    
                    13.4
                    %FHLMC – Fixed
      Rate
                    
                    
                    162.0
                    
                    
                    
                    20.9
                    %
                    
                    
                    200.3
                    
                    
                    
                    19.7
                    %FHLMC – Variable
      Rate
                    
                    
                    1.9
                    
                    
                    
                    0.2
                    %
                    
                    
                    –
                    
                    
                    
                    –
                    %Total
      agency RMBS
                    
                    
                    706.4
                    
                    
                    
                    91.0
                    %
                    
                    
                    794.6
                    
                    
                    
                    78.2
                    %Commercial
      mortgage-backed
                    
                    
                    –
                    
                    
                    
                    –
                    %
                    
                    
                    –
                    
                    
                    
                    –
                    %Total
      mortgage-backed securities
                    
                    
                    706.4
                    
                    
                    
                    91.0
                    %
                    
                    
                    794.6
                    
                    
                    
                    78.2
                    %Non-MBS
      fixed rate Agency securities
                    
                    
                    70.1
                    
                    
                    
                    9.0
                    %
                    
                    
                    221.5
                    
                    
                    
                    21.8
                    %Total
      U.S. Agency bonds
                    
                    $
                    776.5
                    
                    
                    
                    100.0
                    %
                    
                    $
                    1,016.1
                    
                    
                    
                    100.0
                    %
  50
  The
Company has also increased its holdings of corporate securities in 2010 and 2009
to take advantage of various investment opportunities in this asset class. As of
September 30, 2010 and December 31, 2009, 34.3% and 46.8% of its corporate
securities were variable rate securities. Security holdings by sector in this
asset class as of September 30, 2010 and December 31, 2009 are as
follows:
  September 30, 2010
              
              
              December 31, 2009Fair Value
              
              
              % of Total
              
              
              Fair Value
              
              
              % of TotalCorporate
      Securities
              
              ($ in Millions)Financial
      Institutions
              
              $
              525.2
              
              
              
              73.1
              %
              
              $
              430.4
              
              
              
              73.9
              %Industrials
              
              
              138.4
              
              
              
              19.3
              %
              
              
              108.6
              
              
              
              18.6
              %Utilities/Other
              
              
              54.6
              
              
              
              7.6
              %
              
              
              43.7
              
              
              
              7.5
              %Total
      Corporate Securities
              
              $
              718.2
              
              
              
              100.0
              %
              
              $
              582.7
              
              
              
              100.0
              %
  As of
September 30, 2010 and December 31, 2009, the Company has $2.6 million and $0,
respectively, in fixed maturity investments that are guaranteed by third parties
all of which are guaranteed by Assured Guaranty Corp.  The Company
also has no direct exposure to third party guarantors as of September 30, 2010
or December 31, 2009.
  Financial
Strength Ratings
  Financial
strength ratings represent the opinions of rating agencies on our capacity to
meet our obligations. Some of our reinsurance treaties contain special funding
and termination clauses that are triggered in the event that we or one of our
subsidiaries is downgraded by one of the major rating agencies to levels
specified in the treaties, or our capital is significantly reduced. If such an
event were to happen, we would be required, in certain instances, to post
collateral in the form of letters of credit and/or trust accounts against
existing outstanding losses, if any, related to the treaty. In a limited number
of instances, the subject treaties could be cancelled retroactively or commuted
by the cedant and might affect our ability to write business. As of September
30, 2010, our financial strength rating from A.M. Best was A-.
 
 Other Material
Changes in Financial Position
  The
following summarizes other material changes in the financial position of the
Company as of September 30, 2010 and December 31, 2009.
  September 30,
                2010
              
              
              December 31,
                2009($ in Millions)Reinsurance
      balances receivable
              
              $
              244.4
              
              
              $
              211.3Prepaid
      reinsurance
              
              
              31.6
              
              
              
              28.8Deferred
      acquisition costs
              
              
              187.2
              
              
              
              173.0Reserve
      for loss and loss adjustment expenses
              
              
              (1,093.9
              )
              
              
              (1,006.3
              )Unearned
      premiums
              
              
              (628.2
              )
              
              
              (583.5
              )
  The
increase in reinsurance balances receivable and unearned premium reflects the
growth in net premiums written in the AmTrust and ACAC Quota Shares in the first
nine months of 2010.
  Capital
Resources
  Capital
resources consist of funds deployed or available to be deployed in support of
our business operations. Our total capital resources at September 30, 2010 and
December 31, 2009 were as follows:
  September 30,
                2010
              
              
              December 31,
                2009($
      in Millions)Junior
      subordinated debt
              
              $
              215.2
              
              
              $
              215.1Shareholders’
      equity
              
              
              758.4
              
              
              
              676.5Total
      capital resources
              
              $
              973.6
              
              
              $
              891.6Ratio
      of debt to total capitalization
              
              
              22.1
              %
              
              
              24.1
              %
  As of
September 30, 2010, our shareholders’ equity was $758.4 million, a 12.1%
increase compared to $676.5 million as of December 31, 2009. The increase
was due primarily to net income for the nine months ended September 30, 2010 of
$50.7 million and unrealized gains on investments of $44.2 million
offset by dividends declared of $13.8 million.
  51
  On
January 20, 2009, as part of the TRUPS Offering the Company established a
special purpose trust for the purpose of issuing trust preferred securities.
This involved private placement of 260,000 units (the “Units”), each Unit
consisting of $1,000 principal amount of capital securities (the “Trust
Preferred Securities”) of Maiden Capital Financing Trust (the “Trust”) and 45
common shares, $.01 par value, of the Company (the “Common Shares”), for a
purchase price of $1,000.45 per Unit.
  As part
of the transaction, the Company issued 11,700,000 common shares to the
purchasers of the Trust Preferred Securities. The Trust Preferred Securities
mature in 2039 and carry an interest rate of 14% and an effective rate of
interest of 16.76%. The proceeds from such issuances, together with the proceeds
of the related issuances of common securities of the trusts, were invested by
the trusts in subordinated debentures issued by the Company. The gross proceeds
to the Company were approximately $260.1 million in the form of junior
subordinated debt, before approximately $4.3 million of placement agent fees and
expenses.
  Under the
terms of the TRUPS Offering, the Company can repay the principal balance in full
or in part at any time. However, if the Company repays such principal within
five years of the date of issuance, it is required to pay an additional amount
equal to one full year of interest on the amount of Trust Preferred Securities
repaid. If the full amount of the Trust Preferred Securities were repaid within
five years of the date of issuance, the additional amount due would be $36.4
million, which would be a reduction in earnings.
  Further,
the value of the common shares issued to purchasers of the Trust Preferred
Securities are being carried as a reduction of the liability for the Trust
Preferred Securities with the value being amortized against the Company’s
earnings over the 30-year term of the Trust Preferred Securities. At September
30, 2010, the unamortized amount carried as a reduction of the Company’s
liability for the Trust Preferred Securities was $44.8 million. If the
Company were to repay the Trust Preferred Securities in full or in part at any
time prior to their maturity date, the Company would have to recognize a
commensurate amount as a reduction of earnings at that time.
 
 On
September 20, 2010 (the “Effective Date”), the Company entered into separate
Warrant Exchange Agreement with each of its founders, namely Barry Zyskind, a
director of the Company, Michael Karfunkel, and George
Karfunkel.  Michael Karfunkel and George Karfunkel are not directors,
officers, employees or consultants of the Company.  Under the terms of
the Warrant Exchange Agreements, each individual agreed to surrender the warrant
held by him issued by the Company on June 14, 2007 for the purchase of an
aggregate of 1,350,000 of the Company’s common shares at $10.00 per share,
in exchange for 600,000 of the Company’s common shares.  On the
Effective Date, the warrants were accepted for exchange by the Company, and the
Company issued the common shares to the individuals listed above.  The
shares are subject to a Lockup Agreement, as described below.  The
terms of the exchange of the warrants and issuance of the common shares were
negotiated and unanimously approved by the Audit and Compensation Committees of
the Company’s Board of Directors.  In connection with their review,
the Committees were advised by independent legal counsel and obtained an
independent appraisal of the fair value of the warrants and the restricted
shares.
  On
September 20, 2010, as a condition to the exchange for common shares, the
Company entered into separate Lockup Agreements with each of the individuals
listed above.  Under the terms of the Lockup Agreements with Messrs.
Zyskind, Karfunkel and Karfunkel, pursuant to which each individual agreed that
for a period of 36 months following the Effective Date he will not, without the
prior written consent of the Company, directly or indirectly, (A) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares acquired by the shareholder as a
result of the warrant exchange, or (B) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the shares acquired in
the warrant exchange.
  Currency
and Foreign Exchange
  The
Company’s reporting currency is the U.S. dollar. The Company has exposure to
foreign currency risk as certain portions of the Diversified Reinsurance and
AmTrust Quota Share segment, including underwriting reinsurance exposures,
collecting premiums and paying claims and other operating expenses in currencies
other than the U.S. dollar and holding certain net assets in such currencies.
The Company’s most significant foreign currency exposure is to the British
pound. The Company may, from time to time, experience losses resulting from
fluctuations in the values of foreign currencies, which could have an effect on
the Company’s results of operations.  During 2010, foreign exchange
markets have experienced elevated levels of volatility due to ongoing and
deepening structural governmental deficits in many countries around the world,
which may continue in the near term based on consensus economic
outlooks.
  We
measure monetary assets and liabilities denominated in foreign currencies at
year end exchange rates, with the resulting foreign exchange gains and losses
recognized in the Consolidated Statements of Operations. Revenues and expenses
in foreign currencies are converted at average exchange rates during the year.
The effect of the translation adjustments for foreign operations is included in
accumulated other comprehensive income.
  Net
foreign exchange gains and (losses) amounted to $1.2 million and
$(0.4) million during the three and nine months ended September 30, 2010
compared to gains of $0.2 million and $2.4 million during the same periods
in 2009, respectively.
  52
  Effects
of Inflation
  The
effects of inflation are considered implicitly in pricing and estimating
reserves for unpaid losses and loss expenses. The effects of inflation could
cause the severity of claims to rise in the future. To the extent inflation
causes these costs, particularly medical treatments and litigation costs, to
increase above reserves established for these claims, the Company will be
required to increase the reserve for losses and loss expenses with a
corresponding reduction in its earnings in the period in which the deficiency is
identified. The actual effects of inflation on the results of operations of the
Company cannot be accurately known until claims are ultimately
settled.
  Off-Balance
Sheet Arrangements
  As of
September 30, 2010, we did not have any off-balance sheet arrangements as
defined by Item 303(a)(4)(ii) of Regulation S-K.
  Recent
Accounting Pronouncements
  See Item
1, Note 2 to the Consolidated Financial Statements for a discussion on recently
issued accounting pronouncements not yet adopted.
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk
  Quantitative
and Qualitative Disclosures about Market Risk
  Market
risk is the risk that we will incur losses in our investments due to adverse
changes in market rates and prices. Market risk is directly influenced by the
volatility and liquidity in the market in which the related underlying assets
are invested. We believe that we are principally exposed to two types of market
risk: changes in interest rates and changes in credit quality of issuers of
investment securities and reinsurers.
  Interest
Rate Risk
  Interest
rate risk is the risk that we may incur economic losses due to adverse changes
in interest rates. The primary market risk to the investment portfolio is
interest rate risk associated with investments in fixed maturity securities.
Fluctuations in interest rates have a direct impact on the market valuation of
these securities. At September 30, 2010, we had fixed maturity securities with a
fair value of $1,582.4 million that are subject to interest rate
risk.
  The table
below summarizes the interest rate risk associated with our fixed maturity
securities by illustrating the sensitivity of the fair value and carrying value
of our fixed maturity securities as of September 30, 2010 to selected
hypothetical changes in interest rates, and the associated impact on our
stockholders’ equity. Temporary changes in the fair value of our fixed maturity
securities that are held as available-for-sale do impact the carrying value of
these securities and are reported in our shareholders’ equity as a component of
other comprehensive income. The selected scenarios in the table below are not
predictions of future events, but rather are intended to illustrate the effect
such events may have on the fair value and carrying value of our fixed maturity
securities and on our shareholders’ equity, as of September 30,
2010.
 
 Hypothetical Change in Interest Rates
              
              Fair Value
              
              
              Estimated
                Change
                in Fair Value
              
              
              Hypothetical
                Percentage Increase
                (Decrease) in
                Shareholders’ Equity($ in Millions)200
      basis point increase
              
              $
              1,479.3
              
              
              $
              (103.1
              )
              
              
              (13.6
              )%100
      basis point increase
              
              
              1,534.2
              
              
              
              (48.2
              )
              
              
              (6.4
              )%No
      change
              
              
              1,582.4
              
              
              
              —
              
              
              
              —
              %100
      basis point decrease
              
              
              1,620.5
              
              
              
              38.1
              
              
              
              5.0
              %200
      basis point decrease
              
              
              1,647.2
              
              
              
              64.8
              
              
              
              8.5
              %
  The
impact of a hypothetical change in interest rates on the $168 million loan to
related party, which carries an interest rate of one month LIBOR plus 90 basis
points, of a fluctuation of 100 and 200 basis points in LIBOR would be an
increase or decrease in our earnings and cash flows of $1.7 million and $3.4
million, respectively, on an annual basis, depending on the direction of the
change in LIBOR, but it would not increase or decrease the carrying value of the
loan.
  Credit
Risk
  In
providing reinsurance, we will have premiums receivable subject to credit risk
of the ceding company. The Company has exposure to credit risk as it relates to
its reinsurance balances receivable and reinsurance recoverable on paid and
unpaid losses. Reinsurance balances receivable from the Company's clients at
September 30, 2010 were $244.4 million, including balances currently due
and accrued. The Company believes that credit risk related to these balances is
mitigated by several factors, including but not limited to, credit checks
performed as part of the underwriting process and monitoring of aged receivable
balances. In addition, as the vast majority of its reinsurance agreements permit
the Company the right to offset reinsurance balances receivable from clients
against losses payable to them, the Company believes that the credit risk in
this area is substantially reduced. Our credit risk results from our insureds’
potential inability to meet their premium obligations.
  53
  We also
are exposed to credit risk on our investment portfolio. Our credit risk is the
potential loss in market value resulting from adverse change in the borrower’s
ability to repay its obligations. Our investment objectives are to preserve
capital, generate investment income and maintain adequate liquidity for the
payment of claims and debt service, if any. We seek to achieve these goals by
investing in a diversified portfolio of securities. We manage credit risk
through regular review and analysis of the creditworthiness of all investments
and potential investments. If we retrocede business to other reinsurers, we will
have reinsurance recoverables subject to credit risk. To mitigate the risk of
these counterparties’ nonpayment of amounts due, we will establish business and
financial standards for reinsurer approval, incorporating ratings and outlook by
major rating agencies and considering then-current market
information.
  Further,
we are subject to the credit risk that AII and/or AmTrust will fail to perform
their obligations to pay interest on and repay principal of amounts loaned to
AII pursuant to its loan agreement with Maiden Bermuda, and to reimburse Maiden
Bermuda for any assets or other collateral of Maiden that AmTrust’s U.S.
insurance company subsidiaries apply or retain, and income on those
assets.
  Given the
recent turmoil in the financial markets, we believe that there continues to be
the potential for significant write-downs of our, and other insurers’, invested
assets in future periods if the ongoing turmoil in the financial markets were to
persist for an extended period of time.
  The U.S.
dollar is our reporting currency and the functional currency of all of our
operating subsidiaries. We enter into insurance and reinsurance contracts where
the premiums receivable and losses payable are denominated in currencies other
than the U.S. dollar. Assets in non-U.S. currencies are generally converted into
U.S. dollars at the time of receipt. When we incur a liability in a non-U.S.
currency, we carry such liability on our books in the original currency. These
liabilities are converted from the non-U.S. currency to U.S. dollars at the time
of payment. As a result, we have an exposure to foreign currency risk resulting
from fluctuations in exchange rates.  During 2010, foreign exchange
markets have experienced elevated levels of volatility due to ongoing and
deepening structural governmental deficits in many countries around the world,
which may continue in the near term based on consensus economic
outlooks.
  As of
September 30, 2010, 0.5% of our total investments and cash and cash equivalents
were denominated in currencies other than the U.S. dollar compared to 0.6% as of
December 31, 2009. For the nine months ended September 30, 2010 and 2009,
approximately 12.4% and 10.9%, respectively, of our business written was
denominated in currencies other than the U.S. dollar.
  Our
foreign exchange gains and (losses) for the three and nine months ended
September 30, 2010 were $1.2 million and $(0.4) million in 2010 compared to
gains of $0.2 million and $2.4 million for the same periods in 2009,
respectively.
  Off-Balance
Sheet Transactions
  We have
no off-balance sheet arrangements or transactions with unconsolidated, special
purpose entities.
  Item
4.  Controls and Procedures
  Our
management, with the participation and under the supervision of our principal
executive officer and principal financial officer, has evaluated the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and has
concluded that, as of the end of the period covered by this report, such
disclosure controls and procedures were effective.  During the most
recent fiscal quarter, there were no changes in the Company’s internal controls
over financial reporting (as defined in Exchange Act Rule 13a-15(f) and
15d-15(f)) that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
  54
  PART
II - OTHER INFORMATION
  Item
6.  Exhibits.
  Exhibit
                Number
              
              Description10.1
              
              Warrant
      Exchange Agreement by and between Michael Karfunkel and Maiden Holdings,
      Ltd. as of September 20, 2010.10.2
              
              Warrant
      Exchange Agreement by and between George Karfunkel and Maiden Holdings,
      Ltd. as of September 20, 2010.10.3
              
              Warrant
      Exchange Agreement by and between Barry Zyskind and Maiden Holdings, Ltd.
      as of September 20, 2010.10.4
              
              Lockup
      Agreement by and between Michael Karfunkel and Maiden Holdings, Ltd. as of
      September 20, 2010.10.5
              
              Lockup
      Agreement by and between George Karfunkel and Maiden Holdings, Ltd. as of
      September 20, 2010.10.6
              
              Lockup
      Agreement by and between Barry Zyskind and Maiden Holdings, Ltd. as of
      September 20, 2010.31.1
              
              Certification
      of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
      for the quarter ended September 30, 2010.31.2
              
              Certification
      of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
      for the quarter ended September 30, 2010.32.1
              
              Certification
      of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, for
      the quarter ended September 30, 2010.32.2
              
              Certification
      of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for
      the quarter ended September 30,
2010.
  55
 
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
  MAIDEN
      HOLDINGS, LTD.
                    (Registrant)Date:
      November 9, 2010
                  
                  
                  /s/ ARTURO
      M. RASCHBAUMArturo
      M. RaschbaumPresident
      and Chief Executive Officer
                      (Principal
      Executive Officer)
   /s/ JOHN
      MARSHALECKJohn
      MarshaleckChief
      Financial Officer

                            (Principal
      Financial and Accounting Officer)
 56